Elevance Health Inc. earnings

Management highlights

### Overall Q2 Performance - Q2 2026 adjusted diluted EPS came in at $7.45, exceeding management's prior outlook, driven by favorable benefit expense performance in Medicare Advantage and individual ACA, disciplined corporate expense management, and consistent execution of care management initiatives. - A one-time net below-the-line benefit of 80 cents per share (from net investment income valuation adjustments) will fund one-time targeted capability investments in H2 2026. ### Strategic Capability Investments - **Faster medical cost trend detection**: Investments in AI-enabled analytics compress trend identification from months to days, allowing earlier deployment of targeted interventions across clinical, network, and payment integrity teams. - **Improved member experience**: Expansion of Sydney Health, concierge care, and proactive engagement leverages data and digital tools to help members navigate benefits, schedule care, manage chronic conditions, and close care gaps, resulting in a more seamless personalized experience. - **Scaled value-based solutions via Carillon**: Expansion of CareBridge (Carillon's in-home whole health model) to new markets, which generates mid-teens medical cost savings for members while improving outcomes. Targeted expansion into high-growth complex spend areas including behavioral health and oncology. - **Reduced care provider friction**: Investment in HealthOS to enable earlier care plan collaboration, real-time prior authorization, and improved payment accuracy, reducing administrative friction for both providers and members. ### Portfolio Actions - Elevance Health exited the District of Columbia Medicaid market via mutual agreement with the district, and expects to exit additional underperforming Medicaid markets over the next 12-18 months where no path to sustainable long-term returns exists. These are targeted portfolio adjustments that do not change the company's commitment to Medicaid in markets that meet strategic and financial criteria. - Resolution of a prior CMS matter: All required remediation steps were completed as of July 9, 2026, and CMS confirmed no sanctions will be imposed, closing the matter. An initial $342 million remittance was made in Q2, and total estimated exposure remains unchanged from prior disclosures.

Guidance

- 2026 full-year adjusted diluted EPS guidance is raised from the prior range to **at least $27**, an upward revision driven by strong Q2 operating performance. A $26 adjusted EPS baseline is established for 2027 growth modeling. - Management maintains confidence in returning to **at least 12% adjusted EPS growth in 2027** from the 2026 ending baseline, with growth supported by performance across all business segments, Carillon scaling, operating efficiency improvements, and disciplined capital deployment. - Full-year 2026 Medicaid operating margin guidance remains unchanged at approximately -1.75%, maintaining a prudent outlook; 2026 is expected to be the trough year for Medicaid margins, with sequential improvement expected in subsequent years. - Medicare Advantage 2026 full-year operating margin guidance is maintained at **at least 2%**, unchanged from prior outlooks. - Full-year 2026 operating cash flow guidance is raised to **at least $6 billion**, an upward revision driven by strong Q2 operating performance. - The adjusted operating expense ratio for 2026 is now expected to land in the upper half of the prior guidance range. Q3 2026 adjusted EPS is expected to represent approximately 17% of full-year 2026 guidance.

Segment performance

Total company operating revenue: $49.8 billion, up 0.8% year-over-year; total medical members: 44.9 million. - **Medicaid**: Second quarter performance aligned with full-year framework. Rate updates were stronger than expected, membership and acuity are broadly aligned with guidance assumptions. Cost drivers remain elevated, concentrated in behavioral health, specialty pharmacy, outpatient surgery, and emergency department utilization. Full-year operating margin is expected to be approximately -1.75%. Management views 2026 as the trough year for Medicaid margins. - **Medicare Advantage**: Results came in stronger than expected, driven by intentional portfolio repositioning, disciplined plan design, focused product mix (higher share of DSNP and HMO products), favorable claims experience, and matured care management programs. The business is on track to hit an operating margin of at least 2% for full-year 2026. - **Individual ACA**: Performance is broadly consistent with 2026 pricing and planning assumptions. Member retention is modestly ahead of expectations, and the company now expects to end 2026 with at least 1 million individual ACA members. Higher bronze plan mix creates more pronounced seasonality; Q2 favorability was in line with pre-existing guidance expectations, and final 2025 CMS risk adjustment results were favorable to prior estimates. - **Commercial Group**: Performance met expectations, with cost trend remaining elevated but consistent with the company's pricing approach. Demand is strong for the company's integrated medical and pharmacy model, patient advocacy, behavioral health, and digital engagement capabilities. 2027 selling season is proceeding with the same pricing discipline as prior years. - **Carillon**: Performance remains in line with 2026 full-year guidance. Early 2027 selling season progress for Carillon Rx is strong, reflecting market demand for the integrated medical and pharmacy offering. Carillon Services near-term earnings reflect ongoing platform investment and scaling of new risk-based programs. The segment's value-based solutions deliver an average 10% cost savings for members with complex/chronic conditions.

Risks & headwinds

- The Medicaid operating environment remains dynamic, with persistently elevated cost trends concentrated in behavioral health, specialty pharmacy, outpatient surgery, and emergency department utilization, driven by ongoing utilization pressure among remaining members. - Upcoming OBBBA regulatory changes (including SDP reform, new work requirements, and 1115 waiver budget neutrality changes) introduce modest incremental uncertainty, though management frames these changes as manageable. - The ACA market remains in flux, with changing member mix (higher bronze plan share) creating more pronounced performance seasonality, and risk adjustment dynamics still maturing. - Medical cost trend growth in Medicare Advantage continues to outpace program funding, creating ongoing pressure on margins if not offset by portfolio and pricing discipline.

Analyst Q&A

• Q: With stronger-than-expected Medicaid rate updates, why hasn't the negative full-year margin outlook been improved, and what is the criteria for planned Medicaid market exits? /

  A: Management notes that while July 2026 rate updates were modestly favorable and confirm the rate environment is moving in the right direction, the full-year benefit is moderated by timing and the share of the portfolio affected. Elevated utilization pressure in key cost categories remains, so management maintains a prudent outlook. Market exits are part of a broad, long-term portfolio review focused on strategic fit and sustainable long-term economics; the company will only remain in markets where there is alignment with its dual eligible and Carillon strategies and a clear path to appropriate returns, rather than reacting to near-term rate changes. (312 characters)

• Q: What is the growth versus margin priority posture for 2027 bids in ACA and Medicare Advantage, and what drove that orientation? /

  A: For ACA 2027, the posture is consistent with 2026: sustainable margins are the top priority, supported by disciplined market-specific pricing that reflects current cost trend and evolving member morbidity. The company continues to prioritize affordable bronze plan options that align with this margin goal. For Medicare Advantage 2027, bids are developed with the same discipline, with a prudent view of underlying cost trend and continued focus on margin improvement, while retaining stable, valued benefits for members. (349 characters)

• Q: Can you explain the nature of the one-time 80 cents per share investments, and what operational leverage and returns can be expected from these investments in 2027? /

  A: The 80 cents in one-time investments are funded by non-recurring Q2 below-the-line gains, with all costs recognized in 2026 and no recurring cost burden in 2027. Investments are focused on four core areas: AI-enabled analytics to speed medical cost trend detection and intervention, digital tools to improve the member experience, HealthOS to reduce provider friction and improve administrative efficiency, and accelerated scaling of Carillon value-based solutions. Management expects these investments to drive durable long-term improvements in medical cost management and operating efficiency that support the 2027 12%+ EPS growth target. (421 characters)

• Q: How should we frame the 2027 adjusted EPS growth outlook across business segments, relative to the company's long-term growth algorithm? /

  A: The 12%+ 2027 growth target is broad-based and not dependent on outsized improvement in any single business. Management expects Medicaid performance to improve from the 2026 trough as rates align with recent cost experience and care management actions mature. Medicare Advantage continues to benefit from prior portfolio repositioning and disciplined 2027 bidding, with improving margin trajectory. Commercial group has strong sales momentum and disciplined pricing, while individual ACA is positioned for sustainable performance. Disciplined capital deployment will also contribute to growth, keeping the company on track to hit its long-term growth target. (417 characters) Total characters: ~1500