Regina Nethery - Vice President, Investor Relations Bruce Broussard - President and Chief Executive Officer Brian Kane - Senior Vice President and Chief Financial Officer Jim Murray - Executive Vice President and Chief Operating Officer Steve McCulley - Senior Vice President and Chief Accounting Officer Christopher Todoroff - Senior Vice President and General Counsel.

Sarah James - Wedbush Securities Joshua Raskin - Barclays Justin Lake - JPMorgan Matthew Borsch - Goldman Sachs David Windley - Jefferies Andrew Schenker - Morgan Stanley A. J.

Rice - UBS Chris Rigg - Susquehanna Financial Ralph Giacobbe - Credit Suisse Kevin Fischbeck - Bank of America Scott Fidel - Deutsche Bank Peter Costa - Wells Fargo Securities Christine Arnold - Cowen Ana Gupte - Leerink Partners Carl McDonald - Citigroup.

Good morning and welcome to the Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now hand today’s call over to Regina Nethery. Please go ahead ma’am..

Thank you and good morning. In a moment, Humana’s Senior Management team will discuss our second quarter results and our updated earnings outlook for 2014. Participating in today’s prepared remarks will be Bruce Broussard, Humana’s President and Chief Executive Officer and Brian Kane, Senior Vice President and Chief Financial Officer.

Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts.

Joining Bruce and Brian for the Q&A session will be Jim Murray, Executive Vice President and Chief Operating Officer; Steve McCulley, Senior Vice President and Chief Accounting Officer; and Christopher Todoroff, Senior Vice President and General Counsel.

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 the virtual slide presentation. An Adobe version of today’s slide deck has been posted to the Investor Relations section of Humana’s website. Before I 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 will turn the call over to Bruce Broussard..

Good morning, everyone and thank you for joining us.

This morning, we reported second quarter earnings per share of $2.19 reflecting our strong membership growth year-to-date juxtaposed against investments in healthcare exchanges and state-based contracts as well as clinical spending to weather the funding cuts the Medicare Advantage business continues to experience.

We continue to have confidence in our full year forecasted earnings of $7.25 to $7.75 per share with the completion of another quarter of solid performance in our base businesses. As usual, the second quarter was a busy one.

We submitted our bids to CMS for the 2015 plan year for individual Medicare Advantage, group MA and standalone PDP offerings and expect the vast majority of our members to experience stable premiums next year. We anticipate no significant changes in our geographic presence, but do expect to offer HMOs in nearly 65 new counties next year.

CMS is in the process of reviewing our bids. So, we will not be disclosing any further about our 2015 plan designs at this point. However, we do believe that our offerings will continue to outpace solid value proposition to Medicare beneficiaries and result in a net membership growth next year.

We continue to be encouraged by the power of our integrated care delivery strategy, which contains three major areas. First, care delivery; second, consumer experience; and third, data analytics.

Our strategy is designed to make it easy for people to achieve their best health and as demonstrated by our strong membership growth, it resonates well with our consumers. Our analytical capabilities are an important driver of the returns on our clinical investments.

To that end, I will spend a few minutes this morning talking about why our ability to connect and analyze data and in turn and into actionable insights for our members and providers. It is so critical to our integrated delivery model. Looking at Slide 6, we have made great progress in the past two years.

Our integration of Anvita’s analytical engine into our clinical workflow and messaging system is allowing us to proactively enroll members in clinical programs.

In addition, the connectivity of providers through our Certify engine combined with our population health analytics, like documentation review and quality measurements is assisting our provider partners in managing value-based relationships.

Through this integration, we can be a better partner with our providers to share with them data that is integrated from both a clinical and financial perspective. Providers receive relevant and actionable insights at both the population and member level.

This allows them to see the broad picture of what is happening with our populations and drawdown on specific patients and why trends are occurring. In turn, this helps the physicians manage the health of their members more effectively, a key to value-added relationships with providers. Slide 7 clearly demonstrates that our focus is paying off.

Members’ quality health measures compliance has risen significantly over the past two years. It is a combination of the high-tech capabilities I have just described in the high touch care for our members living with chronic health conditions that underpins the success of our strategy and the value proposition for our members.

Turning next to our product offerings on Slide 8. As we shared with you in last quarter’s call, our Medicare membership has grown significantly this year. While we also anticipate net growth for individual Medicare in 2015, it is far too early to gauge the extent of that growth.

We anticipate that sharing with you when we give our detailed 2015 guidance this fall. Turning to state-based contracts, the implementation process is progressing as planned, despite the delay in the start from some of the states.

Opt out rates are coming in a bit higher than we had expected, but our claims and pharmacy trends are in line with our expectations. Our healthcare exchange membership also grew substantially during the second quarter given the influx of applications late in the first quarter.

Our 2015 rates for exchange offerings have been filed with the various states and are pending approval. We believe the rate increases we have filed are not unexpected given the change in the population demographic dynamics that occurred subsequent to the state premiums for 2014.

Finally, let me turn to our pharmacy benefit management business and address some of the questions we received from investors regarding our intended strategy. As you can see on Slide 9, the size of our PBM is substantial. You can think of it as an approximately $17 billion business with pre-tax margins in the 2.5% to 3% range.

Our RightSource mailing operation has revenues in the $3.5 billion range, which are included in the $17 billion I just referenced. As with all our businesses, we want to maximize the value of these assets while achieving our strategic and operational goals.

As I have said previously, a thorough and rigorous analysis of our PBM is underway, which includes a strategic and financial review. The financial review will include an analysis of our network purchasing, pharmacy inventory procurement and pharmacy dispensing.

The strategic review will include some items that are distinct to our PBM, which I would like to highlight today. First, our PBM is a key part of our integrated delivery model as well as a critical strategic component of our consumer-focused retail business.

Pharmacy is the single most utilized benefit by our members and we want to ensure that the experience continues to be of the highest quality. Further, our clinical programs that seek to improved medication adherence are a key to improving overall health outcomes for our members.

Second, we will consider our third-party relationships, including our very significant relationship with Wal-Mart. We will consider in our analysis the potential effects on that relationship. Third, the proportion of our Medicaid business within the PDM makes it distinct from some of the other PBMs and commercial OEM transactions in this space.

For example, we expect any potential incremental savings from retail network pricing would primarily be put back towards enhancing benefits for Medicare beneficiaries. Additionally, regulatory compliance will continue to be of utmost importance for any partnering relationship we might consider.

This analysis will include the required flexibility with the anticipated Medicaid growth, changes in clinical protocols and current and future compliance capabilities. Each of these factors will need to be balanced against the potential benefits of any transaction including unit pricing as well as fulfillment costs.

These are the factors I have just described. We expect that analysis of the PBM business will take a good amount of time to complete. When we conclude the process we expect to update investors. We appreciate your patience in the interim. Our industry has never been, and likely never will be, one where changes are few and far between.

We believe Humana is well positioned to not only survive, but to thrive in this dynamic environment. In sum, our integrated care delivery strategy combined with the robust membership growth and state of our national demographics comprise a strong chassis upon which Humana’s future growth will be built.

We look forward to sharing further updates with you as the year continues to play out. With that, I will turn the call over to Brian for a review of our financials..

Thanks Bruce and good morning everyone. This morning we reported earnings per share of $2.19 for the second quarter of 2014.

As expected, that was lower than the $2.63 reported for the second quarter of last year due primarily to our investments in healthcare exchanges and state-based contracts as well as higher specialty drug costs for a new treatment of hepatitis C that we discussed in last quarter’s call.

Partially offsetting those headwinds was the solid results in our base business and the benefit of share purchases over the last 12 months. I would like to begin with a discussion of the strength of our base business.

The underlying strong performance of our Medicare advantage business and our healthcare services operations continued to drive our results and have helped us to overcome some substantial headwinds as indicated on Slide 11.

With respect to our Medicare advantage business, we continued to see a decline in our hospital admissions compared to prior year levels, largely driven by our care management programs.

As indicated in this morning’s press release, member with complex chronic conditions that are enrolled in our chronic-care management programs are up over 50% from last year given the acceleration and timing for getting to know our members’ health conditions.

With respect to our newly enrolled members, they continued to perform in line with our expectations. However, I would note that benefit ratios of new members typically run higher in the first year.

We are also very pleased with our mail-order pharmacy operations, as it reflects both strong Medicare growth and mail-order usage by seniors in our Medicare advantage and standalone PDP offerings which continues trend favorably.

The strength of these businesses has allowed us to overcome several challenging issues which we have discussed at length in the past including; provisions of the affordable care act that became effective in 2014 including the industry fee which increases the operating cost ratios for the retail and employer group segments by 150 basis points and 180 basis points respectively.

New and costly hepatitis C treatments which we continued to estimate at $0.40 to $0.50 EPS impact for the year and clinical investments of $0.40 to $0.50 in 2014 to help position us for the future which we mentioned last quarter.

Moreover we are facing three additional headwinds, the details of which I will discuss shortly including higher marketing spend as we position for 2015, delay in implementation of our state based contracts and finally the extension of the ACA transitional relief provisions.

Looking at our updated full year forecast, we continued to expect 2014 EPS in the range of $7.25 to $7.75 with some revisions to each of our segments as noted on Slide 12. For the retail segment our Medicare advantage business as I mentioned, continues to perform well.

And our standalone PDP and healthcare exchange businesses are tracking in line with our previous expectations. There are two items noted on Slide 12 which together resulted in a reduction of our full year retail segment forecast by $50 million.

First, we expect higher marketing costs of approximately $30 million for our Medicare Advantage and PDP businesses. This is primarily due to expectations for the 2015 enrollment campaign as we consider what we expect to be a continued solid value proposition and stability in premiums for our members.

The remaining $20 million relates to our expansion in state-based contracts, which is driven by two items. First, the implementation dates for Illinois and Virginia were pushed back by two to three months but are now up and running.

Since we had ramped up our infrastructure for an earlier implementation, the delay in revenues had an adverse impact on our full year outlook. Second, as the dual eligible contracts in Illinois and Virginia became effective, the entire industry has experienced a higher opt-out rate than originally expected ranging from 23% to 30%.

Consequently, we have revised our full year outlook to reflect a higher opt-out percentage going forward.

Turning to the employer group segment, we have lowered our outlook by $25 million for 2014 due primarily to the fact that small group employers are keeping their existing plans at higher rates than we had previously forecasted, which resulted from the March 2014 extension of the administration’s transitional policy through October of 2016.

The transitional relief allows certain employers to renew their existing plans at rates lower than the higher post-ACA rates, with no change in likely claims experience. After the announcement of the transitional policy extension in March, we saw a substantial increase in the percentage of employers taking advantage of that transitional relief.

Consequently we have lowered the 2014 outlook for our small group business. Finally, as we look at the Healthcare Services segment, these businesses continued to exceed our expectations. And accordingly we have raised our full-year outlook by $75 million.

The over performance was driven by our mail-order prescription drug operations, our home care business and our primary care operations. Each of these businesses plays a key role in our integrated delivery model, care delivery model for our Medicare Advantage population and have benefited from our growth in Medicare Advantage enrollment.

We continued to experience higher than expected prescription drug volumes in our mail-order business. And our home care business is benefiting from servicing more of our membership in our chronic care programs.

In total, these changes in our segment guidance net out to zero, so we continued to expect 2014 EPS of $7.25 to $7.75 and are pleased with the underlying performance of the base business. Turning next to our exchange business on Slide 13; our outlook for 2014 remains in line with our previous estimates.

As a reminder, the 3Rs were established to stabilize premium rates for individuals during the transitions to the exchanges and were funded via taxes and fees levied upon the industry. With respect to the 3Rs we continued to anticipate receivables at year end of $575 million to $775 million.

As indicated on Slide 13, approximately three quarters of this total results from the reinsurance provisions of the ACA, whereby insurers will recover 80% of the claim expenses that exceeds the $45,000 attachment point up to $250,000.

The reinsurance receivable naturally rises as we proceed through the year and individuals exceed the attachment point. These reinsurance provisions continue into 2015 and 2016 with the 80% level of reinsurance declines to 50% next year and our pricing includes consideration for these changes.

The majority of our ACA membership was effective in the second quarter and the very early drug claims data indicate that those members are on average younger and healthier than those that enrolled in the first quarter.

Additionally, we believe as exchange enrollment levels continue to increase, the overall morbidity of the risk pool will continue to improve, which will help mitigate the need to raise rates further as the reinsurance and risk corridors unwind over the next few years.

Turning next to the balance sheet, the parent company has now received dividends from our regulated insurance subsidiaries totaling $914 million, with $695 million being received in the second quarter and $219 million being received in July. This was in line with our expectations and consistent with prior year levels.

As indicated in this morning’s press release, we have repurchased 805,500 of our outstanding shares during the quarter totaling $101 million. With regard to capital allocation, over the coming months, we are committed to taking a fresh look at our financial leverage, capital allocation and return policies.

We will evaluate increasing the amount of capital we return to shareholders beyond what we have historically done while considering the needs and opportunities of our business.

The principal driver of capital allocation for us is our need to have ample capacity to invest in our significant top line growth and attractive MA opportunities when they become available.

That being said, the clarity around our capital needs has improved over time now that we have better visibility around Medicare rate cuts, the duals and exchanges. We understand the importance of returning capital to our shareholders when we are able to do so.

While I am new to the company, these are issues I am intimately familiar with given my prior experience in analyzing how to optimize a company’s capital structure, capital allocation and capital return policies for the shareholder’s benefit, while at the same time preserving the flexibility a company requires to execute its strategy.

As such, our balance sheet capacity and capital allocation policy are front and center issues for us. That concludes my prepared remarks, but before opening the line for questions, I would like to briefly express how fortunate I feel to join an organization with such strong leadership and dedicated and hardworking associates.

In particular, I would like to thank Steve McCulley whose operational depth and extensive knowledge, along with the partnership we have formed are invaluable. I look forward to meeting our investors and want to remind everyone that our Biannual Investor Day is scheduled for December 4. We will be moving that event back to New York City this year.

Details on the Investor Day will follow in the coming months. With that, we will open lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller..

(Operator Instructions) Your first question comes from the line of Sarah James with Wedbush Securities..

Thank you.

I know it’s still relatively early in the year, but I was hoping that you could kind of go over briefly some headwinds and tailwinds as you think about 2015?.

This is Jim Murray. In terms of 2015 headwinds that I would think about would be whatever happens with the funding from CMS as respects our premiums, which we use as a part of our bid development process. Offsetting that fairly significantly were some of the things we did around trend vendors.

We had a fairly solid year in terms of what we were able to accomplish with trend vendors that we use for our bid process, we feel really good about that. In part that’s why we chose to increase our marketing spend for the coming AEP, because of how we think our bids firmed up.

Continued visibility in terms of what’s going to play out with the exchange business, we feel really good about where we are sitting right now in terms of what we had anticipated. A lot of our pricing philosophy seemed to be playing out and the 3Rs are offsetting some of the negatives that occurred relative to changes in the program as it went along.

We have talked a little bit, Bruce referenced our pricing and some of what we did for pricing for 2015, we feel good about that. We feel good about the way that the population is expanding. We have an estimate for how much participation we expect in the exchanges in 2015 and that was an integral part of our pricing.

And then ultimately, the play out of how the Medicaid business all comes together, we are seeing a lot of build out this year in some of the investment we are doing around all of the state-based programs.

We are getting some visibility into medical spend and the administrative infrastructure necessary for those programs and we feel pretty good about how they are all rolling out. So, frankly, when I look at a lot of the things that are on the horizon, I feel pretty confident about our prospects for 2015.

We are always very careful and very judicious to identify anything that might surprise us, but again I feel pretty good about how 2015 seems to be shaping up..

Your next question is from the line of Joshua Raskin with Barclays..

Hi, thanks. I guess the first question is just around the exchanges and I will admit a couple harder to find.

So, the first would be how should we think about the 3Rs on a relative basis and I know you can’t speak to what others are accruing, etcetera, but what would be some of the key determinations why Humana would be a higher or lower impact from the 3Rs? And then maybe just longer term I guess even just 2015, what’s the endgame for all of these members that are at margins that are way below what you would expect to be long-term targeted members – margins? I mean I have seen some of the rate increases that are very significant for next year, should e assume membership in the exchanges is going to trickle down over the next couple of years or would you actually be able to maintain this level of membership and still increase the price?.

Hey, Josh. This is Steve. I will take maybe the 3R question and then maybe Jim can talk about the second part of that question. On the 3Rs as you know we have shared just some slides today about our full year outlook there, which is I think more disclosure than others.

And if you think about the reinsurance component of that, which is the biggest, again that’s a determinable of the number that we can get from our claims experience, that’s over the threshold and below 250.

And I can’t speak to how other companies are viewing that or how they are accruing it, but in general those levels at the end of the day for reinsurance ought to be relatively comparable.

I guess if we have a – if we were more hit by the transactional relief rules, so our health mix is worse than others on average than that reinsurance per member could be higher, but everybody is going to have a fair amount of reinsurance. It’s going to be the driver of everyone’s 3Rs including ours.

I would note that we are just accruing the 80% portion of that reinsurance, where there is some talk of that potentially being funded further, but we haven’t considered that.

So, that’s kind of – other than that we talked last quarter about the – we look at how we are positioned in each state in terms of the amount of members that we brought in that were not previously underwritten and we can look at that data versus the state as a whole and make some estimates around risk adjustment.

That’s not a – again, that’s not a primary driver of the receivable, but we would expect to have some risk adjustment receivable. And again to the extent that, that estimate is off a little bit, it would be offset 80% in the risk corridor. So, those numbers tend to play together.

So, that’s kind of how we view the 3Rs and I don’t know if you can talk about the second part..

Yes, expecting that we would get a question related to the exchanges, I will just share some random thoughts with you and you can take it from there. I always like to remind everybody that the exchange business in the HumanaOne revenues for Humana, it represents 5% of our overall revenues.

We also and Josh you referenced the margins, we are investing this year, but we fully expect that over the next several years that we will produce the same kinds of margin that you have heard from some of our competition.

I think folks have talked about ranges of 3% to 5% and we feel comfortable that over the next several years that we can achieve that kind of margin level. And the important piece for us related to that was what happened this past year in terms of us gaining scale.

Our membership doubled, but our revenues tripled as a result of the exchange business and that went a long way towards us getting the same kind of scale that some of those others have talked about in terms of gaining those margins that I referenced a moment ago.

Also for us and why we are in this business, we think that over time there is going to be a shift to a retail form of business and obviously this sets us up nicely for this. And it’s a nice synergy between the Medicare business and the Medicaid business in terms of an aging opportunity for the Medicare business.

And for Medicaid, you have heard and some of you have talked about the fact that some of the folks who are part of this program are going to go in and out of Medicaid and into some these kinds of offerings. And so we think it sets us up nice for our retail business as a whole.

Some of the things that we have learned as a result of this past year, obviously the scale is something that we are very pleased about.

Our philosophy about low price has developed with a very efficient network and an HMO form of product seems to have played out into the marketplace and helped us to gain some of the membership that we have seen in the three Rs, the financial projection – protection that they were designed to provide played out nicely for us as a lot of the changes took place and some of the changes to the reinsurance element of the three Rs offset some of the negatives as respect to adverse selection.

We have already talked a little bit about the premium increases. We have meaningful premium increases out there that we think position us well for the future and move us towards those margins that we talked about. We fully expect that the pool will continue to increase. Our pricing assumes that there will be about 11 million participants next year.

We have also included in our pricing the fact and Brian spoke to this, that two of the three Rs are going to wind down, we don’t expect that they are going to exist forever and our pricing for ‘15 and ‘16 we will assume that they will ultimately be gone and will be left to a risk adjustment which frankly as a company we are pretty good at because of what in the Medicare business.

We looked at some of the pricing that some of the competition has done over the last several weeks and months, it looks like the national and regional competitors in this space are being pretty price intelligent.

There is a couple of co-ops in some smaller players in specific markets or specific states that seem to be doing some pretty interesting stuff. But generally we feel pretty good about the way the competitive marketplace is setting up, so we feel pretty good about this business. That was a long explanation, I apologize..

One clarification, I just want to make sure I got it right.

So you are expecting 11 million in exchange is that going to be 8.4, and you are putting through some significant rate increases which starts I guess in 2015, does that mean Humana is expecting more membership on exchanges next year?.

I don’t know that we can expect more membership. I don’t expect that we are going to shrink significantly. I think the level of scale that we achieved this past year was solid. We will see how things play out. I don’t anticipate we are going to grow significantly, nor shrink significantly..

Okay, perfect..

Your next question is from line of Justin Lake with JPMorgan..

Thanks. Good morning. Just want to follow-up and just really think about sustainable earnings power here kind of going forward, but specifically can you give us an update on the losses that you are generating in exchanges for 2014 and would it be fair to think about the path being kind of breakeven for ‘15 and hitting target margins by ‘16.

And then just quickly, can you give us your current thoughts on the run rate of Medicare Advantage margins and Healthcare Services segment earnings, that’s being sustainable or not at these levels going into next year? Thanks..

Hi. This is Steve. Justin I will take the first part of that question which was the investments we are making.

As you remember last quarter we did the total investments that we are making in the exchanges and the duals on a state based contracts was we started out the year at I think it was $0.50 to $0.90 a midpoint of $0.70 and that improved last quarter because of the exchange growth helped us get more scale as Jim just mentioned.

And we improved our outlook for the exchanges for this year and nothing has changed on the exchanges for this year from 90 days ago. Things have played out like we thought, so that’s still the same.

What did change though this time is the investment in the duals and the state based contracts went up by $20 million as Brian mentioned in his remarks due to the delays in the contracts there, and the opt-out percentages. So net-net the total investment this year is about the same.

So again, as we go to next year, we expect to do better in the exchanges and certainly the duals as well. So we haven’t obviously guided the 2015 numbers yet, but that’s kind of how we see it..

Justin just to add a few things to that, I mean we have made in statements that we do, I want to see the exchanges breakeven during 2015, and that is a target we have set internally. It might not in the whole year, but during the year we are very focused on breaking even.

And both managing our costs as Jim articulated, adjusting for the pricing and with the anticipation of the 2Rs going away along with we anticipate the pool will continue to improve as the grandfathering clause works its way out. Your second question was on duals, we have our contracts are usually three to five years.

We anticipate the first year we need to make an investment. And I think over the three-year period of time we have priced it at the appropriate return on invested capital. But it will take some time for us to get scale as you will see improvement in 2015 and then ‘16 I think you will continue to see improvement in there.

We haven’t made the same comment on exchanges as we had in duals, if it’s going to be one, is it going to be profitable, but we anticipate there will be improvement in that business. On the Medicare Advantage side, we would try to be conservative and look at our membership growth.

And we do think Medicare Advantage as an industry will continue to grow demographically with some penetration in the Medicare Advantage percentage as total of Medicare. And so we see that growing greater than 3%, but we haven’t put estimates out there.

I hope that helps when you are trying to get a trajectory of how we see the earnings over the coming few years..

Great.

One point on Healthcare Services segment earnings, they have been better this year, is this a sustainable run rate to jump off of for next year or is…?.

Yes.

I think the investors should look at the Healthcare Services side as a correlation to how the growth is growing in the membership side, because what’s happening is, as you are seeing strong growth in our home health business as a result of our Chronic Care program, you are seeing strong growth in our behavioral business because of both the duals growth and the business – and the Medicare side of the business.

So there is some pricing up and down, obviously within the pharmacy business, that’s got a little bit of a pricing up and down based on generics and specialty and so on. But in general there should be a proportional growth to Healthcare Services as our membership grows..

Great. Thanks for the color..

Your next question is from the line of Matthew Borsch with Goldman Sachs..

Yes. Thank you.

I wonder if you could just – I realized it’s not a major driver for you guys, but the Florida Medicaid program, I am hoping you would just comment on what you are seeing, it’s their early point now in terms of anything you can say about utilization levels as that new population comes into managed care?.

Sure. This is Jim. We have had Medicaid business in certain Florida regions for a long time, which are under risk based contracts.

There are some new regions that we have in areas outside of South Florida that have just gotten up and running because of one of our competitor’s recent announcements, we have been looking very closely at a lot of the medical spend and we don’t see anything unusual.

There is some hepatitis C spend in the Medicaid business, but recently Florida gave us what I will refer to as a kick payment, and the actuaries feel very comfortable with the amount of that payment relative to the Hep C costs that we are incurring as an organization.

The Long-Term Support Services business is getting up and running and seeming to do very well. So we don’t see any concerns relative to the Medicaid Florida business that we just recently started..

And if I could just follow-up because you touched up on the Hep C, are you – can you just tell us where you might be with the various states that you are in or going into in terms of the potential for additional reimbursement for that, for what you are seeing now and maybe what you start to see at the end of the year?.

Sure. I have already spoken to Florida. Illinois has also agreed to fund our Hep C exposures and we are working with Virginia as respect to those.

Some of portion of that in Virginia, it comes from the duals program and there is that funding related to Hep C cost is borne by CMS through a very complicated formula, but there is some exposure to us and we are working with the state of Virginia to walk them through what that is.

Other than that, we feel very good about where we are at with all the state contracts..

Okay, thank you.

Your next question is from the line of David Windley with Jefferies..

Hi. More generally on utilization, Brian mentioned in your prepared remarks that hospital admissions were down.

I wondered if you could speak little more broadly to acute or in-patient acuity, average length of stay, metrics like that? And then also if the squeeze in inpatient is popping out in outpatient, could you talk about what you are seeing in the outpatient environment, from a utilization standpoint? Thanks..

Hey, David. This is Steve. I don’t think there is a – we have seen any significant change in length of stay as we – as I think, Brian mentioned, we continue to see lower admissions, which is what we expected to see with our chronic care programs.

The first quarter lower – the first quarter was very favorable and the second quarter was maybe not quite as favorable relative to the first, but it continues to be very favorable. And let me see your question, on the outpatient side, not a significant change, there is maybe some of that but not enough to – not something we would call unexpected..

Okay, thank you..

Broadly, I would say that we feel very good about our Medicare utilization trends..

Thank you, Jim..

Yes..

Your next question is from the line of Andrew Schenker with Morgan Stanley..

Good morning. I was just wondering if you could talk high-level about the seasonality into the back half of the year here. I assume we could see some improvement in retail MLRs given Part D and exchange seasonality assuming normal seasonality employers well.

And with that in mind, are the increased marketing costs going to mostly show up for the retail segment in the fourth quarter? Thank you..

Hey, this is Steve. Let me see if I have those questions. The Part D seasonality is the same pattern that we have seen in the past. So, that’s in our forecast as we model that out as people get into the coverage gap, then you see that play out and that’s the normal seasonality we see.

We do have more members into the reinsurance phase because of the Hep C and we have talked about that.

And then on the exchange members, I think it’s somewhat the inverse in that the deductibles that hit in the first quarter tend to make the early results better and then it kind of plays itself out through the year as people have met their deductibles.

But again, the pattern changes aren’t anything different than the normal patterns that we have experienced in the past. So, as we trend out, I mean, that’s all considered in the guidance that we give..

Okay.

Maybe just to follow up on that, I think a couple of your competitors suggested that as people hit the attachment points for the reinsurance on the exchange business, that kind of act similar to the donut hole and actually lowers MLRs into the second half of the year, is that your interpretation in the accounting?.

Well, I think that – let me think about that, there maybe some effect to that, but I don’t think, so far those people haven’t hit those, those people who accumulate those balances as they go through the year. So, there is some modest impact from that, but I don’t think it’s – it makes a drastic change in the overall MLR for the segment.

As Jim mentioned, there is – it’s only 5% of our revenue. So, there is some impact to that, but I don’t have those numbers at my fingertips, but…..

We also have the factor in the risk corridor and that 80% of that dynamic that just was described….

Yes, that’s the other complexity. That’s correct, Jim. So, to the extent that before they hit the reinsurance, it might be banging in the risk corridors and then as it moves and hits the reinsurance it kind of comes out of the corridors.

So, all of that 3Rs tends to kind of smooth it out a little bit, so that the pattern really isn’t as severe as it might otherwise be.

Does that make sense?.

Yes, thank you..

Your next question is from the line of A. J. Rice with UBS..

Hi, everybody. Maybe just two quick questions here. First, more of a strategic one, this is the year where Humana is growing MA much faster in enrollment than the peers and then the underlying market average. And I know Bruce coming into this year, you guys talked about some of the things you were doing to make that happen I guess.

It sounds like you are making investment to go into new counties.

I mean, do you see – we have other guys have a year of very fast growth and then they sort of pulled back and sort of consolidate that? Do you see this as sort of a period of time where you think Humana for an extended period of time will grow MA enrollment faster than the market?.

Well, I mean we haven’t given any estimates on that. I think our – we continue to look at our value proposition and our value proposition with stable benefits and in the marketplace seems to continue to resonate well with the consumers. And so we are assuming we will continue to grow in the markets that we have strong density.

And we are not adding much in geographic presence.

I think what we are talking about is adding more HMO product, which allows us to provide a better product at the end of the day as a result of better quality, better relationships with our provider and in addition a better care model that helps us not only improve people’s health, but at the same time manage the cost.

So, we are bullish on Medicare Advantage, because of the out – I think because of what we see in the impact on the healthcare – on the healthcare costs and our value proposition, but we are not going to give you a very specific estimate of what we think our growth is over the coming years..

Okay. Maybe to switch gears on one more question on the exchange and your views about it going into 2015.

CMS has put out there this auto enrollment feature and thinking about your membership, does that auto enrollment feature – is that a positive for you going into 2015? If you get a lot of people that end up reenrolling or just give me your thoughts on that proposal and how it might affect you?.

I think net-net we look at the auto enrollment as a positive, both in the auto enrollment and to exchanges and continuing that, but in addition, the auto enrollment also offers the enrollment into Medicare Advantage if we choose to that, so it really feeds both sides for us..

Next question, please..

Your next question is from the line of Chris Rigg with Susquehanna Financial..

Good morning. I actually just have a question around the accounting for the 3Rs and $575 million and $775 million it looks like the receivable was $240 million at the end of the quarter.

I mean, how much has been – how much of that money has run through the P&L and sort of how are you expecting it to, how do you account for it in the back half of the year in terms of earnings?.

Yes, I think we have said that through the first half of the year we have recorded $200 million and up $153 million of reinsurance and $87 million between the corridor and risk adjustment, but we also have a payable on our books for the contribution we have to pay into the reinsurance pool of $60 million in our trade accounts payable, but so that number is going to grow mainly as the reinsurance number that grows as we go from now to the end of the year and that number ends up being the $575 million to $775 million.

So, when you say P&L, yes, I mean I think that is a stabilization program, so it does go through P&L, the offset of that entry. So, I am not sure if that answers your question..

Well, I guess what I am just trying to figure out is that how much has the earnings benefited thus far from that versus what’s expected to come in, in the back half of the year?.

Well, I think it would be the difference between whatever we have accrued year-to-date and the total that we have added to $575 million to $775 million. So, if we look to....

$240 million is flowing through the P&L, right?.

In the first half of the year, right. So, it would be some amount larger than that in the back half of the year. That gets you to between $575 million and $775 million. Yes, the receivable amount represents the P&L pickup that we get as a result of that program..

Okay, thanks a lot..

Your next question is from the line of from Ralph Giacobbe with Credit Suisse..

Thanks. Good morning.

You laid out a lot of opportunities around the balance sheet in PBM, just wondering if you can help us think about timeframe for decisions, whether we should expect sort of one big decision that intertwines everything or if it’s likely to be sort of piecemeal? And then along those lines, if you could just talk about MA, your appetite at this point and areas maybe that you would like to strengthen? Thanks..

This is Brian. Let me take both questions. Well, relative to the timing, I would think of them as really separate processes of PBM from the capital deployment. PBM as Bruce mentioned is going to take some time and we are going to do a thorough analysis of what makes sense from a strategic perspective and from a financial perspective.

In fact, if you look at some of the transactions in the industry that have taken place, this is a process that takes a good amount of time. And we are going to take the necessary time to get it right. And so I would say on the capital deployment side, that’s something that we are spending a lot of time on as well.

I would expect over the coming weeks and months we will have something more to say on that, probably more sooner than we would on the PBM. With regard to MA, I think we are open to what may make sense strategically.

I think we think about any kind of transaction that could enhance our Healthcare Services franchise that expands our technology capabilities. We look at different market based acquisitions, if there are opportunities on the MA side.

We might think about a Medicaid acquisition if it makes sense from a price perspective and from a capability perspective. And so I think we are pretty open to thinking about our MA strategy here..

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

Great. Thanks. I guess you are coming into the year, I think there was a lot of questions about whether the rapid enrollment growth is going to create a cost issue and obviously with the Q2 here, you are lowering your retail profitability, but not really because of a cost issue.

So I wanted to do two things, if we could, just to understand what you did here on retail.

First is, if I am saying this correctly, your new membership is coming on at a high cost but in line with expectation, but your core business is coming in maybe a little bit better, but if you could just kind of dig into those two dynamics of the existing membership versus new membership and what was driving that.

And then the second, I don’t fully understand why a managed care company would raise their SG&A guidance in sales and marketing costs, I would think that you come into the year, you have a pretty decent idea of what the budget should be.

What causes you to go in and then say I am going to spend $20 million more or $30 million more on SG&A marketing at this point of the year versus where you thought you were going to be doing three, four months ago?.

Okay. This is Jim. I will talk about the first question. The first question, was around, I think you are correct, Kevin and that the new members do come in at a higher loss ratio, but we expect that. So they are coming in, they are tracking with kind of what we expected.

The existing business is doing well and has been really overachieving, as we talked about investing in the clinical in the last quarter and that continues to track well. I am sorry, I went brain dead for a minute.

The growth in the membership that we talked about in the first quarter looks really similar to what we have seen over the last several years. New members generally come in about 500 basis points higher in terms of their overall medical expense ratio.

And that’s playing itself out, even the Florida membership that some of you have talked about, is playing itself out in that manner.

And over time what we see is that because of some of the things we do around the clinical programs as well as documentation relative to some of those newer members, over time they regress to the overall average and that seems on good track.

As respects to the marketing spend, I would tell you that over the last several years as we see how we do in the bids in terms of keeping our benefits stable and our premiums stable, and then in October when we see how we look relative to our competition, we have taken the opportunity to expand our spend prudently, because we think that there is a good opportunity for us to grow.

And frankly after we got done with our bids this past year and we looked at what played itself out with some of the things we were able to do from a trend vendor perspective, we had a big discussion around the table.

And we concluded that the wise thing to do would be to put away an extra amount of money for this year, because we see that there is a good opportunity for us to grow again next year. And I know that might make some of you crazy, but I think it’s the right thing to ultimately do. We want to grow each and every year with Medicare.

There is a tremendous opportunity with the aging population and so that’s what we want to try to accomplish..

I think we want to see you grow, I guess the question is in my mind that I was struggling with was just higher marketing spend signals something negative and that you feel like your benefits aren’t as good as others, and therefore you need to do more marketing to get that membership or if it’s – it sounds like you are saying it’s opportunistic, and that you think you are doing better for now, so now it’s just time to really ramp-up..

Yes, if there were a major message that I were a single that I would take from this is that we feel pretty good about our ability to grow next year, and it’s frankly a good sign..

Alright. Great. Thanks..

Your next question is from the line of Scott Fidel with Deutsche Bank..

Thanks. I just wanted to follow-up on the comments just on the small group margin compression that you are seeing from the transitional policies, I am just interested how much of a headwind you think this may be going into 2015, given that those transitional policies were extended.

And then, Jim Murray, I know that you gave sort of a survey of the landscape on exchange in individual pricing that you are seeing, I am just wondering if you can do the same for us just on the small group with all the rate filings that have come out and what looks to be some pretty modest proposed increases in a number of the markets for us, small group for 2015? Thanks..

Yes. Obviously, the transitional costs that Brian spoke to earlier was disappointing, because he had taken a shot of what we thought the impact was going to be and it turned out to be higher. The good thing about that, as many of you know, is that the small group block renews ratably over the course of the year.

And so as we are seeing that issue play itself out, we are able to do some things with our pricing. There will probably be a little bit of a nick relative to what we thought six months ago in terms of what the small group line of business could produce in terms of profitability, because this was a little bit of a higher number than we anticipated.

But we think that we can recover nicely from that.

As respects the competitive environment that exists in the small group space, we are growing very nicely in small group in spite of the fact that we are seeing – this was a kind of a neat dynamic that we are learning that about 5,000 of our small group members are transitioning into our HumanaOne offerings each and every quarter.

And so in spite of the fact that some of the small group employers are beginning to shift some of their thinking around providing coverages and moving their employees to the exchange population, small group continues to grow nicely. And so the competitive landscape in small group looks okay to us right now.

That could change, but I feel pretty good about that as we speak today..

Okay. Thank you..

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

Getting back to the exchange products that you have, do you plan to offer Platinum products next year.

And then, why do you expect to not see your enrollment shrink on the exchanges, if you are going to have to pass-through price increases to cover what is fairly large reinsurance that’s going to go away over the next couple of years?.

Again, this is Jim. Everybody will have to pass-through reinsurance costs. We are not any different than anybody else as respects reinsurance. We have a $45,000 attachment point.

Everybody will have to have reinsurance as part of their pricing and some of what they experience, so each and every one of our competitors will have to put the wind down of reinsurance into their pricing. So that’s not anything different than any of our competition.

As respects to the Platinum products, we have looked at what is developing with the Platinum products.

In prior earnings calls I have talked about one of the large national actuarial firms talking about some of the risk adjustment mechanics that favor some of the folks who are chronically ill, and our Platinum product philosophy and strategy seems to be playing itself out just as we had anticipated in terms of the risk adjustment mechanism, as well as the reinsurance that supports the program.

And so yes, we will continue to offer the Platinum programs.

Part of the reason that we offer the Platinum I said earlier is, this aging channel for us in the Medicare space and it sets up nicely for us for the folks who are aging into the Medicare as well as we feel pretty good about our clinical chassis or capabilities as an organization and we are levering those for those folks who are chronically ill.

And we think that there is a nice pricing dynamic that favors us as we focused on that Platinum product offering. And we think it’s playing itself out very nicely..

Yes, but that gets to my point, because if you are getting more of the chronically ill and sicker people in the Platinum product, you would have more reinsurance.

So, you have more to recover, because the reinsurance dynamic goes away in a couple of years?.

And that was the part of our pricing philosophy. Each and every one of our metal tiers had different philosophies relative to the amount of the reinsurance that is going to wind itself down.

It wasn’t averaged over the four tiers, it was ratable based upon the Platinum and we have put pricing on the Street relative to our Platinum offerings and we feel pretty good about how it positions us..

I think the important point on the Platinum side is one of the capabilities of the organization is really to treat chronic members. You have seen this in the Medicare Advantage area. Now, you are seeing us take that same strategy over to the exchanges.

The Platinum product does attract more chronic oriented members there, but what we are seeing both in the pricing and the analysis of the reinsurance is that the risk adjustment that is applied to those chronic members is actually helping in being able to make a solid offering, both because of the risk adjustment, but also because of our clinical capabilities in what – how we treat chronic members..

Okay.

And then on your – the rest of your commercial enrollment, can you talk about what you expect to see for 2015, I think we probably lost a sizable ASO account and talked about, if you would, what you are expecting for the overall book given what’s going on with the small group and the ASO book?.

Sure. Part of our strategy as an organization that we aligned around last year was that over time in our group business, we ultimately want to focus on smaller case sizes from anywhere from 10 to 1000 in terms of the individual businesses that we insure. And so over time, you will see us continue to lose some of our self-funded business.

I think we currently have I am going to guesstimate somewhere around 1 million or so self-funded larger companies that we provide services to. We are going to continue to price that business to make a profit. When we do that we are going to lose some of the business just like the one that you just referenced in the State of Kentucky.

That book of business for us as many of you have known who have talked with us over the years on a fully loaded basis loses money. So, we are going to wind that down over time and shift our focus to fully insured case sizes, again, that are in the 10 to 1000 space.

Where we think we can make a little bit more money and that seems to be playing itself out nicely in terms of some of the fully insured growth that we are seeing as an organization in those case sizes.

We are losing some large fully insured cases, which also lose money, but you will see that happen over time and we will reposition the group block towards those – what we have referred to as our sweet spot..

Next question, please..

Your next question is from the line of Christine Arnold with Cowen..

Seeing that as much as 25% of the 8 million folks that are currently on the public exchange can’t have their eligibility verified because of immigration of tax matters and so the public exchange membership still moving around.

Is that your sense as well or do you feel you have a real handle on exactly what you have got in terms of public exchange enrollment?.

Hey, Christine, this is Steve. I think we feel like we have a good handle on what we have. Obviously, we have only – we are acknowledging members that have paid their premiums and we have collected their premiums. So, I am not aware of any significant gap that we have..

We have looked at how much membership we think will term over the course of the next year. I think we have been kind of conservative in terms of our term estimates, because this is a block of business that we are not as familiar with.

But it seems like each month that through the first five months that we grew membership, about 75% to 80% of those folks paid their premiums and they continue to pay their premiums. And so we are learning more about the block over time, but as it respects to immigration status, I am not as familiar with things like that..

And can you update us on your thoughts with respect to the Concentra Workers’ Comp business? Thanks..

Concentra’s Workers’ Comp business right now is doing very well relative to some of the targets that they have established for themselves. They are doing some nice things in terms of rate increases. The volumes that we are seeing on a regular basis are up slightly from where they were last year.

But again, Concentra is a very small component of our overall book of business as an organization and as many of you have heard us talk over the last several months and quarters, some of what we are trying to do with that Concentra asset is to shift its focus more towards primary care as opposed to workers compensation and occupational medicine.

And we are in the process of doing that, but the base business is performing well, but again, it’s a small component of our overall results as a company..

Your next question is from the line of Ana Gupte with Leerink Partners..

Yes, thanks. Good morning.

Just broadly speaking, I just want to confirm that I got your release right in that apart from the prior development Hep C costs and then for retail the public exchanges, the base business is performing well, you think? And is the MLR issue on both – or the deterioration is perhaps relative to consensus more, because of prior development in Hep C and probably more than PPD?.

Hey, this is Steve. Let me see if I have your question right. So the – you are correct, we did have lower prior period development in the quarter compared to last year’s second quarter. And that was really due to the fact that we paid a few retro claims for a number of issues. So, that suppressed our PPD into 2Q relative to maybe prior quarters.

So, when you adjust the MLRs for that at both 1Q and 2Q, then the MLRs trend pretty comparably sequentially. So, I think that accounts for that, but you are correct, the base business is doing well. It continues to do well. The base Medicare business is doing well.

And was there another question in there?.

The only thing that I would add to what Ana has talked about was that we also in the first quarter shared with the folks that we were going to invest $0.40 to $0.50 to invest in our clinical programs to set us up nicely for 2015.

And then we grew pretty significantly probably 150,000 more MA members that we had anticipated and they come in at a higher MER, which although we are very pleased with the way they are developing. It does add a little bit of pressure to get it, but I guess it’s a good – it’s a high-class problem to have..

Good points. So, Ana, I think you are right. The Hep C is putting pressure on the benefit ratio like we said before as well as lower PPD. And what Jim just mentioned the investment in clinical also that we talked to last quarter was also in there..

And on the PPD, you said it was for several kind of issues, is it sort of a systemic thing you think that will carry forward to next year?.

No, it wasn’t. There was some changes with respect to how we paced some – so market will change around some low volume hospitals and we reprocessed some old claims for that. There was another issue that caused us to reprocess small claims, not big dollars, $7 million or $8 million here and there.

On the – over in the group side, we did process some higher – some transplant claims that went back to the fourth quarter that were a little higher than normal, but nothing major just that they all were all added up to a little bit and it shows itself in our lower PPD in 2Q, but that wouldn’t – wouldn’t expect it to continue going forward or be anything systemic..

Thanks. That’s very helpful..

Thanks..

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

Great, thanks. So, I was kind of estimating last quarter that the risk adjustment assumption for the individual business was maybe around $175 million, $0.60 a share.

It sounded like your strategy at that point or the thought around it was that the big incumbents like the blues would pickup a lot on the healthier members and then new entrants like yourselves would pickup the less healthy members.

Since then a number of the blues have come out and talked about worse than expected risk status on exchange, losing money, etcetera.

So, do you think that – do you think the theory still holds that you guys will pickup, you picking up sicker members?.

I think I will try that first and then Jim you can weigh in. This is Steve. Again, what we look at is the amount of our new business as a percentage in a state, because the risk adjustment is done by state.

So, the percentage of ours that is – that hasn’t been previously underwritten versus other plans will as they look at their block at their larger and they have been in the marketplace for a long time that they will have a higher percentage of their existing block that had been previously underwritten.

What we said for the full year of the $775 million, that 75% of that was reinsurance. So 25% of that number was the risk adjustment and the risk corridor combined.

So and again, whatever we – if we were to estimate today that the risk adjustment was going to be $100 million and it turned out to be something different, it would really just interplay with the risk corridor 80% of that.

So there is kind of a governor on how far off we could be around that because the risk corridor at the end of the day that kind of sweeps everything in. So I don’t think we are concerned.

We have made – we believe we have made some reasonable estimates around the risk adjustment for the full year, but we don’t think we have a lot of exposure for being wrong on that because of the way – the risk corridor is just a calculation, it’s a math calculation, it doesn’t really involve an estimate..

Got it.

Are you saying the individual business is unprofitable enough relative to your expectations that the risk corridor will offset a piece of it?.

Yes. So as we talked earlier in the year we have an investment in the exchanges this year and that’s what’s causing that to happen, and the 3Rs mitigate a fair amount of that. And as we price through ‘15 and ‘16, we expect to overcome that.

And relative to the comment that you made about how we will be a net receiver of risk adjustment versus a net payer, again we talked last time about sophisticated models. We have looked at them at the blues plans in the markets that we participate in and their share relative to our share.

And we feel pretty comfortable that because they had a significant amount of underwritten business that some element of that underwritten business in those spaces where they had heavy share went into the exchange population and would offset what we have in terms of our smaller share in those light states.

And so we continue to feel pretty comfortable with the methodology that we have used to calculate the risk adjustment calculations. And then to somebody’s earlier point, the Platinum offerings that we have offered create some of that risk adjustment receivables that Steve referenced..

And this is Regina. Just as a reminder we are not statewide in the states either as opposed to some of the blues are clearly more broad-based in their geographic presence..

And then maybe speaking to their original estimates as opposed to where they are today, so.

I think that was the last question, is that correct Regina?.

That is correct..

Well, we appreciate everyone’ support and I thought it would be helpful maybe just to summarize a few aspects about where Humana is. I first have to say that the Medicare membership growth as you look at it this year was a concern of the investors starting in late fall of last year.

And I think the organization has proven that its clinical capabilities can not only overcome the rate reductions that have happened as a result of Medicare, the cuts, but in addition has been able to handle the Medicare – significant Medicare growth.

I know that was a question and a concern for the investors and hopefully you take that away this second quarter. Secondarily the duals are on target. From a utilization point of view, we are a little far behind, not because of our execution but because of the state delays.

But we continue to be a big believer in that business as each one of you know, it’s a $300 billion business and it’s going to be a large growth sector for the organization and our participation in that leverages our chronic capabilities and our ability to take care of members that are in need of health treatment.

Our exchange growth was strong this year as evident by our growth and from our base business we have set a goal to breakeven in 2015, during 2015 and we also are very conscious of working through the phase out of the 2Rs and our strategy reflects both to have a profitable business that is at market rate margins and at the same time to be able to not be dependent on the 2Rs as they phase out.

In addition, the investors have constantly questioned us about our capital structure and the efficiency of our capital this quarter, we have outlined that we are taking that under advisement and we are reviewing both the PBM and the efficiency of the PBM as it is structured today as an in-house PBM and can we find other ways to make that more efficient.

And then in addition, as Brian articulate, we are also focusing on the capital structure and how we can adjust that. We have a very positive outlook and as we look at the feature for the organization and Medicare specifically as the rate reductions from ACA are phasing out.

And we think that there will be more clarity over time in the Medicare rates going forward.

In result, we are investing this year in 2014 and that is being reflected in our forecast for the remaining year why we are not over performing but meeting expectations as we think that our membership growth, the clarity of 2014 is a good base to build from and it allows us to also invest in clinical marketing programs to set us out for 2015.

So in closing, we thank everyone for their support. We appreciate you guys on a quarterly basis of being an investor in the organization. And we look for your support in the coming quarters and like always you always we couldn’t do this without thanking our 54,000 associates that are dedicated to both our success but our members’ success. So thank you.

And everyone have a good day..

Thank you for joining the second quarter 2014 earnings conference call. This concludes today’s conference. You may now disconnect..