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FAIR VALUE | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
FAIR VALUE | FAIR VALUE Financial Assets The following table summarizes our fair value measurements at September 30, 2023 and December 31, 2022, respectively, for financial assets measured at fair value on a recurring basis:
| Fair Value Measurements Using
| Fair Value |  | Quoted Prices in Active Markets (Level 1) |  | Other Observable Inputs (Level 2) |  | Unobservable Inputs (Level 3)
| (in millions)
September 30, 2023 |  |  |  |  |  |  |
Cash equivalents | $ | 15,035 |  |  | $ | 15,035 |  |  | $ | — |  |  | $ | — |
Debt securities: |  |  |  |  |  |  |
U.S. Treasury and other U.S. government corporations and agencies: |  |  |  |  |  |  |
U.S. Treasury and agency obligations | 1,938 |  |  | — |  |  | 1,938 |  |  | — |
Mortgage-backed securities | 3,253 |  |  | — |  |  | 3,253 |  |  | — |
Tax-exempt municipal securities | 798 |  |  | — |  |  | 798 |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |
Residential | 412 |  |  | — |  |  | 412 |  |  | — |
Commercial | 1,320 |  |  | — |  |  | 1,320 |  |  | — |
Asset-backed securities | 1,784 |  |  | — |  |  | 1,784 |  |  | — |
Corporate debt securities | 6,010 |  |  | — |  |  | 5,905 |  |  | 105 |
Total debt securities | 15,515 |  |  | — |  |  | 15,410 |  |  | 105 |
Total invested assets | $ | 30,550 |  |  | $ | 15,035 |  |  | $ | 15,410 |  |  | $ | 105 |
December 31, 2022 |  |  |  |  |  |  |
Cash equivalents | $ | 4,832 |  |  | $ | 4,832 |  |  | $ | — |  |  | $ | — |
Debt securities: |  |  |  |  |  |  |
U.S. Treasury and other U.S. government corporations and agencies: |  |  |  |  |  |  |
U.S. Treasury and agency obligations | 1,039 |  |  | — |  |  | 1,039 |  |  | — |
Mortgage-backed securities | 3,230 |  |  | — |  |  | 3,230 |  |  | — |
Tax-exempt municipal securities | 728 |  |  | — |  |  | 728 |  |  | — |
Mortgage-backed securities: |  |  |  |  |  |  |
Residential | 401 |  |  | — |  |  | 401 |  |  | — |
Commercial | 1,399 |  |  | — |  |  | 1,399 |  |  | — |
Asset-backed securities | 1,731 |  |  | — |  |  | 1,731 |  |  | — |
Corporate debt securities | 5,726 |  |  | — |  |  | 5,625 |  |  | 101 |
Total debt securities | 14,254 |  |  | — |  |  | 14,153 |  |  | 101 |
Common stock | 7 |  |  | 7 |  |  | — |  |  | — |
Total invested assets | $ | 19,093 |  |  | $ | 4,839 |  |  | $ | 14,153 |  |  | $ | 101 |
Our Level 3 assets had a fair value of $105 million at September 30, 2023, or 0.3% of our total invested assets. During the nine months ended September 30, 2023 and 2022, the changes in the fair value of the assets measured using significant unobservable inputs (Level 3) were comprised of the following:
| For the nine months ended September 30, 2023 | For the nine months ended September 30, 2022 |  |  |  |
| Private Placements |  |  |  |
| (in millions)
Beginning balance at January 1 | $ | 101 |  | $ | 68 |  |  |  |  |
Total gains or losses: |  |  |  |  |  |
Realized in earnings | — |  | — |  |  |  |  |
Unrealized in other comprehensive income | (1) |  | — |  |  |  |  |
Purchases | 13 |  | (12) |  |  |  |  |
Sales | — |  | 44 |  |  |  |  |
Maturities | (4) |  | — |  |  |  |  |
Transfer out | (4) |  |  |  |  |  |
Balance at September 30 | $ | 105 |  | $ | 100 |  |  |  |  |
Interest Rate Swaps During the third quarter of 2023, we entered into interest-rate swap agreements with major financial institutions to convert our interest-rate exposure on our $750 million of 5.875% senior notes and our $750 million of 5.500% senior notes from fixed rates to variable rates to align interest costs more closely with floating interest rates received on our cash equivalents and investment securities. Our swap agreements, which are considered derivative instruments, exchange the fixed interest rate under our 5.875% and 5.500% senior notes for a variable interest rate based on SOFR. Interest rate swaps with notional amounts of $650 million, maturing September 1, 2032, and $250 million, maturing March 15, 2033, were outstanding on our 5.875% and 5.500% senior notes, respectively, at September 30, 2023. These swap agreements were qualified and designated as a fair value hedge. The swap liability, included within other long-term liabilities on our condensed consolidated balance sheet, was not material at September 30, 2023. We include the gain or loss on the swap agreements in interest expense on our condensed consolidated income statement, the same line item as the offsetting loss or gain on the related senior notes. The gain or loss due to hedge ineffectiveness was not material for the three and nine months ended September 30, 2023. Financial Liabilities Our debt is recorded at carrying value in our consolidated balance sheets. The carrying value of our senior notes debt outstanding, net of unamortized debt issuance costs, was $9.5 billion at September 30, 2023 and $10.0 billion at December 31, 2022. The fair value of our senior notes debt was $8.7 billion at September 30, 2023 and $9.4 billion at December 31, 2022. The fair value of our senior notes debt is determined based on Level 2 inputs, including quoted market prices for the same or similar debt, or if no quoted market prices are available, on the current prices estimated to be available to us for debt with similar terms and remaining maturities. Carrying value approximates fair value for our term loans and commercial paper borrowings. The commercial paper borrowings were $2.2 billion at September 30, 2023. The term loans and commercial paper borrowings were $1.1 billion at December 31, 2022. Put and Call Options Measured at Fair Value Our put and call options associated with our equity method investments are measured at fair value each period using a Monte Carlo simulation. The put and call options fair values associated with our Primary Care Organization strategic partnership with Welsh, Carson, Anderson & Stowe, or WCAS, which are exercisable at a fixed revenue exit multiple and provide a minimum return on WCAS' investment if exercised, are measured at fair value each reporting period using a Monte Carlo simulation. The put and call options fair values, derived from the Monte Carlo simulation, were $410 million and $12 million, respectively, at September 30, 2023. The put and call options fair values, derived from the Monte Carlo simulation, were $267 million and $10 million, respectively, at December 31, 2022. The put liability and call asset are included within other long-term liabilities and other long-term assets, respectively, within our condensed consolidated balance sheets. The significant unobservable inputs utilized in these Level 3 fair value measurements (and selected values) include the enterprise value, annualized volatility and credit spread. Enterprise value was derived from a discounted cash flow model, which utilized significant unobservable inputs for long-term revenue, to measure underlying cash flows, weighted average cost of capital and long term growth rate. The table below presents the assumptions used for each reporting period.
| September 30, 2023 | December 31, 2022 |  |  |
Annualized volatility | 16.6% - 19.6% | 16.7% - 20.8% |  |  |
Credit spread | 0.9% - 1.4% | 1.3% - 1.5% |  |  |
Revenue exit multiple | 1.5x - 2.5x | 1.5x - 2.5x |  |  |
Weighted average cost of capital | 12.0% - 13.0% | 11.5% - 12.5% |  |  |
Long term growth rate | 3.0 | % | 3.0 | % |  |  |
The assumptions used for annualized volatility, credit spread and weighted average cost of capital reflect the lowest and highest values where they differ significantly across the series of put and call options due to their expected exercise dates. Other Assets and Liabilities Measured at Fair Value Certain assets and liabilities are measured at fair value on a non-recurring basis subject to fair value adjustment only in certain circumstances. As disclosed in Note 3, we acquired various health and wellness related businesses during 2023. The net assets acquired and resulting goodwill and other intangible assets were recorded at fair value primarily using Level 3 inputs. The net tangible assets including receivables and accrued liabilities were recorded at their carrying value which approximated their fair value due to their short term nature. The fair value of goodwill and other intangible assets were internally estimated based primarily on the income approach. The income approach estimates fair value based on the present value of cash flow that the assets could be expected to generate in the future. We developed internal estimates for expected cash flows in the present value calculation using inputs and significant assumptions that include historical revenues and earnings, revenue growth rates, the amount and timing of future cash flows, discount rates, contributory asset charges and future tax rates, among others. The excess purchase price over the fair value of assets and liabilities acquired is recorded as goodwill. As disclosed in Note 3, we completed the sale of Gentiva Hospice on August 11, 2022. The carrying value of the assets and liabilities of Gentiva Hospice disposed approximates fair value. The amount of goodwill included in the carrying value is based on the relative fair value of the Home Solutions reporting unit included within the CenterWell segment. Other than the assets and liabilities acquired during 2023, there were no other material assets or liabilities measured at fair value on a recurring or nonrecurring basis during 2023. For additional information regarding our fair value measurements, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2022 Form 10-K.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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