Second, even in a dynamic environment, we are acting decisively in the areas within our control to strengthen margins, reduce volatility, and improve the consistency of our performance. And third, as those actions take hold, we expect to return to at least 12% adjusted EPS growth in 2027 off our ending 2026 earnings baseline supported by the earnings power of our diversified platform. Consistent with that approach, we are establishing 2026 adjusted diluted earnings per share guidance of at least $25.50. As ...

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]