What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-17 compared with 2024-07-17 · 160 added, 152 removed, 342 unchanged (48% of the section changed)

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

Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, 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.

Results of operations, cost of care trends, investment yields and other measures for the three and nine months ended September 30, 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 nearly 46 million medical members through our affiliated health plans as of June 30, 2024.

We are one of the largest health insurers in the United States in terms of medical membership, serving nearly 46 million medical members through our affiliated health plans as of September 30, 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.

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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;

• Wellpoint — we are uniting select non-BCBSA licensed Medicare, Medicaid and commercial plans under the Wellpoint name;

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

• Wellpoint — unites select non-BCBSA licensed Medicare, Medicaid and commercial plans under the Wellpoint name;

• Carelon — this brand brings together our healthcare-related brands and capabilities, including our CarelonRx and Carelon Services businesses, under a single brand name.

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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.

As described in “ Regulatory Trends and Uncertainties ” below, we expect growth over time 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.

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Regulatory Trends and Uncertainties

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

The Consolidated Appropriations Act of 2023 decoupled Medicaid eligibility redeterminations from the COVID-19 Public Health Emergency initially declared in January 2020.

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 by June 30, 2023.

Most states are expected to complete a majority of their redeterminations by July 31, 2024.

While most states have completed this process, the Centers for Medicare and Medicaid Services (“CMS”) has provided that states have until December 31, 2025 to complete these eligibility redeterminations.

Since redeterminations 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 have lost Medicaid coverage in our 14 commercial states seek coverage elsewhere.

We expect growth over time in our commercial plans, including through the Public Exchanges, as members who have lost Medicaid coverage in states where we offer commercial plans seek coverage elsewhere.

The Inflation Reduction Act of 2022 contains a variety of provisions that have impacted our business including extending the American Rescue Plan Act of 2021’s enhanced Premium Tax Credits (“PTC”) through 2025;

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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 beginning in 2026;

allowing CMS to negotiate prices on a limited set of prescription drugs beginning in 2026;

instituting caps on insulin cost sharing in Medicare;

redesigning of the Medicare Part D benefit;

requiring drug manufacturers pay rebates if prices increase beyond inflation;

requiring drug manufacturers to pay rebates if prices increase beyond inflation;

and delaying the implementation of the Trump Administration Medicare drug rebate rule until at least 2032.

The extension of the enhanced PTC has allowed for growth in Individual Public Exchange enrollment and has supported continuity of coverage since Medicaid eligibility redeterminations resumed in 2023.

The Consolidated Appropriations Act of 2021 (the “2021 Appropriations Act”) has impacted our business, including additional disclosure and reporting requirements related to broker compensation, mental health parity, pharmacy benefits and drug costs, as well as procedures and coverage requirements related to surprise medical bills and continuity of care for certain patients.

The requirements of the 2021 Appropriations Act applicable to us had varying effective dates beginning in December 2021 and extending into 2024.

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 certain pricing information regarding negotiated rates and historical payment information with providers.

Additionally, beginning in 2023, we were required to make available to members personalized out-of-pocket cost information and underlying negotiated rates for 500 covered healthcare items and services, which expanded to include all items and services in January 2024.

If Congress does not act to extend the enhanced PTC, they will expire at the end of 2025.

The Consolidated Appropriations Act of 2021 has impacted our business, including additional disclosure and reporting requirements related to broker compensation, mental health parity, pharmacy benefits and drug costs, as well as procedures and coverage requirements related to surprise medical bills and continuity of care for certain patients.

The requirements applicable to us had varying effective dates beginning in December 2021.

In September 2024, the U.S.

Departments of Health and Human Services, Labor, and Treasury (the “Tri-Agencies”) issued final regulations related to mental health parity that will require health plans to make administrative and operational changes.

Additional guidance from the Tri-Agencies will be necessary to assess the full impact of these regulations on our operations and financial results.

The health plan price transparency regulations issued by the Tri-Agencies required us in 2022 to begin disclosing certain pricing information regarding negotiated rates and historical payment information with providers.

Additionally, as directed by law, we make available to members personalized out-of-pocket cost information and underlying negotiated rates.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, 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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The 2023-2024 Business Efficiency Program includes the write-off of certain information technology assets and contract exit costs, a reduction in staff including the relocation of certain job functions, and the impairment of assets associated with the closure or partial closure of data centers and offices.

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

Actions to be taken under the 2023-2024 Business Efficiency Program were substantially finalized as of September 30, 2024.

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.

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

In June 2024, CMS announced that it recalculated the 2024 Star Ratings (payment year 2025) across the industry in light of recent court decisions regarding the application of new calculation methodologies first introduced to the 2024 Star Ratings.

As a result of these recalculations, our overall enterprise enrollment-weighted average Star Rating will increase from 3.5 Stars to 4.0 Stars.

We now estimate approximately 56% of our Medicare Advantage members to be enrolled in plans rated at least 4.0 Stars or higher, or are too new to be rated, for 2024 Star Ratings, which will be rewarded at the 4.0 Stars level consistent with our enterprise enrollment-weighted average Star Rating (payment year 2025).

This reflects an increase over our original estimate of 34% in October 2023.

Acquisitions and Divestitures

Completed Acquisitions

The Company’s 2024 Star Ratings, which are used for payment year 2025, reflect 53% of our Medicare Advantage members are enrolled in plans rated at least 4.0 Stars or higher.

This is an increase over the original 2024 Star Rating of 34% in October 2023 based on subsequent recalculations by CMS.

CMS released the 2025 Star Ratings in October 2024, which will be used to determine the Company’s Medicare Advantage bonus payments in 2026.

The Company’s 2025 Star Ratings reflect 38% of our Medicare Advantage members are enrolled in plans rated at least 4.0 Stars or higher.

We expect a reduction to our 2026 operating revenue of approximately $183, net of offsets from contracting provisions.

Further, we expect to mitigate the financial impact to our 2026 operating gain and net income per share through various strategies such as contract diversification, operating expense efficiencies, capital deployment alternatives and network enhancements.

Business Acquisitions and Divestitures

Investments in Joint Ventures and Completed Acquisitions

On August 6, 2024, we made an equity investment that resulted in our minority interest ownership of Mosaic Health, a joint venture with Clayton, Dubilier & Rice (“CD&R”) that is designed to accelerate innovation in care delivery across multiple regions in the United States by bringing together certain care delivery and enablement assets of Carelon Management Services Inc.(“CMSI Assets”), a Carelon Health business, and two CD&R portfolio businesses, apree health and Millennium Physician Group.

Our initial investment was $2,580 and is accounted for as an equity method investment.

Our additional contribution of the CMSI Assets to Mosaic Health is subject to certain closing conditions and customary approvals and is expected to be made in the fourth quarter of 2024.

Further, in connection with our equity investment, each party has certain rights and obligations, including certain put, call, and purchase price true-up options, for which we recorded a net written option liability of $1,330 at September 30, 2024.

The CMSI Assets, along with certain other unrelated assets planned to be divested, are included in “Assets held for sale” and “Liabilities held for sale” in our consolidated balance sheet as of September 30, 2024.

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

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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, which resulted in a gain on sale of business of $240.

(“The Standard”), a provider of financial protection products and services for employers and individuals, which resulted in a gain on sale of business of $201, including contingent purchase price adjustments.

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

The related net assets held for sale for the life and disability businesses to be divested as of December 31, 2023 and results of operations for the three and six months ending June 30, 2024 were not material.

Pending Acquisitions and Divestitures

The related net assets held for sale for the life and disability businesses divested as of December 31, 2023 and the results of operations for such businesses for the nine months ending September 30, 2024 were not material.

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”).

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This acquisition aligns with our strategic plan to grow the Health Benefits segment and leverage industry-leading expertise while serving Medicaid and dual-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 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, Augusta Topco Holdings, LLP (“Augusta”), 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 Augusta will be through a combination of cash, an existing equity investment in apree health, and the contribution of CMSI Assets.

We will account for our initial minority ownership interest in Augusta 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.

Our and CD&R's investments and contributions to Augusta are subject to standard closing conditions and customary approvals.

The CMSI Assets, along with certain other assets planned to be divested, are included in assets held for sale and liabilities held for sale as of June 30, 2024.

In conjunction with the classification as assets held for sale, a $44 impairment of goodwill was recorded during the quarter ended June 30, 2024.

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.

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

On October 15, 2024, we entered into an agreement to acquire RSV QOZB LTSS, Inc.

and certain affiliated entities (d/b/a CareBridge), a value-based healthcare company that manages home and community-based services for Medicaid and dual-eligible populations receiving long-term services and support.

This acquisition aligns with Carelon Service's care at home strategy, and 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 expected to close in the fourth quarter of 2024 or first quarter of 2025 and is 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

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.

We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees (the “Blue plans”) across the country.

Cases filed in 28 states were consolidated into a single, multi-district proceeding captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”) that is pending before the U.S.

District Court for the Northern District of Alabama (the “Court”).

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

The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers.

The Subscriber Settlement Agreement applies only to the subscriber class.

The defendants continue to contest the consolidated cases brought by the provider plaintiffs.

In August 2022, the Court issued a final order approving the Subscriber Settlement Agreement (the “Final Approval Order”).

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.

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 and April 2024, two of the appellants each filed petitions for certiorari to the United States Supreme Court (the “Supreme Court”), and the defendants and subscriber plaintiffs filed briefs in opposition in May 2024.

In June 2024, the Supreme Court declined to grant certiorari, exhausting all appellate rights.

The Subscriber Settlement Agreement became effective on June 24, 2024, and the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement became 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 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.

The BCBSA and Blue plans approved a settlement agreement and release with the subscriber plaintiffs (the “Subscriber Settlement Agreement”), and in compliance with the Subscriber Settlement Agreement, we paid $506 into an escrow account in September 2022, for an aggregate settlement payment by us of $596, which amount was accrued in 2020.

The Subscriber Settlement Agreement and the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement became effective in June 2024 with the request for second Blue plan bid provision effective in September 2024.

The funds held in escrow will be distributed in accordance with the Subscriber Settlement Agreement.

The BCBSA and the Blue plans have approved a settlement agreement and release (the “Provider Settlement Agreement”) with the provider plaintiffs, and in October 2024, the provider plaintiffs filed a motion for preliminary approval with the Court.

If approved by the Court, the Provider Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $666, and will contain certain non-monetary terms including (i) expansion of certain opportunities to contract with providers in contiguous service areas, (ii) certain prompt pay commitments, and (iii) various technological enhancements to the BlueCard program.

We recognized our estimated payment obligation under the Provider Settlement Agreement of $666 in September 2024.

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.

Selected Operating Performance

For the twelve months ended June 30, 2024, total medical membership declined by 4.6%.

For the twelve months ended September 30, 2024, total medical membership declined by 3.3%.

This was primarily driven by Medicaid membership attrition, including as a result of eligibility redeterminations and certain market exits, 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 and Federal Employee Health Benefits (“FEHB”) businesses, resulting from sales exceeding lapses.

Operating revenue for the three months ended June 30, 2024 was $43,223, a decrease of $154, or 0.4%, from the three months ended June 30, 2023.

This decrease was primarily a result of declines in premiums driven by Medicaid membership attrition.

These declines were partially offset by premium rate increases in all lines of business to reflect medical cost trends and increased product revenue from our CarelonRx business, due to growth in external members served and the acquisition of Paragon, which closed in the first quarter of 2024.

Operating revenue for the six months ended June 30, 2024 was $85,496, an increase of $221, or 0.3%, from the six months ended June 30, 2023.

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

Operating revenue for the three months ended September 30, 2024 was $44,719, an increase of $2,239, or 5.3%, from the three months ended September 30, 2023.

Operating revenue for the nine months ended September 30, 2024 was $130,215, an increase of $2,460, or 1.9%, from the nine months ended September 30, 2023.

These increases for both the three and nine months ended September 30, 2024 were primarily a result of premium rate increases in all lines of business in recognition of 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 income for the three months ended June 30, 2024 was $2,301, an increase of $445, or 24.0%, from the three months ended June 30, 2023.

Net income for the six months ended June 30, 2024 was $4,550, an increase of $690, or 17.9%, from the six months ended June 30, 2023.

These increases for both the three and six months ended June 30, 2024 were primarily due to improved operating gain performance in all of our reportable segments, gain on the sale of our life and disability business, increased net investment income and lower amortization of other intangible assets.

These increases were partially offset by higher income tax expense due to higher income before taxes.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $9.85 for the three months ended June 30, 2024, which represented a 26.4% increase from EPS of $7.79 for the three months ended June 30, 2023.

Our EPS was $19.44 for the six months ended June 30, 2024, which represented a 20.7% increase from EPS of $16.10 for the six months ended June 30, 2023.

The increase in EPS for both periods resulted primarily from increased shareholders' net income, as well as fewer diluted shares outstanding.

Operating cash flow for the six months ended June 30, 2024 and 2023 was $2,425 and $8,419, respectively.

The decrease in net cash provided by operating activities was primarily due to the timing of CMS payments received in the prior year, the

impact of the membership decline in our Medicaid business, and the timing of working capital changes, partially offset by higher net income for the six months ended June 30, 2024.

Net income for the three months ended September 30, 2024 was $1,008, a decrease of $292, or 22.5%, from the three months ended September 30, 2023.

The decrease for the three months ended September 30, 2024 was primarily due to a net decrease in operating gain in our reportable segments and a $39 decrease of the gain on sale of our life and disability businesses due to contingent purchase price adjustments, partially offset by increased net investment income and lower amortization of other intangible assets.

Net income for the nine months ended September 30, 2024 was $5,558, an increase of $398, or 7.7%, from the nine months ended September 30, 2023.

The increase for the nine months ended September 30, 2024 was primarily due to increased net investment income, gain on the sale of our life and disability businesses and lower amortization of other intangible assets, partially offset by higher income tax expense due to higher income before taxes.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $4.36 for the three months ended September 30, 2024, which represented a 20.0% decrease from EPS of $5.45 for the three months ended September 30, 2023.

The decrease in EPS resulted primarily from decreased shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Our EPS was $23.81 for the nine months ended September 30, 2024, which represented a 10.4% increase from EPS of $21.56 for the nine months ended September 30, 2023.

The increase in EPS resulted primarily from increased shareholders' net income, as well as fewer diluted shares outstanding.

Operating cash flow for the nine months ended September 30, 2024 and 2023 was $5,102 and $11,032, respectively.

The decrease in net cash provided by operating activities was primarily due to the timing of CMS payments received in the prior year, the impact of the membership decline in our Medicaid business, and the timing of working capital changes, partially offset by higher net income for the nine months ended September 30, 2024.

Membership and Other Metrics

The following table presents our medical membership by customer type as of June 30, 2024 and 2023.

The following table presents our medical membership by customer type as of September 30, 2024 and 2023.

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

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Carelon Services Consumers Served 101.3 104.8 (3.5) (3.3) %

1 BlueCard ® membership at June 30, 2023 has been restated lower by 17 to align to our current reporting, which is the Blue Cross Blue Shield Association reporting methodology.

1 BlueCard ® membership at September 30, 2023 has been restated lower by 19 to align to our current reporting, which is the Blue Cross Blue Shield Association reporting methodology.

2 We are no longer presenting our Life and Disability membership following the sale of that business in the three months ended June 30, 2024.

Medical Membership

The decrease in medical membership was primarily driven by Medicaid membership attrition, including as a result of eligibility redeterminations and certain market exits, 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 and FEHB businesses, resulting from sales exceeding lapses.

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Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three and six months ended June 30, 2024 and 2023 are as follows:

Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2024 and 2023 are as follows:

Three Months Ended

June 30 Six Months Ended

June 30 Change

September 30 Nine Months Ended

September 30 Change

Three Months Ended

June 30 Six Months Ended

Nine Months Ended

2023 2024 vs.

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Net losses on financial instruments (125) (124) (371) (358) (1) 0.8 % (13) 3.6 %

Gain on sale of business 240 — 240 — 240 NM 240 NM

(Loss) gain on sale of business

(39) — 201 — (39) NM 201 NM

Total revenues 45,106 42,849 131,569 128,693 2,257 5.3 % 2,876 2.2 %

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Net income $ 1,008 $ 1,300 $ 5,558 $ 5,160 $ (292) (22.5) % $ 398 7.7 %

Net income attributable to noncontrolling interests

Net loss (income) attributable to noncontrolling interests

8 (11) 4 (29) 19 NM 33 NM

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

Premiums for the three months ended June 30, 2024 and 2023 were $35,416 and $36,589, respectively.

Premiums for the six months ended June 30, 2024 and 2023 were $71,112 and $72,457, respectively.

Premiums for the three months ended September 30, 2024 and 2023 were $36,809 and $35,259, respectively.

Premiums for the nine months ended September 30, 2024 and 2023 were $107,921 and $107,716, 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 June 30, 2024 Compared to the Three Months Ended June 30, 2023

Total operating revenue decreased primarily as a result of declines in premiums driven by Medicaid membership attrition.

These declines were partially offset by premium rate increases in all lines of business to reflect medical cost trends and increased product revenue from our CarelonRx business.

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

Net losses on financial instruments decreased primarily due reduced losses on other investments.

During the three months ended June 30, 2024, we experienced a gain on sale of business due to the sale of our life and disability business.

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.

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Total operating revenue increased primarily as a result of premium rate increases in all lines of business in recognition of 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.

During the three months ended September 30, 2024, we decreased the gain on sale of our life and disability businesses by $39 for contingent purchase price adjustments.

Benefit expense increased primarily due to increases in medical cost trend in our Health Business segment, which was driven primarily by Medicaid rates being inadequate to cover medical cost trends that are well in excess of historical averages due to a shift in the mix in our Medicaid membership base related to eligibility redeterminations.

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

Our benefit expense ratio increased primarily as a result of the shift in the mix of our Medicaid membership base related to eligibility redeterminations, partially offset by premium rate increases across all segments 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 revenues increased.

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

Our operating expense ratio increased primarily due to the increase in operating expenses described above.

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

During the three months ended June 30, 2023, we had increased amortization of other intangible assets as the amortization period of certain 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 the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 as a result of all factors discussed above.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

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

Operating expense decreased primarily due to disciplined cost management and lower business optimization charges during the three months ended September 30, 2024, partially offset by the accrual for the Provider Settlement Agreement associated with the BCBSA Litigation recorded in the three months ended September 30, 2024.

Our operating expense ratio decreased primarily due to disciplined cost management, lower business optimization charges during the three months ended September 30, 2024 and the favorable impact of operating revenue growth, partially offset by the accrual for the Provider Settlement Agreement associated with the BCBSA Litigation.

Other expense declined primarily due to decreased amortization of other intangible assets during the three months ended September 30, 2024.

During the three months ended September 30, 2023, we had increased amortization of other intangible assets as the amortization period of certain assets was shortened to align with the dates our new branding took place.

This decrease was partially offset by an increase in interest expense during the three months ended September 30, 2024.

Our effective tax rate increased primarily due to an increase in reserves for uncertain tax positions.

Our shareholders’ net income as a percentage of total revenues decreased in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 as a result of all factors discussed above.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

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

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

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

Net losses on financial instruments increased slightly primarily due to increased losses on equity securities and fixed maturity securities, partially offset by reduced losses on other investments.

During the six months ended June 30, 2024, we experienced a gain on sale of business due to the sale of our life and disability business.

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.

Net losses on financial instruments increased primarily due to increased losses on alternative investments and equity securities, partially offset by increased gains on fixed maturity securities.

During the nine months ended September 30, 2024, we experienced a gain on sale of business due to the sale of our life and disability businesses.

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

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 revenues increased.

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

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

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

During the six months ended June 30, 2023, we had increased amortization of other intangible assets as the amortization period of certain 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 the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 as a result of all factors discussed above.

Operating expense increased primarily due to the accrual recorded in the three months ended September 30, 2024 for the Provider Settlement Agreement associated with the BCBSA Litigation, partially offset by disciplined cost management and lower business optimization charges during the nine months ended September 30, 2024.

Our operating expense ratio decreased primarily due to disciplined cost management, lower business optimization charges during the nine months ended September 30, 2024 and the favorable impact of operating revenue growth, partially offset by the accrual for the Provider Settlement Agreement associated with the BCBSA Litigation.

Other expense declined primarily due to decreased amortization of other intangible assets during the nine months ended September 30,2024.

During the nine months ended September 30, 2023, we had increased amortization of other intangible assets as the amortization period of certain assets was shortened to align with the dates our new branding took place.

Our effective tax rate increased primarily due to an increase in reserves for uncertain tax positions.

Our shareholders’ net income as a percentage of total revenues increased in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 as a result of all factors discussed above.

Reportable Segments Results of Operations

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Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and operating expense.

It does not include net investment income, net losses on financial instruments, gain on sale of business, interest expense, amortization of other intangible assets or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management.

It does not include net investment income, net losses on financial instruments, loss/gain on sale of business, interest expense, amortization of other intangible assets or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management.

Operating margin is calculated as operating gain divided by operating revenue.

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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 six months ended June 30, 2024 and 2023:

Six Months Ended

June 30 Change

The following table presents a summary of the reportable segment financial information for the three and nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30 Change

Three Months Ended

June 30 Three Months Ended

June 30 Six Months Ended

September 30 Three Months Ended

Nine Months Ended

2023 2024 vs.

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one hundred basis points = 1%.

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Health Benefits

Operating revenue decreased primarily as a result of lower premiums driven by Medicaid membership attrition, partially offset by premium rate increases in all lines of business to reflect medical cost trends.

Operating gain increased primarily as a result of premium yields, including due to disciplined commercial underwriting and the release of a reserve established against prior period service fee revenue, offset by the impact of Medicaid membership attrition.

Operating revenue increased primarily due to higher prescription volume associated with growth in external pharmacy members and the acquisition of Paragon in 2024, partially offset by the impact of 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.

Operating revenue increased primarily as a result of higher premium revenues driven by premium rate increases in all lines of business in recognition of medical cost trends, partially offset by Medicaid membership attrition.

Operating gain decreased primarily as a result of Medicaid rates being inadequate to cover medical cost trends that are well in excess of historical averages, driven by the shift in the mix of our Medicaid membership base related to eligibility redeterminations.

Operating revenue increased primarily due to the acquisition of Paragon in 2024 and higher prescription volume associated with growth in external pharmacy members.

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

Carelon Services

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 increased medical cost trends in our post-acute business and the impact of the Medicaid membership attrition.

The decrease in operating gain was primarily driven by increased medical cost trends in our post-acute business and the impact of Medicaid membership attrition.

Corporate & Other

Operating revenue increased primarily due to higher affiliated revenues.

Operating loss decreased primarily due to a decrease in unallocated corporate expenses.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Operating revenue decreased primarily due to lower affiliated revenues.

Operating loss increased primarily due to the accrual recorded during the three months ended September 30, 2024 for the Provider Settlement Agreement associated with the BCBSA Litigation, partially offset by disciplined cost management and lower business optimization charges during the three months ended September 30, 2024.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Health Benefits

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.

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.

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

Carelon Services

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

Corporate & Other

Operating revenue increased primarily due to higher affiliated revenues.

Operating loss decreased primarily due to a decrease in unallocated corporate expenses.

Critical Accounting Policies and Estimates

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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 June 30, 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 June 30, 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 six months ended June 30, 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 six months ended June 30, 2024 and 2023, which are the trend and completion factors.

As of September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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

Six Months Ended

Nine Months Ended

Assumed trend factors $ 664 $ 789

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Total $ 1,610 $ 1,342

The favorable development recognized in the six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 2023.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 79.8% and 78.7% for the six months ended June 30, 2024 and 2023, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly higher during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The favorable development recognized in the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2023.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 85.4% and 84.6% for the nine months ended September 30, 2024 and 2023, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly faster during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 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 six months ended June 30, 2024, this metric was 10.2%, driven by both favorable completion factor development from 2023 and favorable trend factor development at the end of 2023.

For the six months ended June 30, 2023, this metric was 7.8%, 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, 2024, this metric was 11.3%, driven by both favorable completion factor development from 2023 and favorable trend factor development at the end of 2023.

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.

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 six months ended June 30, 2024, this metric was 1.2%, which was calculated using the redundancy of $1,473.

For the six months ended June 30, 2023, the comparable metric was 1.0%, which was calculated using the redundancy of $1,112.

For the nine months ended September 30, 2024, this metric was 1.3%, which was calculated using the redundancy of $1,610.

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

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

New Accounting Pronouncements

For information regarding new accounting pronouncements that were issued or became effective during the three months ended June 30, 2024, 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 nine months ended September 30, 2024, 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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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 our 2023 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three and six months ended June 30, 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 six months ended June 30, 2024 and 2023 is as follows:

Six Months Ended

For additional information regarding our sources and uses of capital during the three and nine months ended September 30, 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 Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the nine months ended September 30, 2024 and 2023 is as follows:

Nine Months Ended

2024 2023 Change

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Proceeds from issuance of common stock under employee stock plans 205 112 93

Other sources of cash, net — 54 (54)

Total sources of cash 7,779 11,654 (3,875)

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Effect of foreign exchange rates on cash and cash equivalents 2 (2) 4

Net (decrease) increase in cash and cash equivalents $ (8) $ 2,604 $ (2,612)

Other significant changes in sources or uses of cash year-over-year included an increase in the issuance of short- and long-term debt, net of repayments, lower amounts for purchases of subsidiaries, net of cash acquired, proceeds from the sale of subsidiaries, net of cash sold, reduced amounts for repurchase and retirement of common stock and 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 $36,840 at June 30, 2024.

Since December 31, 2023, total cash, cash equivalents and investments in fixed maturity and equity securities decreased by $405, primarily due to the purchase of subsidiaries, the repurchase and retirement of common stock, cash dividends, the purchase of property and equipment and changes in bank overdrafts outstanding, partially offset by the issuance of short- and long-term debt, net of repayments, net cash provided by operating activities and proceeds from the sale of subsidiaries, net of cash sold.

Net increase in cash and cash equivalents

$ 1,360 $ 3,532 $ (2,172)

The decrease in net cash provided by operating activities was primarily due to the timing of CMS payments received in the prior year, the impact of the membership decline in our Medicaid business as a result of eligibility redeterminations, and the timing of working capital changes, partially offset by higher net income for the nine months ended September 30, 2024,

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

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $38,826 at September 30, 2024.

Since December 31, 2023, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $1,581, primarily due to cash generated from operations, issuances of short-and long-term debt, net of repayments, and proceeds from the sale of subsidiaries, net of cash sold, cash dividends, purchases of subsidiaries, net of cash acquired and repurchase and retirement of common stock.

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 June 30, 2024, we held $2,649 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 September 30, 2024, we held $3,107 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 39.6% and 38.9% as of June 30, 2024 and December 31, 2023, respectively.

Our consolidated debt-to-capital ratio was 38.2% and 38.9% as of September 30, 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 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 June 30, 2024 or December 31, 2023.

As of June 30, 2024, 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 September 30, 2024 or December 31, 2023.

As of September 30, 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.

We had no commercial paper outstanding at either June 30, 2024 or December 31, 2023.

We had no commercial paper outstanding at either September 30, 2024 or December 31, 2023.

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.

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

We had $225 of outstanding short-term borrowings from the FHLBs at each of June 30, 2024 and December 31, 2023.

We had $360 and $225 of outstanding short-term borrowings from the FHLBs as of September 30, 2024 and December 31, 2023, respectively.

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 June 30, 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”).

For additional information regarding our sources and uses of capital at September 30, 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 for Health Organizations Model Act (the “RBC Model Act”).

These RBC requirements are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s investments and products.

The NAIC sets forth the formula for calculating the RBC requirements, which are designed to take into account asset risks, insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company’s business.

The NAIC sets forth the formula for calculating the RBC requirements, which are designed to take into account asset, insurance, interest rate and other relevant risks with respect to an individual insurance company’s business.

In general, under the RBC Model Act, an insurance company must submit a report of its RBC level to the state insurance department or insurance commissioner, as appropriate, at the end of each calendar year.

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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