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Item 2. Management’s Discussion and Analysis

2024-04-18 compared with 2023-10-18 · 176 added, 211 removed, 274 unchanged (59% of the section changed)

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(In Millions, Except Per Share Data or as Otherwise Stated Herein)

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying consolidated financial statements and notes, as well as our consolidated financial statements and notes as of and for the year ended December 31, 2022 and the MD&A included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying consolidated financial statements and notes, as well as our consolidated financial statements and notes as of and for the year ended December 31, 2023 and the MD&A included in our 2023 Annual Report on Form 10-K.

References to the terms “we,” “our,” “us,” or “Elevance Health” used throughout this MD&A refer to Elevance Health, Inc., an Indiana corporation, and, unless the context otherwise requires, its direct and indirect subsidiaries.

References to the “states” include the District of Columbia and Puerto Rico, unless the context otherwise requires.

We are filing Exhibit 99.1 to this Quarterly Report on Form 10-Q to recast certain prior years’ financial information and related disclosures included in Part I, Item 1, “Business,” Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K to reflect changes to our reportable segments beginning in the first quarter of 2023, as well as the impact of the adoption of a new accounting standard related to the accounting for long-duration insurance contracts, which we adopted on January 1, 2023, using a modified retrospective transition method as of January 1, 2021.

The recast financial information and related disclosures set forth in Exhibit 99.1 to this Quarterly Report on Form 10-Q present such financial information and related disclosures in these items as they would have appeared had we changed our reportable segments and adopted the new accounting standard prior to January 1, 2023 and do not reflect events or developments that may have occurred subsequent to the filing of our 2022 Annual Report on Form 10-K.

Results of operations, cost of care trends, investment yields and other measures for the three and nine months ended September 30, 2023 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2023, or any other period.

Results of operations, cost of care trends, investment yields and other measures for the three months ended March 31, 2024 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2024, or any other period.

Elevance Health is a health company with the purpose of improving the health of humanity.

We are one of the largest health insurers in the United States in terms of medical membership, serving over 47 million medical members through our affiliated health plans as of September 30, 2023.

We are one of the largest health insurers in the United States in terms of medical membership, serving over 46 million medical members through our affiliated health plans as of March 31, 2024.

We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans, and serve members as the Blue Cross or Blue Cross and Blue Shield licensee in 14 states.

We are licensed to conduct insurance operations in all 50 states, the District of Columbia and Puerto Rico through our subsidiaries.

Through various subsidiaries, we also offer pharmacy services and other healthcare-related services.

As we announced in 2022, over the next several years we are organizing our brand portfolio into the following core go-to-market brands:

Through various subsidiaries, we also offer pharmacy services through our CarelonRx business, and other healthcare related services as Carelon Insights, Carelon Health, Carelon Behavioral Health and CareMore.

We have organized our brand portfolio into the following core go-to-market brands:

• Anthem Blue Cross/Anthem Blue Cross and Blue Shield — represents our existing Anthem-branded and affiliated Blue Cross and/or Blue Shield licensed plans;

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Our branding strategy reflects the evolution of our business from a traditional health insurance company to a lifetime, trusted health partner.

Given this evolution, we reviewed and modified how we manage our business, monitor our performance and allocate our resources, and made changes to our reportable segments beginning in the first quarter of 2023.

We now report our results of operations in the following four reportable segments:

Health Benefits (aggregates our previously reported Commercial & Specialty Business and Government Business segments), CarelonRx, Carelon Services (previously included in our Other segment) and Corporate & Other (our businesses that do not individually meet the quantitative thresholds for an operating segment, as well as corporate expenses not allocated to our other reportable segments).

In 2022, we managed and presented our operations through the following four reportable segments:

Commercial & Specialty Business, Government Business, CarelonRx and Other.

Previously reported information in this Quarterly Report on Form 10-Q has been reclassified to conform to the new presentation.

For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional information about our organization, see Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

We report our results of operations in the following four reportable segments:

Health Benefits, CarelonRx, Carelon Services and Corporate & Other (our businesses that do not individually meet the quantitative thresholds for an operating segment, as well as corporate expenses not allocated to our other reportable segments).

During the fourth quarter of 2023, we moved our Carelon Global Solutions international business from the Corporate & Other reportable segment to the Carelon Services reportable segment.

All prior period reportable segment information has been reclassified for comparability to conform to the current presentation.For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Business Trends

We made the decision to expand our participation in the Individual state- or federally-facilitated marketplaces (the “Public Exchange”) for 2024.

As a result, for 2023, we are offering Individual Public Exchange products in 138 of the 143 rating regions in which we operate, in comparison to 122 of 143 rating regions in 2022.

As described in “ Regulatory Trends and Uncertainties ” below, we expect growth in our Public Exchange membership as Medicaid members who are no longer eligible for Medicaid coverage continue to exit the Medicaid program and seek coverage elsewhere.

For 2024, we are offering Individual Public Exchange products in 141 of the 143 rating regions in which we operate, in comparison to 138 of 143 rating regions in 2023.

As described in “ Regulatory Trends and

Uncertainties ” below, we expect growth in our Public Exchange membership as Medicaid members who are no longer eligible for Medicaid coverage continue to exit the Medicaid program and seek coverage elsewhere.

Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees.

In addition, growth in our government-sponsored business exposes us to increased regulatory oversight.

Our CarelonRx subsidiary markets and offers pharmacy services to our affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own.

Our comprehensive pharmacy services portfolio includes features such as formulary management, pharmacy networks, specialty and home delivery pharmacy services and member services.

CarelonRx delegates certain pharmacy services, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement, which is set to terminate on December 31, 2024.

With CarelonRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy.

CarelonRx markets and offers pharmacy services to our affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own.

Our comprehensive pharmacy services portfolio includes all core pharmacy services, such as home delivery and specialty pharmacies, claims adjudication, formulary management, pharmacy networks, rebate administration, a prescription drug database and member services.

CarelonRx delegates certain core pharmacy services to CaremarkPCS Health, L.L.C.

(“CVS”), which is a subsidiary of CVS Health Corporation, pursuant to a five year agreement that is set to terminate on December 31, 2025.

CarelonRx also operates a specialty pharmacy.

Beginning in the first quarter of 2024, CarelonRx is assuming responsibility for pharmacy mail order front-end intake and member services from CVS.

Pricing Trends:

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Product pricing remains competitive.

If the approvals of any annual premium rate changes by contracted government agencies are delayed, we are required to defer the recognition of any premium rate increases to the period in which the premium rates become final.

The impact of this deferral can be significant in the period in which the increased premium rates are first recognized depending on the magnitude of the premium rate increase, the number of members to which it applies and the length of the delay between the effective date of the rate increase and the final contract date.

Premium rate decreases are recognized in the period the change in premium rate becomes effective and the change in the rate is known, which may be prior to the period in which the contract amendment affecting the rate is finalized.

Medical Cost Trends:

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There are many drivers of medical cost trends that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high-cost prescription drugs, provider contracting inflation, labor costs and healthcare provider or member fraud.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in our 2023 Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

Under the Consolidated Appropriations Act of 2023 (the “2023 Appropriations Act”), Congress decoupled Medicaid eligibility redeterminations from the Public Health Emergency initially declared in January 2020 relating to COVID-19 (the “PHE”).

Under the Consolidated Appropriations Act of 2023, Congress decoupled Medicaid eligibility redeterminations from the Public Health Emergency initially declared in January 2020 relating to COVID-19.

As a result, states were permitted to begin removing ineligible beneficiaries from their Medicaid programs starting April 1, 2023, and the majority of our Medicaid markets began doing so as of June 30, 2023.

This process is anticipated to take up to 14 months to complete, although most states are expected to complete the redetermination process by June 30, 2024.

As redeterminations have resumed, we have experienced a decline in our Medicaid membership.

Over time, we expect growth in our commercial plans, including through the Public Exchanges, as members who are no longer eligible for Medicaid coverage in our 14 commercial states seek coverage elsewhere.

On May 11, 2023, the PHE ended in accordance with the Biden Administration’s January 30, 2023 announcement.

Some states such as California have extended their COVID-19 related policies beyond the PHE.

The Inflation Reduction Act of 2022, which was signed into law in August 2022, contains a variety of provisions that impact our business including an extension of the American Rescue Plan Act of 2021’s enhanced Premium Tax Credits (“PTC”) through 2025;

imposing a new corporate alternative minimum tax;

providing a one percent excise tax on repurchases of stock made after December 31, 2022;

allowing Centers for Medicare and Medicaid Services (“CMS”) to negotiate prices on a limited set of prescription drugs in Medicare Parts B and D beginning in 2026;

providing a one percent excise tax on repurchases of stock;

allowing the Centers for Medicare and Medicaid Services (“CMS”) to negotiate prices on a limited set of prescription drugs in Medicare Parts B and D beginning in 2026;

instituting caps on insulin cost sharing in Medicare Parts B and D;

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The Consolidated Appropriations Act of 2021 (the “2021 Appropriations Act”) has impacted and in the future may have a material effect upon our business, including procedures and coverage requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker compensation, mental health parity reporting, and reporting on pharmacy benefits and drug costs.

The requirements of the Appropriations Act applicable to us have varying effective dates, some of which were effective in December 2021 and others that were extended into 2023 since the enactment of the Appropriations Act.

The requirements of the 2021 Appropriations Act applicable to us had varying effective dates, some of which were effective in December 2021 and during 2022, and others that were extended into 2023 and 2024 since the enactment of the 2021 Appropriations Act.

The health plan price transparency regulations issued by the U.S.

Departments of Health and Human Services, Labor and Treasury required us in 2022 to begin disclosing detailed pricing information regarding negotiated rates for all covered items and services between the plan or issuer and in-network providers and historical payments to, and billed charges from, out-of-network providers.

Additionally, beginning in 2023, we are now required to make available to members personalized out-of-pocket cost information and the underlying negotiated rates for 500 covered healthcare items and services, including prescription drugs.

In 2024, this requirement will expand to all items and services.

Additionally, beginning in 2023, we were required to make available to members personalized out-of-pocket cost information and the underlying negotiated rates for 500 covered healthcare items and services, including prescription drugs.

Effective January 1, 2024, this requirement has expanded to include all items and services.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), continues to impact our business and results of operations, including pricing, minimum medical loss ratios and the geographies in which our products are available.

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CMS also frequently proposes changes to its program that audits data submitted under the risk adjustment programs in ways that could increase financial recoveries from plans.

For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business – Regulation” and the “Regulatory Trends and Uncertainties” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q, and Part I, Item 1A, “Risk Factors” of our 2022 Annual Report on Form 10-K.

For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business – Regulation,” Part I, Item 1A, “Risk Factors” and the “Regulatory Trends and Uncertainties” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K.

Other Significant Items

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The 2023-2024 Business Efficiency Program is expected to be substantially complete by the end of the third quarter of 2024.

For additional information, see Note 4, “Business Optimization Initiatives” and Note 16, “Leases,” of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Pursuant to CMS’s Medicare Advantage Star ratings system, CMS annually awards between 1.0 and 5.0 Stars to Medicare Advantage plans based on performance in several categories.

For additional information, see Note 4, “Business Optimization Initiatives” of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Pursuant to CMS’ Medicare Advantage Star ratings system, CMS annually awards between 1.0 and 5.0 Stars to Medicare Advantage plans based on performance in several categories.

Plans must have a Star rating of 4.0 or higher to qualify for bonus payments.

CMS released the Company’s 2024 Star ratings in October 2023.

The Company’s 2024 Star ratings will be used to determine the Company’s Medicare Advantage plans' Star quality bonus payments in 2025.

Based on membership at September 1, 2023, 34% of our Medicare Advantage members were in plans with 2024 Star ratings of at least 4.0 Stars, compared to 64% of our Medicare Advantage members being in plans with 2023 Star ratings of at least 4.0 Stars based on the Company’s membership at September 1, 2022.

The change in our 2024 Star ratings is not projected to impact our Star quality bonus payments and plan level rebates until 2025.

We expect a reduction to our 2025 operating revenue of approximately $500, net of offsets from contracting provisions.

Further, we expect to mitigate the financial impact to our 2025 operating gain and net income per share through various strategies such as contract diversification, operating expense efficiencies, capital deployment alternatives and network enhancements.

On March 28, 2023, we announced our entrance into an agreement to sell our life and disability businesses to StanCorp Financial Group, Inc.

(“The Standard”), a provider of financial protection products and services for employers and individuals.

Upon closing, we and The Standard will enter into a product distribution partnership.

The divestiture is expected to close in the first half of 2024 and is subject to standard closing conditions and customary approvals.

On January 23, 2023, we announced our entrance into an agreement to acquire Louisiana Health Service & Indemnity Company, d/b/a Blue Cross and Blue Shield of Louisiana (“BCBSLA”), an independent licensee of the BCBSA that provides healthcare plans to the Individual, Employer Group, Medicaid and Medicare markets, primarily in the State of Louisiana.

This acquisition aligns with our mission to become a lifetime, trusted health partner as we bring our innovative whole-health solutions to BCBSLA’s members.

The acquisition is expected to close in the first half of 2024 and is subject to standard closing conditions and customary approvals.

In March 2024, CMS informed us that it had updated our 2024 Star ratings from their October 2023 announcement.

As a result, we now estimate approximately 49% of our Medicare Advantage members to be enrolled in plans rated at least 4.0-Star for 2024 Star ratings (payment year 2025), based on our January 2024 enrollment, compared to 64% of our Medicare Advantage members being in plans rated at least 4.0-Star for 2023 Star ratings (payment year 2024), based on September 2022 enrollment.

This change in 2024 Star ratings from 2023 Star ratings is expected to reduce our 2025 operating revenue by approximately $310 million, and we expect to partially mitigate this financial impact through various strategies such as operating expense efficiencies, capital deployment alternatives and network enhancements.

Acquisitions and Divestitures

Completed Acquisitions

On March 11, 2024, we completed our acquisition of Paragon Healthcare, Inc.

Paragon, which operates as part of CarelonRx, provides infusion services and injectable therapies through its omnichannel model of ambulatory infusion centers, home infusion pharmacies, and other specialty pharmacy services.

This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

On February 15, 2023, we completed our acquisition of BioPlus Parent, LLC and subsidiaries (“BioPlus”) from CarepathRx Aggregator, LLC.

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This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

On May 5, 2022, we completed our acquisition of Integra Managed Care (“Integra”).

Integra is a managed long-term care plan that serves New York state Medicaid members, enabling adults with long-term care needs and disabilities to live safely and independently in their own homes.

For additional information, see Note 3, “Business Acquisitions and Divestitures,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On April 1, 2024, we completed the sale of our life and disability businesses to StanCorp Financial Group, Inc.

(“The Standard”), a provider of financial protection products and services for employers and individuals.

Upon closing, we and The Standard entered into a product distribution partnership.

Pending Acquisitions

On December 31, 2023, we entered into an agreement to acquire Centers Plan for Healthy Living LLC and Centers for Specialty Care Group IPA, LLC (“Centers”).

Centers is a managed long-term care plan that serves New York state Medicaid and dually-eligible Medicaid/Medicare members, enabling adults with long-term care needs and disabilities to live safely and independently in their own home.

This acquisition aligns with our strategic plan to grow the Health Benefits segment and leverage industry-leading expertise while serving Medicaid and dually eligible populations.

The acquisition is expected to close in the third quarter of 2024 and is subject to standard closing conditions and customary approvals.

On January 23, 2023, we announced our entrance into an agreement to acquire Louisiana Health Service & Indemnity Company, d/b/a Blue Cross and Blue Shield of Louisiana, an independent licensee of the BCBSA that provides healthcare plans to the Individual, Employer Group, Medicaid and Medicare markets, primarily in the State of Louisiana.

This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

The acquisition is subject to closing conditions and approvals.

Pending Equity Investment

On April 12, 2024, we entered into an agreement to partner with Clayton, Dubilier & Rice (“CD&R”) to accelerate innovation in care delivery across multiple regions in the United States by bringing together through a new company, (“ NewCo”), certain care delivery and enablement assets of Carelon Management Services Inc., a Carelon Health business (“CMSI Assets”), and two CD&R portfolio businesses, apree health and Millennium Physician Group.

Our investment in NewCo will be through a combination of cash, an existing equity investment in apree health, and the contribution of CMSI

We will account for our initial minority ownership interest in NewCo as an equity method investment.

Further, in connection with our equity investment, each party will have certain rights and obligations, including certain put, call, and purchase price true-up options, for which the estimated value will be determinable at the time of the incremental investments.

The contribution of CMSI Assets and businesses to be contributed by CD&R to NewCo are subject to standard closing conditions and customary approvals.

For additional information, see Note 3, “Business Acquisitions and Divestitures,” and Note 5, “Investments” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Litigation Matters

plaintiffs representing a putative nationwide class of health plan subscribers (the “Subscriber Settlement Agreement”), which agreement required the Court’s approval to become effective.

In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”) previously approved a settlement agreement and release with the plaintiffs representing a putative nationwide class of health plan subscribers (the “Subscriber Settlement Agreement”), which agreement required the Court’s approval to become effective.

Generally, the lawsuits in the BCBSA Litigation challenge elements of the licensing agreements between the BCBSA and the independently owned and operated Blue plans.

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In compliance with the Subscriber Settlement Agreement, the Company paid $506 into an escrow account in September 2022, for an aggregate and full settlement payment by the Company of $596, which amount was accrued in 2020.

Four notices of appeal of the Final Approval Order were filed prior to the September 2022 appeal deadline.

Those appeals were heard by a panel of the United States Court of Appeals for the Eleventh Circuit in September 2023.

The Final Approval Order was appealed to the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”), which affirmed the Final Approval Order in October 2023.

Petitions for rehearing were denied in January 2024, and the Eleventh Circuit issued a mandate terminating its jurisdiction in February 2024.

In March 2024, Home Depot, one of the appellants, filed a petition for certiorari to the United States Supreme Court.

On the respondents request, the United States Supreme Court granted an extension until May 2024.

In the event all appellate rights are exhausted in a manner that affirms the Court’s Final Approval Order, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective and the funds held in escrow will be distributed in accordance with the Subscriber Settlement Agreement.

For additional information regarding the BCBSA Litigation, see Note 11, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation ,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional information regarding the BCBSA Litigation, see Note 14, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation ,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of our 2023 Annual Report on Form 10-K.

Selected Operating Performance

For the twelve months ended September 30, 2023, total medical membership increased slightly.

This was primarily driven by increases in our BlueCard business, as well as growth in our Individual Public Exchange and Medicare Advantage products.

These increases were partially offset by attrition in our Medicaid business due to the resumption of eligibility redeterminations and reduced membership due to a new entrant into one of our state Medicaid programs, as well as lapses exceeding sales in our Employer Group risk-based business.

Operating revenue for the three months ended September 30, 2023 was $42,480, an increase of $2,855, or 7.2%, from the three months ended September 30, 2022.

The increase was primarily a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Operating revenue for the nine months ended September 30, 2023 was $127,755, an increase of $11,762, or 10.1%, from the nine months ended September 30, 2022.

This increase in operating revenue was primarily a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Net income for the three months ended September 30, 2023 was $1,300, a decrease of $298, or 18.6%, from the three months ended September 30, 2022.

This decline was primarily due to business optimization charges recorded during the third quarter of 2023 and increased net losses on financial instruments, partially offset by operating gain increases in our Health Benefits and Carelon Services segments, higher net investment income and lower income taxes.

Net income for the nine months ended September 30, 2023 was $5,160, an increase of $149, or 3.0%, from the nine months ended September 30, 2022.

This increase in net income was primarily due to operating gain increases in our Health Benefits, CarelonRx and Carelon Services segments and increased net investment income.

These increases were offset by business optimization charges recorded in the third quarter of 2023 and higher interest expense and amortization of other intangible assets.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $5.45 for the three months ended September 30, 2023, which represented a 17.7% decrease from EPS of $6.62 for the three months ended September 30, 2022.

This decrease in EPS for the three months ending September 30, 2023 resulted primarily from lower shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Our fully-diluted EPS was $21.56 for the nine months ended September 30, 2023, which represented a 4.3% increase from fully-diluted EPS of $20.67 for the nine months ended September 30, 2022.

This increase in EPS for the nine months ending September 30, 2023 resulted primarily from fewer diluted shares outstanding, as well as increased shareholders' net income.

Operating cash flow for the nine months ended September 30, 2023 and 2022 was $11,032 and $9,917, respectively.

The increase was primarily due to higher net income in 2023, when excluding the non-cash impact of business optimization charges recognized in the third quarter of 2023, as well as the non-recurrence of the Subscriber Settlement Agreement payment made in September 2022.

For the twelve months ended March 31, 2024, total medical membership declined by 3.9%.

This was primarily driven by Medicaid membership attrition and lapses exceeding sales in our Employer Group risk-based and Medicare businesses.

These decreases were partially offset by increases in our Employer Group fee-based, Individual, BlueCard and Federal Employees Health Benefits (“FEHB”) businesses, resulting from sales exceeding lapses.

Operating revenue for the three months ended March 31, 2024 was $42,273, an increase of $375, or 0.9%, from the three months ended March 31, 2023.

This increase was primarily a result of premium rate increases in all lines of business to more accurately reflect medical cost trends.

Increased product revenue from our CarelonRx business, including a full quarter of revenue from BioPlus in 2024, also contributed to the overall increase.

These increases were partially offset by overall declines in premiums driven by Medicaid membership attrition.

Net income for the three months ended March 31, 2024 was $2,249, an increase of $245, or 12.2%, from the three months ended March 31, 2023.

This increase was primarily due to improved operating gain performance in our Health Benefits, Carelon Services and CarelonRx businesses, lower amortization of other intangible assets and increased net investment income.

These increases were partially offset by increased net losses on financial instruments, increased income tax expense due to higher income before taxes and an increased operating loss in our Corporate and Other segment.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $9.59 for the three months ended March 31, 2024, which represented a 15.5% increase from EPS of $8.30 for the three months ended March 31, 2023.

This increase in EPS for the

three months ending March 31, 2024 resulted primarily from increased shareholders' net income, as well as fewer diluted shares outstanding.

Operating cash flow for the three months ended March 31, 2024 and 2023 was $1,978 and $6,469, respectively.

The decrease in net cash provided by operating activities was primarily due to the timing of CMS payments received in the prior year quarter, with the April 2023 premium payments being received in the first quarter of 2023.

Membership and Other Metrics

The following table presents our medical membership by customer type as of September 30, 2023 and 2022.

The following table presents our medical membership by customer type as of March 31, 2024 and 2023.

Also included below are other membership by product and other metrics.

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The Carelon Services Consumers Served metric represents the number of consumers receiving one or more healthcare-related services from Carelon Services who are members of our affiliated health plans as well as those who are members of non-affiliated health plans.

For a more detailed description of our medical membership, see the “Membership” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

2024 2023 Change % Change

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Medical Membership

Medical membership increased slightly during the twelve months ended September 30, 2023.

This was primarily driven by increases in our BlueCard business, as well as growth in our Individual Public Exchange and Medicare Advantage products.

The decrease in medical membership was primarily driven by Medicaid membership attrition, including eligibility redeterminations and certain market exits, and lapses exceeding sales in our Employer Group risk-based and Medicare

These decreases were partially offset by increases in our Employer Group fee-based, Individual, BlueCard and FEHB businesses, resulting from sales exceeding lapses.

Other Membership

Our other membership can be impacted by changes in our medical membership, as our medical members often purchase our other products that are ancillary to our health business.

Life and disability membership decreased primarily due to lapses associated with our Employer Group risk-based accounts.

Dental membership increased primarily due to increases in our FEHB program.

Our other membership has the potential to be impacted by changes in our medical membership, as our medical members often purchase our other products that are ancillary to our health business.

Life and disability membership decreased primarily due to lapses associated with our Employer Group risk-based business.

Dental membership increased primarily due to favorable sales in our Individual, Employer Group fee-based and FEHB businesses, partially offset by lapses in our Employer Group risk-based business.

Dental administration membership increased primarily due to favorable in-group change with other BCBSA plans associated with the FEHB program.

Vision membership increased due to sales exceeding lapses in our Employer Group risk based accounts and increases associated with our Medicare Advantage plans.

Vision membership increased due to sales exceeding lapses in our Employer Group fee-based and Individual businesses and increased sales associated with our Medicare Advantage plans.

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2023 and 2022 are as follows:

Three Months Ended

September 30 Nine Months Ended

September 30 Change

Our consolidated summarized results of operations and other financial information for the three months ended March 31, 2024 and 2023 are as follows:

Three Months Ended

September 30 Nine Months Ended

2022 2023 vs.

2024 2023 $ %

(Restated) (Restated)

Total operating revenue $ 42,273 $ 41,898 $ 375 0.9 %

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Net income $ 2,249 $ 2,004 $ 245 12.2 %

Net (income) loss attributable to noncontrolling interests (11) 5 (29) 18 (16) NM (47) NM

Net income attributable to noncontrolling interests

(3) (15) 12 NM

Shareholders’ net income $ 2,246 $ 1,989 $ 257 12.9 %

Average diluted shares outstanding 234.2 239.7 (5.5) (2.3) %

Diluted shareholders’ net income per share $ 5.45 $ 6.62 $ 21.56 $ 20.67 $ (1.17) (17.7) % $ 0.89 4.3 %

Diluted shareholders’ earnings per share

$ 9.59 $ 8.30 $ 1.29 15.5 %

Effective tax rate 23.5 % 23.5 % 0 bp 3

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2 Benefit expense ratio represents benefit expense as a percentage of premium revenue.

Premiums for the three months ended September 30, 2023 and 2022 were $35,259 and $33,722, respectively.

Premiums for the nine months ended September 30, 2023 and 2022 were $107,716 and $99,583, respectively.

Premiums for the three months ended March 31, 2024 and 2023 were $35,696 and $35,868, respectively.

3 bp = basis point;

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4 Operating expense ratio represents operating expense as a percentage of total operating revenue.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Total operating revenue increased primarily as a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Net investment income increased primarily due to higher income from fixed maturity securities, partially offset by reduced income from alternative investments and equity securities.

Net losses on financial instruments increased primarily due to increased losses on the sale of fixed maturity securities and other invested assets.

Benefit expense increased primarily due to medical cost trends.

Our benefit expense ratio decreased, driven by premium rate increases to more accurately reflect cost of care, partially offset by the impact of the realignment of certain year-to-date quality improvement costs from benefit expense to operating expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated customers.

Cost of products sold increased as the corresponding pharmacy product revenues increased.

Operating expense increased primarily due to the business optimization charges recorded in the third quarter of 2023, including internally developed software impairment and severance costs.

There were no business optimization charges recorded in the third quarter of 2022.

These increases were partially offset by the realignment of certain year-to-date quality improvement costs from benefit expense to operating expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

Our operating expense ratio increased primarily due to the business optimization charges recognized in the third quarter of 2023, partially offset by the favorable impact of operating revenue growth and the impact of the realignment of certain year-to-date quality improvement costs from benefit expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

Other expense increased primarily due to an increase in interest expense, partially offset by a decline in amortization of other intangible assets.

Our effective income tax rate decreased in 2023 primarily due to the tax impact of expected geographic changes in our mix of 2023 earnings.

Our shareholders’ net income as a percentage of total revenues declined in 2023 as compared to 2022 as a result of all factors discussed above.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Total operating revenue increased primarily as a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

The increase was further attributable to growth in our

CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Net investment income increased primarily due to higher income from fixed maturity securities, partially offset by reduced income from alternative investments and equity securities.

Net losses on financial instruments decreased primarily due to increased mark-to-market gains on equity securities still held at the period end date, partially offset by reduced net gains on other invested assets and increased net losses on fixed maturity securities.

Benefit expense increased primarily due to medical cost trends as well as healthcare costs associated with membership growth.

Our benefit expense ratio decreased, primarily driven by premium rate increases in our Health Benefits segment to more accurately reflect the cost of care.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Total operating revenue increased primarily as a result of premium rate increases in all lines of business to reflect medical cost trends.

Increased product revenue from our CarelonRx business also contributed to the overall increase.

These increases were partially offset by overall declines in premiums driven by Medicaid membership attrition.

Net investment income increased primarily due to higher income from fixed maturity securities.

Net losses on financial instruments increased primarily due to increased losses on equity securities and fixed maturity securities.

Benefit expense decreased primarily due to Medicaid membership attrition, partially offset by increases due to medical cost trends in our other Health Benefits businesses.

Our benefit expense ratio decreased primarily driven by premium rate increases in our Health Benefits segment to reflect medical cost trends.

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated customers.

Cost of products sold increased as the corresponding pharmacy product revenues increased.

Operating expense increased primarily due to the business optimization charges recorded in the third quarter of 2023 and increased costs to support growth.

There were no business optimization charges recorded in 2022.

Our operating expense ratio increased primarily due to the business optimization charges recorded in the third quarter of 2023 and increased costs to support growth, partially offset by the favorable impact of operating revenue growth.

Other expense increased primarily due to an increase in interest expense and additional amortization of other intangible assets.

Our effective income tax rate decreased in 2023 primarily due to the tax impact of expected geographic changes in our mix of 2023 earnings.

Our shareholders’ net income as a percentage of total revenues decreased in 2023 as compared to 2022 as a result of all factors discussed above.

Operating expense increased primarily due to increased spend to support growth and integration costs related to recent acquisitions.

Our operating expense ratio increased slightly primarily due to the increase in operating expenses, partially offset by the favorable impact of operating revenue growth.

Other expense declined primarily due to decreased amortization of other intangible assets.

In the first quarter of 2023, we had increased amortization of other intangible assets as the amortization period of certain intangible assets was shortened to align with the dates our new branding took place.

Our shareholders’ net income as a percentage of total revenues increased in 2024 as compared to 2023 as a result of all factors discussed above.

Reportable Segments Results of Operations

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For a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of income before income tax expense to reportable segments’ operating gain, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As discussed in Note 1 “Organization,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we changed our reportable segment presentation and its composition to reflect how we began managing our operations and monitoring performance, aligning strategies and allocating resources beginning on January 1, 2023.

We now report our results of operations in the following four reportable segments:

Health Benefits (aggregates our previously reported Commercial & Specialty Business and Government Business segments), CarelonRx,

Carelon Services (previously included in our Other segment) and Corporate & Other (our businesses that do not individually meet the quantitative thresholds for an operating segment, as well as corporate expenses not allocated to our other reportable segments).

In 2022, we managed and presented our operations through the following four reportable segments:

Commercial & Specialty Business, Government Business, CarelonRx and Other.

Previously reported information in this Quarterly Report on Form 10-Q has been reclassified to conform to the new presentation.

For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table presents a summary of the reportable segment financial information for the three and nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30 Change

We report our results of operations in the following four reportable segments:

During the fourth quarter of 2023, we moved our Carelon Global Solutions international business from the Corporate & Other reportable segment to the Carelon Services reportable segment.

All prior period reportable segment information has been reclassified for comparability to

conform to the current presentation.For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table presents a summary of the reportable segment financial information for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30 Three Months Ended

September 30 Nine Months Ended

2022 2023 vs.

March 31 Change

2024 2023 $ %

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Health Benefits $ 37,258 $ 37,280 $ (22) (0.1) %

CarelonRx 8,518 7,249 25,008 21,003 1,269 17.5 % 4,005 19.1 %

8,067 8,024 43 0.5 %

Carelon Services

4,009 3,460 549 15.9 %

Corporate & Other 127 91 36 39.6 %

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Total operating revenue $ 42,273 $ 41,898 $ 375 0.9 %

Operating Gain (Loss) (Restated) (Restated)

Operating Gain (Loss)

Health Benefits $ 2,287 $ 2,149 $ 138 6.4 %

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Carelon Services 290 229 61 26.6 %

Corporate & Other (741) (24) (942) (73) (717) NM (869) NM

Corporate & Other (84) (59) (25) 42.4 %

Total operating gain $ 3,016 $ 2,831 $ 185 6.5 %

Operating Margin

Health Benefits 5.0 % 4.7 % 5.5 % 5.1 % 30 bp 40 bp

CarelonRx 5.6 % 7.1 % 5.9 % 6.6 % (150) bp (70) bp

Carelon Services 5.1 % 4.0 % 5.1 % 4.8 % 110 bp 30 bp

Health Benefits 6.1 % 5.8 % 30 bp

CarelonRx 6.5 % 6.4 % 10 bp

Carelon Services 7.2 % 6.6 % 60 bp

Total operating margin

7.1 % 6.8 % 30 bp

bp = basis point;

one hundred basis points = 1%.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Health Benefits

Operating revenue and operating gain increased primarily as a result of higher premium revenues due to premium rate increases to more accurately reflect the cost of care.

Operating revenue increased primarily as a result of growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023, partially offset by the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023.

Operating gain decreased primarily due to the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023, partially offset by the acquisition of BioPlus in the first quarter of 2023 and growth in external pharmacy members.

Carelon Services

Operating revenue increased primarily due to the continued expansion of our post-acute care services business performed for our Medicare business and behavioral health services performed for our Medicaid business.

The increase in operating gain was primarily driven by the continued expansion of our post-acute care services business and improved performance in our behavioral health business.

Corporate & Other

Operating revenue increased primarily due to higher affiliated revenue in our international operations.

Operating loss increased primarily due to the business optimization charges recorded in the third quarter of 2023.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Health Benefits

Operating revenue increased primarily due to higher premium revenues due to premium rate increases to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

Operating gain increased primarily due to premium rate increases to more accurately reflect the cost of care and membership growth in our Medicaid business, partially offset by a charge associated with a court ruling impacting health plans in a certain state related to prior years’ COVID-19 costs.

Operating revenue increased primarily as a result of growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Operating gain increased primarily due to growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023, partially offset by the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023.

Operating revenue decreased slightly, primarily as a result of lower premiums driven by Medicaid membership attrition, including eligibility redeterminations and certain market exits, mostly offset by premium rate increases in all lines of business to reflect medical cost trend.

Operating gain increased primarily as a result of premium yields, including due to disciplined commercial underwriting, partially offset by the impact of Medicaid membership attrition.

Operating revenue increased primarily due to a full three months of revenue from BioPlus in 2024 and higher prescription volume associated with growth in external pharmacy members, partially offset by the impact of the Medicaid membership attrition.

The increase in operating gain was primarily driven by growth of product revenue, partially offset by expenses associated with the launch of additional services by CarelonRx.

Carelon Services

The increase in operating gain was primarily driven by the continued expansion of our post-acute care services and improved performance in our medical management businesses, partially offset by medical cost trends.

Operating revenue increased primarily due to the continued expansion of our medical management, behavioral health and post-acute care services.

The increase in operating gain was primarily driven by improved performance in our behavioral health and medical management businesses, partially offset by the impact of the Medicaid membership attrition.

Corporate & Other

Operating revenue decreased primarily due to lower affiliated revenues in our international operations.

Operating loss increased primarily due to an increase in corporate expenses, including primarily for the business optimization charges recorded in the third quarter of 2023.

Operating revenue increased primarily due to higher affiliated revenues.

Operating loss increased primarily due to an increase in unallocated corporate expenses.

Critical Accounting Policies and Estimates

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Application of GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes and within this MD&A.

We consider our most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical claims payable, income taxes, goodwill and other intangible assets, investments and retirement benefits.

Our accounting policies related to these items are discussed in Exhibit 99.1 to this Quarterly Report on Form 10-Q in Note 2, “Basis of Presentation and Significant Accounting

Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2022, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2023, our critical accounting policies and estimates have not changed from those described in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

We consider our most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical claims payable, goodwill and other intangible assets and investments.

Our accounting policies related to these items are discussed in our 2023 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2023, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of March 31, 2024, our critical accounting policies and estimates have not changed from those described in our 2023 Annual Report on Form 10-K.

Medical Claims Payable

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Our accounting policies related to medical claims payable are discussed in the references cited above.

As of September 30, 2023, our critical accounting policies and estimates related to medical claims payable have not changed from those described in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For a reconciliation of the beginning and ending balance for medical claims payable for the nine months ended September 30, 2023 and 2022, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the nine months ended September 30, 2023 and 2022, which are the trend and completion factors.

As of March 31, 2024, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2023 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the three months ended March 31, 2024 and 2023, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the three months ended March 31, 2024 and 2023, which are the trend and completion factors.

These two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations.

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Changes in Key Assumptions

Nine Months Ended

Three Months Ended

Assumed trend factors $ 571 $ 772

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Total $ 1,205 $ 1,068

The favorable development recognized in the nine months ended September 30, 2023 resulted from trend factors in late 2022 developing more favorably than originally expected and completion factors in the latter parts of 2022 developing faster than expected.

The favorable development recognized in the nine months ended September 30, 2022 resulted primarily from trend factors in late 2021 developing more favorably than originally expected.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 84.6% and 83.7% for the nine months ended September 30, 2023 and 2022, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly higher during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

The favorable development recognized in the three months ended March 31, 2024 resulted from favorable development in the completion factors resulting from the latter part of 2023 developing faster than expected as well as trend factors in late 2023 developing more favorably than originally expected.

The favorable development recognized in the three months ended March 31, 2023 resulted primarily from trend factors in late 2022 developing more favorably than expected.

Favorable development in the completion factors resulting from the latter part of 2022 developing faster than expected also contributed to the favorable development for the three months ended March 31, 2023.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 63.8% and 64.9% for the three months ended March 31, 2024 and 2023, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly lower during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net medical claims payable less prior year redundancies in the current period in order to demonstrate the development of prior year reserves.

For the nine months ended September 30, 2023, this metric was 9.6%, largely driven by favorable trend factor development at the end of 2022 as well as favorable completion factor development from 2022.

For the nine months ended September 30, 2022, this metric was 7.3%, largely driven by favorable trend factor development at the end of 2021.

For the three months ended March 31, 2024, this metric was 8.2%, driven by both favorable completion factor development from 2023 and favorable trend factor development at the end of 2023.

For the three months ended March 31, 2023, this metric was 7.5%, largely driven by favorable trend factor development at the end of 2022 as well as favorable completion factor development from 2022.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims.

We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology.

For the nine months ended September 30, 2023, this metric was 1.2%, which was calculated using the redundancy of $1,342.

For the nine months ended September 30, 2022, the comparable metric was 0.9%, which was calculated using the redundancy of $901.

We believe these metrics demonstrate an appropriate level of reserve conservatism.

For the three months ended March 31, 2024, this metric was 1.0%, which was calculated using the redundancy of $1,205.

For the three months ended March 31, 2023, the comparable metric was 0.9%, which was calculated using the redundancy of $1,068.

We believe these metrics demonstrate an appropriate and consistent level of reserve conservatism.

New Accounting Pronouncements

We adopted accounting standard amendments on long-duration insurance accounting which became effective for us on January 1, 2023, using the modified retrospective transition method for changes to the liability for future policy benefits and deferred acquisition costs as of the transition date, January 1, 2021.

While the adoption did not have an overall material impact, our prior period financial statements presented in this Quarterly Report on Form 10-Q have been restated to reflect the impacts of our adoption as required by the new standard.

For more information regarding this new accounting pronouncement that was adopted and new accounting pronouncements that were issued during the nine months ended September 30, 2023, see the “ Recently Adopted Accounting Guidance ” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For information regarding new accounting pronouncements that were issued or became effective during the three months ended March 31, 2024 that had, or are expected to have, a material impact on our financial position, results of operations or financial statement disclosures, see the “ Recently Adopted Accounting Guidance ” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

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Any future decline in our profitability would likely have an unfavorable impact on our liquidity.

For a more detailed overview of our liquidity and capital resources management, see the “ Introduction ” section included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For additional information regarding our sources and uses of capital during the three and nine months ended September 30, 2023, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the nine months ended September 30, 2023 and 2022 is as follows:

Nine Months Ended

For additional information regarding our sources and uses of capital during the three months ended March 31, 2024, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the three months ended March 31, 2024 and 2023 is as follows:

Three Months Ended

2024 2023 Change

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Proceeds from issuance of common stock under employee stock plans 97 43 54

Other sources of cash, net — 23 (23)

Total sources of cash 3,425 7,503 (4,078)

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Effect of foreign exchange rates on cash and cash equivalents — 1 (1)

Net increase in cash and cash equivalents $ 3,532 $ 3,992 $ (460)

The increase in net cash provided by operating activities was primarily due to higher net income in 2023, when excluding the non-cash impact of business optimization charges recognized in the third quarter of 2023, as well as the non-recurrence of the Subscriber Settlement Agreement payment made in September 2022.

Other significant changes in sources or uses of cash year-over-year included higher amounts for purchases of subsidiaries, net of cash acquired, a decrease in the issuance of short- and long term debt, net of repayments, a decline in bank overdrafts outstanding, an increase in the purchase of property and equipment and an increase in cash dividends.

These additional uses of cash were partially offset by reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $39,711 at September 30, 2023.

Since December 31, 2022, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $4,667, primarily due to cash generated from operations, partially offset by cash used for the purchase of subsidiaries, cash used for the repurchase and retirement of common stock, the purchase of property and equipment and dividends paid to shareholders.

Net (decrease) increase in cash and cash equivalents

$ (300) $ 2,755 $ (3,055)

Other significant changes in sources or uses of cash year-over-year included reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions, lower amounts for purchases of subsidiaries, net of cash acquired, and an increase in the issuance of short- and long term debt, net of repayments.

These were partially offset by a decline in bank overdrafts outstanding.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $37,147 at March 31, 2024.

Since December 31, 2023, total cash, cash equivalents and investments in fixed maturity and equity securities decreased by $98, primarily due to the purchase of subsidiaries, bank overdrafts outstanding, the repurchase and retirement of common stock, cash dividends, and the purchase of property and equipment, partially offset by net cash provided by operating activities and the issuance of short- and long-term debt, net of repayments.

Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies.

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In addition, we have agreed to certain undertakings to regulatory authorities, including the requirement to maintain certain capital levels in certain of our subsidiaries.

At September 30, 2023, we held $1,659 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

At March 31, 2024, we held $988 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

Periodically, we access capital markets and issue debt (“Notes”) for long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases.

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Our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies.

Our consolidated debt-to-capital ratio was 39.2% and 39.9% as of September 30, 2023 and December 31, 2022, respectively.

Our consolidated debt-to-capital ratio was 39.4% and 38.9% as of March 31, 2024 and December 31, 2023, respectively.

Our senior debt is rated “A” by S&P Global Ratings, “BBB+” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc.

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We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes.

The 5-Year Facility provides for a credit of up to $4,000 and matures in April 2027.

The 5-Year Facility provides credit of up to $4,000 and matures in April 2027.

Our ability to borrow under the 5-Year Facility is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the credit agreement for the 5-Year Facility.

We do not believe the restrictions contained in our 5-Year Facility covenants materially affect our financial or operating flexibility.

We had no amounts outstanding under the 5-Year Facility as of September 30, 2023 or December 31, 2022.

As of September 30, 2023, we were in compliance with all of the debt covenants under the 5-Year Facility.

We had no amounts outstanding under the 5-Year Facility as of March 31, 2024 or December 31, 2023.

As of March 31, 2024, we were in compliance with all of the debt covenants under the 5-Year Facility.

We have an authorized commercial paper program of up to $4,000, the proceeds of which may be used for general corporate purposes.

Should commercial paper issuance become unavailable, we have the ability to use a combination of cash on hand and/or our 5-Year Facility to redeem any outstanding commercial paper upon maturity.

At September 30, 2023 and December 31, 2022, we had no commercial paper outstanding under our commercial paper program.

At March 31, 2024 and December 31, 2023, we had $1,350 and $0, respectively, outstanding under our commercial paper program.

Beginning June 30, 2023, we have reclassified our commercial paper balances, if any, from long-term debt to short-term debt as our intent is to not replace short-term commercial paper outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year.

While there is no assurance in the current economic environment, we believe the lenders participating in our 5-Year Facility, if market conditions allow, would be willing to provide financing in accordance with their legal obligations.

We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York (collectively the “FHLBs”).

As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements.

We had $0 and $265 of outstanding short-term borrowings from the FHLBs at September 30, 2023 and December 31, 2022, respectively.

We had $225 of outstanding short-term borrowings from the FHLBs at each of March 31, 2024 and December 31, 2023.

We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders.

The declaration and payment of any dividends or repurchases of our common stock or debt is

at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.

For additional information regarding our sources and uses of capital at September 30, 2023, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.

For additional information regarding our sources and uses of capital at March 31, 2024, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition to regulations regarding the timing and amount of dividends, our regulated subsidiaries’ states of domicile have statutory risk-based capital (“RBC”) requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (RBC) for Health Organizations Model Act (the “RBC Model Act”).

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In addition to exceeding these RBC requirements, we are in compliance with the liquidity and capital requirements for a licensee of the BCBSA and with the tangible net worth requirements applicable to certain of our California subsidiaries.

For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2022 included in Part II, Item 8 of Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2023 included in Part II, Item 8 of our 2023 Annual Report on Form 10-K.

Future Sources and Uses of Liquidity

We believe that cash on hand, future operating cash receipts, investments and funds available under our commercial paper program, our 5-Year Facility and borrowings available from the FHLBs will be adequate to fund our expected cash disbursements over the next twelve months.

There have been no material changes to our long-term liquidity requirements as disclosed in Part II, Item 7 of Exhibit 99.1 to this Quarterly Report on Form 10-Q.

There have been no material changes to our long-term liquidity requirements as disclosed in Part II, Item 7 of our 2023 Annual Report on Form 10-K.

For additional updates regarding our estimated long-term liquidity requirements, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and the “ Other Contingencies ” and “ Contractual Obligations and Commitments ” sections of Note 11 “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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our ability to secure and implement sufficient premium rates;

the impact of large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19, and other catastrophes;

the impact of new or changes in existing federal, state and international laws or regulations, including healthcare laws and regulations, or their enforcement or application;

the impact of cyber-attacks or other privacy or data security incidents or breaches or our failure to comply with any privacy or security laws or regulations, including any investigations, claims or litigation related thereto;

the impact of large scale medical emergencies, such as public health epidemics and pandemics, and other catastrophes;

the impact of new or changes in existing federal, state and international laws or regulations, including laws and regulations impacting healthcare, insurance, pharmacy services and other diversified products and services, or their enforcement or application;

the impact of cyber-attacks or other privacy or data security incidents or breaches or our failure to comply with any privacy, data or security laws or regulations, including any investigations, claims or litigation related thereto;

information technology disruptions;

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failure to effectively maintain and modernize our information systems;

risks associated with providing pharmacy, healthcare and other diversified products and services, including medical malpractice or professional liability claims and non-compliance by any party with the pharmacy services agreement between us and CaremarkPCS Health, L.L.C.;

risks associated with providing healthcare, pharmacy and other diversified products and services, including medical malpractice or professional liability claims and non-compliance by any party with the pharmacy services agreement between us and CaremarkPCS Health, L.L.C.;

risks associated with mergers, acquisitions, joint ventures and strategic alliances;

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis