Elevance Health(US:ELV)2025-10-21 13:32Financial Data and Key Metrics Changes - Elevance Health reported third quarter GAAP diluted earnings per share of $5.32 and adjusted diluted earnings per share of $6.03, reflecting enhanced medical cost management and expense discipline [14] - Total operating revenue for the quarter was $50.1 billion, up 12% year-over-year, driven by higher premium yields and growth in Medicare Advantage membership [15] - The consolidated benefit-expense ratio was 91.3%, aligned with expectations, while the Medicaid operating margin is expected to be modestly negative for the full year 2025 [15][16] Business Line Data and Key Metrics Changes - In Medicare Advantage, approximately 55% of members will be in four-star or higher contracts for the 2027 payment year, up from about 40% for 2026, indicating improved STAR performance [8] - CarelonRx revenue grew 20% year-over-year, driven by strong momentum with large clients, while Carelon Services grew by more than 50% [17] - The integrated medical pharmacy model and advocacy solutions are driving higher retention and expanded fee-based relationships in the commercial segment [17] Market Data and Key Metrics Changes - The ACA market is experiencing higher acuity, and the anticipated expiration of enhanced subsidies could significantly impact membership in 2026 [9] - Medicaid performance is under pressure from elevated acuity and utilization, with disenrollment concentrated among lower acuity members due to stricter eligibility reviews [15][16] - The company expects a high single-digit decline in full-year operating margin for the ACA business, while commercial group margins are expected to remain consistent with prior expectations [16] Company Strategy and Development Direction - The company is focused on lowering the total cost of care and improving member experience through an integrated clinical and benefits approach [6] - Elevance Health is committed to disciplined capital allocation, balancing investment and growth with consistent shareholder returns, prioritizing share repurchases [13] - The company is investing in technology, particularly AI, to enhance member and provider experiences, aiming for long-term growth [34][36] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by rising medical and pharmacy costs and regulatory changes impacting coverage [6] - The company is approaching 2026 with a prudent and practical posture, planning for at least a 125 basis point decline in Medicaid margins due to elevated acuity and utilization trends [7][20] - Management remains confident in the long-term growth algorithm, expecting 2027 to mark a return to a more balanced earnings growth profile [22][72] Other Important Information - The company is integrating recent acquisitions to expand Carelon's capabilities while maintaining a strong balance sheet to support growth objectives [20][13] - The company is proactively working with state partners on rate alignment and operational enhancements to ensure the sustainability of Medicaid programs [10][20] Q&A Session Summary Question: Medicaid margin outlook and state discussions - Management discussed the expectation of a 125 basis point margin decline next year, with ongoing discussions with states about affordability and program changes [24][28] Question: Investment spending impact on 2026 - Management clarified that several hundred million dollars of investment is aimed at technology adoption, Carelon scaling, and operational improvements, which are expected to enhance long-term growth [32][34] Question: ACA membership impact from subsidy expiration - Management indicated that if enhanced subsidies expire, a material contraction in the ACA marketplace is expected, leading to lower enrollment and higher premium increases [41][45] Question: Medicaid membership and revenue outlook - Management anticipates a modest decline in Medicaid membership in 2026 due to ongoing normalization following the redetermination process [75] Question: Medicaid risk pool shifts and coding trends - Management noted that elevated acuity and utilization pressures are impacting Medicaid margins, with ongoing efforts to improve coding accuracy and compliance [82][84]