Core Insights - The company aims for at least 12% adjusted EPS growth by 2027, with a 2026 adjusted diluted EPS guidance of at least $25.50, reflecting prudent assumptions and strategic repositioning [1][22][24] - The focus for 2026 is on execution and repositioning, with an emphasis on improving care coordination and managing costs effectively [2][9] Financial Performance - Adjusted diluted EPS for Q4 was $3.33, with a full-year EPS of $30.29, benefiting from favorable tax items and solid underlying performance [16][18] - Operating revenue for Q4 reached $49.3 billion, a 10% increase year-over-year, driven by premium rate adjustments and acquisitions [18] - The consolidated benefit expense ratio was 93.5% for Q4 and 90% for the full year, aligning with guidance [18] Membership and Market Dynamics - The company ended the year with 45.2 million members, a decrease of approximately 500,000, primarily due to Medicaid membership declines [17] - Medicaid operating margin is expected to be approximately -1.75% in 2026, with improvements anticipated as rates adjust to current experiences [5][20] - Medicare Advantage membership is projected to decline in the high teens percentage range in 2026, reflecting deliberate portfolio actions [6][20] Strategic Initiatives - The company is enhancing analytics to identify high-cost treatment patterns and improve care coordination, particularly in Medicaid [11][10] - Investments are being made in specialty pharmacy management and behavioral health support to strengthen care management programs [12][11] - The company is focused on maintaining operational discipline while investing in technology and simplifying the member experience [23][25] Long-term Outlook - The long-term enterprise margin target is set at 5% to 6%, with health benefits targeting mid-single-digit margins [9][24] - The company is recalibrating long-term margin expectations to reflect the current business mix and operating environment [25][54] - Confidence in achieving at least 12% adjusted EPS growth in 2027 is based on multiple independent levers and disciplined execution across various segments [24][49]

Financial Data and Key Metrics Changes - Elevance Health reported second quarter GAAP diluted earnings per share of $7.72 and adjusted diluted earnings per share of $8.84, with a revised full year 2025 adjusted EPS guidance of approximately $30 [16][9] - Operating revenue was $49.4 billion, an increase of 14% year over year, driven by higher premium yields and recent acquisitions [16][17] - The consolidated benefit expense ratio increased to 88.9%, up 260 basis points year over year, primarily due to pressures in the ACA and Medicaid businesses [17][20] Business Line Data and Key Metrics Changes - The Medicare Advantage portfolio showed continued strength, with cost trends remaining in line with expectations [18][46] - CarillonRx experienced over 20% growth in operating revenue, while Carillon services delivered more than 50% growth in revenue [19][20] - The company ended the quarter with 45.6 million medical members, a decrease of approximately 200,000 sequentially, attributed to reduced Medicaid membership and lower effectuation rates in the ACA business [16][17] Market Data and Key Metrics Changes - The ACA market is experiencing increased morbidity due to a higher proportion of higher acuity members transitioning from Medicaid, resulting in elevated medical cost trends [25][54] - Medicaid cost trends decelerated in the second quarter but at a slower pace than expected, with higher acuity and increased member utilization impacting margins [18][20] - The company anticipates a broader market reset in 2026 due to the expiration of enhanced subsidies, which could further affect risk pool changes [13][21] Company Strategy and Development Direction - The company is focused on delivering whole health solutions that are simple, affordable, and personalized, while managing costs and reinforcing operational foundations for long-term value creation [7][10] - Strategic investments are being prioritized in innovative care models, artificial intelligence, and pharmacy services to support long-term success [19][20] - The company aims to stabilize trends in high-cost areas and improve care delivery through streamlined processes and advanced analytics [10][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the disappointment of revising guidance for the second consecutive year but emphasized the importance of transparency and strong execution in navigating unprecedented cost trends [15][21] - The company is taking proactive steps to stabilize trends, particularly in high-cost areas, and is focused on disciplined pricing and margin recovery [13][21] - Management remains confident in the strength of the enterprise and the impact of investments on long-term value creation [15][21] Other Important Information - The company is actively engaged with state partners to ensure upcoming Medicaid rate cycles reflect the developing acuity environment [13][21] - The debt to capital ratio was reported at 40.8%, preserving flexibility for strategic investments [20] - The company returned approximately $2 billion to investors year to date, with operating cash flow totaling $2.1 billion in the quarter [20] Q&A Session Summary Question: Can you help delineate the pressure you're seeing in the ACA business? - Management identified three principal factors: increased risk pool acuity, higher utilization in several cost categories, and inappropriate coding tactics contributing to inflated costs [24][25] Question: Can you size the relative impact of ACA and Medicaid in the guidance revision? - The reduction in full year guidance is slightly more weighted towards ACA, with ongoing enrollment losses in Medicaid contributing to elevated morbidity [29][35] Question: How do you think about the dynamic of Medicaid margins and rate setting? - Management expects Medicaid margins to show year-over-year improvement in the back half of the year, despite ongoing challenges with rate alignment [43][44] Question: What are you seeing on Medicare Advantage trends? - Medicare Advantage trends remain elevated and consistent with expectations, with a disciplined approach to bids for 2026 focused on margin recovery [46][48] Question: Can you comment on the utilization you're seeing? - Elevated utilization is noted in emergency room visits and behavioral health services, with a significant increase in acuity due to disenrollment of lower acuity members [54][108] Question: How is the current environment affecting capital allocation strategy? - The company plans to maintain a 50-50 split between investment and returning capital, with a focus on opportunistic share repurchases and integration of past acquisitions [74][75] Question: How do you change the pricing process for the ACA? - Management believes that ongoing discussions with CMS and state partners will help stabilize the ACA market, with upcoming rate filings capturing current acuity and expected risk pool deterioration [80][81]