Elevance Health Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Affordability Focus: Affordability remains central in healthcare; Elevance Health focuses on improving outcomes, access, and cost management.
• 2026 as Year of Execution: 2026 is a year of execution and repositioning with prudent assumptions grounded in pricing discipline, operational rigor, and targeted investments.
• Care Coordination and Analytics: Leveraging data and analytics to identify trends, improve care coordination, and address inefficiencies. In Medicaid, strengthening analytics for high-cost substance use disorder treatment.
• Patient Advocacy: Patient advocacy programs serve over 7 million members, helping navigate the system and close care gaps.
• Real-Time Prior Authorization: On track to exceed 80% of prior authorization decisions in real time by 2027 via HealthOS platform for faster care access and reduced administrative burden.

Segment Performance

• Medicaid: Operating margin expected to be approximately negative 1.75% in 2026, with rates lagging elevated acuity and utilization. Medicaid membership may decline due to new eligibility and community engagement requirements, but manageable within the diversified enterprise.
• Medicare: Medicare Advantage membership expected to decline in the high teens percentage range in 2026, with margin improvement anticipated as actions taken support meaningful margin improvement.
• Individual ACA market: Plans repositioned with discipline to reflect higher costs and expired enhanced subsidies while maintaining value and access.
• Commercial health benefits: Healthy momentum, particularly in national accounts, with disciplined pricing and Whole Health Solutions integrating medical, pharmacy, and behavioral health needs. 40 employers over five years selected Anthem affiliated plans as sole carrier.
• Carillon: Growth moderated by lower health plan membership in CarillonRx, but Carillon services less impacted by membership dynamics. Refining long-term margin expectations to reflect a more prudent view, with long-term enterprise margin target 5% to 6%, health benefits mid-single-digit margins, and Carillon services target unchanged.

Guidance

• 2026 adjusted diluted earnings per share guidance is at least $25.50.
• Operating revenue expected to decline in the low single-digit percent range in 2026, driven by risk-based membership decline, partially offset by higher premium yields and Carillon growth.
• Consolidated medical loss ratio expected to be 90.2% ± 50 basis points.
• Adjusted operating expense ratio expected to be 10.6% ± 50 basis points.
• Plan to allocate approximately $2.3 billion towards share repurchases in 2026.
• Expect to earn approximately two-thirds of adjusted EPS in the first half of 2026, with 65% in the first quarter.
• Reaffirm long-term algorithm of at least 12% adjusted EPS growth annually on average, expecting to return to this growth rate in 2027 off the 2026 earnings baseline.

Risks

• Cost Trend Misalignment: Medicaid rates lag elevated acuity and utilization, impacting margins.
• Membership Declines: Medicare Advantage membership decline and Medicaid membership changes due to eligibility requirements.
• Policy Changes: Impact of new federal legislation like the One Big Beautiful Bill Act on Medicaid eligibility and community engagement.
• Risk Adjustment: Uncertainty around changes to the risk adjustment framework affecting Medicare Advantage margin stability.

Question and Answer

Q: A.J. Rice asked about cost trend across major lines of business.

A: Mark Kaye responded that fourth quarter medical cost performance was generally in line to slightly better than expectations. Commercial large group expected to be consistent with 2025, ACA expected accelerating cost trend, Medicaid expected cost pressure at roughly twice historical average with moderation vs 2025, and Medicare expected higher cost trend driven by membership mix.

Q: Andrew Mok inquired about membership declines, especially in Medicare and commercial risk.

A: Felicia Norwood stated membership declines were consistent with margin focus, with majority attrition in PPO and HMO products in non-comparable geographies. Mark Kaye added employee group risk membership expected down in high single-digit percent range due to margin discipline.

Q: Justin Lake asked about health benefits margins.

A: Mark Kaye discussed Medicaid margins pressured but tracking slightly better than outlook, Medicare margins in line with expectations, commercial large group consistent, and ACA slightly better than prudent outlook. Mentioned first-quarter flu headwind of about 20 basis points.

Q: Lance Wilkes asked about Medicaid rate outlook and program changes.

A: Felicia Norwood said Medicaid rate increase in mid-single-digit percent range net of risk corridor impacts, rates in line with expectations but lagging trend, and engaged in constructive conversations with states on program changes and cost management.

Q: Josh Raskin sought confidence in long-term EPS growth target.

A: Gail Boudreaux explained 2026 is year of execution with prudent outlook, 2027 expected at least 12% adjusted EPS growth off 2026 baseline due to portfolio decisions, pricing, and operating actions.

Q: Lisa Gill asked about investments pulled forward.

A: Mark Kaye said $1 of incremental investments for 2026 were pulled forward by a quarter, with additional 25¢ towards retention and workforce investments.

Q: Ann Hynes asked about lowered segment margin profiles.

A: Mark Kaye explained recalibration to reflect current portfolio mix, with commercial growth more measured and individual ACA larger share changing margin profile. Peter Haytaian discussed Carillon Rx margin adjustments due to growth in large accounts and specialty business.

Q: Christian Borgmeier asked about ACA membership and utilization.

A: Felicia Norwood said ACA membership guided to at least 900,000 at year-end 2026, up ~10% post-open enrollment, with key swing factor being member premium payments becoming clearer in early April.

Q: Scott Fidel asked about capital deployment priorities.

A: Mark Kaye said near-term focus on balance sheet strength, targeted investments, and opportunistic share repurchases, with longer-term commitment to balanced approach including M&A and capital return.

Q: Kevin Fischbeck asked about margin commentary and business mix.

A: Gail Boudreaux stated disciplined approach in businesses, repositioning portfolio for sustainable growth, with strong commercial retention and pricing decisions on public sector accounts.

Q: Erin Wright asked about MA rate notice and industry impact.

A: Gail Boudreaux said MA program needs stable funding to reflect utilization and cost trends, supportive of risk adjustment program accuracy and predictability to protect seniors' access and affordability.

Q: Ben Hendrix asked about Carillon margin expansion.

A: Peter Haytaian discussed Carillon's diverse risk-based solutions, disciplined risk taking, and growth in services like oncology and severe mental illness, with external growth pipeline validating expansion.

Q: David Windley asked about Medicaid membership decline and margin impact.

A: Felicia Norwood said decline reflects same-store eligibility reverification, and Mark Kaye explained margin guidance grounded in cost trend, rate improvement, and cost management levers.

Q: Sarah James asked about commercial risk guidance and mix change.

A: Mark Kaye and Morgan Kendrick discussed ACA membership guidance, employer group risk decline due to margin discipline, and strong ASO national account performance with second blue bid success.

Q: Jason Kasorla asked about Carillon revenue and margin impacts.

A: Peter Haytaian said Carillon had strong growth in 2025, with external sales momentum offsetting affiliated membership attrition, expecting mid-single-digit impact from affiliated membership.

Q: George Hill asked about ending baseline and one-time items.

A: Mark Kaye explained 2026 EPS guidance anchored in prudent assumptions, driven by stable performance in commercial, progress in ACA, Medicaid margin compression, Medicare margin improvement, Carillon growth, and normalized tax rate.