Humana Inc. (HUM) Q1 2013 Earnings Report, Transcript and Summary

Good morning, my name is Theresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Regina Nethery to begin. Please go ahead, ma'am.

Thank you. This is Regina Nethery, Vice President of Investor Relations for Humana. We appreciate you joining the call this morning. In a moment, Humana's senior management team will discuss our first quarter 2013 results, as well as our earnings outlook for the remainder of the year. 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 statement. 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 first quarter 2013 results of $2.95 per share, significantly higher than our previous expectations of $1.75 to $1.85 per share. The results were primarily driven by the combination of strong operating performance in each of our business units, as well as some discrete items that have not been anticipated in our previous earnings guidance. These items include the settlement with the Department of Defense for certain contract claims and the benefit to our Medicare business for the delay in the federal government's implementation of sequestration. Given this quarter's performance and the way we see the remainder of the year playing out, we raised our full year 2013 guidance to a range of $8.40 to $8.60 per share. Since our last call 90 days ago, we've seen a great deal of activity across a number of fronts. Most prominently, the Centers for Medicare & Medicaid Services issued both its preliminary and final rate notice for 2014. The educational efforts and the comments in between those 2 CMS announcements demonstrates Congress' and general public's strong support to the Medicare Advantage program. In response to the public comments, CMS revised its trend assumptions to account for the assumption of physician payment fix to the sustainable growth rate. However, the challenging rate environment for Medicare Advantage continues. In the final rate notice, CMS made adjustments to the risk coding recalibration formula that proposed in the preliminary notice such that combined with the impact of county rebasing, certain of our stronger markets will still see a rate pressure in the mid-to-upper single digits for 2014. In aggregate, we anticipate our Medicare Advantage premiums from CMS will decline by 2.8%. Adding in the impact of the non-deductible industry fee, our government funding reductions for 2014 become well over 4%. Given this level of challenge, together with the out-performance we are seeing thus far in 2013, at this point, we remain uncertain if 2014 will be a year of earnings growth. We are dedicated to doing all we can to overcome these challenges. We are encouraged by the fact that the tactics we will use to address them have historical yielded positive results. In this environment, getting our cost below original Medicare becomes all the more important. This involves continued focus on our 15% solution, including the development of our integrated care delivery model, along with the types of clinical investment -- infrastructure investments I've outlined in our second quarter call last year. Our better-than-expected earnings this quarter are a testament to the benefit of this focus and positions us more favorably for addressing the challenges of 2014. These challenges require us to increase the amount and scope of our investment and enhancing our clinical infrastructure and in preparation for our participation in the health care exchanges, including educational campaigns to help introduce the public to these new options. Specifically, let me outline some examples to illustrate how some of our recent clinical infrastructure initiatives resulted in measurable improvements in clinical quality, efficiency and effectiveness. We increased the number of care management professionals to 7,600 at March 31 from 4,400 a year earlier. We improved our new member predictive models and clinical assessment process such that 31,000 of our Medicare Advantage members are already enrolled in our chronic care programs compared to 4,000 at this time last year. The combination of our care management professionals and the early identification prospective members have resulted in enrollment of 180,000 seniors in our chronic care programs compared to 125,000 at this time last year. By December '13 -- by December 2013, we will expect to raise to 275,000 members enrolled. We continued our efforts to accelerate our relationships with risk providers, as we continued the integration of our recent Metropolitan acquisition with our existing primary care assets. As of March 31, Humana employed has strategic investments or MSO contracts with nearly 6,200 providers nationwide, representing over 530,000 Medicare Advantage members. We also include members covered by path to risk, the total nearly -- the total is nearly 940,000, compared to prior year of 800,000 or 47% of our individual Medicare Advantage members. We are in the midst of our -- preparing our bids for 2014. And we believe, once again, we will have a solid value proposition to offer Medicare beneficiaries. Consequently, we anticipate a net -- additional net growth in Medicare membership in 2014. Our integrated care delivery model, combined with a favorable senior population demographics, continues to position us well for Medicare membership growth over the long term. We are maintaining our positive long-term view across the enterprise. We are staying active in the dual eligible procurement processes around the country. Our pharmacy and wellness businesses are thriving, and our Employer Group business margins are improving. In sum, despite the challenges ahead, our associates are engaged and excited about the positive impact we are having on our members' lives as we help them achieve lifelong well-being. I look forward to continuing to share updates with you as the year progresses. With that, I'll turn the call over to Jim Bloem for review of our financials.

Thanks, Bruce, and good morning, everyone. First, I'll walk through our first quarter results before turning to our updated 2013 expectations and capital deployment plans. Looking then at the first quarter, we are pleased to report earnings per share of $2.95, which exceeded the midpoint of our previous guidance by $1.15. Additionally, our pretax income for the first quarter of $730 million represented an increase of $340 million over last year's first quarter. There were many items impacting the over-performance for the quarter, the major ones are highlighted on the slide. First, our first quarter 2013 results included the beneficial effect of a $48 million, or $0.19 per share, favorable settlement with the Department of Defense in connection with the TRICARE matter that we discussed on the second quarter 2012 call. Additionally, the 1 month delay of sequestration increased our pretax income by $18 million or $0.07 per share versus our previous guidance. You will recall that we assumed in our 2013 Medicare bids that sequestration would occur on January 1. So in comparing the first quarter year-over-year, approximately $50 million of the $340 million improvement can be attributed to the 3-month sequestration delay from January 1, its originally intended start date. Of course, since sequestration became effective on April 1, this year-over-year favorable comparison will not continue for the remainder of the year. Now the operating improvement of $205 million or $0.81 per share versus our prior first quarter guidance, primarily resulted from the following 4 items. First, favorable prior period development. Relative to last year, we experienced $125 million more in favorable development, including $77 million more in the Retail Segment, mostly Medicare Advantage, as well as $61 million more in the Employer Group Segment. Second, we also experienced favorable medical expense trends in most lines of business. This was primarily driven by lower levels of hospital utilization after the flu season, rapidly abated in the third week of January. Although we are pleased with the results of these favorable medical expense trends, we continue to be cautious in our outlook for the remainder of the year. It's important to note that when comparing the first quarter of 2013 with the first quarter of 2012, there was a significant medical expense benefit from weekday seasonality, including the absence of weekday in the first quarter of 2013. Weekday seasonality alone accounted for approximately $125 million of the $340 million improvement over last year's first quarter. Third, our PDP business exceeded plan during the quarter, as we experienced a favorable drug utilization mix versus both plan and last year. However, as we re-project the members' progression through the various cost-sharing phases over the full year, we don't see the first quarter over-performance continuing to the same degree during the second half of the year. Fourth, we also benefited from a lower operating cost ratio versus plan. As highlighted in this morning's press release, we experienced a year-over-year reduction in our operating cost ratio of 150 basis points in our Retail Segment and 110 basis points in our Employer Group Segment. Most of these operating cost reductions were anticipated in our prior guidance. But since we performed better than plan, we reduced our forecasted 2013 full year operating cost ratio by 25 basis points. So in summary, with respect to the first quarter, these 4 items accounted for the $205 million or $0.81 per share of operating over-performance shown on the slide, with favorable prior period development accounting for a little less than half of that total, while the remaining 3 items accounted for the remainder. In terms of the $340 million pretax improvement versus last year's first quarter, these same items apply, as well as the beneficial impact of weekday seasonality and the 1 quarter delay in sequestration that I discussed. Finally, with respect to the first quarter, we picked up $0.07 a share as a result of revising the estimate of income tax liability associated with the non-deductibility of executive compensation, as is required by the health insurance reform law, as well as $0.01 per share from share repurchases. Again, both of these are against our previous guidance. So turning now to the full year. The same items discussed for the quarter similarly impact the full year. However, most of the operating over-performance for the first quarter does not trend forward, primarily for 2 reasons. First, we do not and have not included any additional prior period development in our forecast. And second, while we're pleased with our first quarter utilization trends, we remain cautious in our full year trend outlook since we're only 1/4 of the way through the year. Importantly, and also as indicated on the slide, we expect to make further investments in our 15% solution and clinical care model. That will continue to enhance our ability to both improve health outcomes and lower medical cost in 2014 and beyond. We're confident that the investments we have made to date are resulting in better outcomes and believe strongly that these investments will continue to pay off as we tackle the challenges of 2014 and beyond that Bruce described. Finally, we're making additional investments in our exchange readiness and information technology associated with our individual Employer Group businesses. Both of these investments also will further prepare us for the future. Now the final slide updates our 2013 operating cash flows and financial resources, as well as our capital deployment plans. With respect to our operating cash flows, first quarter 2013 operating cash flows were $412 million, or $81 million, 24.5% higher than those in the first quarter of 2012 after excluding the April 2012 Medicare payment received in that period. Accordingly, we've raised our 2013 full year operating cash flow guidance by $100 million at the midpoint to a range of $1.9 billion to $2.1 billion. From the standpoint of our current financial resources, we're very pleased to report that after consultations with the various state departments of insurance and the credit rating agencies, we expect to receive approximately $970 million in 2013 dividends from our operating subsidiaries during the next 90 days. This amount compares with $1,220,000,000 in 2012 subsidiary dividends and will enhance our March 31, 2013, parent cash and investments balance of $202 million. The $250 million reduction in 2013 subsidiary dividend primarily results from the higher surplus associated -- the higher surplus requirements associated with 2012 premium growth. You'll recall that premium growth is a major factor in determining the state required surplus amounts. With respect to our 2013 capital deployment plans, we expect to continue our constant review of potential strategic acquisitions and investments, as well as capital projects, while at the same time consistently returning capital to our shareholders through both an increased quarterly cash dividend and a strong share repurchase program. As noted in our press release, the Board of Directors increased our quarterly cash dividend to $0.27 per share. At the same time, it also refreshed our $1 billion share repurchase program through June 30, 2015. Like the previous authorization, the refreshed repurchase program permits shares to be repurchased from time to time at prevailing prices in the open market by block purchases or in privately negotiated transactions. With that, we'll open up the lines for your questions. [Operator Instructions] Operator, please introduce the first caller.

[Operator Instructions] Your first question comes from the line of Sarah James of Wedbush.

I wanted to circle back on a comment that you made earlier about some of your stronger markets seeing mid-to-single upper digit impact from the risk coding recalibration. I was wondering if you could just provide a little bit more color around that, maybe what percentage of your markets may have that scale of impact and if it's coming from the risk scores or the county rebasing to just help us understand a little better.

Sure. This is Jim Murray. The -- we have some markets in Florida, Louisiana and Las Vegas who, over the last number of years, as many of you know, are HMO-related and have focused on proper coding of the risk that we assume as a company. And some of those markets are seeing higher rebasing and recalibration adjustments than some of the other markets that we serve and are impacting us negatively, as Bruce talked about in his remarks.

Okay. And second question with the -- you mentioned the rate challenges spurring the $100 million in incremental investment for the 15% solution. So can you bucket the types of investments and speak to the time it usually takes to see a return on those specific categories of investment?

Sure. This is Jim Murray again. The things that we're investing in would be more clinical infrastructure, much like we did during the past year, which is beginning to pay the dividends that you're seeing in our restatements and our improving trends. Things that we're doing are hiring more clinicians. We've seen some success in programs that we refer to as SeniorBridge Humana Cares and some of the clinical assessment work that we're doing. We're in the process of hiring folks. We're going lower in the queue. We're determining that a certain category of individuals who go into those programs, not only from a quality perspective, but also from a cost perspective, we're seeing good results. And so we're going to go a little bit lower in the queue, and that's what's causing the extra infrastructure spend that we're talking about. That's a significant portion of the additional investment. We're also doing some things around marketing and messaging for the open enrollment, both for the Medicare Advantage and the HumanaOne, where we're going to see some exchange activities starting in October that we're pleased and looking forward to. And then I would also say that we're spending some money on the Medicaid infrastructure. Some of you have seen that we're doing some things in terms of winning bids in the Medicare space, and we're excited about that and we're spending to build out those capabilities going forward. So those are the things that we're talking about when we talk about the extra investment.

And just to add to that. I think the investor should take away the investments that we're making are incremental, but the results that we have proven, especially from the second quarter through the fourth quarter of this past year, we've seen some great results of how these investments are or are just accelerating those to prepare for 2014.

And our next question comes from the line of Chris Rigg of Susquehanna Financial.

Early in the call, you commented that you still see net enrollment growth next year. And I guess, when you couple that with the comments in the press release about 2014 growth still not being projected, I guess, can you give us a sense for what that would potentially imply for margins? And I know you've historically targeted a 5% margin in the retail book. Should we think about 2014 with regard to that margin as sort of a short-term step back potentially that you would again target that margin longer term? Or just any color around sort of the margin -- potential margin target as it relates to 2014 and beyond will be helpful.

Sure. This is Jim Murray again. We have talked about in the past the 5% margin. It's incredibly early to discuss anything relative to 2014. You all know that we're currently working on our bids. In fact, we've got teams of people in today and next week finalizing our bids. After we finish our bids and feel good about what we've accomplished, we obviously got to look and see what the competition does. We don't get a peek at that until October. And philosophically, I think you're going to hear more from us going forward rather than having an explicit 5% margin target, that we want to think more about long-term earnings growth and the implications of return on invested capital. And I'm not certain that you'll hear us say, "Gosh, we want to have a 5% margin," but we want to grow our earnings meaningfully in the future. And I think we're going to try to change the dialogue around that going forward. And so don't look for a margin target, look for earnings growth targets going forward.

Okay, great. And then one follow-up. You've heard some of industry peers and just the general industry tone has sort of been that what we're seeing in 2014 with regard to rates is really more a pull forward of changes that the industry was expecting further down the road. And so just it's the pace of the cuts, not the cuts themselves. Can you give us a sense, in your opinion, the rate of acceleration? Meaning, do you see the 2014 rate cut being something that you have previously expected over 2 to 3 years? Or just any color around the acceleration there would be helpful.

We can't give you specifics. This is Bruce. I can't give you specifics relative to the -- how much is being pulled forward. I do believe, based on all the analysis that's being done by MedPAC, that the Medicare Advantage rates are becoming equal to or less than the Medicare fee-for-service range. And I think that as you see that, a lot of the benchmark changes and all of the recalibration, I think, will slow down as we are continuing to have a higher value proposition when compared to Medicare fee-for-service.

And our next question comes from the line of Justin Lake of JPMorgan. Justin Lake - JP Morgan Chase & Co, Research Division: First question is on the rates for 2014. Can you just tell us whether the 5% rate cut includes the improvement of Star bonuses that you had and the impact of industry taxes? And then can you give us an early read on your ability to improve 15 Star bonuses at the strong pace that you did for '14?

Well, in regards to the rate, as the 4% that we talked about overall, that rate includes the Stars programs. So that does reflect that. It also includes the industry fee that you referenced. So it is an all-in rate. In regards to the Stars program itself, I mean, we obviously had a great year last year and demonstrated our commitment to the quality of our programs. And I think we'll just continue to make that investment. We're not prepared to say that we're going to be at the level on the improvement that we've seen in the past. But our commitment to it and our investments continue to be probably at the -- leading the industry. Justin Lake - JP Morgan Chase & Co, Research Division: Okay, great. And my second question is just a follow-up to what -- Chris' question on margins. So you talked about changing the dialogue to earnings growth and return on invested capital. And so if -- my question is on return on invested capital specifically. How should we think about that in terms of the Medicare Advantage business specifically? And if you are targeting a 400% RBC, what's a reasonable return on invested capital metric that we should think about for Medicare Advantage business at a minimum?

Yes, Justin. I think -- a couple of things here. One is, obviously, in the Medicare Advantage, because it's so much of our business. The operating leverage we get by adding additional members, which we reference, are, we believe, we have the ability to continue to do that, will improve that number. The amount of capital that we retained in the subsidiaries, as I mentioned before and is always done in conjunction with the states, and we got like 35 or 38 different operating subsidiaries that we do and each state has different requirements. We started for the first time in the press release today to put a return on operating capital metric in. And comparative to last year, it was 13.4%. And again, so that, as we've often stated, even when we talked about margins in the past, we talked about we were not really a margin expansion story as much as a membership expansion story. So we earn, as Jim said, more money as we continue to go along. And we earn that many that are over, what I would call, very efficient capital base. That's the invested capital part. So when we talk about our integrated care delivery and our clinical care models, we're talking about being able to put more members and to bring out and to build that infrastructure in a very capital-efficient way versus buying all -- buying different entities in each place or rather developing organizational competencies that can be then spread throughout our entire network and that way enhance our return on capital without being capital inefficient to do it, without using all the capital that would require to build a completely owned integrated system.

Justin, just to add to that, I think a few important points as we look at our membership growth. In our segmentation analysis of our members, we have really proved out that the long-term value of a member is not just the first year and continuing to have a relationship with that member over a 7- to 10-year period that time has allowed us to historically grow, and we see that continuing going forward. So as we look at our growth, it's not only how we look at it year-by-year, but it's also the relationship that we established over the years with that individual. The second aspect is, as we look at the organization and probably a little different than a number of our competitors, is that our growth has been primarily around organic growth, that the members have come in and we have grown, not as much from an acquisition point of view, but from the ability to grow members based on the sales and marketing and the value proposition we have. And we look at that as a very key differentiator from an investor point of view as you go forward. I know your question was specifically, what are we going to look at a 10% or a 15% or a 7% kind of return on capital for our Medicare Advantage? And I think what we look at is over the long term, we will continue to exceed our cost of capital through organic growth and long-term value that we receive from our members as having a long-term relationship with them and continuing to enhance their -- the care model through that relationship. Justin Lake - JP Morgan Chase & Co, Research Division: I'm sorry. Just the 13% then, is that a number you're comfortable with going forward? Should we think of it that way?

That's the number that it is today. And again, we would look at that number. And again, as we add membership, as we build out the capabilities across the network that we spent a fair amount of money in the last 3 years to build, then -- and so we look forward to being able to spend less, serve more, lower outcomes, higher R/R, same or lower capital. But the capital in the subs is, right now, optimized at around the 400%, to get back to your original question. Justin Lake - JP Morgan Chase & Co, Research Division: So you think that 13% is going in line or higher?

Again, we would say progressively, yes, we would expect to improve on it, but not in a predictive sense, but also balancing, again, all the business we have and running that again over the same asset base.

And your next question comes from the line of Matt Borsch of Goldman Sachs.

I just wanted to continue on the topic of 2014 in Medicare Advantage. At this stage, is there anything you can tell us about how you plan to offset beyond your internal costs on medical and operating? Do you think this is going to be more member premium based, more benefits based? And if I could just add to that, how are you confident, at this point, in enrollment growth, given that you haven't finalized your bids? I think, Jim, you said it's incredibly early to talk about 2014 and you don't know what the member responses are or the competitor responses are going to be or, for that matter, how CMS is going to handle the plan approval basis?

Yes, this is Jim again. As somebody pointed out, the net overall funding impact for us is somewhere between 4% to 4.5%. On top of that, you got secular trends that we're dealing with, which can be anywhere from 4% to 6%, depending upon the market. So the amount that we have to deal with, and I guess our competitors would likely have to deal with, is somewhere between an 8% to 10% -- 10.5% issue. The playbook that we talked about with all of you many times on the past is trend vendors. And you -- we've been successful in the past and you've seen a lot of investment spend specifically designed to enhance our trend vendors going forward. The risk coding improvement and some of the investments that we talked about today and at the end of the year are also focused on that. So we anticipate some lift because of those things. We've got premium and benefit cuts that we can evaluate on a market-by-market basis. The providers, some of the deals that we have with providers are risk-based and various forms of risk arrangements with providers throughout the United States, where they will participate in those cuts with us, and so some of that will be absorbed by the providers that we work with. And also, market exit is another thing that we can evaluate for those markets that don't make a lot of sense and are drags, if you will, on some of our overall results. We don't want to get into anything competitively as what's happening with many of our competition [indiscernible] includes some of the markets that we look at are better than what I just described, some of them are worse. We're dealing with something that you all know, called the TBC, which I would tell you may have had some unintended consequences because we're evaluating that in terms of whether we want to exit a market now. But when I get done and the team gets done looking at all of this and we've been talking about it for 2 weeks now, there's still a significant economic value that we provide to the members that we serve. And in addition to that, the assets that we have as a company that we've been very proud of, marketPOINT being one of those and the relationships that we worked hard to develop with the members that we serve, which Bruce referenced in terms of 7- to 10-year relationships. Because of all of those things and I think our brand as a company that focuses on the senior population, I feel very comfortable in our ability to grow our membership year-over-year, regardless of what our competition does.

Yes, Matt, to add to that. I think a few additions. I think the assets that Jim referred to -- our sales force, our brand, our clinical capabilities is going to be very important in the future as a result of that becoming a tighter and tighter business relative to both margins and the ability for a competitor to earn reasonable return in this business. And I think the stronger will get stronger and the weaker will get weaker and the barriers to entry in the business are increasing as a result of these pressures. And I think companies like Humana are positioned well to take advantage of the demographic growth that is happening. And I truly believe, and I think what this quarter demonstrates, that our ability to add value clinically when compared to the Medicare fee-for-service program is a great, great example and I think has long-term fundamental growth for the organization and the ability to add value back to the industry.

And just one follow-up, which is I appreciate the slide that you guys provided on the projected and past funding impact changes. As we look back at 2010, which was the biggest one in recent history to the negative, certainly, can you quantify or at least broad side of a barn, how you offset that looking back and recognizing that how you offset it in '14 may not be the same, component-wise?

I'm old and graying. As time goes on, I'm not sure I could remember exactly what happened in 2010. I will tell you that the multiple effect of 4 years of rate reductions is having somewhat of an impact on our economic value proposition. But I, frankly, don't recall exactly what it was in 2010 which drove some of the favorable results that we experienced as an organization.

And your next question comes from the line of Scott Fidel of Deutsche Bank.

First question, just you talked how you want to focus a bit more in the future on earnings growth, long-term earnings growth than return on capital targets. Just given that, can you help us frame what you're thinking in terms of a long-term earnings growth rate for the company?

We traditionally have not shared that with the street side, rather stay away from that question.

Okay. That is why I asked, but I guess we'll wait for further details on it. Also, just did want to ask a question on the exchanges. And first, just if you can give us an update on how many exchanges you're planning on participating in for 2014. Then I noticed that you did reduce the amount of individual membership that you're expecting to see in terms of declines for this year and just wanted to get a sense of whether that was just because the individual growth was better in the first quarter or are you now expecting less attrition in the back half of the year in the individual market than you were previously anticipating?

Yes, to your question on the exchanges. On the individual exchange, we -- I believe the team is aligning around participating on 14 exchanges in various -- of the states that we have significant network strength and we're pretty excited about that. And to your second question, the team was a little bit surprised about the growth that we saw in the first quarter, and that is the impact that improves our guidance and not so much what we expect to happen when the exchange goes into play in October.

Okay. So you're still thinking about maybe a high-single-digit-type attrition in individual in the back half of the year?

Correct.

And your next question comes from the line of A.J. Rice of UBS.

In the past, you guys have talked about moving toward a 50-50 HMO-PPO split by 2017 in your MA book. Is -- the concept, I guess, has been that you move up a few percentage points a year. Can you talk about whether you can accelerate that? And if you could accelerate that, how much does that help you mitigate some of the pressures we're seeing in the MA book going into next year?

I'll start it off and then Jim can add to it. Obviously, we -- our goal is to obtain the 50%. And if you look at where we're at today, including our path to risk, we're at about 47%. And that path to risk really gives an indication of our relationships with our providers and how we'll eventually move them to a full risk-taking relationship on that aspect. The second question relative to how does it help us, it does considerably help us because we have found with an aligned around quality and cost -- our quality of care, when as indicated by Stars and other educators like that, along with the cost, are superior. And so we see the more we can do that, the better we will be positioned to deal with rate reductions like we've had in the past. But that will come in blocks. In other words, it's not going to just a straight line. It will be -- will have to take a period of time. Mostly at the first part of the year, you'll see those changes. Jim, do you have some other comments?

All right on. And the only thing that I would share is in, I'm sure everybody on the phone recognizes this, that the reason that we're focused on this is it moves the care delivery from focusing on an individual sickness to focusing on an individual's wellness and trying to get in front of some of the events that individuals have. And to Bruce's point, that then, as that plays itself out, really gets to the satisfaction that we enjoy when we have those kinds of models. So it's just a win-win as we move towards that more population health kind of a perspective.

Okay. And maybe if I...

A.J., we will just continue to keep forward -- to have some forward-looking in how we are doing in our path to risk relationships and how are those relationships evolving, both moving to an HMO model and in addition, how we are continuing to build better relationships with their providers.

Okay. And then maybe just on the balance sheet. One of the strengths has been that you're relatively, I don't know if under leveraged is right word, but modestly levered certainly compared to the peers. Given the environment we're in, I could see where you might want to maintain that. Alternatively, you got strategic investments you're making to build out your integrated care delivery network strategy and so forth. Can you comment on balance sheet priorities and thoughts about the leverage?

Yes, I think -- and again, it's a very good question, comes back to the ROIC a little bit. But if you look at basically what we have as an opportunity, always in front of us are -- we're looking for acquisitions, strategic investments and CapEx. Those are the things that really improve the value of the company. And then we look at the appropriate level of capital that it takes to do this. It's got a regulatory component. It's got a rating agency component. And it's got, as you would say, there's some value in keeping some optionality. So when you look at all of that, I think that we've done a fairly balanced job in the last 3 years of returning about 50% of what's available back to the shareholders in the form of cash dividends, which, 3 years ago, we didn't pay and now we do. And much enhanced share repurchase. And then -- but again, always focusing on how can we make the company more valuable through CapEx, through strategic investments, which are the noncontrolling kinds of things we did. So for example, last year, we spent basically $1.8 billion doing that. We increased the leverage ratio or the debt-to-total cap ratio from 15% to 22%, still below our peer group, but now toward the bottom end. And we also, when in discussing it with the regulators and with the credit rating agencies, have said that we think that, for our category, a 25% to 30% is an appropriate level. And they've acknowledged that in writing, in terms of when they write up about, for example, their credit rating of us. So again, it's an optionality. It's appropriate use of capital. As I said earlier, it's an efficient use of capital to build out these capabilities so that we still have a lot more optionality left and we can weather what other -- whatever uncertainty is out there or whatever opportunity presents itself.

And your next question comes from the line of Joshua Raskin of Barclays.

So shift to ROIC focus. I guess a couple of questions around that. One, I have to assume, Bruce, you've realigned management incentives to some sort of ROIC targets. I'm curious if that's around improvements on an annual basis or if those are just absolute targets. The second question around it, I guess, would be what was the catalyst to change? Was there sort of a change in management and relooking at the way you guys think about value for shareholders, et cetera? And then the third part of it, and I apologize for cheating here, which was sort asked, which is if you look at the attractiveness of buybacks, I assume in your ROIC model they become much more attractive. So would you expect a different pace of buybacks going forward with the understandings around what Jim just said to the last question?

Let me -- my memory is always short so let me try to answer those. If I don't answer them properly, reroute it. In regards to the management incentive plan, I think you saw an announcement or an 8-K around a performance share-based plan that we filed, I think, last month or so. One of those components is actually the ROIC-related indicator. So for the management team, we are very much aligned in that aspect. Even before my arrival at the organization, ROIC was an important part of the organization. And Jim, in fact, I think my second day on the job, Jim brought a slide to me that showed ROIC over the last 10 years and how the company has performed on that regard. So it has been an active part of the internal management of the business, but really was never incorporated in the compensation side. And working with the comp committee and also working with the management team, we concluded, as we look forward, that ROIC gives us the best indication of the right investments to make, and in addition, being right aligned with the shareholders. So for us, it's -- I think it's a good indication for the shareholders that we are walking side-by-side with you and over the years, demonstrates the long-term success of a -- of returns for our shareholders. In regards to the buyback side and regards to accelerating that, I think we continue to maintain the posture we've maintained historically and that is, is that we'll make the right investments, both in giving money back to the shareholders, and at the same time, making strategic investments in that regard. And I -- this program should not weigh that decision one way or the other. I think it will continue to be what we've done in the past. And as we see more clarity in the business and opportunities to deploy the capital back to the shareholders present itself, then we'll obviously be sensitive to that.

And maybe, Bruce, if I could just sort of ask to follow up on that. You talked about ROIC, obviously, and you juxtapose that was moving away from margin target. The incremental return on invested capital for a new member, even at a significantly lower margin than the overall book, will be significantly higher than your existing 13%. So should we think about this as a new strategy and one in which you think now is the time to really put pressure on your competitors around the products that you are going to bring to market for new membership growth?

I think -- I don't -- wouldn't say it's a different strategy. I think it's just taking -- it's an extension of what we're doing already. But I do believe it is taking into account the long-term value that we see in having a relationship with the Medicare member and being able to look at our earnings, not only just on the short-term earnings basis, but really on the long-term aspect of adding value to both the member and our shareholders. So I wouldn't call it a change, and I wouldn't say that we're just going to go out and grab share irresponsibly. I think it is just a constant way to say what is the best interest over a 3- or 4-year period of time for our shareholders and our members and how do we look at that as opposed to just looking at a year-by-year bid strategy. And that's how our decisions are made.

And if I could just add about the share repurchase then. Looking at share repurchase versus making the company more valuable, you're right, when you look at should we buy back stock or should we invest in CapEx or acquisitions or other strategic investments, you get the 1 year pickup when you do that. But over time, when you make those investments, those investments make you money year after year after year. And that's what really -- that's really what the trade-off we look at when we look at how much shares to buy back and what the real priority. So what I said earlier about you first go after things that make the company more valuable, that's why you do that.

Right. I was thinking more against dividends, right? Buy back significantly, more enhancing ROIC than dividend.

Yes, well, both help you get to the appropriate level of capital, which is really what this is about. And when Bruce mentioned that we've been running the company like this over the years, that's really what it's been about. That and making sure that, that return we get exceeds the cost of the capital that we have.

Your next question is from the line of Ana Gupte of Dowling & Partners. Ana Gupte - Dowling & Partners Securities, LLC: I was trying to get a sense for the offsets that are available to the ability to preserve margins to a more quantifiable level, not just for 2014, but also going forward. So you put a very fine point on your rate headwinds for 2014. I think it's very close to 5%. And then you have, let's assume, 3% basic cost trend. If you look at the mitigating offsets, I'm just -- let's just assume you exercise the entire TBC. That's about 3%, the $34 PMPM that they offered, and then assuming you have about a 1.5% to 2% ability to do risk adjusters. So the things that are left to you would be SG&A, moving to this global full-risk model and vertical integration. So with where you are on those 3 and you have probably more potential than some of your competitors, given your starting baseline, can you give me some color on what you could do in '14 and what might be the potential run rate going forward?

No. We're in the middle of bids and this is a very competitive environment. Some markets look better than other markets. We've got all kinds of the things in our toolkit that we're focused on in certain markets. Some of those tools are more impactful than in other markets. And next week, when we do our, what we call, our lockdown meetings, we'll get a sense for how it's all rolling up in total. But for purposes of competitiveness, I'd just as soon tell you that we're working really hard to figure out where we need to be market-by-market. We've been successful in the past with this effort, and we're cautiously optimistic we'll be successful again for next year. Ana Gupte - Dowling & Partners Securities, LLC: Okay. Well, let me just go back to the chart that you've been showing us then on the Investor Day and some presentations after. You have a 70% cost base relative to Medicare for the full risk, and I think it's 90% for no provider incentives. If you just work off of that, the full risk includes vertical integration or you're just talking about a contracted model? And where are you right now on that spectrum? I thought I heard a number in response to A.J.'s question. So what are you targeting? One could work off of that and get a sense for what -- where you might be in '14 and then beyond.

Yes, I think Bruce referenced earlier, if you look at where we're at now, I think he referenced 47%. And as we -- one of the other areas of investment that we have for 2013 is accelerating the acquisition of primary care physician practices and building primary care physician practices where we're excited about what's developing there. We have 17 clinics that we're in the process of building where we just closed on a recent acquisition in Texas with a medical group that we're very, very pleased about. Those efforts are going to accelerate. I think the last time we were together, we talked about the desire to acquire 1,000 physician practices over the next 3 years. And so all of those things are going to be part of what you're going to see us focusing on as we move more from insurance to care delivery. But again, right now, it's really early. It's May, I think it's May 1. And so providing color and numbers relative to how we're going to do in '14 is really, really early. There's too many things that yet need to be figured. But we're really, really focused as an organization on expanding our clinical model, moving our relationships more to be risk-based and that's what we wake up thinking about day in and day out. Ana Gupte - Dowling & Partners Securities, LLC: And then, finally, on -- so I mean, I'm reading this as -- if I just look at this and put some rough math, it seems me that the offsets could even lead you to keep margins flat, but I'll leave it at that. And then the second thing on run rate SG&A...

Okay. I hope you enjoyed it.

Ana, go ahead with your question. You were asking about SG&A? Ana Gupte - Dowling & Partners Securities, LLC: Okay. Yes, I was asking about run rate SG&A. So your 8.9%, $100 million is onetime investments. Do you see those continuing into '14? And then can you just give me a sense of your run rate expectations, of what SG&A could look like sort of run rate?

We do have -- I think you're referring to the $100 million invest -- I'm sorry, this is Steve. On the $100 million investments, most of those are going to be in the clinical space and they'll be quality related. They won't -- a lot of that won't be in the admin cost. You did see our retail SG&A ratio improve nicely year-over-year and that's certainly a part of the strategy. So having scale here is important. And we do have a good plan for 2014 to continue to bring the SG&A ratio down. I don't think we want to guide to that number today. But you'll see continued improvement in that metric as we go forward.

Your next question is from the line of Kevin Fischbeck of Bank of America Merrill Lynch.

Just a couple of questions on what the rate cut means, if anything, to your ability to kind of move, along the spectrum to risk. I mean, how are your physician partners looking at this rate cut? I mean, you mentioned that you've got some capitation in here, which provides a little buffer versus rate cuts. But for the physician side of things, if you're trying to get someone to move along the path to risk and now you're telling them that the target earnings potential for them is probably going to be lower than what you might have thought otherwise, how do you think about that? And is there some functional limit to how much you can end up kind of flexing down on capitated membership because the doctor is going to need x percent increase versus fee-for-service to get them to do all the work that needs to be done to really be integrated?

In general, what we're seeing in the physician community is that they're -- they have pressures from all sides. So I wouldn't -- this is a relative measurement, and I think any pressure that's coming from Medicare Advantage is probably multiplied in the commercial space, and in addition, in the Medicare fee-for-service space. So I would say that in the proper setting, this is actually a benefit for the physicians because it allows them, as Jim said, to move from treating patients to the ability to look at patients from a -- from their health point of view and evolving them. And we find that physicians are excited about that because it becomes less of a volume game and more around quality and cost. And so we find them to embrace it. In regards to how much can we flex, I mean, we continue to believe being a partner with physicians is important, and therefore, our ability to flex and push rates down are dependent on our relationship with them. I mean, we have contractual relationships and with a lot of the groups out there today and those contractual relationships allow us to pass those rates on and the reduction to them, which we will do. But what we are generally seeing in the marketplace is that physicians and organizations do much better when properly given the tools and given the proper motivation in a risk-based environment than a fee-for-service environment. And if we can help through our path to risk programs and our ability to invest and help them evolve, we think we have a long-term success in those relationships and really are helping them out in the pressures outside of Medicare Advantage.

Okay. So it sounds like you don't see any real change yet on the physician engagement side of things as far as their willingness to move that. So then -- so I guess, on the -- another question would be, as you thought about moving these -- your businesses from an unintegrated PPO product to more integrated product, more HMO, my guess is that probably some of the benefit that you were looking to get was going to be from coding. And if you think about a few hundred basis points delta now versus between where you thought you might get to now with the final rule to where you actually will get, it doesn't sound like you've really -- with the fact that you think you're going to grow membership next year, it doesn't really sound like you've dramatically changed the -- your thought process around what markets are viable over time. So I just wanted to understand that a little bit. How do you think about 2014 as the year to get out? Do you get out of a market today if you feel like it's going to be marginally profitable tomorrow but then unprofitable in 2015? Or do you really wait until it turns negative before -- or do you get out today or do you wait until that turns negative before you make that decision to pull out of a market?

Yes, this is Jim. The market leadership has put together a document, if you will, that evaluates 80 markets throughout the United States. And they've put together their strategies and plans and the relationships that they want to create in all of those markets. And what falls out, there are some markets where the provider systems that exist in those particular markets are such that we don't see any kind of long-term success there. And so for that reason, it's likely that those are markets that we need to think about differently than we have in the past. And the other dynamic that I mentioned earlier is this whole PVC calculation, and the teams understand the mechanics of that a lot better than I do. But what it creates is a dynamic that over time, if you don't choose to exit today, it could get worse for you. And so they're stepping back and they're thinking really long term about a particular market and they're choosing, I think, this year to say, "Maybe it's time to close up shop."

Okay. So you are proactively looking at things on a longer-term basis this year. Even with that decision process, you still feel like 2014 is going to have net membership growth?

Yes.

And your next question comes from the line of David Windley of Jefferies. David H. Windley - Jefferies & Company, Inc., Research Division: I was hoping to get some of the trend benders in a slightly different way. So you commented about the increase in the number of members in chronic care programs, increase in the number of members in care management. Can you give us a metric or a delta on what the difference is in the cost experience on those members that are in those programs versus not? Or how much the improvement -- how much of an improvement you see when you get them in those programs?

We have a team of actuaries that have evaluated the new enrollment in all those programs and they do regular evaluations of savings. But I hate to talk about it that way. I'd rather talk about it more from a quality perspective. And by the way, it's really good from a cost perspective as well. Suffice it to say, that I told you earlier that we're going to go lower in the queue. So that tells me that there's tremendous opportunity to get folks in these kind of clinical programs that stabilize them in their homes. They're well received. The members love them. We love them. It's the right thing to do. And -- oh, by the way, it's starts with the trend benders. And I'd rather not to talk about ROIs and things like that because I just don't think that's the right way to think about it. David H. Windley - Jefferies & Company, Inc., Research Division: Got you, okay. So Jim, if I ask a different way, last year, when you stepped up -- when the company stepped up investment, I think it was a $46 million number expected to generate $200 million to $300 million in cost structure improvement, has the payoff on that investment paid off to that degree?

Well, I think we reported some fairly strong earnings in the first quarter and you saw some favorable restatements from last year. I think a lot of the spending that we did because we have the second quarter issues, which was embarrassing for us, are beginning to pay dividends this year. And we feel good about what's happening in 2013. They need to continue in order for 2014 to be a good year for us as well. David H. Windley - Jefferies & Company, Inc., Research Division: Okay. And then if I could throw in just a couple of quick ones, housekeeping, I think. The health care services metrics page, the owned JV primary care providers under risk actually went down and I wondered what drove that. And then, Jim Bloem, if you could perhaps quantify how much flu cost ended up being in the first quarter?

Let's go on record of saying that, that was way over 2 questions, but we'll answer it.

I will -- let me -- you're trying to fit the record. David, this is Steve. So on your second around the flu. I think what we've said before is, as I recall, that the first quarter impact was around -- we estimate it to be $50 million. It was maybe a little less than that, not -- it was still a significant event, but maybe it ended up being a little bit less than that. The flu admission data that we looked at really just ended sharply in the third week of January. And by the time we got to week 4 in January, it was a nonevent for us. So I would say it was a little less than what we said before, but not materially. So I'm not sure about your provider count question. I don't know if anyone else has a...

This is Regina. I think it had to do with -- we had one provider group that was acquired by someone else, so small change associated with that. But other than that, it's been growing quite nicely.

Your next question comes from the line of Peter Costa of Wells Fargo Securities.

Is there any reason to assume that the coding intensity adjustment and the recalibration adjustments would pass less to your providers than, say, the sequestration cuts did?

I don't -- I wouldn't -- I'm trying to follow that, Peter. I don't think so. I mean, I think in our relationships that we have, I mean, it's a percentage of...

I think of the same, yes.

Okay. So the premium tax then, that wouldn't pass as readily to the providers, I would assume. Is that correct?

We're in the process -- some of our contracts stipulate that, that gets explicitly passed down. Some of our contracts, it's kind of a relationship and negotiation, and we're in the process of working with all the provider partners to pass as much of that as possible. You have to step back and say, "Gosh, we can keep pushing down a lot of stuff, but what do we have at the end of the day because we've done some damage to the provider network that we think is one of our strongest assets?" And so that's just a market-by-market, provider-by-provider evaluation that we need to make and I know the team that's out there does a lot of smart things in terms of evaluating all of that.

Okay. And then second question. Your health services business stayed flat in terms of contribution year-over-year. You're talking about stepping up spending to continue to improve that. Will that -- so I assume it's going to be more negative in terms of performance going forward. Are we going to see earnings ever come from that business? Or is that always going to be sort of a receptacle for some of your spending as opposed to where you're seeing the performance show up on the plan side in terms of earnings improvements?

Earlier, I referenced the 1,000 physician practices that we're targeting, acquiring over the next several years to set up -- us up well for the long term. When we began to provide that infrastructure and that business, I would expect that you're going to see some really strong earnings growth in the future. Not to mention the pharmacy business, that is a wonderful contributor for us and has been over the last number of years. So I believe the health services organization, after we get through this period of investment spending that we've detailed, will be a significant contributor going forward.

Will that be in 2014? Or when will that be exactly?

I would estimate that we'll see the beneficial effects of a lot of this probably more in '15 because we've got some issues relative to '14 with some of the pushdown that I talked about of these funding cuts that are -- is going to impact those businesses in '14. I would expect that you'll see some nice lift starting in '15.

And I think, Peter, I know you're looking at the financial statements and the like, but when you peel it back, that division is a large contributor to the organization as a result of all of the great clinical activities it has going on. And in addition -- and also the relationships it creates with our members. So I look at it as much broader than just the financial results that's in there. And that's why you see us being very bold in our investments in that area because we are seeing some really good things that show up in the Retail Segment, but wouldn't occur without those investments in that particular segment.

Okay. And just the last question. I assume most people in this call have always appreciated the work Jim has done here. But can you update us on the CFO search?

Yes. And we all -- I sort of stutter here because we respect the dickens out of Jim. And -- but we understand that he would like to enjoy some time outside of Humana, so we appreciate that. But the same time, he has been very gracious in allowing us a long-term transition and helping whoever fills that seat as having a successful transition for that. That being said, we are in the market today, beginning to both interview internal and external individuals for that position. We anticipate that we will have somebody in the latter part of the third quarter and that will allow time for Jim to help in that transition and really have a dual transition in that aspect.

And your next question is from the line of Christy Arnold of Cowen.

About 20% of your Medicare Advantage medical cost were capitated as of the end of 2012. Is it possible -- I know you said it's early and you're still working with your relationships. Is it possible to give some estimate of how much percent of premium capitation you'll have in 2014? And then how should we think about the impact of 2014 payment changes to your Employer Group profitability? Do you have multiyear contracts? Can you pass along these cuts? How does that work?

This is Steve. I'll handle the capitation question. I think you said that 20% of our medical expense was capitation expense currently. And what might that do in '14, we would expect it to increase some. I don't think we're guiding to that number. And then, I'm trying to recap your question. We currently have about 26 in change percent in risk arrangements -- for HMO risk arrangements and about half of our total Medicare membership is in an HMO. That means that there is a portion that are in HMO arrangements where there's not risk going on, but there's still primary care capitation involved and maybe some specialist capitation involved. And what will happen over time is some of those members and providers in those buckets will move to risk models over time. And we've guided to, by 2017, having us up to 50% of our membership in the risk arrangement. So we haven't guided to how much is going to happen each year. But it stands to reason that the capitation expense, as a percentage of our total expense, will increase in '14 and '15 as we move the -- transition the model down the road.

Christine, this is Jim. Could reask -- I apologize. Can you reask your Employer Group question again?

Yes, we're looking at kind of the negative 8% to 10% spread. And I'm wondering, do you have multiyear contracts with employers such that you won't be able to pass that on? Or is it pure negotiation? Can all of that be renegotiated to pass some of that on in different ways? Or is there an issue with Employer Group that we should know about, given the negative spread?

And you're talking group MA, correct, Christine? Justin Lake - JP Morgan Chase & Co, Research Division: Yes, yes, exactly.

The contracts that we have with all the Employer Groups are generally 1 year. We have negotiations. Many of those negotiations are going on as we speak. There are negative spreads in -- and I described those earlier when I said, I think I said 8% to 10%. But those same toolbox items that we have for our individual also work for the group. And so I don't -- the spread is going to be reduced because of all those good things that we're doing. Group members also participate in SeniorBridge and Humana Cares, are also a part of the clinical assessments program. And so we're in the process of talking to a number of the large groups that we do business with. They're very excited and happy with the work that we do. One of the constant things that they do is measure where our premium that we charge for the RAP benefit relates to itself against the Medicare supplement opportunity. And we're always in pretty good shape with that right respect. So I feel very good about the group business going forward.

Your next question comes from the line of Ralph Giacobbe of Crédit Suisse. Ralph Giacobbe - Crédit Suisse AG, Research Division: I just want to go back to that last part of the question on the group MA side. I guess, how do we think about the growth heading into 2014 maybe relative to the individual? And are there more levers to offset the pressure in that business than on the individual?

I would tell you that I wish that more of the groups that we work with would be more willing to think about different benefit designs, so that we can get the members that we serve thinking more about wellness as opposed to sickness because a lot of those are more PPO-based than they are HMO-based. But again, the same levers that we pull for the individual business that exist throughout all the United States also impact the dynamics of the group Medicare membership that we serve. And so we have a lot of things and levers that we can pull to continue to create a value proposition for the Employer Groups that we serve there. But again, I wish they would be more willing to think about different benefit designs and get those members more engaged in their care delivery and working with us going forward. But I feel -- as I look out for the next several years, I see a lot of economic value that we can provide -- continue to provide those -- to those customers that we serve. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay, that's helpful. And then just a little more on sort of near term. For the quarter, obviously, you saw favorable seasonality in PPRD that helped and that may not repeat and seasonality could actually potentially work against you, if any procedure sort of get pulled into 2Q. You have the sequester hit. You have incremental investments. So I guess the question is, just help us with the comfort and confidence that kind of raised the 2Q guidance at this point.

This is Steve. I'll take a run at that. So as we raise the 2Q guidance, we hadn't given Q2 guidance before, so we're raising the full year guidance. Ralph Giacobbe - Crédit Suisse AG, Research Division: Sorry, just relative to consensus, I guess, or our expectations. Sorry.

Okay. So I don't -- I'm not even -- I'm not sure what that was. But from our perspective, we did see -- I think what we were trying to point out with the seasonality and the sequestration in Jim's comments was just to highlight the fact that there's a lot of favorable things that are happening in 1Q. And if you look at our total guidance for the full year, the percentage of our earnings that we're earning in 1Q of '13 is a big percentage, much bigger than it's been in any recent history. And we're trying to point out the reasons why that's the case. The seasonality comparison this quarter-over-quarter, everything else being equal, is a big number just due to leap year last year and the way the Mondays and the number of days and the month fall, as well as the sequestration, which was delayed for us. So -- but still, there was underlying improvements in our trends and our SG&A cost. So as we look at those, we do feel comfortable raising the guidance for the full year. And obviously, the things that happened in 1Q increased the full year as they flow -- as they just flow into the total. So I don't know if that helps or not.

And we want all those to continue and get bigger as the rest of the year goes on to position us nicely for '14.

Your final question comes from the line of Carl McDonald of Citigroup.

Talked about facing bigger rate cuts in places like Florida. Those are also your strongest markets. They're best equipped to handle the reductions. So as you think about a scenario where earnings don't grow in 2014, are you more concerned about lower earnings in the strong Medicare markets or earnings pressure and/or market exits in some of the weaker markets?

This is Jim. I'm not sure that I have a particular one item that concerns me. The one thing that I would tell you, I don't know whether the team that's around the table shares this, is I'm not sure how 2013 is going to turn out. And if it gets -- continues to get better, comparisons to next year are going to be more difficult. But having said that, if '13 continues to get better, that's a nice target for 2014. I don't think of anything as a one particular area that I'm most concerned about other than the hill that we have to climb in terms of the 8% to 10% headwind that I kind of detailed earlier.

And then the second question, is it smart to shift the dialogue away from margins and to returns? So I'm thinking, at a 400% risk-based capital ratio and a 5% margin, the return on a Medicare member would be something in excess of 30%. So do you really want to highlight that?

Again, it's a matter of the way we look at it. As Bruce said and as Jim said, starting off, we want to improve earnings every year. And then we want to run that over our capital base that remains appropriate than meeting the same or less as we go forward.

They took my CPA away a long time ago, but I think that earnings growth ultimately drives our share price. And so focusing on growing our earnings going forward each year will help us to drive our share price going forward. And so that's a part of how we're beginning to think as opposed to a margin target explicitly.

So as you continue to grow your membership, remember, we improve, as we've learned all of this together in the last year, we improve as the member stays with us longer and gets through these programs and gets the benefits of them. So that's the other part. As you grow, you continue to have new and that's what makes it, Carl, not just the math that you -- was in your question.

I think most importantly, as you look at the business model, I mean, return on invested capital margin growth is the end result. But what we are affecting doing is really improving people's health, and at the same time, helping lower the cost of health care. And to us, the vision that we have is to able to return an adequate return to our shareholders, which I think over the years Humana has demonstrated. And at the same time, be a solution to one of the largest societal issues today and that's health care costs. And that's what you see all the our programs focused on in the doing and you see a growth in members as a result of that.

Thank you. There are no further questions at this time. I would now like to turn the call back over to the company for any final remarks.

Well, like always, we thank everyone for their support. But the success of the organization is really due to our great 44,000 associates, which we thank them for their continued contributions to the organization and allowing us to have successful quarters like the most recent one. So everyone, have a great day, and we again appreciate your support.

Thank you all for participating in today's conference call. You may now disconnect.