[ELV] Elevance Health: Q3 2026 Earnings Hinge on Medicaid Margin and Cost Ratio

Elevance Health is one of the largest US health insurers by medical membership, selling commercial, Medicaid and Medicare plans under the Blue Cross / Blue Shield brands in 14 states and running pharmacy benefits and health services through Carelon[1]. The Drillr earnings calendar places the next earnings call on 2026-10-21, when the company is due to report Q3 2026 results; Elevance has not yet confirmed that date in an official filing[2]. The Elevance Health Q3 2026 earnings report follows a second quarter in which operating revenue was $49.826 billion, up only 0.8% year over year, and adjusted diluted EPS was $7.45[3]; the benefit expense ratio rose 80 basis points to 89.7%[4], and reportable-segment operating gain fell 27.3% to $1.763 billion[5]. In an 8-K dated September 10, 2026, the company reaffirmed full-year guidance of adjusted EPS of at least $27.00 and a benefit expense ratio of 90.2% plus or minus 50 basis points[6], and management said on the second-quarter call that third-quarter adjusted EPS should represent approximately 17% of full-year guidance[7]; applied arithmetically to at least $27.00, approximately 17% corresponds to about $4.59, which is a conversion of the company's own framing and not a forecast. StockAnalysis, in an update dated September 18, 2026, showed a 12-analyst consensus of $27.17 in full-year EPS and $196.24 billion in revenue, slightly above the floor of company guidance[8].

Three things are worth watching in the third-quarter report. The first is where the consolidated benefit expense ratio lands relative to the second quarter's 80-basis-point year-over-year increase, because management attributed the deterioration in both the first and second quarters primarily to Medicaid while holding its full-year Medicaid operating margin outlook at approximately −1.75% and calling 2026 the trough[9]; the third-quarter ratio, and whether that outlook survives, tests the trough claim directly. The second is the Health Benefits operating margin, which was only 2.1% in the second quarter, down 170 basis points year over year[5], while the company is deliberately trading members for margin in Medicare Advantage and Individual ACA; because Individual ACA profit is concentrated in the first half of the year, the third quarter is the first real test of whether the price increases were sufficient. The third is the second-half earnings path: first-half adjusted EPS totaled $20.03[10], about 74% of full-year guidance of at least $27.00, so whether the third quarter lands near approximately 17%, and whether the year-over-year rise in the adjusted operating expense ratio can still be explained by disclosed one-time investments, determines how credible the full-year guidance and the 2027 growth framing are.

Company Background and Business Structure

Elevance Health is built on local Blue Cross Blue Shield licenses. The company, formerly Anthem, changed its name in June 2022 and is headquartered in Indianapolis; it is an independent licensee of the Blue Cross and Blue Shield Association, operates as Anthem Blue Cross / Anthem Blue Cross and Blue Shield in 14 states, and does business in other states under brands such as Wellpoint and Carelon[1]. As of December 31, 2025, it served approximately 45.2 million medical members through its affiliated health plans[1], and 44.949 million as of June 30, 2026[11].

The company has four reportable segments, and Health Benefits supplies most of the revenue. Health Benefits operating revenue was $42.720 billion in the second quarter of 2026, split by line of business into Commercial at $13.561 billion (of which Individual was $2.720 billion), Medicaid at $14.444 billion, Medicare at $10.962 billion and the Federal Employee Program at $3.753 billion[5]. Government payers therefore carry a great deal of weight: approximately 32% of consolidated revenue in 2025 came from agencies of the US government, and most of it sits in the Health Benefits segment[12].

How a customer buys determines who bears the medical risk. Of the 44.949 million medical members, 27.513 million commercial fee-based members buy only administrative services, so the employer carries the medical risk and the company collects a fee; for the 4.734 million commercial risk-based members, 2.790 million Medicare members and 8.358 million Medicaid members, the company collects a per-member premium and bears the medical cost[11]. Within the risk-bearing businesses, state rates set the Medicaid price, the CMS bid and risk-adjustment process sets the Medicare Advantage price, and the company sets commercial and Individual ACA prices at renewal or in annual filings.

Carelon is the company's services platform, but most of its revenue still comes from the company's own health plans. CarelonRx provides pharmacy benefit management, mail-order and specialty pharmacy and filled 80.9 million adjusted scripts in the second quarter; Carelon Services provides behavioral health, home care, payment integrity and similar services, turns part of them into programs that take medical risk, and served 92.4 million consumers in the quarter[11]. Carelon's segment-basis operating revenue was $19.225 billion in the second quarter, of which $11.918 billion came from the company's own health plans and is eliminated in consolidation[13]. On the cost side, benefit expense absorbs roughly nine-tenths of premiums and operating expense takes the rest; on the collection side, premiums and rates are received monthly and claims are paid within weeks of the date of service, with days in claims payable at 45.4 at the end of the second quarter[4].

Financial History and Current Position

Revenue grew more than 40% over five years, but profit did not follow. According to Drillr's annual financial series, total revenue rose from $138.639 billion in 2021 to $171.340 billion in 2023, $176.810 billion in 2024 and $199.125 billion in 2025, while shareholders' net income moved from $6.104 billion in 2021 to $5.987 billion in 2023, $5.980 billion in 2024 and $5.662 billion in 2025. Net income fell 5.3% in 2025, and the 10-K gives the decline in Health Benefits operating gain as the primary reason[14].

The break came in the 2025 benefit expense ratio. Operating revenue was $197.584 billion in 2025, up 12.8%[14], but the benefit expense ratio rose 150 basis points to 90.0%, which the 10-K attributes to higher medical cost trend across all Health Benefits lines of business, principally the ACA business[15]. Health Benefits operating gain consequently fell from $6.243 billion to $4.158 billion, growth at CarelonRx ($2.418 billion) and Carelon Services ($960 million) offset only part of that, and total reportable-segment operating gain fell from $7.862 billion to $7.199 billion[16]. Diluted EPS was $25.21 in 2025, down 1.8%; operating cash flow was $4.290 billion, approximately 0.8 times net income and below the $5.808 billion of 2024[14].

The first half of 2026 combined almost no revenue growth with a further decline in profit. First-quarter operating revenue was $49.494 billion, up 1.5%[17], the benefit expense ratio was 86.8%, up 40 basis points[18], and adjusted EPS was $12.58[10]; second-quarter operating revenue was $49.826 billion, up 0.8%, the benefit expense ratio was 89.7%, up 80 basis points[4], reportable-segment operating gain was $1.763 billion, down 27.3%[5], shareholders' net income was $1.463 billion, down 16.1%[19], diluted EPS was $6.71 and adjusted EPS was $7.45[3]. In the first quarter the company accrued $935 million for a CMS notice about historical Medicare Advantage risk-adjustment data[18]; that matter was closed in July 2026, with CMS confirming that sanctions will not be imposed[20].

Cash flow has been much stronger than profit, but consolidated cash is not the same as cash the parent can use. First-half operating cash flow was $6.245 billion against $3.071 billion a year earlier, an increase the 10-Q attributes primarily to favorable working capital[21]. In the second quarter the company repurchased $234 million of stock and paid $373 million in dividends at $1.72 per share, ending the quarter with approximately $2.1 billion of cash and investments at the parent and approximately $5.3 billion of repurchase authorization remaining[4]. With second-quarter results the company raised 2026 guidance to adjusted EPS of at least $27.00 and operating cash flow of at least $6.0 billion[3], and on September 10 it reaffirmed the EPS guidance and the benefit expense ratio guidance of 90.2% plus or minus 50 basis points[6].

Operating Model

Operating revenue takes three forms, and premiums are by far the largest. The first is premiums, where the company collects a fixed monthly amount per member and bears the medical cost: $164.639 billion in 2025, about 83% of operating revenue of $197.584 billion. The second is service fees from commercial fee-based members who buy only administrative services, $8.475 billion in 2025; the third is product revenue, the drug revenue CarelonRx recognizes when it dispenses for unaffiliated customers, $24.470 billion in 2025[16]. Premium prices are set separately by the states, by CMS and by the company itself, and all of them are locked at the start of the plan year or rate cycle with little room to adjust during the year. Revenue is barely growing in 2026 because premium increases are being offset by fewer Medicare Advantage, Medicaid and employer risk-based members: Health Benefits operating revenue grew 2.7% in the second quarter[5] while total medical membership fell 1.5% year over year[19].

Insurance profit is set by the benefit expense ratio, and the lag between locking the premium and incurring the medical cost is where earnings volatility comes from. The ratio is benefit expense divided by premiums; it was 90.0% in 2025, 150 basis points above 2024[15]. Second-quarter premiums were $41.279 billion[13], so each percentage point of the ratio is worth roughly $410 million in the quarter, and a change reaches Health Benefits operating gain in the same quarter. The second variable is the operating expense ratio, which was 11.0% on an adjusted basis in the second quarter, up 100 basis points[22]. The third is the estimate of claims reserves: net favorable development on prior periods was $1.195 billion in the first half against $1.065 billion a year earlier[23], and the more that is released, the lower the current-period ratio.

The services side has a different profit structure, with higher margins on a smaller base. Second-quarter operating margins were 5.2% at CarelonRx and 4.6% at Carelon Services against only 2.1% at Health Benefits[5], which is why Carelon's combined operating gain of $948 million already exceeded the $896 million at Health Benefits[13]. The company measures segments by operating gain, which excludes net investment income, interest and amortization of intangibles; reportable-segment operating gain was $1.763 billion in the second quarter, a 3.5% margin[22].

Cash flow is driven by the float created when premiums are collected before claims are paid, while any single quarter is dominated by working-capital timing. Net medical claims payable stood at $18.100 billion at the end of the second quarter[23] and days in claims payable at 45.4[4], so operating cash flow normally runs close to or above net income; yet it was only $4.290 billion in 2025, a decline the 10-K attributes to the provider settlement payment made in September 2025, unfavorable working capital and lower net income[14]. Operating cash flow was $4.3 billion in the first quarter of 2026[18] and $1.9 billion in the second, a level the company attributes in part to the timing of a state Medicaid pass-through payment[4], and the second quarter also included an initial $342 million remittance to CMS[24]; the first-half total of $6.245 billion is already above full-year guidance of at least $6.0 billion[21]. Cash goes first to the $1.72 quarterly dividend per share and then to repurchases, $1.1 billion in the first quarter[18] and $234 million in the second[4], while premiums and reserves sit inside regulated insurance subsidiaries and the parent holds only approximately $2.1 billion of cash and investments.

Three disclosure limits determine how far this model can be pushed. First, the company does not disclose a benefit expense ratio or profit by line of business, so the Medicaid margin of approximately −1.75%[9] and the Medicare Advantage margin of at least 2%[25] are statements from the earnings call and not auditable line items, usable only as explanatory variables. Second, Medicaid operating revenue includes state pass-through payments and Medicare operating revenue includes Medicare Supplement and Part D, so inferring a per-member rate from the gap between revenue and membership yields direction only. Third, the yardsticks for the third quarter are the year-over-year changes the company has already disclosed and its full-year guidance, and the actual third-quarter comparisons will have to come from the company's own report; in addition, roughly six-tenths of Carelon's segment revenue is affiliated and cannot be read as a contribution to consolidated revenue.

Industry and Competitive Position

The company's clearest advantage is exclusive use of the Blue Cross / Blue Shield brands in 14 states. That license brings local network density and employer relationships[1], which keep the commercial fee-based business stable and let it keep consolidating share from customers that use several insurers: the business had 27.513 million members on June 30, 2026, up 1.3% year over year[11]. These members carry no medical risk for the company and generate administrative fees, so they are a comparatively steady block outside the swings of the benefit expense ratio.

Relative to peers, the weak point is the shape of the government book. Medicare Advantage is comparatively small at 1.897 million members at the end of the second quarter, and Medicaid is comparatively large at 8.358 million members[11], about 29% of operating revenue[5], which makes the company more sensitive to state rate cycles; approximately 32% of consolidated revenue in 2025 came from agencies of the US government[12]. Compared with peers that built their own health services platforms, Carelon started later, and roughly six-tenths of its revenue still comes from the internal health plans[13].

The whole industry faced the same problem in 2025 and 2026: medical utilization rising faster than funding for government programs. Every insurer is repairing margin with price increases, benefit reductions and market exits, competition has shifted from membership growth to pricing discipline, and the company's deliberate repositioning in Medicare Advantage[26] and its exits from Medicaid markets belong to that pattern. The available comparison has a clear boundary: the peer comparison here is qualitative, there are no peer benefit expense ratios or margins by line of business to set side by side, and the company does not disclose those measures for itself either.

Core Debates

When will Medicaid rates catch up with the acuity of the members who remain?

This debate matters because Medicaid is about 29% of operating revenue and yet the only line of business that management has explicitly described as carrying a negative margin in 2026. The company attributed the year-over-year deterioration in the benefit expense ratio in both the first and second quarters primarily to Medicaid[18][4], and Health Benefits operating gain fell 42.6% to $896 million in the second quarter as a result[5]. The current numeric baselines are a consolidated benefit expense ratio of 89.7% in the second quarter, Medicaid operating revenue of $14.444 billion, 8.358 million Medicaid members on June 30, 2026, and $1.195 billion of prior-period reserve releases in the first half[23].

The disclosed evidence supports two explanations at once. The observed facts are that Medicaid membership fell 4.3% year over year in the second quarter[11] while Medicaid operating revenue grew 3.8%[5] and the consolidated benefit expense ratio rose 80 basis points; management said July rate activity was modestly favorable to its expectations but kept the full-year Medicaid operating margin outlook at approximately −1.75%, called 2026 the trough, and placed the cost pressure in behavioral health, specialty drugs, outpatient surgery and emergency care[9]. The other explanation is that the gap is structural: the company has agreed with the District of Columbia to leave that Medicaid market and said it will exit additional markets over the next 12 to 18 months[9], which itself indicates that rates in some states cannot catch up and that margin repair may come from shrinking the book and not from rates. The company does not disclose a separate Medicaid benefit expense ratio, so quarterly data can support a judgment about direction only.

The financial transmission is short, with only the benefit expense ratio between the rate gap and segment profit. State rates are reset on the cost experience of earlier periods, while the members who remained after eligibility redeterminations are sicker[19] and use more behavioral health and specialty drugs, so the gap between rates and costs flows directly into the consolidated ratio. The ratio multiplied by premium revenue gives benefit expense and therefore Health Benefits operating gain; with second-quarter premiums of $41.279 billion, each percentage point is worth roughly $410 million in the quarter. The company has two responses, waiting for rates to catch up and leaving states where it sees no path to a reasonable return.

What remains unresolved is whether later numbers support the claim that 2026 is the trough, and the third quarter offers four things to watch: the year-over-year change in the consolidated ratio relative to the second quarter's 80 basis points, whether the company keeps full-year guidance of 90.2% plus or minus 50 basis points[6] and the Medicaid outlook of approximately −1.75%, whether the gap between Medicaid revenue growth and membership decline persists, and whether new market exits are announced. There are three observable falsifiers: the third-quarter consolidated ratio deteriorates by more than 80 basis points year over year and the company attributes it to Medicaid behavioral health, specialty drugs or outpatient utilization; the company lowers its full-year Medicaid operating margin outlook or moves the trough to a later year; or the ratio meets guidance while the increase in year-to-date prior-period reserve releases over the prior year keeps widening and days in claims payable fall year over year, which would show that costs on current dates of service have not improved. Days in claims payable were 45.4 at the end of the second quarter, up 2.9 days year over year[24], and that is the starting point for the last test.

Is the deliberate shrinkage in Medicare Advantage and Individual ACA buying margin, or just a smaller book?

These two lines together are about 27.5% of operating revenue and were the main source of the 2025 deterioration in the benefit expense ratio. The 10-K attributes the 150-basis-point increase in 2025 principally to the ACA business[15], and in 2026 the company chose to trade members for margin: Medicare Advantage membership fell from 2.230 million at the end of 2025[27] to 1.897 million on June 30, 2026, down 15.9% year over year[11]. If the margin does not materialize, the company will have given up scale without repairing earnings. The current numeric baselines are a Health Benefits operating margin of 2.1% and operating gain of $896 million in the second quarter, Medicare operating revenue of $10.962 billion, and 1.317 million Individual members.

The disclosed revenue and membership data are consistent with the idea that the members who left were loss-making, but they do not yet prove it. Medicare operating revenue fell only 4.2% in the second quarter, far less than the 15.9% decline in members; Individual operating revenue grew 16.8% while Individual membership fell 2.3%[5]; and the 10-Q attributes the second-quarter increase in the benefit expense ratio to cost trend in Medicaid and Medicare, listing Individual ACA as an offset[28]. Management's stated position is a full-year Medicare Advantage operating margin of at least 2% and at least 1 million Individual ACA members at year-end[25]. The alternative explanation that has to be kept is seasonality: a higher share of bronze plans concentrates Individual ACA profit in the first half, so part of the favorable second-quarter performance is timing, and the 10-Q's listing of Medicare as a cause of the higher ratio does not sit entirely comfortably with the call's description of Medicare as better than expected. The company does not disclose profit for either line.

How shrinkage reaches profit depends on whether the members who leave are the loss-making ones. For the 2026 plan year the company exited unprofitable Medicare Advantage plans and changed its product mix, which the 10-Q calls deliberate repositioning[26], and it raised Individual ACA prices in line with cost trend in each market. Fewer members mean less premium, but if the departing members were loss-making, benefit expense per member falls by more and the Health Benefits operating margin rises. A higher bronze share in Individual ACA concentrates the year's profit in the first half and lifts the benefit expense ratio in the second half, which is why the third quarter is the first quarter that tests whether pricing was sufficient.

What remains unresolved is whether the margin improvement disappears into second-half seasonality. In the third quarter the things to watch are the year-over-year decline in the Health Benefits operating margin relative to the second quarter's 170 basis points, whether management keeps the Medicare Advantage margin of at least 2% and the year-end Individual ACA membership of at least 1 million, whether Individual ACA is still listed as an offset in the explanation of the benefit expense ratio, and what the company says about 2027 bids and pricing. The observable falsifiers are that management lowers the full-year Medicare Advantage operating margin of at least 2%; that the company attributes third-quarter deterioration in the ratio to Individual ACA, or lowers the year-end membership expectation of at least 1 million while also flagging worse acuity; or that the Health Benefits operating margin falls by more than 170 basis points year over year without a corresponding decline in Medicare and Individual revenue, which would place the problem in costs and not in deliberate shrinkage.

Can Carelon hold its margin while it scales risk-based programs?

Carelon is already the company's largest source of profit in the quarter and the pivot of management's 2027 growth story. Carelon's operating gain was $948 million in the second quarter, above the $896 million at Health Benefits[13], but the Carelon Services operating margin has fallen year over year for two straight quarters, by 110 basis points in the first quarter[17] and 80 basis points in the second, and consumers served fell 5.0% year over year[11]. The current numeric baselines are combined Carelon operating gain of $948 million in the second quarter, a Carelon Services operating margin of 4.6%, 80.9 million CarelonRx quarterly adjusted scripts, and 92.4 million Carelon Services consumers served.

The two sub-businesses moved in opposite directions in the second quarter, and the cause is not settled. Carelon Services operating revenue grew 7.2% while its operating gain fell 8.5%, for a 4.6% margin; CarelonRx scripts fell 2.9% while its operating gain rose 8.6%[5], which the company attributes to improved specialty pharmacy profitability[29]. Management explains the pressure at Carelon Services as platform investment and newer risk-based programs that have not yet matured[30]. The alternative explanation is that shrinking internal health plan membership is eroding Carelon's base, and in the first quarter the company itself named lower health plan membership as one reason for Carelon's lower operating gain[31]; separately, Carelon Services' unaffiliated premium revenue fell from $1.863 billion a year earlier to $833 million because of the partial termination and modification of a contract with an unaffiliated customer[32]. The company does not disclose profit for individual risk-based programs.

Carelon has two sources of profit, and they differ in how sensitive they are to falling membership. CarelonRx earns on script volume and gross profit per script, so better specialty pharmacy profitability can offset lower volume; Carelon Services turns behavioral health, home care and similar programs into contracts that take medical risk, so revenue grows as programs expand, but new programs require investment first and earn only once mature, which is why revenue growth and margin move in opposite directions during expansion. Roughly six-tenths of Carelon's revenue comes from the internal health plans, so fewer health plan members depress both scripts and consumers served.

What remains unresolved is whether the falling Carelon Services margin reflects up-front investment or a problem in the programs themselves. In the third quarter the things to watch are the year-over-year direction of combined Carelon operating gain, the year-over-year decline in the Carelon Services margin relative to 80 basis points, whether the divergence between falling scripts and rising CarelonRx profit continues, and whether the 2027 selling season that management mentioned produces quantified progress. The observable falsifiers are that the year-over-year decline in the Carelon Services operating margin widens again while segment revenue growth slows, which would place the pressure in the programs and not in up-front investment; that CarelonRx operating gain turns down year over year and the company attributes it to lower scripts or to higher cost per script that it cannot pass through; or that the company discloses another terminated or modified unaffiliated contract that reduces Carelon Services' unaffiliated revenue further.

With nearly three quarters of full-year guidance booked in the first half, how much will second-half investment and seasonality take back?

The path to full-year guidance is steep, which makes third-quarter EPS a test in its own right. First-half adjusted EPS was $20.03, about 74% of full-year guidance of at least $27.00, and management said the third quarter should represent approximately 17%, which by arithmetic leaves only about 9% for the fourth quarter; that path contains both a seasonally higher benefit expense ratio and one-time second-half investments, and it is also the starting point for management's framing of at least 12% growth in 2027 off a base of at least $26[7]. The current numeric baselines are adjusted diluted EPS of $7.45 in the second quarter, an adjusted operating expense ratio of 11.0%, and first-half operating cash flow of $6.245 billion.

First-half earnings contain two gains that cannot be extrapolated, while the higher expense ratio is explained as deliberate investment. The adjusted operating expense ratio was 11.0% in the second quarter, up 100 basis points[22]; first-quarter adjusted EPS included about $1 per share of non-recurring investment income[10] and second-quarter adjusted EPS included an approximately $0.80 per share net below-the-line benefit[3]; first-half operating cash flow was $6.245 billion against full-year guidance of at least $6.0 billion; and the company reaffirmed its EPS and benefit expense ratio guidance in the September 10 8-K[6]. The alternative explanation is that guidance framed as "at least" carries a cushion, so a deviation in the third quarter need not signal a change in operations; conversely, excluding the two one-time gains, first-half operating earnings were weaker than the headline numbers. The CMS matter is closed and sanctions will not be imposed[20], but the total remittance has not been fully disclosed.

Second-half profit is determined by three things: a seasonally higher benefit expense ratio, an operating expense ratio lifted by one-time investments, and net investment income. The benefit that funds the investments was recorded below operating gain and already recognized in the second quarter, while the investments themselves fall into second-half adjusted operating expense, which is why management said the full-year adjusted operating expense ratio will be in the upper half of its guidance range[7] and why second-half operating gain comes under pressure first. On cash, the first half's $6.245 billion already exceeds the floor of full-year guidance, which implies a second half close to zero, for reasons that include the timing of state Medicaid pass-through payments and remittances to CMS.

What remains unresolved is how much second-half investment and seasonality will ultimately take back. In the third quarter the things to watch are adjusted EPS relative to approximately 17% of full-year guidance, the year-over-year rise in the adjusted operating expense ratio relative to 100 basis points together with any disclosed amount for the one-time investments, cumulative nine-month operating cash flow and progress on remittances to CMS, and whether the 2027 framing of a base of at least $26 and growth of at least 12% is maintained. The observable falsifiers are that the company lowers full-year adjusted EPS guidance of at least $27.00 or the 2027 modeling base of at least $26; that the adjusted operating expense ratio rises by more than the second quarter's 100 basis points year over year and the company cannot attribute the increment to disclosed one-time investments; or that the company lowers full-year operating cash flow guidance of at least $6.0 billion or discloses total remittances to CMS above the $935 million previously accrued.

Risks and Falsifiers

Changes in government program funding and rules affect three lines of business at once. Medicare Advantage rates and risk adjustment, Medicaid eligibility and state directed payments, and ACA subsidies and risk adjustment are all set by government, while approximately 32% of consolidated revenue in 2025 came from agencies of the US government[12] and second-quarter operating revenue from Medicaid, Medicare and Individual together was $28.126 billion, about 56% of consolidated operating revenue[5]. The observation that would overturn this concern is the company quantifying the effect of 2027 rates and policy changes in its third-quarter disclosure while maintaining the framing of at least 12% growth in 2027 off a base of at least $26[7].

The historical Medicare Advantage risk-adjustment data matter is closed, but the cash remittances are not complete and the final amount could still differ from the accrual. The company accrued $935 million in the first quarter of 2026 and made an initial remittance of $342 million in the second quarter[24], and the matter accounts for $4.27 per share in full-year guidance[22]; the exposed lines are operating expense and operating cash flow. The risk can be set aside if the company discloses total remittances no higher than the $935 million accrual and adds no further adjustment items tied to the matter.

Medicaid rates could keep lagging the acuity of the members who remain, pushing the margin trough past 2026. Medicaid operating revenue was $14.444 billion in the second quarter against a full-year margin outlook of approximately −1.75%[9]; each percentage point of the consolidated benefit expense ratio is worth roughly $410 million of quarterly benefit expense, while Health Benefits operating gain was only $896 million in the second quarter[5], which is a thin cushion. The current understanding of this risk is overturned if the year-over-year deterioration in the third-quarter ratio narrows to within 80 basis points and management maintains or raises the Medicaid margin outlook.

Federal Medicaid policy changes could alter the membership mix further before rates catch up. Work requirements, reform of state directed payments and similar changes act on enrollment and on the acuity of those who remain, while approximately 32% of consolidated revenue comes from agencies of the US government, most of it in the Health Benefits segment[12]. The corresponding falsifying observation is the company explaining in its third-quarter disclosure that policy changes have a limited effect on 2027 rate and membership assumptions and giving a quantified basis for that.

The Individual ACA benefit expense ratio in the second half could exceed the pricing assumptions. A higher bronze share amplifies seasonality, and the acuity of the members who remain may be worse than the first half showed; Individual operating revenue was $2.720 billion in the second quarter and $5.260 billion in the first half[5], and the 10-K attributes the 150-basis-point rise in the 2025 ratio to 90.0% principally to the ACA business[15]. The concern does not hold if the company still lists Individual ACA as an offset to the ratio in the third quarter and maintains its expectation of at least 1 million members at year-end[25].

Carelon's dependence on the internal health plans passes the health plans' shrinkage on to Carelon itself. Of Carelon's $19.225 billion in segment-basis operating revenue in the second quarter, $11.918 billion was affiliated[13], CarelonRx scripts fell 2.9% and Carelon Services consumers served fell 5.0% year over year[11], and further shrinkage at the health plans would depress both volumes and weaken Carelon's growth base. The falsifying observation is a narrower year-over-year decline in scripts and consumers served in the third quarter together with newly disclosed unaffiliated customers that return unaffiliated revenue to growth.

What to Watch Next

• Medicaid rates and acuity. The consolidated benefit expense ratio was 89.7% in the second quarter, up 80 basis points, and the full-year Medicaid operating margin outlook is approximately −1.75%[9]. Watch the year-over-year change in the third-quarter ratio and any new market exits; a narrowing to within 80 basis points with the outlook maintained confirms the trough reading, while deterioration beyond 80 basis points attributed to Medicaid, or a later trough year, falsifies it.
• Medicare Advantage and Individual ACA shrinkage. The Health Benefits operating margin was 2.1% in the second quarter, down 170 basis points[5], with management pointing to a Medicare Advantage margin of at least 2% and at least 1 million Individual ACA members at year-end[25]. Watch the year-over-year margin decline and whether Individual ACA remains an offset to the ratio; a decline smaller than 170 basis points with both positions maintained confirms, and a lowered position or ACA becoming a cause of deterioration falsifies.
• Carelon margin during expansion. Combined Carelon operating gain was $948 million in the second quarter[13] and the Carelon Services margin was 4.6%, down 80 basis points. Watch the year-over-year margin decline and the divergence between scripts and CarelonRx profit; a narrower decline with unaffiliated revenue returning to growth confirms, and a wider decline with slower revenue growth falsifies.
• Second-half earnings path. Second-quarter adjusted EPS was $7.45, the adjusted operating expense ratio was 11.0%, up 100 basis points[22], and first-half operating cash flow was $6.245 billion[21]. Watch third-quarter EPS relative to approximately 17% of full-year guidance and any disclosed amount for one-time investments; maintained guidance and 2027 framing confirm, and lower EPS or cash flow guidance, or an unexplained rise in the expense ratio, falsifies.
• CMS remittances. The company accrued $935 million and has remitted $342 million[24]. Watch the total and the pace; a total no higher than the accrual confirms, and a total above $935 million falsifies.

Conclusion

One ratio sets Elevance Health's profit: premiums are locked at the start of the year, medical costs arrive afterwards, and the difference is Health Benefits operating gain. The benefit expense ratio rose 150 basis points to 90.0% in 2025 and took that segment's operating gain from $6.243 billion to $4.158 billion; in the second quarter of 2026 revenue grew only 0.8%, the ratio rose another 80 basis points to 89.7%, and Health Benefits operating gain fell to $896 million, already below Carelon's $948 million. At the same time the company raised full-year guidance, has booked about 74% of at least $27.00 in the first half, and has generated $6.245 billion of operating cash flow, above the full-year floor. The central unresolved relationship is therefore whether the negative Medicaid margin, second-half seasonality and one-time investments will consume the cushion built in the first half, and whether the margin bought through deliberate shrinkage can hold in the second half.

Independent commentary after the second-quarter results focused on margins and not on the guidance increase, but it did not agree on the cause. Trefis argued on July 16, 2026 that a Medicaid margin of approximately −1.75% in one of the company's largest lines of business means other businesses must work harder to offset the losses, and that the market exits signal that the problem in some regions is structural; its judgment is that delivering at least 12% adjusted EPS growth in 2027 depends on Medicaid not becoming a permanent anchor, and the key things to watch are whether that margin improves meaningfully and whether the list of exits keeps growing[33]. Simply Wall St, on the same day, started from a trailing twelve-month net margin that slipped from 2.8% to 2.5%, with net income of about $5.0 billion on revenue of roughly $201.1 billion while quarterly revenue hovered around $50 billion, and set two narratives side by side: bears argue that medical costs in Medicaid and ACA plans will keep squeezing margins, and bulls argue that value-based care, AI-driven efficiencies and growth in Carelon and the government businesses will let earnings outpace revenue[34]. Both place Medicaid costs at the center of the pressure; they differ in that Trefis adopts the structural-gap explanation, which maps to the Medicaid rate debate, while Simply Wall St reaches no verdict and treats the margin shift only as a starting point for judging bullish expectations, and the Carelon growth that the bullish narrative relies on coexists in the disclosed data with a Carelon Services margin that is still falling year over year. These are outside interpretations, not facts, and they are not a vote.

The combination of later observations decides whether the current understanding is strengthened or weakened. If the year-over-year deterioration in the third-quarter consolidated ratio narrows to within 80 basis points, the Medicaid outlook of approximately −1.75% and the Medicare Advantage margin of at least 2% are maintained, the Health Benefits margin declines by less than 170 basis points, the decline in the Carelon Services margin narrows, and the company keeps both the at least $27.00 guidance and the 2027 base of at least $26, the reading that 2026 is the trough and that shrinkage is buying margin would be materially stronger. Conversely, if the deterioration widens and is attributed to Medicaid or Individual ACA, the list of market exits grows, the expense ratio rises by more than 100 basis points without being explained by one-time investments, or operating cash flow guidance and total CMS remittances are revised unfavorably, the current understanding would have to be rewritten.

Sources

[1] ELV 10-K filed 2026-02-06 · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[2] Drillr earnings calendar(2026-09-20 更新):Elevance Health 下一次财报电话会排在 2026-10-21;公司尚未在证据窗口内的官方文件中确认该日期 · 2026-09-20 · earnings calendar

[3] ELV 2026 年二季度 8-K — 业绩摘要 · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[4] ELV 2026 年二季度 8-K — 合并业绩与现金流 · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[5] ELV 2026 年二季度 8-K — 分部明细与 Health Benefits 收入构成 · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[6] ELV 2026-09-10 8-K — 重申全年指引 · 2026-09-10 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[7] ELV 2026 年二季度电话会 — 全年指引与盈利节奏 · 2026-07-15 · earnings call · https://www.fool.com/earnings/call-transcripts/2026/07/15/elevance-health-elv-q2-2026-earnings-call-transcript/

[8] StockAnalysis — Elevance Health 分析师一致预期(2026-09-18 更新) · 2026-09-18 · StockAnalysis · https://stockanalysis.com/stocks/elv/forecast/

[9] ELV 2026 年二季度电话会 — Medicaid 利润率与退出市场 · 2026-07-15 · earnings call · https://www.fool.com/earnings/call-transcripts/2026/07/15/elevance-health-elv-q2-2026-earnings-call-transcript/

[10] ELV 2026 年一季度 8-K — 业绩摘要 · 2026-04-22 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[11] ELV 2026 年二季度 8-K — 会员与经营指标表 · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[12] ELV 2025 年 10-K — 联邦政府收入占比 · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[13] ELV 2026 年二季度 10-Q — 分部财务表 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[14] ELV 2025 年 10-K — 全年经营概览 · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[15] ELV 2025 年 10-K — 赔付成本上升的归因 · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[16] ELV 2025 年 10-K — 分部财务表(2025 与 2024) · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[17] ELV 2026 年一季度 8-K — 分部明细表 · 2026-04-22 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[18] ELV 2026 年一季度 8-K — 合并业绩 · 2026-04-22 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[19] ELV 2026 年二季度 10-Q — 会员变动与净利润 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[20] ELV 2026 年二季度 10-Q — CMS 通知结案 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[21] ELV 2026 年二季度 10-Q — 每股收益与经营现金流 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[22] ELV 2026 年二季度 8-K — 调整项、费用率与全年指引 · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[23] ELV 2026 年二季度 10-Q — 上半年理赔准备金变动表 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[24] ELV 2026 年二季度电话会 — 准备金与 CMS 汇款 · 2026-07-15 · earnings call · https://www.fool.com/earnings/call-transcripts/2026/07/15/elevance-health-elv-q2-2026-earnings-call-transcript/

[25] ELV 2026 年二季度电话会 — Medicare Advantage 与个人 ACA · 2026-07-15 · earnings call · https://www.fool.com/earnings/call-transcripts/2026/07/15/elevance-health-elv-q2-2026-earnings-call-transcript/

[26] ELV 2026 年二季度 10-Q — Health Benefits 分部说明 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[27] ELV 2025 年 10-K — 年末会员表 · 2026-02-06 · 10-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-K&dateb=&owner=include&count=40

[28] ELV 2026 年二季度 10-Q — 当季赔付率归因 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[29] ELV 2026 年二季度 8-K — Carelon · 2026-07-15 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[30] ELV 2026 年二季度电话会 — Carelon · 2026-07-15 · earnings call · https://www.fool.com/earnings/call-transcripts/2026/07/15/elevance-health-elv-q2-2026-earnings-call-transcript/

[31] ELV 2026 年一季度 8-K — Carelon · 2026-04-22 · 8-K · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=8-K&dateb=&owner=include&count=40

[32] ELV 2026 年二季度 10-Q — 上半年经营说明 · 2026-07-15 · 10-Q · https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001156039&type=10-Q&dateb=&owner=include&count=40

[33] Trefis — The Medicaid Problem Weighing On Elevance Health Stock · 2026-07-16 · Trefis · https://finance.yahoo.com/healthcare/articles/medicaid-problem-weighing-elevance-health-123032306.html

[34] Simply Wall St — Elevance Health (ELV) Stock Faces Margin Squeeze As Q2 Profitability Trails Bullish Narratives · 2026-07-16 · Simply Wall St · https://simplywall.st/stocks/us/healthcare/nyse-elv/elevance-health/news/elevance-health-elv-stock-faces-margin-squeeze-as-q2-profita