Humana Inc (HUM) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to Humana's third-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. Later, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the conference call over to Ms. Regina Nethery, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. In a moment, Humana's senior management team will discuss our third-quarter 2013 results, our earnings outlook for the remainder of this year, and our detailed financial guidance for 2014.

Participating in today's prepared remarks will be Bruce Broussard, Humana's President and Chief Executive Officer; and Jim Bloem, Senior Vice President, Chief Financial Officer and Treasurer. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joining Bruce and Jim for the Q&A session will be Jim Murray, Executive Vice President and Chief Operating Officer; Chris Todoroff, Senior Vice President and General Counsel; and Steve McCulley, Vice President, Controller and Principal Accounting Officer.

We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, Humana.com, later today. This call is also being simulcast via the Internet along with a virtual slide presentation. For those of you who have company firewall issues and cannot access the live presentation, an Adobe version of the slides has been posted to the Investor Relations section of Humana's website.

Before we begin our discussion, I need to advise call participants of our cautionary statements. Certain of the matters discussed in this conference call are forward-looking, and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in this morning's earnings press release, as well as in our filings with the Securities and Exchange Commission. Today's press release, our historical financial news releases, and our filings with the SEC, are all available on Humana's Investor Relations website. Finally, any references made to earnings per share or EPS in today's call refer to diluted earnings per common share.

With that, I'll turn the call over to Bruce Broussard.

Good morning, everyone, and thank you for joining us. This morning, we reported third-quarter earnings per share of $2.31, and reiterated our full-year 2013 earnings guidance of $8.65 to $8.75 per share. These solid results demonstrate the strength of our operations, even after consideration of the preliminary investment and startup costs for our state-based contracts, including dual eligibles in the healthcare exchange business, as we referenced in last quarter's call. We believe our base business is sound, and we're positioned moving forward, in large part the result of the progress in our clinical programs over the last 12 months.

All eyes are on the future, so that is where my comments will focus this morning. We have some distinct challenges ahead; funding and regulatory pressures, in particular, are significant. That said, we believe our strategic focus on our integrated care delivery model and operational excellence, as well as our expansions into state-based contracts and individual healthcare exchange businesses, position us well for the growth and long-term sustainability. Our strategic intent is to continue to ensure affordability of healthcare by improving health outcomes. We believe our integrated delivery model strategy does just that. To remind you, seamless integration of care delivery the consumer experience, and advanced data analytics, comprise the key elements of our model.

Let's begin this morning's discussion with our Medicare business. The Medicare annual election period for 2014 has begun, and we are generally pleased with the affordability of our plans for beneficiaries, as well as our plan's competitive position across the country. Because of our tremendous cross-functional effort, focus primarily on clinical programs, stars-quality improvement, and operating cost efficiencies, we have been able to minimize the benefit and premium changes our Medicare Advantage members will experience for 2014, ensuring the program remains affordable. All of this despite next year's funding challenges, which include only a portion of the ACA-related payment cuts.

We now expect our combined individual and group Medicare Advantage businesses to grow in the range of 260,000 to 305,000 net members during 2014. This projection includes approximately 25,000 individual dual eligible members from contracts with various states, most of which we expect to be assigned in the second half of next year. Make no mistake, addressing the 2014 Medicare Advantage funding shortfall, including the impact of the industry fee, is no easy task.

The clinical investments we've made over the last several years and a rigorous focus on operational excellence have enabled us to be in this position for 2014. As we look out further into 2015, we see many of the same headwinds we faced in 2014, compounded by the effect of the lower-star quality bonus payment associated with the sunset of the CMS demonstration, despite our higher-quality ratings. Clearly, the nearly 15 million Medicare beneficiaries who have chosen Medicare Advantage need stability and rationality in the Medicare Advantage payment process. It seems counterintuitive to continue such a volatile payment environment for the Medicare Advantage program, when it is the only solution that effectively demonstrates a proactive approach to both improving outcomes for Medicare consumers and controlling healthcare costs for the benefit of a Medicare trust fund.

Our data show that for diabetes, congestive heart failure, and a range of other conditions, we achieve better results than the Medicare original fee-for-service. That is why the continued success of our integrated care delivery model is so critical. Our integrated care delivery model continues to deliver the results that provide positive health outcomes for our members on a number of funds. For example, our transition program, designed to facilitate a smooth acute care to post-acute or home-care experience, has resulted in a 30-day readmission rate -- only 9%, approximately half, of what beneficiaries in the original fee-for-service Medicare experience.

Enrollment of new members in our Humana Chronic Care program is up five-fold to date over last year. As of the end of this September, we have had nearly 250,000 members in the Chronic Care program and expect to reach 275,000 by the end of this year. Much of this increased enrollment becomes from our advanced data capabilities, enabling the implementation of predictive models, which identify the individuals who most benefit from these programs.

Another measure of success of our integrated care delivery model is the progress we continue to make with our star ratings. Our bonus year 2015 ratings now have us at an average star-quality rating of 4.0, up from 3.82 for the bonus year 2014. We have 18 plans or approximately 60% of our membership with ratings at least four stars, including nine plans that have ratings of 4.5 stars. These measures reflect our strong focus on proactive care for our members, and are expected to provide Humana a solid competitive advantage across much of the country in 2015. We believe that the strength of our strategic focus on integrated care delivery will help us not only in the near-term, but also position us for further success as we leverage our integrated care delivery infrastructure across state-based contracts and healthcare exchange businesses.

This slide sizes the sector-wide potential associated with the growth businesses for Medicare, Medicaid and the healthcare exchange businesses. As a reminder, there are approximately 9 million dual eligibles today, with 7 million of those having full Medicaid benefits. Furthermore, the CBO has estimated that healthcare exchanges will ultimately serve approximately 24 million consumers across America. As you can see, these are growth opportunities that are difficult to ignore, particularly given the assets we bring to the table through our investments we've made in our integrated care delivery model, and the robust growth anticipated for these two populations.

You will note as I talk through the next two slides that there is considerable geographic overlap between our state-based contracts and our healthcare exchange presence. That is by design, and further builds upon the strong Medicare Advantage and individual commercial presence we have in many of these locations today. We believe this will further enhance our relationship across the spectrum of healthcare consumers.

As a reminder, our state-based contracts include three subsets. First, beneficiaries associated with the dual eligible demonstration projects. We currently serve nearly 300,000 dual eligible beneficiaries who choose our Medicare Advantage plans in the open market over the past several years. Consequently, we have significant experience in serving dual eligible members. Second, Medicaid services for the under-65, or TANF population. We generally fulfill these contracts through partnering arrangements with risks ceded to other parties.

The third component of our state-based contracts is Medicaid long-term support care support service, which is a newer business for us. We believe the acquisition of American Eldercare, together with partnering arrangements, position us to successfully serve these populations, given the strength of our integrated care delivery model today. We've experienced gratifying level of success with recent RFP awards for each of these types of services, and have targeted our pricing to achieve modest underwriting gains. However, it is important to realize, with the number of awards that we've secured, comes the need for increasing investment in the related infrastructure. These investments will generally proceed the contract -- the related contract revenues.

Turning next to our individual healthcare exchange offerings, we also priced this business targeting a modest underwriting gains. We believe, long-term, the potential size of exchange is a significant opportunity for Humana, as it is aligned with our core capabilities in chronic care management, including accurate clinical documentation, effective networks, and retail individual sales. In addition, it allows us to establish a relationship with Medicare agents, offering the opportunity for an easier transition to Medicare Advantage, and improved health before becoming Medicare-eligible.

The long-term exchange opportunity is currently being overshadowed by the issues with the federal enrollment process. These issues could potentially alter some of the assumptions around risk mix that we made as we priced our products. Should our ultimate healthcare exchange membership have a higher severity mix than we previously priced, our integrated care delivery model -- focused on serving members with chronic conditions -- together with effective network design, and the backup protection of the 3R's, will help mitigate a portion of our claims exposure.

Assuming a speedy repair of the enrollment process, and thus a diverse mix of enrollees for 2014, we anticipate that our investments in the healthcare exchanges will abate in 2015, and at which time returns on our 2014 investment will begin to be realized. Both the state-based contracts and healthcare exchange business require initial investments that are not insignificant. However, we believe such investment spending is targeted on businesses with growth and earnings potential, which leverage our core -- our proven clinical capabilities, as well as being the most capital-efficient way to enter these markets.

Our discipline and commitment around return on invested capital continue to drive the choices we make to provide long-term value for both our members and our shareholders. To summarize, this dynamic environment requires scale, clinical depth, and engaging member relationships. In that context, industry pressures will only reward industry leaders like Humana, while increasing the difficulty for less capable organizations.

Our industry-leading capabilities are demonstrated through our forecasted 2014 core performance. Our GAAP earnings per share estimate for 2014 of $7.25 to $7.75 reflects that much has yet to play out for the state-based contracts in healthcare exchange businesses, and incorporates related investment spending and startup costs of between $0.50 per share and $0.90 per share. Jim will discuss this more fully in his remarks.

We continue to advocate for stable and rationality in the Medicare payment process. We believe our strategy is sound and our associates are highly engaged. We are resolved to deliver an experience for the consumers we serve that positively affects health outcomes, enabling a healthier life for our members and growth for Humana.

Before turning the call over to Jim, I do want to comment briefly on our CFO transition plan. Today, we announced that Steve McCulley will serve as our Interim CFO beginning on January 1. Steve will serve in this capacity as we continue to search and replace Jim, who retires as CFO on December 31. Steve's experience, credibility as a trusted advisor, and knowledge of our business will insert confidence with our internal and external stakeholders during the transition, and over the long-term for our ongoing success. Jim has agreed to remain on as an advisor to the office of the CFO and work closely along Steve during his transition. Please join me in thanking Jim for his 13 years of extraordinary contribution, and Steve for his continued leadership.

With that, I'll turn it over to Jim to review our financial results and capital positioning.

Thank you, Bruce, and good morning, everyone. This morning, I'll spend the bulk of my time on our 2014 earnings expectations, as well as our capital generation and deployment outlook. But first, let's spend a minute on 2013. As Bruce mentioned, our reported third-quarter earnings per share of $2.31 reflects solid execution of our integrated care delivery strategy. We also continue to see favorable medical cost trends in all of our major lines of business, including greater-than-anticipated prior-period development. As with each quarter, the prior-year's gross development can be seen in the claims roll-forward we provide in the earnings press release.

Our third-quarter results also included higher-than-planned marketing expenses for Medicare Advantage and the healthcare exchanges, as well as continued investments in our clinical capabilities. Each of these investments is expected to provide better health outcomes for our members and solid long-term financial returns. Our full-year 2013 earnings per share forecast remains at $8.65 to $8.75, with our retail pretax forecast being slightly lower than 90 days ago, while our employer group forecast is slightly higher than previously expected, each reflecting the three factors I just noted.

Turning now to 2014, the chart included in this morning's press release and reproduced on this slide provides an overview of how we view 2014 versus 2013. With our expansion into both the state-based contracts and the healthcare exchanges, we've widened the ranges around our 2014 guidance points in order to reflect the uncertainty and potential volatility arising out of the following three factors.

Number one, healthcare exchange membership levels and the risk mix of those who enroll. Number two, a potential shift in the timing associated with our state-based contracts awarded to date. Since our infrastructure build must be ahead of the related revenue streams, any delay in implementation of these contracts potentially would result in higher operating cost ratios. Number three, certain portions of these two businesses are new to us. Thus, as we evaluate the investment related -- the investment spend range of approximately $125 million to $225 million, or $0.70 per share at the midpoint, the resolution of each of these factors ultimately will determine the timing and extent of our actual investment spend during 2014.

So, as we roll forward from 2013 to 2014, we see core operating margins improving for the retail segment, with slight pressure on the employer group and healthcare services segments. Bear in mind that in order to take into account the nondeductible industry fee, we had to target a higher 2014 pretax margin than in 2013. In addition, the employer group operating margin change also includes an expectation that medical cost trends will move up approximately 50 to 100 basis points from the 4.5% to 5% trends we're projecting for the full-year 2013.

Continuing down the lines of the same slide, membership growth, primarily associated with our individual and group Medicare products, also is expected to positively impact pretax earnings for both the retail and employer group segments. There are also three 2013 items that are not expected to recur next year. They include between $0.40 and $0.45 per share of better-than-expected favorable prior-period claims development; $0.19 per share in benefit from our first-quarter litigation-related settlement with the Department of Defense; and $0.12 per share in costs associated with our exit from the Puerto Rico Medicaid business last month.

To summarize, we experienced a 2013 net benefit of $0.50 per share from these three items, although the individual impacts are spread across several lines of business, as shown on the slide. Moving to the second to the last line on the slide, the midpoint of $0.70 per share assuming connection with the investment and startup spending is anticipated to be concentrated in our retail segment businesses, since that's where both the state-based contracts and the healthcare exchange businesses are expected to be reported. The last line of this slide shows $1.39 per share expected hit to earnings from the non-deductibility of the industry fee, which is projected to raise our effective income tax rate from approximately 36% this year to 46% at the midpoint in 2014.

Turning to the next slide, this waterfall format helps isolate the level of headwind from the industry fee alone. That fee is put on 2014. The $3.57 per share shown represents the full impact of the industry fee, including its non-deductibility. $3.19 per share represents approximately $800 million of net operating pretax improvements, which, when combined with the $0.38 per share or $95 million attributable to projected 2014 medical membership growth, just offsets the 2014 total impact of the industry fee.

As Bruce said, achieving these net operating -- net operational pretax improvements is no easy job. However, we feel confident in our ability to execute and deliver on them. The primary drivers of our expected operational improvement include the following five items.

Number one, trend vendor initiatives, such as our Humana Chronic Cares program, and in-home care for our members. While investments in these programs during the last 18 months have shown solid financial returns, they importantly have also improved the overall healthcare experience for many of our members. As we broaden the reach of these programs, and magnify their impact through the use of deeper clinical analytics and greater conductivity, we believe their beneficial effects on member health, clinical outcomes, and cost will increase substantially in 2014.

Number two, we expect that the continued improvement in our star-quality ratings will further streamline medical costs, while also ensuring a consistent quality experience for our members.

Number three, further medical services organization expansion, as well as strengthened alignment and integration of our risk-sharing providers, all three of which contribute to the continued growth in our HMO business.

Number four, cost improvements, as we continue to streamline our work processes and increase our leverage over a growing membership base, using a stable operating platform.

And number five, for our commercial businesses, we were able to pass through most of the industry fee based on pricing, thus minimizing its impact on that portion of our business.

So, despite the significant headwinds we face in 2014, we're pleased that we're able to project the stability and earnings for our core businesses, after giving consideration to the three items that are not expected to recur next year, even though we do anticipate lower reported earnings per share next year, primarily again, to the investments and startup expenses associated with the state-based contracts and the healthcare exchanges. Just as a reminder, as always, our earnings per share guidance excludes any future share repurchases.

Before I conclude, let's briefly turn to capital generation deployment. As we indicated by our guidance, we anticipate operating cash flows will be strong again in 2014, based on the strength of our current lines of business. We anticipate subsidiary dividends to the parent company will be somewhat lower in 2014, compared to the roughly $1 billion remitted each of the past three years, as we retain capital for growth in our state-based contracts and healthcare exchanges. Having said that, our balance sheet remains strong. And with our low debt to total capitalization ratio, we have significant financial flexibility and optionality for the future.

So, in summary, we're pleased with the financial results we've reported today, and firmly believe in our ability to execute successfully around the financial projections for both 2013 and 2014 that we have outlined.

With that, we'll open up the lines for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to two questions. Operator, please introduce the first call.

Justin Lake, JPMorgan.

Before I start, just congratulations to Jim on his retirement and to Steve on the Interim CFO role. Hopefully, that we remove the "Interim" over some point. (laughter) Going forward, so, my first question is on exchanges and the Medicaid investment in earnings outlook. So, I think there's a lot of confusion here in terms of the magnitude of this $0.70. I want to make sure we understand -- maybe we can just drill down to what you're expecting for exchanges and Medicaid business from a net income margin perspective in 2014. Is it fair to say you're expecting, after these and including these investments, you're expecting to lose money in both of these businesses?

This is Jim Murray. Those investments signal that for those two businesses, that we will likely lose money in 2014, two very different reasons for each of the two different businesses that we're getting into. But those investments are included in the administrative costs related to those businesses, and some of the other medical expense ratios related to those businesses. And we can walk you through why, in each of those, we feel the need to put up that investment.

As it relates to the state-based contracts, you've seen us win a lot of contracts here recently. And as we win more of those contracts, it requires us to invest in more people to deliver on the services that we're contractually obligated for. You know, things like care coordination and chronic management, long-term care support services. Hiring those people ahead of the revenue related to the individual contracts is a part of the investment spend related to the state-based contracts. And as Bruce mentioned in his remarks, another element of the investment in the state-based contracts is some of what we're contractually obligated to, obviously, is to improve the cost structures related to those different programs.

And we've looked at some of the assumptions that are a part of our pricing analysis. And obviously, we feel comfortable with what we are able to accomplish. But when you start that in the first month, obviously, you're not going to be as capable, particularly in some programs like long-term care that is new to us. And so we've prudently concluded that it will take some period of time for us to get up to speed on some of those. So those two pieces relate to the state-based contracts.

As it relates to the exchanges, I will tell you it's a lot related to what we see happening in the marketplace today that you're all very, very familiar with. There's a problem with the enrollment. And because of that, the likely enrollment that we'll receive will be changed from what we thought when we did our initial pricing. We're waiting for guidance from the government around whether they are going to change mandates, whether they are going to do things to extend enrollment periods.

And so, because of the -- what's happened, we've had to step back and say, gosh, what could happen? -- given the risk mix that might happen or come to us because of the confusion out there. And so we've stepped back and we've concluded that we need to be more conservative in our estimates related to the profitability of that line of business. And our estimate is part of the investment that we talked about here this morning.

And Justin, just to add to that, I know our investors have really encouraged us to be active in the dual eligible market. And I think, over the last 18 months, we've had a strategy of building it as opposed to buying it. And I think in the long run, we will be much more successful and have a greater return to the shareholders, as a result of our organic growth and the investments we're doing today.

And looking from the shareholders' point of view, I think Jim and his team have executed quite well in being able to win contracts. It's a sizable part of our -- could be a sizable part of our business in the short-term. And we look at these investments in the dual eligible side as just a -- as we say, it's right before the revenue generates, as opposed to a long-term investment that we're making a bet on. We're just positioning the organization to service the business we've won.

Okay, so it'd be -- so, can you bifurcate for me then -- what is the operating margin assumed for the business? So it sounds like you expect you might -- even though you bid on exchanges to make money, given what's going on out there, you expect you might do worse than that. So, if you -- is the investment spend -- or the investment spend include a negative margin? Or is there a negative margin in exchanges now embedded in guidance plus an investment spend?

Hey, Justin, this is Steve. No, I think the negative margin is part of the overall $0.70. So that's all -- that's an all-in number. And again, in terms of long-term margins, as you know, we've talked about our ROSC and earning our cost of capital. And clearly, our expectation is to earn in excess of our cost of capital in these businesses.

So, and you know that the capital requirement in these businesses will be somewhere between, say, 9% and 12%, depending on the state of the HMO. So, we will get to the target return ultimately in both these businesses. And with respect to the number, in both the dual investments that Jim talked about and the exchanges are both significant. I wouldn't say one of them is a lot larger than the other, and just to give you a little guidance around the number.

And obviously, the ranges around this number are pretty significant, due to all the uncertainty with everything that we're talking about here. So you'll see pretty significant ranges around our individual membership guidance and our revenue guidance. And clearly, as we go through the next several quarters, and even the next year, we'll continually update you on these -- on how we're doing in these businesses.

And just to be clear, we feel very bullish about both of these opportunities, and that's why we've invested so dramatically in them. And Bruce showed you a slide in his remarks about where these ultimately could result. So, again, feel very good regardless of what's happening as we speak in terms of the exchange opportunity.

And just to put a bow on this. Medicaid is breakeven and then there's another, let's say, $0.35 of startup losses. Is that the way to think about the margin itself as kind of breakeven and then you have $0.45 of losses? Or is that not (multiple speakers) right?

Justin, every time I answer one of your margin questions, I get yelled at after the fact. (laughter) So I think (multiple speakers) the guidance that we've provided on the guidance sheets is what we'd like to ask you to look to.

Okay. All right. Thanks, guys.

Justin, just to -- this is an important question I know for you. Just we are oriented to having industry margins in this business, standard industry margins. So as you look across the competitors, I don't think we'll be much different in that regard. I do think, because we're investing organically as opposed to buying, we're going to have a higher return over the long-term.

But the real key here is we have a very big book of business that's kind of come on over the next 18 months. And we have to prepare the organization to service that book of business. And therefore, we are -- I mean, that's what you see hitting the P&L is this preparation of the book of the business. I don't think we want to get into what the margin is in the first quarter versus second quarter versus third quarter, but we are targeting long-term sustainable margins in this business and our industry-standard, with a high return on capital because of our deployment is organic versus acquisition-driven.

Thanks for all the color.

Joshua Raskin, Barclays.

So on the $0.50 to $0.90, I'm curious, can you compare that to the investment spending that you guys have talked about in 2013, and then help us understand how much of that is going to be sustained, i.e., continued to be invested in 2015? I guess I'm just trying to figure out are these costs sort of normal course of business because you're growing in new areas? Or are these really extraordinary costs that are going to fall off the P&L in 2015?

No, I think they're different, Josh. I think, number one, the investments we talked about in 2013 -- by the way, this is Steve -- the investments we talked about in the first quarter were around clinical investments that we were making this year, and we've had similar ones the year before. But those clinical investments are enabling us to produce the results in the core business that we shared with you this morning for 2014. So that clinical infrastructure will continue kind of as part of the run rate. I think that was a reconciling item from what we originally started with in terms of 2013 guidance, and where we ended up.

But those investments are kind of building our infrastructure and become part of the core run rate that produce kind of the core business results that we shared today. And when we look to the new investments that we're talking around, around these new businesses, they're clearly different. As Jim just described, we have a long-term revenue opportunity for both of these businesses that we are getting into. And with the duels business, it's largely startup costs. And as we get into year two and year three of those businesses, the margins will normalize. And on the exchanges, obviously, there's a lot of uncertainty around that business that we wouldn't expect to have long-term. So, they're clearly different types of investments.

Got you. (multiple speakers)

(multiple speakers) And I'll just throw in real quickly that those investments that we're making on the core Medicare business are going to be ultimately utilized to service the state-based contracts as well as the Humana exchange business that we're going to. So we're going to leverage those across all of these revenue opportunities, which is also a really good thing for us.

Okay. So there may be some spending in 2015 in terms of investments, but the costs that you're incurring in 2014 you would not expect to recur? These are the initial hiring and buildout to support these new businesses?

That's correct.

Or the other way to look at it is we will have revenue that will be offsetting those investments as opposed to having incurring the startup costs.

Okay. That makes a lot of sense, Bruce, as well. And then just in terms of -- you know, you guys put up a slide around the pressure on Medicare Advantage rates going into 2015 as well, and I think that's helpful as we near or get closer and closer to February. But I'm curious if we should think about -- it looks like you guys are incurring sort of the worst year in terms of reimbursement we've seen in a long time, and yet your membership is accelerating over 10% next year. And your profitability, your margins look like they're relatively stable.

Should we think of 2015 as sort of, hopefully, Humana can do a similar thing? Or is there a cumulative impact here where 2015 becomes much more difficult to sort of do that same -- have that same level of success?

I think it's hard for us to comment on 2015. I'd like to sort of stay away from that, just where we're 16, 15 months out from there. So I'd like to stay away. But your point's a good one from the standpoint of what you see in us being able to keep Medicare Advantage affordable is really a result of our investments, as Jim was referring to, around our clinical capabilities. And I think, as you look at the strength of the organization, the strength of the organization is around the clinical capabilities, specifically in the integrated delivery model.

And being able to utilize that, both in Medicare Advantage that has positioned as well in being able to have an offering that allows us to grow the membership, and also, obviously, be able to absorb the cuts that have taken in 2014, it also positions us well to take advantage of the opportunities and exchanges, and in the dual eligible side. So, I would continue to focus on the long-term success of Humana or any organization in this industry, whether you're in Medicare Advantage or any other industry-related, is you need to have depth in the clinical capabilities.

Okay, that's helpful. Thank you.

Ralph Giacobbe, Credit Suisse.

One, I just wanted to clarify -- so the underlying assumption around cost trend is in that 5% to 5.5% range, is that correct?

Actually, it's 5% -- 4.5% to 5% is what it was this year, and we're saying 50's to 100 basis points higher. So that would leave you in the 5% to 6% range.

Okay. I'm sorry. 5% to 6% range. Okay, all right, that's fine. And then I think this may have been asked different ways, but -- so the core performance when I look at it just at the bridge, looks like core EPS could grow by sort of $1.40 or over sort of 15% off the 2013 type of base, ex, obviously, the industry tax and investment. I guess, one, is there anything I'm missing there in terms of looking at it that way, in terms of a growth rate?

And then, I guess, given sort of the levers that you are able to pull, your comfort level and sort of continuing to sort of grow the business, and how you envision or think about the long-term growth rates over the next three to five years?

Hey, this is Steve. I'll take the first question. And on the -- I'm looking back to the -- I'm trying to follow your numbers on the growth in the core business

I think he added the $1.38.

The dollar --?

5% to 4%.

Okay. The --

The $1.01 plus the $0.38.

Got it. I'm with you. Yes. So that -- in terms of overcoming the industry fee, yes, that's correct. Yes, you're looking at that correct.

(multiple speakers) And then just the growth rate going forward?

Yes, the comfort level. To Bruce's earlier comments, looking out further with 2015 and the funding levels in the premium tax or the industry fee is a ways off, but we feel pretty good about what we're able to accomplish in terms of our focus on the infrastructure that we're building around the clinical capabilities. And Jim Bloem referenced many of these in his remarks -- the focus on getting people into our Humana Cares program to address them at their home; going into their home and identifying things that we can do to put them into some of the programs that we have at Humana.

And a lot of focus around how we can provide more touching of our members as time goes on, we feel, has benefited us this past year. And we're in the process of identifying those kinds of things that we need to focus on for 2015 and beyond. Obviously, the future growth potential for us is a function of what happens in Washington in the funding levels, and we'll see how those play out. But we feel very good about our ability to control medical spend and improve quality for the people that we serve.

And I think just to build on the growth rate, as Jim was talking about, first, we assume a rationality and reimbursement going forward, and stability, because I think both for companies to invest and continue to advance the industry, and be able to lower the cost of healthcare, you need to have a stable environment. But as you look at the businesses that we're investing -- and I really would like the investors to take away from this -- we are investing in businesses that have a high degree of membership growth.

And, to me, when you look at individual exchange opportunities, the dual opportunity Medicare Advantage, just from a demographic point of point of view, but also from a penetration point of view, those are very high-growth industries within our industry as a overall basis. And I think as you look at the long-term growth opportunities for Humana, you should really look at the underlying businesses we're investing in.

Okay, thank you.

Peter Costa, Wells Fargo.

Congratulations, both Steve and Jim. Moving on to the question. Your slide on page 6 with the 2015 Medicare Advantage rate pressure of 4%, or a little more than 4% -- can you tell us what's in that number? How much is the incremental health insurance fee impacting that? How much -- and then what do you have in there, like recalibration and stars -- and is that the industry stars or Humana stars? Because Humana did much better on the star program than the industry as a whole.

Yes, this is Steve. I don't have the exact figures in front of me. I do -- as I recall, the demonstration project going away from the stars is around a negative 1.5 to 2 range. And the industry fee, as you know, kind of goes up from about 1.3% roughly in this year to about 1.75% or so next year. And there is a non-deductibility aspect of that as well, so that's about a 45 to 50 basis point increase in the fee, and something in that range. And then -- so you can kind of calculate those two, and see how much of that bar is due to those two. And everything else is kind of just a forecast of what we think maybe in the normal CMS machine.

I think it's the Humana stars, not the industry stars, that's reflected in that number. (multiple speakers) That was one of those questions. (multiple speakers)

(multiple speakers) That's correct.

Okay. And then can you talk about the third quarter? It was a little bit lower operating expense. Did you move operating expenses into the fourth quarter? Because you talked about sort of higher operating expense in the fourth quarter from marketing and clinical spend. Or was that an increment based on where you were in the year you pushed up the amount of marketing and clinical spend?

Let me make sure I understand your question, Peter. But I think there is more marketing spend in the fourth quarter versus, say, last year. So (multiple speakers) --

Is it more than you could have expected to have when we gave guidance before? Or did you just move operating expense from the third quarter into the fourth quarter?

No. It may be a little bit more, not a huge amount more, but it's a little bit more. And again, we're starting to ramp up a little bit for the duels expansions.

The duels expansion, we're starting to hire for those too, so there's a little bit of that in there as well.

Okay. And I'm sorry if I missed this, but in the $0.38 of membership earnings, is there any earnings from that -- positive earnings from that -- from the duels Medicaid or the exchanges? Or is it a negative impact from those three?

No, I think that that's mainly -- that line item is mainly going to be our core Medicare, our core business growth. And all of the results from the duels are going to be down below as the net investment number. (multiple speakers)

Okay. Thank you.

Both the duels and the exchange in the investment number.

Yes. Thank you very much.

Kevin Fischbeck, Bank of America Merrill Lynch.

Kevin? Kevin, is your line unmuted?

Yes, I'm sorry.

We've got you now. Go ahead.

Great. So I guess the main question I wanted to understand is, it's helpful to hear the operating margin being up, but the industry fee, since it's not tax-deductible -- I mean, is there a way to kind of think about this on an apples-to-apples basis of how you're thinking the MA book being on an after-tax basis in 2014 versus 2013?

This is Steve. So I think if you -- gosh, I think what we did in the chart, in the earnings chart that's in the press release, is we broke out just the non-deductibility aspect of that. So, I think you can kind of take the numbers we've shared with you and assume that there is an industry fee of around, say, 130 basis points to 135 basis points would be a reasonable estimate. And if you assume a tax rate of, say, 36% and change, then you can kind of gross that up and calculate the non-deductibility of that. And so I think that's -- I think we can kind of do that off the chart (multiple speakers) the way I think about it.

Okay, because the thing about the chart was that the chart had like a 2.5% -- that your gross impact and net impact, which is obviously different than what you just -- Matthew just went through. Is that just because you can pass it through on the commercial but you can't pass it through on the Medicare?

Let's see. I'm not sure how to think about that, but I would say on the -- with respect to the fee itself, on the commercial side, largely, we were able to pass most of that through. There may be some limited instances where, because of the MLR minimums in our small business maybe are a little bit -- we could be a little bit stressed on how much of the fee and the tax impact we can pass through.

On the Medicare side, it's -- we think of the fee as a new part of our cost structure that goes into the calculus of the bids that we do. And it had to go in there with the rates and everything else that we do. And we had to achieve ultimately the target margins that we've shared with you today. So it kind of -- I think of them as being a little bit different, but I don't know if that helps, so. (multiple speakers)

(multiple speakers) Because I guess like the retail MLR -- go ahead.

We would say that when you put all of the industry fee and the funding changes and the secular trends on the sheet of paper, then you have to try to identify trend vendors and other things that we do as an organization to offset the impact of those, all of which create our target -- go into creating our target margins. And so I would say that we were able to successfully pass through the impact of the industry fee to our Medicare book of business. However, explicitly sending a bill for that was not part of the equation. (multiple speakers) Just look at what happened with the commercial book of business.

Yes, because I guess when I look at the retail segment MLR, the guidance for next year kind of brackets what you're talking about for 2013. But if we're saying that the fee is 1.3, it grows -- call it 2%, and does that mean that your MLR guidance is really, on an apples-to-apples basis, 85% to 87% versus 84% to 84.5%?

Yes, I'm not sure I follow that math, Kevin. I guess what I would do is if I look at the chart that's in the press release that rolls forward the EPS, in there is a -- you see the investment -- the investments are in that in the exchanges. And the duels are also all in that retail guidance. But in that there is the changes in core operating margins number that's a positive $275 million. And in there, we also had to overcome the industry fee itself, plus improve it by $275 million in order to hit the bottom line that's on the schedule. I don't know if --? And the non-deductibility aspect of that is over (multiple speakers) --.

I'm going to try to take this real quick and see if I can answer it, and maybe between the three of us we can do this. The -- what you see is the -- is in the benefit ratios that we have, that you do see on the retail side us forecasting a range that does show a decline. That is really coming and highlighting the benefit of our clinical programs that are impacting the clinical costs of what -- how we are able to help ensure that we were able to keep the benefits and the premiums at a flat rate at the membership level.

Inherent in that is that we were able to overcome passing the tax back because we paid for it with the lower cost of the clinical side, so -- and the Medicare side. And so it's a little confusing because we didn't really pass it back. We kept the rates the same, we kept the benefits the same, but we're able to pay for that through hard work through our 15% solution. And you see that in the metrics and the -- on the benefit ratios that we have.

Okay, so maybe just the way to think about it is the comment that you feel like you were able to offset the industry fee operationally. So I guess maybe my second question would be that -- how do you feel about the membership growth that you're looking for? Because oftentimes when you see strong membership growth, it comes with potential issues on the MLR side. I mean you're talking about I guess maybe 9% or 10% retail MA growth, if you pull out the duels, which is about I think twice what CMS is expecting the industry to show, and most companies are talking about growing less next year than they did this year. You're talking about almost doubling it. I mean, how comfortable are you around the benefits that you've set and how you're positioned for next year versus what your competitors seem to have done?

Yes, this is Jim Murray. We're very excited about our growth potential, and in large part because of what happened to us in 2012. We went through that situation where we had the new member growth in 2012. And as we tried to understand what happened in 2012, we identified a number of initiatives that we should embark on, which helped, quite frankly, to get us prepared for this 2014.

Getting people into programs faster and creating the analytical tools to enable us to do that is a big part of what helped to get to where we're at for 2013 and what we expect to happen in 2014. So, because of what happened in 2012 with us, and the new members that we got in 2012, we've developed a number of things that are part of our clinical programs that we feel very, very comfortable with, and are very, very excited about the growth potentials that we've shared with you here today.

All right, great. Thanks.

Matt Borsch, Goldman Sachs.

Can you help us understand how much operating cost improvement is part of your achieving goals on the Medicare Advantage side in particular? Is there any way you can help us sort of understand that in terms of how much percent, if this is accurate, you may be bringing down operating cost per member? And then I had a follow-up.

Hey, Matt, this is Steve. There is a -- it's not -- there is a little bit of operating cost improvement, as we've talked about. As we grow, we benefit from that scale. So, I don't think we guide to that specific number; we guide to the segment in total. And -- but there is -- there's some improvement; I can't give you the exact number on that.

Okay. (multiple speakers) And I was just going to say, when we had come to visit you guys recently, correct me if I'm wrong, but I felt that you had hinted towards achieving same-store trend on Medicare Advantage benefits, i.e., the ones that don't change year-to-year in negative territory. Is that accurate as an observation? And is that still accurate? Can you give us any further elaboration on that?

Can you go into a little bit more detail on specifically what you're asking -- I'm not sure I'm understanding (multiple speakers) that?

I guess what I'm referring to is, if you think about the per-member costs for the traditional Medicare benefits (multiple speakers) and --

Are you talking about medical costs or administrative costs?

Medical costs. No, I'm talking about medical costs.

Okay, got it.

So, you know, secular trends might be, in any given year, in the low-double digits, low to mid-single digits -- sorry -- low to mid-single digits. But I think you've referenced bringing that down into negative territory for next year -- was my understanding, at least.

(multiple speakers) I think when we talked a couple of calls ago, we highlighted that with funding -- this is for 2014 -- with funding cuts in the industry tax and secular trends, that we were looking at trying to overcome about an 8% or thereabout cost reduction. And what we detailed back then were the trend vendors around homecare programs, the transition program that Jim Bloem referenced and I think Bruce Broussard referenced. The in-home assessments, which are the early identification of folks who can go into some of our clinical programs, contracting both facility and pharmacy contracting, the growth of risk-sharing contracts and getting some of the providers that we work with to modify their behavior around quality and costs.

Some of the programs where we did HRA's much more timely and got the people identified that might benefit from some of these programs, that was a big part of our trend vendor work that we've detailed before. The MRA work that we do every year, like a lot of our competitors, is a big part of how we offset some of that 8% that I talked about.

One of the things that goes lost in this discussion -- we talk a lot about 2013's bids and the premium and benefit changes that we made for 2013 because of our 2012 problems -- well, actually the 2014 premium and benefit changes were very similar to that which we did for 2013. But what we were fortunate enough to have is all of these other things where maybe some of our competitors did not. And so, when you put all those pieces together, we feel very good about how we've attacked that 8%, and now we need to do that again for 2015. But we're into a rhythm there and we feel very good about the process that we've created to do that.

And if I could just follow-up on one other topic, which is on the non-recurrence of prior-period reserve development, which I'm just looking at your slide deck table here, I think that's $110 million as a bridge negative part of the bridge you have to climb on 2014. And I just wanted to ask about that $110 million because the gross PPRD -- and admittedly this is gross -- I think that you've disclosed in the press releases is [319] so far for this year versus [170.80] a year ago. So -- and there is a higher number obviously on the reserve roll-forward table. So can you just help us understand getting from that [319] -- and that's a year-over-year change, by the way, of [141]. How do you bridge that to the [110] there?

Yes. Hey, Matt, this is Steve. So the way to think about the PPD and the reserve table is if you look at say the last three, three to four years of the reserve development as a percent of the total reserves, and you would kind of get an average percentage there, that would give you kind of -- because we use the same methodology year-in/year-out, you would get kind of a normal what you might expect.

And then when you do that, you see that this year, as you noted, is more than normal. And it's actually probably a bigger number than [$110 million] as you pointed out. But in the [$110 million], because we do have risk-sharing arrangements with providers, we've netted that down to what the true impact was that we think was greater than normal net of our risk-sharing. Does that make sense?

Okay. It does. Thank you.

And not to pile on, Matt, but we're pleased with the current year PPD because, as you know, when you do a bid for 2014, you start with your 2012 base level. And to the extent you see favorable development during 2013, it makes you feel better about 2014's achievability.

Right. It makes sense. Thank you.

Carl McDonald, Citigroup.

First question, wanted to come back to the retail segment margin assumptions. So based on your guidance, you're at 4.8% pretax for 2013 in the retail segment. As reported, you're projecting 4.6% in 2014. I'm calculating the industry tax is worth roughly 80 basis points. On an adjusted basis, the retail margin in 2014 would be about 3.8% or down 100 basis points versus this year. Is that a reasonable way of looking at it?

I think so. Remember that the $175 million of investments in the duels and the exchanges are also in that number too.

Sure, of course, yes. And then second question just interested on your thoughts on the exchange strategy. Particularly I noticed there's a number of markets where you guys tend to have a very attractive price from a consumer perspective in gold and platinum products. There's several markets where you're the only platinum product that's available. So, just interested in thoughts around the strategy and risk of adverse selection.

Yes, I think the big thing for us is most of the markets we went in with an effective network. And that has allowed us to be very price-conscious -- or attract a price-conscious member. And so, when you look at our pricing, you really need to look at the benefits package that's part of that. And obviously, when you have an effective network, you're going to have a reduced opportunity for choice. And so, we're looking for the members that are probably less oriented to selecting their provider in a broad way, and we think that those members will probably have less utilization in the particular markets that we're in.

(multiple speakers) The other thing that I would add would be that people who are a lot smarter than me have done fairly sophisticated models, and they've studied the impact of risk adjustment and the risk adjustment process, as it respects the older age levels. And they've gotten themselves pretty comfortable that the slope between the different metallic tiers is pretty reasonable.

And so, we're actually fairly positive about folks who might come to us in those higher metallic tiers and our pricing reflects that. Some of our competition seems to have also picked up on that, while others of our competition didn't seem to spot that opportunity. So we've stepped back and we feel really, really good about our pricing in many of the markets that we're in.

Great, thank you.

Christine Arnold, Cowen.

Just a few clarifying questions.

Christine, we can barely hear you. Can you speak up?

That a little bit better?

Yes. Thank you.

So I understand that you're embedding in the $0.50 to $0.90 some expectation for potential exchange losses. Is it possible to size -- I look at the 3R's, I'm really just struggling without a fleet of actuaries to think about kind of what a range of outcomes could look like. What kind of losses in terms of pretax, after-tax margin, however you want to think about it, do we think we could get on the exchange enrollment?

I'm not sure I'm going to specifically answer your question. I'll give you some thoughts. Steve earlier mentioned that both of the investments are significant for purposes of thinking through how you may split those apart in your own mind. I would tell you that the folks that we have that are very smart have stepped back and said, based upon what's been happening of late, what might this population that we get look like? And they talked about using a COBRA population. And many of you are familiar with COBRA. And people who buy COBRA are likely in need of those kinds of benefits.

And so they've studied that COBRA population, and they said were we to get a population on the exchange because of some of what has happened that looks like a COBRA population, this is what could happen. And that's reflective of some of the investment spend that we've shared with you here today.

Okay. In terms of the levers in Medicare Advantage, it looks like you're going to offset the health insurance fee and the recalibration of the risk adjustment model, and a lot of other things. Is it possible to think about what you feel really confident you know you've gotten, versus things that are kind of still out there and squishy? I mean, capitation feels like a known.

Were you able to negotiate the health insurance fee in your risk-sharing capitation arrangements? Or is that still outstanding? Clinical programs? How much help are you counting on in retail MA? And how much do you know is going to come versus not? Is there any way to size kind of what's known and what's not -- like, three-quarters is known? Half is known? All is known? How do we think about that?

You're referencing the trend vendors that we are anticipating for 2014?

Exactly. Like the things that you're anticipating in the MA, particularly the retail -- I guess we can just look at the retail margin.

Sure. All the contractual stuff that I talked about earlier is obviously done and in the can. You know what we're doing relative to some of these other programs is, we've got a team of actuaries. You may have heard us detail our Friday meetings, our trend vendors (technical difficulty) [15%] solution meetings. We've got a team of actuaries who are constantly studying how we're doing on each and every one of these programs that we've talked with you about in the past. And they continually tell us that the investment that we make in those, that we've shared with you in the past, is producing the results that we had anticipated.

As we grow that membership and enrollment in all of those programs, we have the actuaries go back and restudy that. And so as long as we get to the growth in those programs that we think is necessary to get to the 2014 levels, and we're very close, I would tell you that we feel very good, based upon a lot of smart actuaries looking in the rearview mirror about the beneficial effect of these programs. And so I sit here today pretty confident that what we talked about four 2014 will come to fruition.

Okay, so it sounds like we're better than 90% there. We're not guessing on a lot?

90% is your number. (laughter)

Okay, all right, thanks. Appreciate it.

Thank you. This is Regina. We're getting really long on the hour and we've got several more people in the queue. We want to try and take as many questions as we can, so I'm going to ask that those who are still in queue limit themselves to one question, please.

Next question, please, operator?

Sarah James, Wedbush.

I hate to belabor this point, but I'm still a little confused on retail MLR. The midpoint implies a modest improvement, but you've got the non-repeat of prior period development, and inclusion of exchange members and maybe MA duals, all of which could add upward pressure. So, can you talk what you're assuming for the retail utilization trends? And then bridge that to where the underlying retail medical cost trend for 2014 is, from a baseline perspective? And how that compares to what it would look like post the Humana trend vendors?

Let me go back to the MLR first. If you think about -- I think the MLR, because of the industry fee being one of the items that we had to put into the calculus when we did the bids, the MLR needed to improve in order for us to hit the bottom line margin, because we had a -- now we had a large fee to overcome, including the non-deductibility. So, we would've expected to have had MLR improvement in that business in order to overcome that headwind, which, I think it's apparent in the results that we did.

So, as you're doing that math, you're seeing that. And again, just with respect to how we did that, I would go back to the overall trend vendor discussion that we've talked about, with our clinical programs and clinical assessments, and the model and the investments we've made over the past 12 to 18 months to produce that result. So, I don't know that we get into specifics about what may be a secular trend is and what our trend is we have; there's so many variables there, we tend not to get into that level of detail.

Steve McCulley Does that make sense, Sarah?

Yes. Can you discuss at all -- I know you've done this for the group, but you've talked about where the group cost trend will go from 2013 to 2014. Does that hold true for retail? Are you assuming a 50 to 100 basis point uptick in cost trends from utilization? Is that the same in this segment, so the rest we can think of as being trend vendors?

No, I don't think it's the same. I think we start with -- on the group side and the commercial trend, we look at a number of variables. Our actuaries look at a number of variables that have been underlying utilization for the past couple of years, and what those same variables might predict utilization is going to do in the next couple of years.

So, given everything that's going on with healthcare reform and the economy, you've got a lot of different things impacting the commercial cost trends in that population versus the different set of items affecting utilizations in Medicare. So I think it's a bit different. So, we tend to see the utilization of seniors, being on a same-store basis, relatively constant over a period of time. So we don't seem to see the same peaks and valleys that we might in an under-65 population that might be more impacted by an economy or other things.

So, we see kind of a -- we tend to think of an underlying trend rate for seniors, and then we go in and work on, as we work on all of our clinical programs and all of our trend benders. And we're constantly studying the impact that our work is having on our population, and kind of compare that back to the underlying trend rate as a whole. So, I don't think we would say that the base trend rate, if there is such a thing, for the Medicare fee-for-service population is doing anything different going forward than it's done in the past. We see that as fairly constant.

Thank you.

Scott Fidel, Deutsche Bank.

I just had two questions just on the enrollment guidance. The first is just on the individual enrollment guidance that you put out. Just if you could give us some details on what you're thinking, in terms of on-exchange enrollment as compared to off-exchange enrollment attrition in individual. And then just second on the Medicare Advantage enrollment growth that you're guiding for, if you have a view on how that will split out between HMO and PPO. Thanks.

This is Jim Murray. You've asked the hardest question to try to figure out to be as brutally honest as I can be. Given where we're at today, our assumption is that there will be an extension to the open enrollment period. If there's not, then some of the numbers that we put out there would probably be in question.

So, we expected a $500,000 sale result as a result of the exchanges. Initially, because of what's happened, we've seen some guidance from a lot of government entities and what-have-you suggesting that that might be cut in half. We've evaluated that, and that's kind of where we're at, around [$200,000 to $250,000]. Again, it all is an impact of how long the enrollment period stays open.

From the other side, from off-exchange, we expect that there will be some deterioration in our existing membership of the -- we've had to send out some letters. Some of those letters were to change the effective date of the plan. Some of the letters, like you've seen in the press, had to do with the cancellation of those particular policies because they weren't OCCR-compliant. We've taken all that, and we've done, frankly, our best guess at what the enrollment might be. But I will tell you that -- and there is a wide range -- but I will tell you that that's the one projection on this page that I'm most up in the air about.

And then just on the MA split?

Medicare enrollment. What about it?

What was your question on that one, Scott? I got so wrapped up in my answer on the first one that I forgot your second question.

Sure. Just the breakdown between how you're thinking about, in terms of the adds, the split between HMO and PPO -- on MA.

Yes, I don't know that I have that. Do you have that?

I think it will be mostly HMOs what we anticipate most (multiple speakers) --.

I think that's the case but I don't know the exact (multiple speakers) --

I don't know the exact percentage, but clearly, we believe it will be mostly HMO-weighted.

And this is Regina. I apologize but we're running short on time, so we're just going to take one last question.

And your last question is from the line of Chris Rigg of Susquehanna International Group.

Thanks for squeezing me in here. I just wanted to come back to a few of the questions right at the outset of the Q&A. With regard to the $0.70 of investments, can you help us -- or just maybe clarify for me, what's sort of truly one-time in nature that you wouldn't expect to occur again in the future? And then sort of just what's timing differences in Medicaid premiums coming in versus having boots on the ground in the state? And then just more generally, can you give us a context of what you actually think losses might be initially? Thanks.

This is Steve. I'll try to -- I'll start off again. I think this -- I think the way we think about what we said is it's $175 million or the midpoint of that range, which is $0.70, is effectively going to be losses in those two businesses that result -- first of all, they're both significant. There's not -- I wouldn't say that one's a lot larger than the other, so -- but the nature of them is different.

As Jim described earlier, in the dual eligible expansion, most of that is infrastructure startup before the revenue. As we're winning contracts, some members will come onboard. They don't all come onboard at the same time. They come onboard ratably throughout the year. And so we have to have our infrastructure in place ahead of the revenues. So, then there may be a little bit of that investment as well as in terms of getting our programs to be as effective, in terms of managing all the variables that we have to manage with the long-term support services, and the duals, and the chronic -- the members with chronic conditions.

So, getting all that in place and up and running, think of that as mostly infrastructure that's temporary. And once the revenue gets up to the run rate, then there will be revenue to cover that cost. And then we'll start to approach the target margins that we plan to get to ultimately.

On the exchange side, it's much more of a wild card around how much membership we get and the risk of that membership that we get. And if you look at our range -- our membership range, was anywhere from negative $100,000, a positive $100,000. And the risk mix of that can be variable. So, they're different. They're not that different in terms of the magnitude in size, but they're very different in their characteristics, if that helps.

It does. Thank you.

Well, like always, we appreciate everyone's support for the organization, and especially our associates, our 50,000 associates. We make this look easy as we talk about it, but they are hard at work helping our members, and obviously, helping grow Humana. So, we thank all our associates.

With that, I hope everyone has a great day. And with that, I will conclude.

Thank you. This concludes today's Humana's third-quarter 2013 earnings conference call. You may now disconnect.