Elevance Health Inc. (ELV) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Anthem Fourth Quarter Results Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to the company’s management.

Good morning and welcome to Anthem’s fourth quarter 2017 earnings call. This is Doug Simpson and with us this morning are Gail Boudreaux, President and CEO; John Gallina, our CFO; Pete Haytaian, President of our Government Business Division; Brian Griffin, President of our Commercial Specialty Business Division; and Tom Zielinski, our General Counsel. Gail will begin the call by giving an overview of our first few months at Anthem and her vision for the company. John will then discuss our financial results for 2017 and the fourth quarter, our business unit performance and our key financial metrics performance. Finally, Gail will go over our initial 2018 outlook. We will then be available for Q&A. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at antheminc.com. We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Anthem. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advice listeners to review the risk factors discussed in today’s press release and in our quarterly and annual filings with the SEC. I will now turn the call over to Gail.

Good morning, everyone. Thank you for joining us as we review Anthem’s fourth quarter and year end 2017 performance and our plans for continued growth in 2018 and beyond. This morning, we reported fourth quarter 2017 GAAP earnings per share of $4.67 and adjusted earnings per share of $1.29, which were ahead of our expectations driven by balanced performance across our businesses. Operating revenues in 2017 grew by 5.8% to over $89 billion. Our medical loss ratio came in at a better than expected 86.4% for the year and operating cash flow exceeded $4.2 billion for the year growth of 28% over 2016. We are pleased with our improved business momentum in the quarter and our continued traction in the marketplace as evidenced by solid membership trends in key parts of our business, including our fully insured large and small group commercial markets and the completion of the HealthSun transaction, which added approximately 40,000 new consumers to our Medicare Advantage business. We finished 2017 slightly ahead of expectations serving the benefit needs of more than 40.2 million consumers, representing growth of 325,000 members during the year. Also medical costs were well managed for the year and our full year medical loss ratio came in better than expected. Our continued focus on cost of care improvements drove improved medical expense trends, specifically in our Medicaid individual and local group insured businesses and resulted in a medical loss ratio of 88.6% in the fourth quarter. As a result of our solid fourth quarter 2017 results, we entered 2018 with operating momentum and are well positioned for sustainable long-term high-quality earnings growth. One of my key priorities since joining Anthem a little more than 2 months ago has been to perform a thorough review of the business and to quickly gain a deep understanding of how the company operates and the opportunities we have to improve our performance in 2018 and beyond. I spent a lot of time in recent weeks visiting our local markets around the country and meeting with our associates as well as care providers, customers, brokers and other business partners. I have seen firsthand a strong business foundation built on a deep commitment to our communities and the people we serve and a culture that embodies our value of being accountable, caring, easy to do business with innovative and trustworthy. Building on our strong legacy, I believe we have a substantial opportunity to further raise our performance across the Anthem. I have challenged our organization has a relentless focus on day-to-day execution in order to deliver continuously greater impact on the affordability and quality of healthcare in America. Specifically, we need to advance our consumer focus innovation and data analytics capabilities to leverage our strong brand and local market position and drive greater value for our customers. While we will continue to find my view, I have some initial thoughts to share on my priorities and vision for Anthem. In the near-term my primary focus is on optimizing execution across our business segment. Anthem has been building a strong operating platform, but there is still more that we can do to better serve our customers and improve our financial performance. In order to meet the increasing expectations and needs of our members we need to increase our focus on developing innovative solutions that emphasizes affordability and flexibility and increase speed to market and delivering these solutions. We will continue to focus on the drivers of medical costs and identify new ways to deploy cost of care solutions more quickly and effectively so that we can further improve the quality of care our members receive while also reducing the costs they incur. And we will work to better leverage Anthem’s many best-in-class capabilities to drive further growth including our deep expertise in integrated care, our increased focus on provider relations, our medical cost value proposition, our growing consumer capabilities, our local market presence and our brand advantages through our Blue Commercial business in the Amerigroup name. In 2018 we will also be making incremental investments in technology modernization efforts, consumer facing digital technologies and product development capabilities. Specifically, we are accelerating our efforts to migrate our membership onto our end state platform which will improve consistency in the consumer experience and make us more efficient. Additionally, we are investing in new digital and mobile capabilities to drive greater automation and enhance our consumer experience. This includes developing new external facing applications and portals that will make it easier for members, agents and care providers to conduct business with Anthem and also enhancing capabilities for more personalized and responsive customer’s choice. We are also building an end to end modular process to allow control flexibility to efficiently configure product designs and make it simpler to integrate those products onto our data platforms. These investments are a few examples of our efforts to make the healthcare systems simpler to navigate, more effective and more affordable for our consumers. Looking more specifically at the growth opportunities in our businesses, Anthem’s government business which currently represents over 50% of consolidated operating revenue is positioned for sustainable growth across the Medicaid and Medicare platforms. Our Medicaid team is targeting a significant pipeline of opportunity as states increasingly recognize the role of that healthcare companies like Anthem can play as their partner, working with an ever tightening budget constraints to better manage the healthcare of the individuals they serve. We see $80 billion worth of incremental business opportunities between now and the end of 2022, much of which encompasses state specialized service population. We are also focused on developing strategic partnerships with other health plans and providers including plans in the Blue network that combine our best-in-class Medicaid operating platform with their local market expertise. For example, we recently formed a partnership with Blue Cross Blue Shield of Minnesota which goes into effect in the fall of 2018 and will serve approximately 375,000 members by the end of the year through its Medicaid and dual eligible program. In 2017 we also partnered with Blue Cross Blue Shield of Louisiana to form Healthy Blue which currently serves approximately 240,000 Medicaid members. Looking ahead, we see opportunities to continue to leverage our deep expertise in Medicaid to form new partnerships and alliances with our Blue colleague providers and other health plans to expand our presence and reach into new markets. In Medicare, we continue to see substantial growth opportunities as approximately 11,000 baby-boomers aging to Medicare eligible population everyday. Historically, Anthem has lagged the Medicare Advantage penetration and we have been working to capture more of our fair share of this market. I believe we are now well-positioned to leverage our improved individual Medicare Advantage platform. Specifically, I am confident that we have the ability to leverage our strong brand, our more competitive product offerings and our focused marketing and sales investment to further capture share in this growing market. We are encouraged with our strong individual Medicare Advantage growth rate in 2017 and continuing through the 2018 open enrollment period where we have outpaced the growth rate as a market. We continue to expect organic growth rates in the low to mid double-digits over the next few years outpacing growth in our existing markets of 6% to 9%. Our Medicare Advantage market share will also benefit from the completion of our acquisition of HealthSun and the pending acquisition of America’s 1st Choice. Together, these companies will add approximately 170,000 new Medicare Advantage lives as well as deep provider relationships in the key Florida market. With the addition of these plans, our total Florida Medicare Advantage membership will be approximately 220,000. We are now focused on strengthening our capabilities in the employer group business and expect to see noticeable growth in this Medicare Advantage segment soon. Supporting all of this growth is our improved star rating now with over 70% of our membership residing in 4-star plans for the 2018 payment year. Additionally, Anthem will be only carrying with five 5-star plans following the close of America’s 1st Choice acquisition. In the commercial business, there is meaningful opportunity to leverage our local market knowledge and improve the historical membership trends of Anthem’s fully insured medical business at appropriate margins by providing more consumer focused offerings and investing in digital capabilities. We have a solid foundation to build even deeper relationships with consumers and care providers. For example, Anthem operates 3 of the top 10 best performing commercial health plans as ranked by the NCQA. These are superior plans, which consistently deliver top scores in customer satisfaction, preventive care and outcomes in areas such as diabetes, asthma and heart disease. In addition, we plan to extend the breadth of our self-funded customer relationships by improving the penetration rates of specialty products. The specialty team has made significant progress over the past few years improving the competitiveness of our dental and vision offerings. We ended 2017 with a commercial dental penetration rate of a little less than 20% and vision penetration rate of about 25%. Both of these rates have improved meaningfully over the last several years. We will continue to invest in our specialty products and expect continued improvement in those penetration rates in the years to come. While we have significant opportunities in 2018, another key priority during my first 60 days at Anthem has been to align the organization around plans to develop a long-term strategy focused on accelerating our top line and bottom line growth. We need to augment our recent successes in commercial fee business and Medicaid with stronger, profitable growth and higher revenue businesses. We are building an organization with an agile culture that proactively identifies and engages in new opportunities to drive revenue growth by leveraging our existing capabilities and better packaging our assets in the marketplace. One of those opportunities will be to better leverage the power of our local market presence, which is key to driving change in healthcare. Anthem has best-in-class local market share and we needed to combine that strength with our increased cost of care initiative to drive down the cost of healthcare for our members, while also delivering a more consumer focused experience and continuing to build on our depth of experience in provider collaboration and integrated care. Success in these priorities will accelerate our growth, improve affordability for our customers and strengthen our financial performance as we enhance our competitive position. Anthem also has quite a few unique assets that we are focused on packaging to better deploy in the market. A great example is our AIM Specialty Health subsidiary, which provides a variety of medical cost management provide our workflow integration and member engagement solutions to its customers and supports evidence-based care and affordability across all major clinical areas, including oncology, cardiology, advanced imaging, genetic testing, specialty RX and several others. Depending on the clinical domain, AIM solutions have been able to provide savings of 10% to 40%. Additionally, our technology platform enables 75% of provider interactions to be electronic with a user satisfaction rate of 95%. By better organizing our existing assets as well as investing in or acquiring new capabilities, we will be better able to accelerate our top line growth and diversify our revenue base. In addition, we will continue to work with our Blue partners to explore ways to leverage Anthem’s capabilities to help them improve their product offerings and competitive position. We have a unique opportunity to cultivate strategic partnerships with our Blue Plan colleagues to grow and advance the impact of the Blue system as a whole. We will also continue our strong focus on becoming a more consumer-centric company. Anthem has made some meaningful improvement to the consumer experience, which drives loyalty and helps to make the healthcare experience simpler for individual. For example, we have been focused on improving the visual clarity and usefulness of our member communication and have deployed a real-time notification feature to help inform our members of key updates like the status of a claim. By combining these opportunities with improved integrated medical and pharmacy offering through our new PBM, IngenioRx, we have a unique opportunity to deliver a highly innovative product offering to the market. We continue to expect our new PBM to deliver at least $4 billion of gross pharmaceutical savings on a run-rate basis once we migrate our enrollment to the new platform by January 1, 2021. We also continue to project that at least 20% of this benefit will accrue to shareholders on a pre-tax basis. Additionally, we will continue to be a strong community partner in the markets we serve through more than 40 million in open community activity. The Anthem Foundation is positively impacting some of the nation’s most pressing health issue. For example, together with the American Heart Association, we are tracking towards doubling cardiac arrest survival rate through hands-only CPR training. To-date, we have trained more than 6.5 million Americans. This is just one example and we believe that it’s important that our members seek Anthem out in the community and making a difference for those that we serve. As it relates to overall capital deployment, my view is consistent with what you have heard historically. We will prioritize making the necessary investments in the business first, then evaluate with M&A opportunities exist in the market, and then finally deploy capital to shareholders through a balanced approach of share buybacks and dividends. I believe a coordinated, thoughtful long-term strategy should drive our M&A plan. We will be very disciplined and how we leveraged the M&A pipeline to help build Anthem for the long-term and evaluate how to strategically position and enhance our current asset base to capitalize on the opportunities of tomorrow. Our acquisition of HealthSun and pending acquisition of America’s 1st Choice demonstrates this focus. Both of these companies fit well into our larger strategy, well run Medicare assets in strategic locations which we can further grow and scale. As a company, we remain committed to achieving our long-term earnings per share target growth range of upper single to low double-digits with a focus on generating sustainable high-quality earnings. I am optimistic that over time we can move to the upper end of this range. As I played out, our emphasis would be on improving our ability to manage the total cost of care as well as leveraging the capabilities we have to diversify our revenue base leading to improved top line growth. Combining these opportunities with an improved integrated medical and pharmacy offering through IngenioRx with very competitive economics will position Anthem very well for growth. Finally, we will focus on being efficient and effective stewards of shareholder capital. With that, I will turn the call over to John to discuss our 2017 financial results in more detail. John?

Thank you, Gail and good morning. As Gail mentioned, our strong fourth quarter 2017 results came in ahead of expectations and we entered 2018 with positive operating momentum. Fourth quarter 2017 GAAP earnings per share was $4.67 and adjusted earnings per share was $1.29. During the fourth quarter, we recorded $1.1 billion one-time non-cash deferred tax benefit as a result of the recently passed tax reform legislation. For the full year 2017, GAAP earnings per share, was $14.35 and adjusted earnings per share was $12.04 representing growth of 9.5% over 2016. The results are within our longer term targeted range and we are optimistic that we can build on this performance and drive towards the upper end of our targeted range. Membership came in slightly ahead of expectations primarily driven by our fully insured business as we finished the year with over 40.2 million members representing growth of 325,000 members during 2017. Fully insured membership finished 2017 with 15.3 million lives, a slight increase over the prior year and a little ahead of our latest projections. The better-than-expected enrollment was primarily driven by higher membership gains in the Medicaid business and approximately 40,000 HealthSun members, which closed at the end of the fourth quarter. Year end 2017 self-funded membership totaled $25 million representing growth of $278,000 or 1.1% versus the end of 2016. The increase over the last 12 months was mainly driven by growth in our local group business as our market leading medical cost value proposition continues to drive new account wins in the marketplace. Our 2017 operating revenue of $89.1 billion grew by $4.9 billion or 5.8% during the year. The increase is reflective of our enrollment growth, especially in Medicare and local group as well as premium increases across their business to cover overall cost trends. These factors more than offset the decrease in revenue from the waiver of the health insurance tax in 2017. Our 2017 medical loss ratio came in at 86.4%, an increase of 160 basis points from the prior year. The ratio for the year was better than previously expected driven primarily by our continued focus on cost of care improvements. We saw better-than-expected medical loss ratios in our individual ACA compliant and Medicaid businesses during the fourth quarter. Our Local Group insured medical cost trends for the year was approximately 6.5%. I want to highlight that we are updating the reporting of our underlying local group medical cost trend in 2018. We will now report trend based on the allowed amount, which represents a contractual rate due to providers where the amount is paid by Anthem or our members through co-pays and deductibles. The previous methodology was based on paid amount, which is the allowed amount less the co-pays and deductibles, representing only amounts paid by Anthem. This revised methodology is a better indicator of overall healthcare cost and trend. On this basis, the company anticipates Local Group medical cost trend will be in the range of 6% plus or minus 50 basis points in 2018. On an apples-to-apples basis, Local Group medical cost trends would have been approximately 5.5% in 2017 under this methodology. The 2017 full year SG&A expense ratio came in at 14.2%, 70 basis points lower than 2016 mainly due to the 1-year waiver of the health insurance tax. The ratio for the year was higher than previous expectations driven by incremental investment spending during the fourth quarter and higher incentive compensation expense from the better than expected financial performance. Now, turning to our business unit financial results, our commercial business finished 2017 strong, with operating revenues of $40.8 billion for the year, an increase of $2.1 billion or 5.3% in 2016. Commercial membership finished the year with 30.7 million members, an increase of 278,000 or 0.9% over the prior year end. This increase was mainly driven by growth in our Local Group business in both fully insured and self-funded products. These increases were partially offset by lower enrollment in our national business and the expected decrease in our individual business. Our individual enrollment declined by 108,000 during the quarter which was in line with our expectations. We ended 2017 with 1.6 million total individualized of which 1.3 million were ACA compliant and a little less than 300,000 were non-ACA compliant. Of the 1.3 million ACA compliant lives, a little more than 850,000 of them were from the public exchanges. The operating margin in commercial for the year was 7.1%, a decrease of 120 basis points from the 2016 ratio. This decrease as discussed was mainly driven by the impact of the 1-year waiver of the health insurance tax, partially offset by better than expected medical cost trends in our local group and individual businesses. The claims experienced in our individual ACA compliant business is better than expected during the fourth quarter. As a result our business was slightly profitable during the year, better than the relatively breakeven performance we have expected in our latest outlook. Now turning to the government business, we ended 2017 with 9.6 million members, growth of 87,000 lives during the quarter and 47,000 during the year. We are pleased that our Medicare membership grew by 107,000 lives including approximately 40,000 members from the recently completed HealthSun acquisition. Excluding HealthSun, we grew our individual Medicare advantage enrollment by 68,000 with 13.5% during 2017. Total operating revenue in the government business was $48.3 billion for the year, an increase of $2.8 billion or 6.2% versus 2016. The increase in revenue was driven by premium rate increases to cover overall cost trends, the full year impact of membership growth in our Medicaid business during 2016 and enrollment gains in our Medicare advantage business. The government operating margin for the full year 2017 was 3%, which is 90 basis points lower than the prior year. Fourth quarter operating margins of 2.9% reflect better than expected claim trends in our Medicaid business, partially offset by the previously discussed timing impact of retroactive revenue adjustments that were made in the third quarter that were originally expected to occur in the fourth quarter. In Iowa, we continue to work with our state partners in CMS to ensure rates for the July 2017 and 2018 period are actuarially sound and appropriately address any new members from the AmeriHealth exit. Additionally, we are very focused on making sure our July 1, 2018 rate increase is actuarially sound and establishes a path to target profitability. Moving to the balance sheet, consistent with our past practice we have included a roll forward of the medical claims payable balance in this morning’s press release. For the full year 2017, we experienced favorable prior year reserve development of $1.2 billion, which was better than expected. Our reserves continued to include a provision for average deviation in the mid to high single-digits and believe our reserve balances remain consistent and strong as of December 31, 2017. Our days in claims payable is 39.4 days in the fourth quarter of 2017, a decrease of 1.1 days from the 40.5 days we reported in the third quarter. The decrease was driven by operational improvements on our claims processing systems where we continue to focus our efforts on improving the payment integrity and increasing our auto adjudication rates leading to improve cycle times. As a result of these and other ongoing efforts, we believe our DCP will continue to trend down and be in the high-30s over time. We ended 2017 with a debt to cap ratio of 42.9%, an increase of 440 basis points from the 38.5% we reported at the end of the third quarter. The increase was primarily due to the issuance of a $5.5 billion debt offering during the quarter at an average coupon rate of 3.5%. During the quarter we did use some of those funds to complete a cash tender offer allowing us to repurchase approximately $1.5 billion of higher coupon debt including the entire 7% notes that were due in 2019. The debt raised in the quarter was also used to complete the HealthSun acquisition and will fund the America’s 1st Choice acquisition upon closing. We plan to decrease our debt to capital ratio over time back towards the low-40s. We ended the quarter with cash and investments of the parent company of $2.8 billion, which included the timing impact of approximately $900 million of inter-company funding range. Excluding the timing impact, which was resolved early in the year cash and investments at the parent company would have totaled $3.7 billion. For cash flow, we reported operating cash flow for the full year 2017 of $4.2 billion or 1.1x net income. Cash flow in the fourth quarter was negative $1.3 billion as expected driven by several timing items including the timing of monthly CMS Medicare receipts as discussed on our third quarter call and the payment of provider capitation pass-through funding, which was received in the third quarter. We also used $179.5 million during the quarter for our cash dividend. Yesterday, our Board of Directors increased our first quarter dividend by $0.05 to $0.75 per share and we continue to pay industry leading dividend. We have increased our dividend every year since we began paying a dividend 8 years ago. With that, I will turn the call back to Gail to discuss our 2018 outlook. Gail?

Thanks John. Before I begin, it’s important to note that our 2018 outlook does not include any impact from the pending acquisition of America’s 1st Choice, which we continue to expect to close during the first quarter. We expect operating revenues to grow to a range of $90.5 billion to $91.5 billion in 2018, reflecting the impact of the return of the health insurer fee in 2018. Premium rate increases to cover overall medical cost trends and growth in higher revenue PMPM insured membership in the government business. These will be partially offset by the impact of reducing our footprint in the individual ACA compliant marketplace. In total, we expect our enrollment in 2018 to be relatively flat to down a little more than 200,000. In government, we expect another year of solid growth with membership expected to increase by more than 600,000 consumers served. However, we expect commercial membership to decrease by about 700,000 members, because of our reduced individual ACA compliant footprint. We expect Medicaid to add about 500,000 lives reflecting the recently announced Minnesota partnership as well as organic growth from existing contracts. During the year, we also expect to be active participants in various RFPs. With our Medicare business, we are projecting growth of approximately 125,000 members, primarily, in our individual Medicare advantage product offering to an increasing percentage of enrollment in 4-star plans. This represents individual Medicare advantage growth in the mid double-digits and has fast driven the overall market average of 6% to 9%. In commercial insured, we project our enrollment will decline by a little more than 1 million members over the next 12 months. Our individual ACA and non-ACA compliant enrollment is expected to decline by approximately 950,000, reflecting the actions we took to only participate in rating regions where we have an appropriate level of confidence that the financial performance in these markets is predictable. Finally, our local group insured enrollment is expected to decrease by about 50,000 lives as a result of funny conversions from fully insured to self funded, as employers look to lessen the impact of rate increases resulting from the return of the health insurer fee. The decrease in commercial fully insured will be partially offset by the growth in commercial self-funded enrollment, which is expected to increase by approximately 300,000 lives in 2018 with positive momentum in securing new contract wins and maintaining retention rates in national accounts and large group employers. We expect our BlueCard enrollment will be down slightly year-over-year. Turning to the financial metrics, the return of the health insurer fee in 2018, impacts all of our major financial metrics. Such a comparison to 2017 on a reported basis this will be distorted. We expect our 2018 consolidated MLR to be 84.5% at the midpoint, a decrease of 190 basis points versus 2017 largely reflecting the impact of the return of the health insurer fee. Aside from the fee impact, our MLR outlook is flat to slightly better than 2017. Our outlook reflects the impact of an intensified focus on driving down the cost of care across our businesses, while maintaining a disciplined approach to pricing. Also profitability in our individual ACA-compliant business is projected to improve towards our targeted margin range as a result of the pricing and participation strategies deployed in 2017. These improvements are partially offset by a change in the mix of premium revenue coming from the government business, which is the higher MLR than the consolidated average. We expect our SG&A ratio in 2018 to be 15.5% at the midpoint, an increase of 130 basis points from the 14.2% in 2017, which also largely reflects the impact of the return of the health insurer fee. We anticipate using a portion of the corporate tax reform benefits for incremental investment spending as I referenced earlier in the areas of technology modernization efforts, consumer-facing digital technologies and product development capabilities. Finally, we will continue to incur some cost in our individual ACA-compliant market, which allows us to be positioned to reenter certain markets in 2019 if appropriate. Below the line, we expect investment income of approximately $825 million and interest expense of approximately $775 million. We also expect our tax rate to be in the range of 25.5% to 27.5% for the year, reflecting the impact of the reduced corporate tax rate partially offset by the return of the non-deductible health insurer fee. Operating cash flow is expected to be relatively consistent with 2017 at greater than $4 billion. As we discussed previously, 2017 operating cash flows were positively impacted by the financial reinsurance receipt related to 2016 claims and the timing of incentive compensation payments. Partially offsetting these headwinds to cash flow in 2018 is the net cash benefit of corporate tax reform as well as increased core earnings. We also expect 2018 will benefit from the impact of share repurchase activity in both 2017 and 2018. As a reminder, our 2017 share repurchase activity was more heavily weighted towards the back half of the year and our 2018 activity will look more normalized throughout the year. Our outlook assumes we repurchased approximately $1.5 billion worth of shares during 2018. We do have certain equity units that will be issued in May of 2018 and our outlook currently expects the repurchase activity we have committed to in 2018 to more than offset the dilution impact of the equity issuance. As a result, we now expect our average share count for the year to be in the range of 260 million to 264 million shares. We will continue to evaluate the best use of available capital for deployment during the year to strategically position Anthem for long-term growth. Overall, the reduction of our corporate tax rate to 21% will drive a gross tax benefit of a little less than $4 per share and our outlook expects a net benefit of about $2 per share. The difference between these two numbers reflects two items. First, we expect higher MLR rebates and pass-backs in Medicaid and certain other refunding contracts. Additionally, roughly 25% of the gross tax benefit is funding the incremental investment priorities we laid out for you earlier. To conclude, our 2018 GAAP earnings per share estimate is greater than $14.28 and our adjusted earnings per share outlook is greater than $15. The difference between these two estimates is the exclusion of the amortization of deal-related intangibles. With that, I will turn the call back over to the operator for Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of A.J. Rice from Credit Suisse. Please go ahead.

Hi, everybody. Welcome to Board Gail. Best wishes in the new role there. I was going to jump off of some of your comments about strategy in two quick areas to ask about. First, you touched a little bit on the IngenioRx stand up. I wondered if you would highlight what you are looking for in terms of milestones to know that is on track, any opportunities or challenges, which you see in that or maybe looking at it with fresh eyes would highlight and then aspect about it with the selling season for 2019 to 2020, I know most of it happens in 2020, 2021, but I am wondering given 3-year contracting, how fast do you think you guys would get engaged in actually marketing the capabilities to try to win outside accounts?

Well, great. Good morning, A.J. and thank you for the comment. First, let me address your overall comments on IngenioRx and my thoughts, but then I am going to ask Brian Griffin who leads that area to also add his commentary on it. First and foremost, as I think about the Ingenio contract with CBS, it’s quite frankly great value creator for us. As I shared in my opening comments, our ability to deliver greater than $4 billion of gross savings with 20% of that on a pretax basis incurring to our shareholders just really incredible opportunity for us. Our opportunity here is really first and foremost to focus on execution. We have got a lot of optionality in that contract and I remain very confident in our ability to execute on that across our book of business. We have been very focused on that. We want to see a flawless execution. But I think I will do that was ask Brian maybe to comment a little bit more about how the team has been working together and our outlook for the future on that.

Thanks very much Gail. Good morning A.J. At this point, I would just – I am very impressed with where the level of commitment that we are seeing out of the CVS relationship. They have been very engaged with us. They have had their senior leadership team directly engaged in the planning process. And I have been also very impressed with the dedicated resources that they are putting into IngenioRx dedicated division. Relative to the implementation itself, in terms of success factors as you can appreciate, we are building out a very detailed implementation plan that will to Gail’s point put us in a position to realize the value that we have discussed starting 1120. And in terms of key metrics, obviously we are going to be looking at things like the testing environments ensuring that we have got interfaces across our systems and doing the appropriate user testing to ensure our claims adjudication is well-positioned, well in advance of the implementation itself, including parallel processing, etcetera. So without getting too detailed in terms of the implementation process itself that detailed implementation plan where we are going to be finalizing over the next several quarters and then we will start to look at metrics against that implementation plan, but with a very heavy focus on testing itself.

Thanks Brian. I would just add A.J. we have been also building our own PBM capabilities here. So we are standing up our own model in addition to working very closely with them on the execution of the transition of the membership. So overall feel that things are progressing very well and we feel very confident about this.

Your next question comes from the line of Christine Arnold from Cowen. Please go ahead.

Hi there, welcome back Gail. Could you talk a little bit about these partnerships with the Blues and I am particularly interested in how the economics might work for that particularly on the Medicaid side and then separately how are you thinking about association health plans and the impact they might have on your small group business? Thanks.

Good morning Christine. Let me address the first question around the partnerships that we have with the – our Blue partners, strategic partnership. As I have come back to the Blues, one of the things that clearly I have seen in my time with a healthcare service company is understanding the strength of the Blues overall and the partnerships and strategic opportunities we have. We have a very, very strong Medicaid platform in our Amerigroup presence. And we have formed over five of these partnerships not only with Blue with other health plans and basically what we are doing is leveraging the strength of our platform in Medicaid with the local market expertise and their relationships in the provider network. So that’s been a really strong opportunity for us. It allows us to leverage our investments and quite frankly our return on capital for an investment that that we think gives us greater presence and depth in the marketplace. We also have some other capabilities and I have been really impressed by some of the other assets that we have inside of Anthem for example our AIM subsidiary that I shared with you is another great opportunity that I see an ability to package that, to continue to scale it and invest in capabilities. And we already do a lot of that work with other Blues across the system. And again that’s another great opportunity for us to have I think very strong strategic partnership. In terms of the association health plan, I think quite frankly there is a positive for expanding access for consumers across the space and so we are very supportive of that. We do have expertise in working in different types of association businesses across our book, so it’s something that will continue to innovate our products, but overall I feel pretty positively about our small book of group of business because we are doing quite a bit of work on affordability, obviously our brand presence and also offering new products in that marketplace. So overall I think it gives us another option for consumers and it gives us an option to continue to put additional products in the market with association health plans.

Your next question comes from the line of Chris Rigg from Deutsche Bank. Please go ahead.

Good morning, just wanted to touch on the tax reform investment spending and then tax reform generally, I guess first I think you are saying you are going to spend about $260 million-ish on investment spending this year, I was just wondering is that something you see in the base line over the long-term or something you would expect to dial back. And then separately with the tax reform you heard some chatter out of New York and California about seeking ways to potentially claw back some of the benefit over time, would love to just get your thoughts on that? Thanks.

Thanks for the question Chris. Just a couple things first is as John I think and I shared about 25% of the tax benefit is going into acceleration of investments that are predominantly focused on growth. I see some pretty significant opportunities to one simplify our business in terms of system migrations and getting us to our destination platforms plus investing in digital capabilities and product development modularization. And those are things that we had started already and that we are continuing to accelerate. But I will let John maybe give a little bit more color on the overall picture and how we are thinking about the tax.

Yes. Thank you and good morning Chris. So in terms of the tax reform maybe I will just spend a minute going through some of the dynamics associated with it. It’s really a good thing when you have lower taxes that can really help drive affordability in the marketplace and share that with the members and the consumers. And of the gross benefit that we will receive from the tax reform in 2018. About 25% of that is going to go back to the customers directly either through MR rebates or just the true up of how the health history works and things like that. And then as you said maybe another 25% associated with accelerating investments as Gail talked about. And then the remaining 50% I guess return to the shareholders. Your question specifically associated with is our investment strategic priority to the new model, tax reform has allowed us to accelerate our investment spending and growth initiatives. And we will continue to have an ongoing focus in investing in growth and adding to our market leading capabilities. As we look at our uses of capital reinvesting in the business is always something that’s a very, very high on the list and something that we believe we need to continue to do.

Your next question comes from the line of Josh Raskin from Nephron Research. Please go ahead.

Hi. Thanks. Good morning. And I will Echo the comments, welcome to the new role Gail as well. I wanted to ask just first on the Medicare advantage acquisitions just looking at the cash flow statement it looks like you did about $2 billion for HealthSun maybe there is some other true up type of stuff in there, but obviously that screens as a big number for 40,000 lives, so could you talk a little about more of the capabilities, I assume there is some provider business in their, etcetera. And then just I would be curious I know it’s hard to say explicitly on a call like this, but from your perspective on the management side, do you think there is a need for augmentation or more changes and I would be interested to get your sense on the Anthem team working together, historically it’s been geographically diverse management team, I am curious if there is thoughts to get people closer together?

Well, good morning and thank you. Two questions in there. Let me start with the management team and then I will touch on HealthSun NFP also to provide some commentary. First, I have spent the last 75 days since joining Anthem really meeting with our leaders and our managers across the country and my assessment is we have a strong leadership team with a deep understanding of the business. I’ve had the opportunity to meet many of them and I look forward quite frankly to engaging with all of our leaders, that’s something that I am going to continue to do over the next several months and through the course of time. Part of that is we are going to continue to invest in our leaders as we build the new capabilities that I have discussed and we will also be adding talent in those areas as we are going to be investing in some areas around consumer focused and digital capabilities and we will add talent to those areas. But overall I do feel that we have a strong team in place today. In terms of how they work together, I think we have a really unique opportunity and that’s why I am pretty excited actually about the opportunity to focus on execution and growth. And as I think about the strong brand our local market presence part of bringing that together, which actually has begun already and leveraging that with some scale opportunity. So, I see that as really a blending of taking advantage of our market presence and our leadership in those markets with also bringing scale and discipline from our corporate offices and our segment leadership. So I actually see a nice balance there and I think we have got a real opportunity on continuing to focus on execution at the market level bringing new products and new capabilities. And again, I am very bullish about Medicare, Medicare and our commercial penetration and feel good about our leaders. In terms of your second question, I will start my commentary on that a little bit, because I think it plays into the strong growth I feel that we have in the Medicare space. Over the last several years, Anthem has been investing in really repositioning Medicare and you will see from the results as over 70% of our members right now are in 4-star plans plus we have 5-star plans, which is very unique among competitors in the space and two of those are in Florida. HealthSun really gave us the nice footprint along with America’s 1st Choice and gave us scale in that key Florida marketplace. And it’s more than just the health plan and the members, obviously, it gives us clinical capabilities in the market and a deep penetration and an opportunity to really leverage some of the work that’s been done in that community. But before I go into too much detail, let me ask Pete to comment, because he leads that business and I think he can give you some great color on what’s happening.

Thanks a lot, Gail and good morning Josh. Yes, I will just reiterate what Gail said in large part we are really excited about this transaction and a key geography for us Florida, which we think is a really important Medicare Advantage market. Don’t think about this transaction in isolation of 40,000 members as Gail talked about and you mentioned Josh in terms of capabilities included in the HealthSun transaction are 19 wholly-owned care centers. We are very focused on managing the chronically ill. We talked about that being a very important part of our business going forward managing the chronically ill effectively as well as managing dual eligibles. And then I will add obviously a high-quality asset, one of the few companies nationally that have a 5-star plan. So, we are really excited about this transaction and also the growth opportunities that exist down in South Florida. And with the combination of America’s 1st Choice, we are talking about spanning a lot of the state of Florida both in the central part of the state as well as in southern part of the state.

Your next question comes from the line of Kevin Fischbeck from Bank of America. Please go ahead.

Okay, thanks. Just want to go back to taxes for a minute do you have any thoughts today as to the sustainability of the $2 per share into the future years? And then I guess the HIF in coming back in 2018, but not in 2019 I guess one of your competitors talked about that actually being a headwind in 2018, I was wondering if you factor that into this guidance as well?

Yes, thank you, Kevin, this is John. I will answer the first question – or the second question first on the 2019 HIF being waived and of course we are pleased with the waiver for 2019. As I stated earlier, whenever taxes and regulations decreased and helps with the affordability of healthcare through those premiums and so two pieces on the HIF, so coming into 2018, the HIF came back. And as we had stated, that’s about $0.40 to $0.45 headwind on our growth rate in 2017 and 2018 given how the midyear renewals work and now that’s all processed in. So then when you get into 2018 you do the mid-year renewals from 2018 and 2019 that can actually create a tailwind associated with 2019. So again it’s something that we are going to manage through. And yes all of those things are already included in the guidance that we provided to all comparing in the greater than $15 earnings per share number that Gail had mentioned. In terms of the sustainability of how much of the tax reform can be maintained, it’s really premature to speculate on that at this point in time. We believe we are in a very competitive marketplace that we believe with competition and really the need to drive more affordable products that the savings from the tax reform will help address that in some regards. And we will continue to be opportunistic in terms of reinvesting it in the business associated with accelerating our growth opportunities. And at this point in time, we really can’t put a percentage or a number on a run rate sustainability associated with tax reform.

Your next question comes from the line of Ana Gupte from Leerink Partners. Please go ahead.

Yes, thanks. Good morning. Hey, congrats Gail, great to see you back. My question is near-term and long-term both on the medical cost trends, in near-term it looks like your guidance is 50 basis points higher apples-to-apples relative to 2017 and is this conservatism or are there any components either pricing or utilization that you are beginning to see pressure we had one of the larger public hospital yesterday to put pretty strong volumes. And then on the medium-term strategically you have had this competitive advantage for a while on cost of care the local market share, there do you think you could go relative to your competition and would that be a pricing advantage, would that be on beds per thousand and might you consider buying doc, so we are starting the three centers is the likely just market share good enough to get to get the leg up?

There is a lot of questions in there Ana. So thank you. I will try to parse through them and hopefully we will get to each of them. Let me first start with where our trend finished and then a little bit of our guidance or actually ask John to give his commentary to. We finished 2017 at 5.5% under our – under the new methodology which essentially was at the low end of our guidance range. And we put in a intense focus on managing costs overall. So cost of care initiatives across investments in those across our business. But I think more than just specific cost of care, we have had a big commitment to integrated care and really moving value based payments along across our continuum of care providers and that has been a differential for us. And I believe Anthem has been a leader in that front and that’s an area that we continue to invest in across our business. As we think about our forward view of trend we are always obviously very prudent about how we think about the forward view of trend. And we have given you a trend of 6% plus or minus 50 basis points taking into consideration this year we obviously have a more intense flu season than we have had in the past, so that’s baked into our assumptions. And as we look at trend overall, basically placing it we do have very detailed drill down of each of the components of inpatient and outpatient pharmacy, etcetera. And at this stage what we are seeing is roughly at the midpoint about a 50 basis point increase and obviously we – that’s something that we continue to watch across all of our businesses. In terms of your other question about care delivery assets one of the things that I would like to point out in the assets that I had the opportunity to spend time with is our CareMore assets. I am not sure if people know how much that we use that asset in our government business right now, we have seen some very, very strong results in terms of managing our more acute populations not only in Medicare, but have also expanded it to our Medicaid population. And we are expanding that model to not just be facility based, but also at home and at the workplace. So we think that asset gives us a really nice footprint to expand upon, to continue to scale and it has delivered some strong results in terms of readmission rates managing our most acute population, integration of behavioral and social elements and recently kicked off a program around isolation and loneliness nationally across that platform. So there is some very, very good work going on in CareMore. So, I feel between our integration of our value-based payments what we are doing there integrated care as well as our provider enablement and then what we do through CareMore and now our clinics down in the Florida market that we have a really nice footprint upon which to grow. But I will turn it over to John maybe to give a little bit more color on sort of the numbers around our trend guidance.

Yes, thank you, Gail and good morning, Ana. In terms of the trend, I do want to just clarify we changed the metric in terms of how we calculated from a paid basis to an allowed basis. That has no impact on our pricing methodologies. It has no impact on our reserving. It has no impact on our financial statement issues. It is really a metric that is utilized to discuss healthcare trend and we believe that this change really provides a better view of healthcare trend overall to look at it on allowed basis versus paid basis. But with that as Gail said, we are at the very low end of our range in 2017 really driven by lower than expected increases in AWP with the cognizant effort to tighten up our formulary during the year, lower than expected hepatitis C spending and lower utilization trends overall. Of course, we did have the bump of the flu here at the end of the fourth quarter and then we are heading into 2018 really the single biggest drivers for the 50 basis points that we are looking at raising it at the midpoint of our range. Really the AWP pricing is going up a little bit faster than the overall trend and taken the flu into consideration. Now, all in though, everything else we believe is a very well controlled trend and we are really returning to a more of a normalization process. Thank you for the question.

Your next question comes from the line of Lance Wilkes from Sanford Bernstein. Please go ahead.

Yes, good morning. Congratulations Gail on the role. Great to speak with you again. Just I have two quick questions really strategic in nature. One is further on the care delivery side and just thinking about your value-based care strategy and trying to understand if your market share makes it easier and more attractive or less attractive to own providers in those markets? And then the second question is really related to your cross-selling efforts and focus in particular in the self-insured market and trying to understand where you think the biggest opportunities there are and what are some other capabilities that you need to add to be able to sell into that market? So thanks a lot.

Great, Lance. Thanks again for the question. Again two questions. Let me take the first one around our capabilities and market share, which you appropriately referenced. Absolutely, that market share has an impact on our ability to drive best-in-class medical costs and I think that’s actually a very important component of it. And we have had I think fairly comprehensive approach of value-based incentives all the way from gain shares through full risk-sharing and our primary approach is enablement with the providers and partnership, because we feel that’s the right approach in the marketplace. Another market as I have mentioned we also are augmenting that certainly in the Florida market with the clinics now that is the more standard of how things are done and then with our CareMore model across the country. So, I think it’s a combination for us of what best fits the marketplace as opposed to one stated strategy. We do have an overarching strategy around moving to more value-based payment. We are over 60% now and we would expect to move to over 70% going forward and continue to work with providers. In terms of your second question, specialty penetration, we have been investing in the capabilities and have seen a nice improvement in the penetration rates of our dental and vision business, in particular. I shared that on my opening prepared remarks. Our investments there are really on product, product positioning, technology, broker support sales effectiveness. Obviously even with the penetration rate improvements we have had we think that there is a significant upside there that we can continue by different businesses to increase that penetration rate significantly. I will ask Brian Griffin who leads again that area maybe to give a little bit of commentary about the kinds of things that we have been working on and what he is seeing in the marketplace. Brian?

Thanks, Gail. Good morning. In terms of the – Lance, your question around the specialty, to Gail’s point, we’ve had significant success in really driving specialty penetration across all of our key products. I think you have seen that and we have talked about that in previous calls relative to dental and vision. To Gail’s point, I do believe that there is incremental opportunity specifically around our life and disability products, I think that there is more that we can do there. Obviously, we talked earlier about pharmacy and we are seeing significant interest in the integrated value proposition in medical and RX together, particularly in our large group and national account marketplace. That message seems to be resonating significantly in those markets. And I think we have a unique value proposition that we can bring to market up. Obviously, you have heard me talk about that, but we are seeing at this point given where we are in the implementation of our own PBM significant interest there in that value proposition. I think actually that will help us more broadly across all of our products, because we can then begin to think about integrated value propositions across dental vision and pharmacy altogether in a single package. So, I think to Gail’s point there is quite a bit that we can do in terms of the repackaging of our value proposition to drive that penetration rate. The other key investment the Gail alluded to is we made a really significant investment in our broker portal, which is really designed to allow the brokers to more efficiently compare plan designs, various products. It brings in our specialty products into that evaluation and it just makes it candidly easier to do business with us in that regard and allows them to look at the full product suite that we bring to both small group and large group. So, that was an investment that we see paying off. We are getting great reaction from the broker community and I think we will get deeper penetration rates as a result of it.

Thanks for your questions. Next please.

Your next question comes from the line of Ralph Giacobbe from Citi. Please go ahead.

Thanks. Good morning. Gail, can you maybe talk about the competitive landscape obviously big vertical deal in the space, maybe just broad thoughts about opportunity maybe near-term during potential disruption there and maybe longer term sort of the comfort with the margin profile, particularly within commercial risk? And then just your position again as we sort of see models evolve that seemed to offer a lot more than largely an insurance product in terms of your position or where you would like to be positioned there? Thanks.

Thanks, Ralph. Let me try to get through the different parts of your question in terms of the landscape and I will go back to where I started I think again in my remarks and then I think we have significant opportunity for growth across all of our businesses. And as I think about the competitive landscape, I think we are actually fairly well positioned. I am going to be intensely focused on the execution of the capabilities we are investing in growth, we are investing in product modularization, so we can get product to market more quickly and that we can be simpler in terms of how we face off externally to our clients and brokers and customers and more agile. In terms of the overall market space, I will start with what where I think we have a significant opportunity is the Medicare space. We have been historically underpenetrated in the Medicare Advantage individual market. Our acquisitions give us some nice scale and we had a very strong open enrollment and we will continue I think to do very well in the dual eligible market. We have got strong capabilities, a strong star rating and those will help position us well and so we see that as the significant growth. The other area that I haven’t talked about is the group Medicare market. That’s an area that we really have not participated in that extensively in the past. We have been investing in that area to build our capabilities. And I think that we are going to see very strong enrollment going forward because of quite frankly the strong Blue brand resonates very well with that marketplace and we do think we have an opportunity to also have agents from our current book of business or commercial book to keep the Blue brand into Medicare. So, that’s one strong area of growth and I think we are well positioned competitively in that market. And we have been – and our margins have been improving in that marketplace and it’s again the area of investment and certainly having a 4-star 70% this year and 4-star helps in that regard. In the Medicaid side, I do think we have a best-of-breed asset and we will continue to compete for RFPs. We do see an opportunity with an $80 billion pipeline to compete in the specialized services marketplace. Again, our CareMore assets are really interesting opportunity for us there, because it allows us to take some of the most acute and ill population and really managed their care to deliver extraordinary results both in cost of care, but also in outcomes for those patients. So, that’s an opportunity. We are expanding that into the Medicaid population. And then we also talked about the partnerships that we recently formed and we think that we have recently formed and we think that there will be more opportunity for those partnerships across other plans as well as our Blues - Blue brother. On the commercial side again the margin profile there, I think we have market leading commercial market share, but I think there’s an opportunity for us to do more and I see that opportunity again with leveraging our Blue brand, but also leveraging our local market expertise with greater ability to put new product into the market improve our digital facing capabilities and streamline how we work with each of the partners that we have in those investments that we started making and we’re accelerating those as part of our outlook into 2018. Again, we have very, very solid margin profile and I feel good about our ability to manage medical costs and our focus really is on affordability and access for consumers. So that will continue to be there is a priority and then finally again going back to some of the other assets, that I’ve seen inside of Anthem, which I don’t think as well known game we have an opportunity again to invest in scale those across the system may already delivering good value and I think we can evening increase and enhance those more. So overall I’m pretty, pretty positive about the competitive environment, obviously we are in a very competitive environment there is many players in our space in each of the markets that I shared, but I feel good about our positioning and where we’re heading in the future and our opportunity to continue to enhance and focus our execution. Thank you for the question.

Your next question comes from the line of Steve Tanal from Goldman Sachs. Please go ahead.

Good morning, guys. Thanks – thanks for the question and congrats Gail on the new role. Just wanted follow-up on sort of discussion around value-based contract being and kind of thoughts and the opportunity moving forward. So 60% penetration so it sounds like a high number, it also sounded like the mix maybe those arrangements are bit lower on the risk factor. I was wondering, if you could kind of frame the opportunity from sort of earnings perspective and then what inning you would say were in overall and I guess just relatedly, but little bit separate here. Should we expect to see you guys moving into the provider space in a bigger way and maybe the localities are states where were your shares highest?

Thanks for the question, Steve. In terms of it’s a great way to frame what inning when I think – we think about that a lot and I would say it’s probably early innings and truth across the entire industry. We’re all looking for ways to find greater affordability and drive I think more integrated care. And so we have as you can imagine a breath of relationships across our market and we try to meet the care provider community where they are, we would love to see them be willing to take a more risk and part of where we’re investing is also in provider enablement capability. So I would say, we’re going to continue to focus on a building those relationships and moving them from you maybe just to gain share to taking more upside downside risk to more fully participation. But again we also realize that some that – that’s not going to be perfect for each of the – the care providers that we work with and they have to come along and feel comfortable about the relationship. In terms of our focus on where we are focused on our best use of capital to drive value and we do think the partnership model makes sense, again we do own some assets ready and we feel good about those, we’ll continue to invest in those, because we see the real return that they aren’t but some overall, we’re going to look to leverage the best use of capital in the markets, where we are and one of the advantages that we have is our deep market share. So partnerships can work because, we have deep market share across all of the businesses, we serve in we see that as a real opportunity.

And your final question today comes from the line of Justin Lake from Wolfe Research. Please go ahead.

Thanks for squeezing me and I’ll add my welcome and congratulations to Gail as well. First to follow-up on the PBM, Gail, the company has done a good job of laying out the earnings benefit from retaining the 20% of savings to the bottom line, but you also going to be returning $3 billion or more here to customers. And I was hoping you could flush out your view of how your top line could benefit from the significant improvement in competitive positioning that should come here? And then my core question is what are the 2 or 3 areas that we should be focused on that are going to drive the shift at the higher end of your earnings target that you talked about and over what time period? Thank you.

Let me take your second half of your question first, Justin and then I’ll start with the PBM and I’ll ask Brian also to give his commentary. In terms of what will drive, where we look to be at the top end of our earnings per share guidance, I think it’s the growth opportunities that I’ve outlined that the opportunity in Medicare both group and individual, the opportunity in partnerships to leverage our capital effectively in Medicaid. And I also see opportunities in commercial. The other area that I think has really been underleveraged is of the existing assets. So, the assets that we have a name in CareMore to leverage those in the marketplace across other Blues and form real strategic partnerships, so I see that giving us the lift and I think just much more detailed execution on the initiatives that we have had I think give us a really nice pathway to the type of growth that we are looking for across our business. In terms of the PBM questions, I am going to ask Brian maybe to comment on those directly, because I know he has been very directly involved in all of this.

Good morning, Justin. Just I guess tied back to my commentary on Lance’s question, I think with us launching our new PBM and really as a result of that taking full control over all the key financial levers, I think that really puts us in a very different competitive position moving forward. Our focus through Ingenio is really on better overall health outcomes. And I think that’s very different than the way that the PBM industry has looked at that. I think that there has been a focus on driving pure rebate optimization as opposed to a focus on total healthcare costs. But I think as I mentioned earlier, our integrated value proposition is really resonating out in the market. And I think as a result of that that positions us really nicely for growth both in terms of our local business, but our national ASO business. My vision for Ingenio is really to become a utility within the Blue system as well and we have seen interest in that regard that’s already developing. And I think we are building our own platform that really meets the needs of other Blue plans. So, I see that as a great new opportunity. We have just in executing against our strategy already, we have made significant progress in terms of driving improved values in terms of new formulary designs as well as new network strategies. That will continue to be a focus for us as we launch Ingenio 1120 more broadly. And I think as a result we will be in a better overall competitive position. So, expect us to really focus on growth outside of both within our local markets, local small group and large group and our national account business, but really looking at new ASO standalone pharmacy business as a new market for us as well as that Blue opportunity. And in addition to that additional sets of clinical services that we will be offering through Ingenio that have been developed here at Anthem over the last several years, so we are excited about what the new growth opportunities mean in terms of to your point, obviously, we are going to see significant savings as a result of our new contract position that will flow through to our customers, but then the expanded growth opportunities in these new markets, where historically we haven’t participated.

Thank you, Brian. And I will put a fine point on maybe Justin, just the three things that will really drive volume we see has granted success in our new RX-only RFPs, increasing the penetration rates in our existing medical book of business and being the PBM for other health plans. Those will be three key drivers for us going forward.

Well, thank you very much everyone for all of your thoughtful questions. As I hope you can tell I am excited to be here at Anthem and the opportunity to advance our strategic priorities to create a healthcare system that’s more affordable and simpler. As I outlined earlier, we will be focused on optimizing execution across our business and ensuring that we leverage our unique assets to strategically position the company for sustainable high-quality earnings growth. I want to thank each of our associates for their commitment to Anthem and for living our values each and every day to deliver on the promises to our consumers. Thank you for your interest in Anthem and I look forward to speaking with you at future events.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.