Elevance Health Inc. Q2 FY2025 earnings call

• Revised Outlook: Revised full year 2025 adjusted EPS guidance to approximately $30 due to elevated medical cost trends in ACA and slower Medicaid rate alignment. - Operational Initiatives: - Streamlined prior authorization processes with over half of electronic requests processed in real time and fewer requirements for high-performing providers. - Utilized AI-enabled tools like Health OS and intelligent clinical assist to streamline clinical workflows and accelerate routine approvals. - Used advanced analytics to identify fraud, waste, and abuse. - Expanded value-based care portfolio, with over 1/3 of benefit expense in downside risk arrangements. - Carelon Performance: Carelon Rx grew operating revenue by over 20%, Carelon Services delivered strong growth with margin impacts from seasonality and risk expansion.

1. Medicare Advantage: Cost trends in line with expectations, Part D seasonality progressing as anticipated, targeting stable margins for the year. 2. Carillon: Carillon Rx grew operating revenue by over 20%, gaining traction with larger clients and scaling specialty pharmacy assets; Carelon Services delivered strong results with CareBridge scaling rapidly across dual eligible and high-acuity Medicaid populations. Revenue contribution details not explicitly given in absolute terms beyond the above descriptions.

• Revised full year 2025 adjusted EPS guidance to approximately $30. - Anticipate a prolonged Medicaid margin recovery period as states take time to incorporate latest experience into rates. - In ACA, 2026 rate filings capture market-wide morbidity and risk pool deterioration from enhanced subsidies expiration. - Medicare Advantage cost trends in line with expectations, targeting stable margins for the year. - Seasonality: Slightly more earnings expected in third quarter relative to fourth quarter.

• ACA Market Dynamics: Membership shifts from Medicaid into ACA, lower effectuation rates leading to elevated medical cost trends and market-wide morbidity shift. - Medicaid Challenges: Slower deceleration of cost trend than expected, higher acuity and member utilization leading to prolonged margin recovery period. - Policy Uncertainties: Impact of budget reconciliation bill with work requirements and enhanced subsidies expiration on enrollment and risk pool. - Coding and Utilization Issues: Aggressive coding tactics by some providers and inappropriate use of IDR process inflating costs.

Q: Can you help delineate the pressure you're seeing in the ACA business between unit cost trends and shifts in the risk pool?

A: The pressure in ACA business is due to 70% impact from risk pool acuity and morbidity (including Medicaid members moving into ACA post redetermination) and 30% from utilization factors like emergency room visits, behavioral health services, and inappropriate coding tactics.

Q: When we think about the revision in guidance, can you size the relative impact of ACA and Medicaid?

A: The reduction in full year guidance is slightly more weighted towards ACA.

Q: What are you doing differently in terms of cost structure initiatives throughout the balance of the year and into next year?

A: Using technology to simplify and automate processes, using data and AI to get ahead of cost curve, taking aggressive action against misuse of IDR process, and leaning into Carelon's work.

Q: What assumptions are you making about further attrition in the overall membership and shifts in risk pool in light of ACA enrollment?

A: Assumed membership stability in ACA base for remainder of 2025, but embedded assumption of meaningful Q4 surge in utilization if enhanced premium tax credits lapse.

Q: Can you talk about how Carelon margins are lining up compared to initial expectations?

A: Carelon Services margins came in within expectations, slightly down from last year due to CareBridge and risk expansion; Carelon Rx had strong growth but impacted margins due to seasonality and growth in large employers and specialty.