Molina Healthcare, Inc.
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Good day and welcome to the Molina Healthcare Second Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Julie Trudell, Senior Vice President of Investor Relations. Please go ahead.

[Julie Trudell:]

Good morning and welcome to Molina Healthcare's Second Quarter 2021 Earnings Call. Joining me today are Molina's President and CEO, Joe Zubretsky; and our CFO, Mark Keim.

[Joe Zubretsky:]

Thank you, Julie and good morning. Today, we will provide you with updates on several topics. We will present our financial results for the second quarter 2021, we will update our 2021 guidance, and we will summarize the status of our growth initiatives and outlook for the future. Let me start with the second quarter highlights. Last night, we reported adjusted earnings per diluted share for the second quarter of $3.40 with adjusted net income of $199 million and premium revenue of $6.6 billion. The 88.4% medical care ratio demonstrates solid performance while managing through pandemic-related medical cost challenges that increased the ratio by 110 basis points. The net effect of COVID decreased net income per diluted share by approximately $1. We managed to a 6.9% adjusted G&A ratio reflecting continued discipline in cost management which allowed us to harvest the benefits of scale produced by our substantial growth.

[Mark Keim:]

Thank you, Joe. This morning, I will discuss some additional details of our second quarter performance, and then turn to our growth strategy, the balance sheet and some thoughts on our 2021 guidance. Beginning with some detailed commentary about our second quarter results. The net effect of COVID, negatively impacted second quarter results by $77 million or approximately $1 a share. This increased the second quarter MCR by 110 basis points to 88.4%. The impact was higher than our expectations and negatively affected all three lines of business. We experienced high COVID-related inpatient costs early in the quarter, which tapered off as the quarter progressed. We also saw increases in professional and outpatient costs, which we attribute to what, may be the return to normal pre-COVID utilization patterns. In Medicaid, the net effect of COVID was a cost of approximately $25 million and accounted for a 40 basis point increase that is included within our reported 89% MCR. The first quarter Medicaid MCR had a 150-basis-point benefit due to COVID, which substantially explains the sequential increase in MCR. We continue to expect the full year Medicaid MCR to be in the high 80s. In Medicare, the net effect of COVID was a cost of approximately $17 million, increasing the MCR by 200 basis points to 87.6% in the quarter. The first quarter Medicare MCR was increased by 400 basis points due to COVID. Sequentially, the MCR improved, driven by this lower net effect of COVID and improved underlying performance compared to the first quarter. We anticipate a full year Medicare MCR in the high 80s. In Marketplace, the net effect of COVID was a cost of approximately $35 million, increasing the MCR by 480 basis points. The first quarter Marketplace MCR included a similar impact from the net effect of COVID, which increased the first quarter MCR by approximately 500 basis points. The resulting sequential increase in MCR versus the first quarter reflects the normal seasonality associated with members reaching their policy deductible limits. Due to the higher-than-expected impact from the net effect of COVID in the first half of the year, we now expect Marketplace pretax margins to moderate to low single digits. We expect that when the COVID pandemic subsides, our Marketplace pretax margin will be squarely on target, with our mid-single-digit pretax margin expectations. Turning now to our balance sheet. We received $145 million of subsidiary dividends in the quarter, which brought our parent company cash balance to $564 million at the end of the quarter. We have ample capacity to fund the announced acquisitions. At our current margins, we generate significant excess cash and additional debt capacity. After funding our announced pending acquisitions, we will have year-end acquisition capacity of over $1.4 billion. At the multiples we have paid in recent transactions, this gives us the ability to drive $3 billion to $4 billion in annualized revenue growth. More importantly, at our current level of performance, this level of acquisition capacity is generated each year. Our reserve approach remains consistent with prior quarters and our reserve position remains strong. Days in claims payable at the end of the quarter represented 48 days of medical cost expense, unchanged from the first quarter. Prior year reserve development in the second quarter of 2021 was modestly favorable, but any P&L impact was mostly absorbed by the COVID-related risk corridors. Debt at the end of the quarter is 2.2 times trailing 12-month EBITDA. Our debt-to-cap ratio was 50%. However, on a net debt basis, net of parent company cash, these ratios fall to 1.7 times and 43% respectively. These metrics reflect a conservative leverage position. A few additional comments, related to our earnings guidance. We raised full year 2021 adjusted earnings per share guidance to be no less than $13.25 per share, which reflects the following. Our underlying outperformance, an increase in our revenue guidance and the associated margin, the net effect of COVID expectations which has increased by $1 per share and is now expected to be approximately $2.50 per share for the full year, and continued caution in forecasting utilization trends in the remaining six months of the year due to the COVID pandemic. In a typical year, the seasonality of utilization and timing of open enrollment periods resulted in third quarter earnings being higher, than fourth quarter earnings. However this year, we expect second half earnings to be distributed more evenly between the quarters, due to the net effect of COVID and particularly the impact of risk sharing corridors. As Joe discussed, we believe the incremental embedded earnings power of the company is in excess of $5. This is composed of several items. The increased net effect of COVID, which is now expected to create a $2.50 per share decrease, that should dissipate as the pandemic subsides. Medicare risk score disruption that created approximately $1 a share overhang; and as we obtain our target margins on Magellan Complete Care and Kentucky, and once Affinity and Cigna acquisitions are closed and synergized, we expect to achieve additional adjusted earnings per share of at least $2. This embedded earnings power does not represent 2022 guidance, but rather an accounting of the dynamic impacts that are temporarily depressing our earnings profile. There are many other items that will affect our actual earnings guidance for 2022 including several possible scenarios for the impact of Medicaid membership redeterminations. In short, our 2021 earnings jump-off point into 2022 is very strong. This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. The first question comes from Kevin Fischbeck from Bank of America. Please go ahead Kevin.

[Kevin Fischbeck:]

All right, great. Thanks. I wanted to maybe just dig into that last comment about the earnings power. And I guess your point about potential offset from redeterminations. Is there any framework that you guys have that you think would be helpful to think about how much redeterminations is adding to this base number, and how to think about the timing of when that might roll off?

[Joe Zubretsky:]

Kevin this is Joe. Over the net last number of months, we have formed a view of what's going to happen with the suspension of the redetermination pause. And the way we now characterize it, we believe that this will be a very organized and orderly approach to move any members that are no longer eligible for Medicaid into the uninsured population or other forms of insurance. Aside three things. One, there is a reasonable possibility that the federal government actually extends the public health emergency. Second, many states are actually applying for types of waivers to manage their populations in different ways. Illinois has suggested to CMS that they want to continue the public health emergency for another year. New Jersey wants to redetermine its members on their anniversary day. So we believe that this is going to be a very, very orderly transition. Nobody wants to have Medicaid members stranded without coverage. Bearing in mind, we have over 70 million members nationally that need to go through a redetermination process and the states just do not have the capacity to do this in the mandated six-month period of time, which suggests to us that the government and CMS may actually relax that standard and allow for more time to transition these members. So we're looking at this as a protracted, orderly event over 2022 perhaps even into 2023 to make sure that all Medicaid members who are no longer eligible have the opportunity to age into the D-SNP product to income up into a highly subsidized marketplace product or as they obtain work end up in the employer sponsored insurance marketplace. We will provide a variety of scenarios of what that might look like for 2022 at our Investor Day on September 17th.

[Kevin Fischbeck:]

Okay. That's really helpful. I guess maybe just to wrap that up then. How do you think about the margin on that business? I guess in general you would think that anyone redetermined is probably a better risk pool and therefore a little bit higher margin, should we be thinking about it that way, or are there offsets to be considering there?

[Joe Zubretsky:]

There are offsets. There is no question that if you look at medical economic data or actuarial data that generally speaking duration of membership causes acuity to decline, the level of acuity to decline. There's no question about that. The longer they're on the roles, the less acute they are. Two factors as you referenced offsets. One, many states took that into consideration in setting rates. So it's already in the rates that we have a lower acuity population. And second, bear in mind that while the volume won't get picked up by the risk corridors, any excess margin on those members is surely picked up by the risk corridors and 30% of our revenue is already in the 100% tier. So, yes, I would look at -- there is a margin on those members, but the margin is likely no more than a low-single-digit target margin. But we view that as accreting off the books over a very long period of time in a very orderly fashion as I suggested. But I -- the way we look at it is the margin on those members is no greater or less than the average margin of the portfolio.

[Kevin Fischbeck:]

That’s helpful. Thanks.

[Operator:]

Thank you. The next question comes from Matt Borsch from BMO Capital Markets. Please go ahead Matt.

[Matt Borsch:]

Yes, good morning. Thank you. I was hoping maybe you could talk a little bit more about the utilization and medical cost components during the second quarter. Specifically, I'm trying to understand, how the direct cost of COVID, have evolved in Marketplace and Medicaid relative to the non-COVID, if you're able to talk about non-COVID relative to sort of normal baseline? I'm just a little confused on, how much pressure you're getting directly from COVID in particular.

[Joe Zubretsky:]

Sure, Matt. Let me start with what we call just traditional normal utilization of healthcare services. We believe and the data supports it, that the healthcare system is coming back to operating at full capacity, not greater than full capacity and not lower, but at full capacity, which means utilization, all those types of procedures the elective and discretionary procedures wellness visits, preventive care, primary care visits for checkups are all coming back to pre-pandemic levels. In fact, in our forecast, we actually trend off of 2019 medical cost data to make sure, that we appropriately capture pre-pandemic utilization. In our forecast for the entire year, we trended off that full utilization baseline. So we are assuming that the system has reverted back to pre-pandemic levels of utilization, for all those types of services that were either deferred or eliminated during the pandemic. Now with respect to COVID, the situation while similar is actually somewhat different today, than earlier in the pandemic. We are seeing the Delta variant and the Delta variant is affecting the unvaccinated. The unvaccinated tend to be younger and healthier, than folks that were vaccinated. So while we're seeing prevalence of Delta variant COVID infection rates, fewer of those incidents are requiring hospital stays. So much of the care is being provided in an outpatient ambulatory setting. And the cases that do require an admission, the length of stay is shorter. There is a lower incidence of ICU utilization which is expensive and lower utilization of ventilator which suggests lower acuity. So while we're seeing a prevalence of Delta variant COVID-related cases, the severity of those cases is a lot lower than the severity of the cases earlier in the pandemic. During the quarter, we experienced about $95 million of COVID-related direct costs of inpatient care during the quarter, but it really tapered off. It was about $50 million in the first month of the quarter about $30 million in the second and about $15 million or so in the last month of the quarter. We expect that to research. The Delta variant infection rate is popping particularly in states that have low vaccination rates. And in our full year forecast, we have forecasted forward, a continuation of COVID-related cost of care, at a certain level. Hopefully, that's helpful to your analysis.

[Matt Borsch:]

Yeah. It's very helpful. Thank you.

[Operator:]

Thank you. The next question comes from A.J. Rice from Crédit Suisse. Please go ahead, A.J.

[A.J. Rice:]

Thanks. Hi everybody. Maybe just to drill down a little bit on the public exchanges and what you're seeing in the marketplace environment. Is -- it sounds like the costs are running a little bit ahead or somewhat ahead. And it sounds like, a lot of that is COVID related. But can you talk about why that is you think? And also is the demographics of the new enrollees you've seen over the course of this year, different than those that are traditionally been attracted to a Molina public exchange product?

[Joe Zubretsky:]

Sure, A.J. The first thing I would say is, the infection rate is very geographically correlated, it's probably the best word to use and so, while we wrote a lot of new membership in Texas, Washington, California, Mississippi where the infection rates are high. So we wrote new business, at the beginning of the pandemic, not knowing and not realizing that pandemic is going to last this long and persist this long. So granted, we wrote new membership purposely wrote to grow, at the early stages of the pandemic and the pandemic has persisted longer than anybody imagined. Second, any product that has an extended enrollment period or a special enrollment period has the aspect of inviting adverse selection. If you can buy insurance anytime you want, you can buy it when you need it. Now we don't think the adverse selection bias in this population was that high, but it's there. And if you're writing with a selection bias into markets that are COVID prone you're going to get COVID cases. And when you strip it all back, a 500 basis points of pressure in each of the first two quarters is the reason we are running in low-single-digit margins and not mid-single digit. And we absolutely believe as the pandemic subsides we'll produce an 80%-ish MCR for the entire year and be squarely in line with those low-single-digit margins and able to lift that into mid-single-digits into 2022.

[A.J. Rice:]

Okay. Thanks a lot.

[Operator:]

The next question comes from Steven Valiquette from Barclays. Please go ahead, Steven.

[Steven Valiquette:]

Hey, thanks. Good morning everybody. So, I guess just in relation to the Medicaid redeterminations being pushed out. I guess on the one hand you mentioned the incremental $150 million of revenue for every month of extension which I think you also stated several quarters ago. Then you mentioned again today that the impact has moderated somewhat. I think you talked more about a $300 million to $400 million incremental revenue opportunity in the remainder of 2021 last quarter, if it's delayed further. So I guess I wanted to just confirm that within the $1 billion revenue guidance increase for this year how much of it is tied to the redetermination just to triangulate all the numbers? Thanks.

[Joe Zubretsky:]

Sure, I just said in my remarks partially due to redeterminations the Marketplace and the pharmacy carve-outs. I'll turn to Mark to walk you through the bridge.

[Mark Keim:]

Yes. So on the incremental $1 billion that we're talking about $450 million is the simple math on three additional months of the redetermination 3x $150 million. We've also done better on marketplace as you've seen in our numbers both on OEP and SEP. We've picked up additional members as that market grows. That's probably another $150 million on full year. Then as we mentioned some of the pharmacy carve-outs there were three states

[Operator:]

Steven does it answer all your questions? Do you have any further questions?

[Steven Valiquette:]

That's good for me. Thanks.

[Operator:]

The next question comes from Justin Lake from Wolfe Research. Please go ahead, Justin.

[Justin Lake:]

Thanks, good morning. Appreciate the comments on the RFP pipeline Joe during your prepared remarks. Just hoping you might be able to give us a little more color there in terms of what are some of the key RFPs we might be focused on over the next 12 to 18 months? And then anything on how you think California shapes up? I know that's probably a couple of years out from any kind of decision, but obviously an important state.

[Joe Zubretsky:]

Sure Justin. Well as I said, we continue to be very bullish on our prospects in these open procurements in new states. And there are a couple of states that we believe Ohio and Michigan which will be putting behavioral and LTSS into managed care sometime in the near future. And those are states where we already have entrenched relationships and feel very good about it. But on the new, new '22 Nevada, Rhode Island, Georgia, Iowa, Tennessee is out there. Now we may or may not bid on all of those. They have to be sequenced appropriately with reprocurement bids and other things we're working on. But those are four to five -- Georgia if I didn't mention it those are the four or five that come to mind over the next three or four years. And based on our track record we feel we have contract winning capabilities a great proposal writing team. And we've really, really amped up our in-state round game building those relationships years and years in advance of the procurement in order to really understand the state program and to have those relationships that are so important to a state contract. Your last part of your question sorry, was California. Look they've announced a year-end dropping of the RFP. We've been working on it in 2022. So we're working on that timeline. But these things have been delayed before. It's the first reprocurement in California I think in over a decade. I'm pretty sure about that. It's a complicated state. Every state as you know has a different managed care model. But we do really, really well in L.A., in Sacramento, in San Diego, the Inland Empire and we have every reason to believe that not only do we have every opportunity to defend our current positions but to actually grow in a few other counties where we currently don't play.

[Justin Lake:]

Thanks for the color.

[Joe Zubretsky:]

You’re welcome, Justin.

[Operator:]

Thank you. The next question comes from Dave Windley from Jefferies. Please go ahead, Dave.

[Dave Windley:]

Hi, good morning. Thanks for taking my question. In your Quantification of the $5 of earnings power I think the last couple of dollars were from fully synergizing acquisitions. I wanted to make sure, I was clear on whether that was just counting those that you've completed, or if you were also including those that you talked about completing at the end of this year and early next year? So that's my first question.

[Joe Zubretsky:]

Dave there's a little bit of both and I'll kick it to Mark for the actual bridge.

[Mark Keim:]

Yes. So recall the numbers total around $5.50, $2.50 of that was the net effect of COVID. We talked about the Medicare risk scores. You're pointing to the remaining $2 of M&A upside. Dave that splits evenly between $1 of incremental run rate on MCC in Kentucky. Those are the ones that are already in current year performance. So in their second year, they'll mature to their full run rate that gives you $1. Then, the ones we've announced but not closed, will be in next year's performance that will give you the remaining dollar.

[Dave Windley:]

Got it. And then, Joe you talked about, and I think you really touched on this maybe last time, but talked about the risk corridors going away and that you feel pretty comfortable that that's going to happen. In thinking about, the states kind of heads they win, tails you lose on this that they put the risk corridors in to get money back when you were underspending. But, in the event that the utilization bounces back and your overspending on medical costs they've taken them away, is that -- how do you protect against that risk?

[Joe Zubretsky:]

It's a really good question, because as you know, these risk corridors by rule have to be symmetrical. So anything you potentially give up on the upside, you get on the downside. Look, the targets have been set at a point where as a company our operators, Mark Keim, our Financial Officer, myself don't even think about winning -- getting money back on the downside. It's possible, but we think the -- not we think, we know there's lots of non for profit players that may get checks from the state governments, because they're operating above. We are not operating anywhere near that target, which is why our corridors are substantial. We have some of the highest margins in the industry in many of our states, and therefore whether $1 of outperformance is related to COVID or just skill. You get it back in the corridor, if you're in 100% tier. So, we don't think about being protected on the downside, because we have -- we're not skating that close to the edge at all. And if we were, and that's just a different set of problems that we're not operating in an excellent way, we're nowhere near that territory. So, we're not at all relying on or put value in the upside protection of the corridors.

[Dave Windley:]

Got it. Thanks. And then a quick last one. You talked about the quantification of your buying power for new plans and fairly substantial amount and the ability to regenerate that as your cash flow. Where does your infrastructure stand? Are you making steady investments in infrastructure to be able to onboard that much revenue, or do you face a step function at some point in the next couple of years?

[Joe Zubretsky:]

I'll give you a quick answer and then kick it to Mark, but we have a fully ramped up integration team. And our analysis is we have lots of runway many billions of dollars of revenue to add in our current infrastructure with our current cloud-supported applications, our data centers which are now moving to the cloud. The entire infrastructure physical infrastructure, application infrastructure, all the on-the-shelf applications we use, all have the scalability to take on billions of dollars of additional revenue without hitting a step function. It's a question I've been asked before and one I look at very seriously. There's not a big bang technology redo here because of our acquisition strategy. Our platforms can handle the additional scale.

[Dave Windley:]

Thank you.

[Operator:]

Thank you. The next question comes from Scott Fidel from Stephens. Please go ahead, Scott.

[Scott Fidel:]

Hi. Thanks. Good morning, everyone. I wanted to ask a question just on going back to the Marketplace, and just thinking about philosophically how you've approached the pricing strategy for 2022, targeting -- wanted to get to that, mid-single-digit margins that you feel that you have underneath the COVID impacts. But, just interested as we think about how you sort of input it sort of continued COVID impact into next year, potential acuity dynamics relating to the members that came in this year, particularly related to some of the extended Biden SEPs. And then, I guess just game theory to around the competitive environment with some of these newer players in particular, having been more aggressive on some of the pricing strategies. Thanks.

[Joe Zubretsky:]

Sure. This is a business, the Marketplace business, putting a frame around it. First of all, it's a strategic adjacency to Medicaid. It follows our Medicaid footprint. It leverages our Medicaid network, both in terms of network adequacy and pricing. So it's very much attached to the Medicaid business. The marketplace business will follow the Medicaid footprint. So, strategically it fits. At just over 10% of revenue, it's sort of in line with an adjunct, an adjacency that fits nicely into the portfolio. So we like the position it has. To your point about 2022, you manage this business for margin first and membership later. Because it's a blind bid business, where you're being against competitors not knowing exactly how they're going to bid, you have to be careful. And so, when we established our 2022 bidding strategy, I'll stay away from geographic detail, because I'd be giving away proprietary information, we pretty much used the higher cost baseline that we've been experiencing here early in the year. Now, that means somebody else took a flyer on it and decided that as the pandemic subsides all this cost goes away and they beat us on price fine. We'll give up the member and we'll make sure we have mid-single-digit margins. So in this business, because of the blind bid strategy, because of the inherent movement of members, who will move for price we are pricing for margin over membership, but we believe we will continue to have a very robust and profitable business into next year, but again following our Medicaid footprint.

[Scott Fidel:]

Got it. Thanks. And then just one follow-up question. Just given some of these unique dynamics particularly relating to the corridors when looking at the balance of PPS that you're expecting over the rest of the year, any insights you're willing to provide us just in terms of how the split may look between 3Q and 4Q?

[Mark Keim:]

Sure. In a typical year, you'd see a little better margin in the third quarter and a little taper off into fourth. In my prepared remarks, what I said is that, we expect to see more of a level dynamic between Q3 and Q4. Partly, it's – the utilization patterns just aren't like what we've seen in a normal year, right? What we've got continuing COVID potentially the Delta variant going into Q3 here. But the other thing is just the leveling effect of these corridors will level out the performance from one quarter to the next. So not quite the normal seasonality you'd expect to see. You might model something a little more level between the quarters.

[Scott Fidel:]

Okay. Got it. Thank you.

[Operator:]

Thank you. The next question comes from Josh Raskin from Nephron Research. Please go ahead, Josh.

[Josh Raskin:]

Thanks. Good morning. I want to get back to the sort of scalability question. You look at the quarter and you added $280 million of revenues and G&A was only up $11 million. And I know, typically, we hear about new revenues coming in at less profitable levels and I know a large majority of that's on the MLR line and not necessarily the G&A. But just trying to figure out you guys are now at an industry-leading level. And so how sustainable is that G&A? And do you think there's investments needed in certain areas? And maybe more specifically just where are the – is it cost savings that are coming, or is it really just leverage on new revenues?

[Joe Zubretsky:]

Josh, we continue to be disciplined on the cost line. And when we talk about fixed cost leverage, our hope is not a strategy. You don't hope that it happens you actually manage through it. You bring on the Cigna book of business an additional $1 billion of revenue. We can run it with half the people that we're running it before, because of our presence in Texas. And at the corporate headquarters, you don't need to add more accountant's lawyers and HR people in order to manage the business. So we have a zog and nog strategy in terms of corporate overhead. And when we're bringing on bolt-on and tuck-ins in our existing geographies, we make sure that, we appropriately resource the business to make sure that every member and provider is getting the service they need for that we use local scale and only take on the variable cost to run the business. And Mark and his finance team and the operators are really disciplined about doing that, which is why we've said many, many times and we'll say it again on the 17th that whatever MLR pressure exists in this business, and its managed care, so it always exists, we believe can be overcome, if we're successful in our growth strategy with fixed cost leverage. And we're already starting to drive our SG&A ratio down below 7% on a consolidated basis. It's a lot lower than that in Medicaid. And obviously, Medicare brings it up. Medicare has a mid-teens G&A ratio. So the mix effect will affect that. But we have every intention of driving this ratio, given our growth trajectory down to the 6s.

[Josh Raskin:]

Okay. Thanks.

[Operator:]

Thank you. The next question comes from Stephen Baxter from Wells Fargo. Please go ahead, Stephen.

[Stephen Baxter:]

Yeah. Hi. Thanks. Just similar to how you broke down the incremental premiums that are included in guidance. It seems like, there's an implied $1.25 of incremental earnings power, when you think about raising the guidance and flagging the extra dollar from COVID. So I was wondering, if you could similar to how you talked about the extra $850 of Medicaid revenues and extra $150 million of exchange premiums inside of that. Any sense of what the extra $125 million breaks down to in terms of the drivers there? That would be helpful. Thanks.

[Mark Keim:]

Sure. I'll take that in a couple of chunks. Obviously, the headwind there was the dollar of incremental net COVID. So offsetting that's $1.25 of upside, right? It's probably broken into two components. I think about $0.80 of that $1.25 just relates to that $1 billion incremental revenue, we talked about. Maybe an additional $0.45, it's just on our underlying performance a little bit in the front half of the year and what we see for the second half of the year. And that's things like our payment integrity programs our UM our CM, and some of that SG&A discipline that Joe was just talking about. So the $0.80 on the $1 billion to $0.45 just our underlying performance that gets you to about $1.25.

[Joe Zubretsky:]

And the point you made is really an important one. Even though the guide is optically only $0.25 higher on, if you want to normalize for COVID, we're adding $1.25 really true earnings performance and margin on revenue, which is a really good trajectory as a jumping off point into 2022.

[Stephen Baxter:]

Thanks. And then just one follow-up on the question Kevin asked before about redeterminations. When you talk about the overall redetermination population, you're not really thinking that's going to carry a different margin than the broader Medicaid book. Are you talking about a gross margin or an operating margin? And I guess how do you think about dealing with SG&A deleveraging potential for that population? Thanks.

[Joe Zubretsky:]

We did -- I mean we did have to take on additional resources to service the increased population. So it's not as though we leveraged the complete infrastructure and therefore it's only contribution margin it's going to leave we will have some SG&A that we'll be able to depart the company. We took on contract resources. We worked overtime. We added resources in our call centers and our clinical services and those will be able to be relieved when that membership -- when that membership attrits. And again the point I want to make is we're at 680,000 members up organically since the beginning of the pandemic. That number is likely to be 750,000 by the end of the year. It's not going to the zero. The structural level of unemployment particularly in the lower rate service economy that economy was far more stressed than the average economy. The stimulus checks and the unemployment benefits are still out there. And that number is just not going to zero. Now where it lands we don't know, but we believe and it's been proven over 35 years that any time there's been an event usually some type of economic event or a recession where Medicaid enrollment has swelled that -- post event, the membership, the enrollment nationally has stayed at an increased level for years after the crisis has abated. So we're pretty comfortable in saying that 750,000 are likely to be up will not go to zero. Where it lands we don't know but the unemployment rates in many of our states particularly in the low wage service economy are still quite high.

[Mark Keim:]

And the only other thing to sprinkle on top of that is we'll talk more about this at Investor Day, but as that redetermination the revenues from that obviously form a headwind. You talked a little bit about G&A leverage component. But don't forget that will be offset with our growth initiatives our new M&A right? We've got two deals that will affect next year, new procurements and our other organic growth initiatives. So it's still a growing revenue pie and still a very attractive G&A proposition.

[Stephen Baxter:]

Got it. Thank you.

[Operator:]

Thank you. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.