Elevance Health, Inc. (ELV) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents several concerns: declining Medicaid margins, membership losses, and unclear management responses. Despite some positive aspects like Carelon growth and strategic repositioning, these are overshadowed by negative trends and uncertainties, particularly around Medicare and Medicaid. The Q&A revealed further risks and lack of clarity, which likely weigh on investor sentiment. Given these factors, along with the absence of strong positive catalysts, a negative stock price reaction is anticipated.
Key Financial Performance
Adjusted diluted earnings per share (EPS) $3.33 for the fourth quarter and $30.29 for the full year. The full year EPS included $3.75 per share of favorable nonrecurring items. The year-over-year change was not explicitly mentioned, but the favorable nonrecurring items were highlighted as a significant factor.
Operating revenue $49.3 billion for the quarter, an increase of 10% from the prior year. This growth was driven by premium rate adjustments in recognition of higher cost trends and acquisitions completed in the past year.
Consolidated benefit expense ratio 93.5% for the quarter and 90% for the full year. The year-over-year change was not explicitly mentioned, but the ratio was in line with guidance.
Adjusted operating expense ratio 10.8% for the fourth quarter and 10.5% for the full year. The year-over-year change was not explicitly mentioned, but the company emphasized managing the enterprise with discipline while making targeted investments.
Medicaid membership Ended the year with 45.2 million members, a decrease of approximately 500,000 year-over-year. This decline was principally due to continued eligibility reverifications.
Medicaid operating margin Approximately negative 1.75% for 2026, with improvement expected over time as rates incorporate more current experience and actions take hold. The year-over-year change was not explicitly mentioned, but the margin reflects challenges in rate adjustments lagging elevated acuity and utilization.
Medicare Advantage membership Expected to decline in the high teens percentage range in 2026. This reflects deliberate portfolio actions and stability in dual eligible membership, with an emphasis on meaningful margin improvement.
Operating cash flow $4.3 billion for the year, approximately 0.8x GAAP net income. The year-over-year change was not explicitly mentioned, but cash flow in December was negatively impacted by the timing of certain Medicaid-related payments, which were subsequently received in early January.
Share repurchases 1.4 million shares repurchased for $470 million in the fourth quarter, bringing full year repurchases to $2.6 billion. Combined with dividends, $4.1 billion of capital was returned to shareholders in 2025.
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Operating Highlights
Carelon Services: Carelon is increasingly recognized as a differentiated platform in the market with growing demand for its solutions in managing high-cost, complex areas of healthcare. Near-term growth will be moderated by lower health plan membership, but Carelon Services is less impacted by membership dynamics due to its broad mix of external relationships and value-based arrangements.
Specialty Pharmacy Management: In 2026, Elevance Health will further strengthen specialty pharmacy management, advance behavioral health support, and expand care management programs for members with elevated care needs.
HealthOS Platform: The HealthOS platform enables real-time data exchange, aligning information across the system, streamlining interactions with care providers, and making it easier to deliver care.
Medicaid Program Adjustments: Elevance Health is working with state partners on rate actions and program design changes to support the long-term sustainability of the Medicaid program. The company is also preparing for new eligibility and community engagement requirements under federal legislation, which may lead to a decline in Medicaid membership.
Medicare Advantage Portfolio Actions: The company expects Medicare Advantage membership to decline in the high teens percentage range in 2026 due to deliberate portfolio actions and stability in dual eligible membership. These actions are aimed at meaningful margin improvement.
ACA Market Repositioning: Elevance Health has repositioned its ACA plans to reflect higher costs and the expiration of enhanced subsidies while maintaining value and access for consumers.
Commercial Business Expansion: The Commercial business is experiencing healthy momentum, particularly in national accounts, supported by favorable client retention and new opportunities to expand reach through the second Blue bid process.
Advanced Analytics and Data Utilization: The company is leveraging actionable data and advanced analytics to anticipate emerging utilization trends, improve care coordination, and address inefficiencies in the system.
Provider Experience Improvements: Elevance Health is on track to exceed its commitment that 80% of prior authorization decisions will be made in real time by 2027, particularly for routine approved services, supporting faster access to care and reducing administrative burden for care providers.
Patient Advocacy Programs: Patient advocacy programs now serve over 7 million members, up nearly 20% from last year, helping members navigate the system, remove points of friction, and close gaps in care.
Long-term Margin Targets: The company has recalibrated its long-term margin targets for the enterprise and each segment to reflect the current portfolio and expected evolution. The long-term enterprise margin target is set at 5% to 6%.
2026 as a Year of Execution and Repositioning: Elevance Health views 2026 as a year of execution and repositioning, with a focus on aligning cost structure and operating priorities to improve performance consistency.
Technology Integration and AI-enabled Capabilities: The company is embedding AI-enabled and digital capabilities to simplify the member experience and support operational execution.
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Risk or Challenges
Medicaid Rates and Utilization: Rates are lagging elevated acuity and utilization, leading to a projected Medicaid operating margin of approximately negative 1.75% in 2026. This reflects challenges in aligning rates with current trends and the need for urgent collaboration with state partners.
Federal Legislation Impact: New eligibility and community engagement requirements under the One Big Beautiful Bill Act may lead to a decline in Medicaid membership and a shift in population acuity, impacting financial and operational planning.
Medicare Advantage Membership: Membership is expected to decline in the high teens percentage range in 2026 due to deliberate portfolio actions and market stability efforts, which could affect revenue and market share.
Individual ACA Market: Higher costs and the expiration of enhanced subsidies have necessitated plan repositioning, potentially impacting consumer access and financial performance.
Carelon Growth Moderation: Near-term growth is expected to be moderated by lower health plan membership, particularly in CarelonRx, which could affect revenue streams.
Cost Trends and Pricing Discipline: Elevated cost trends require disciplined pricing and portfolio adjustments, which may challenge margin stability and financial performance.
Operational Investments: Targeted investments in analytics, specialty pharmacy management, and care management programs are necessary but may strain resources in the short term.
Cash Flow and Medicaid Payments: Operating cash flow was negatively impacted by the timing of Medicaid-related payments, highlighting potential liquidity management challenges.
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Guidance & Outlook
2026 Adjusted Diluted Earnings Per Share Guidance: Elevance Health has established a guidance of at least $25.50 for adjusted diluted earnings per share in 2026.
2027 Adjusted EPS Growth Expectation: The company expects to return to at least 12% adjusted EPS growth in 2027, based on the 2026 earnings baseline.
Medicaid Operating Margin: The Medicaid operating margin is expected to be approximately negative 1.75% in 2026, with improvement over time as rates incorporate more current experience and actions take hold.
Medicare Advantage Membership: Medicare Advantage membership is expected to decline in the high teens percentage range in 2026 due to deliberate portfolio actions, while meaningful margin improvement is anticipated.
Individual ACA Market: Plans have been repositioned to reflect higher costs and the expiration of enhanced subsidies, maintaining value and access for consumers.
Commercial Business Momentum: The Commercial business is expected to maintain healthy momentum, supported by favorable client retention, new opportunities, and disciplined pricing.
Carelon Growth: Near-term growth in Carelon will be moderated by lower health plan membership, but demand for its solutions remains strong.
Long-Term Enterprise Margin Target: The long-term enterprise margin target is set at 5% to 6%, with mid-single-digit margins targeted for Health Benefits, Carelon, and CarelonRx.
2026 Operating Revenue: Operating revenue is expected to decline in the low single-digit percent range in 2026, driven by a low double-digit percentage decline in risk-based membership, partly offset by higher premium yields and growth in Carelon.
2026 Operating Cash Flow: Operating cash flow is expected to be at least $5.5 billion in 2026.
2026 Medical Loss Ratio: The consolidated medical loss ratio is expected to be 90.2%, plus or minus 50 basis points, reflecting a prudent view of cost trend and shifting acuity in Medicaid.
2026 Adjusted Operating Expense Ratio: The adjusted operating expense ratio is expected to be 10.6%, plus or minus 50 basis points, as the company invests in scaling Carelon and embedding AI-enabled capabilities.
Capital Deployment Plans: Approximately $2.3 billion is planned for share repurchases in 2026.
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Shareholder Return Plan
Dividends Paid in 2025: $1.5 billion
Capital Returned to Shareholders in 2025: $4.1 billion (including dividends and share repurchases)
Share Repurchases in Q4 2025: 1.4 million shares for $470 million
Total Share Repurchases in 2025: $2.6 billion
Planned Share Repurchases in 2026: Approximately $2.3 billion
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Key Q&A
Q:Are you assuming a similar cost trend in 2026 as in 2025 across major lines of business?
A:Mark Kaye stated that the fourth quarter medical cost performance in 2025 was generally in line or slightly better than expectations. For 2026, Commercial cost patterns and margins are expected to remain consistent with 2025, with some pockets of high utilization. ACA cost trends are expected to accelerate due to the expiration of enhanced premium subsidies. Medicaid cost pressure is expected to remain elevated but moderate to mid-single-digit range. Medicare cost trends are anticipated to be higher due to membership mix, particularly D-SNP.
Q:What caused the larger-than-expected membership declines in 2026, especially in Medicare?
A:Felicia Norwood explained that the declines were aligned with a focus on margin improvement. Deliberate steps were taken to reposition the business, with most attrition occurring in PPO and HMO products in geographies without comparable alternatives. The strategy focused on D-SNP products and resulted in meaningful Medicare margin improvement to at least 2% in 2026. Mark Kaye added that Employer Group risk membership is expected to decline due to deliberate pricing decisions, particularly in lower-margin public sector accounts.
Q:What are the margin expectations for the Health Benefits business in 2026?
A:Mark Kaye stated that Medicaid margins are expected to be around -1.75%, reflecting elevated utilization and misalignment of rates and acuity. Medicare margins are expected to improve to at least 2%, driven by prudent assumptions and membership mix. Commercial Large Group margins are expected to remain consistent, while ACA margins are slightly better than expected despite elevated cost trends. A 20 basis point headwind from flu is also embedded in the 2026 outlook.
Q:What is the rate outlook for Medicaid in 2026, and how should we think about program changes and medical management?
A:Felicia Norwood stated that a composite rate increase in the mid-single-digit range is expected for 2026, but rates will still lag trends due to membership attrition and shifting risk pools. Rate discussions are increasingly tied to broader program changes and benefit designs. Efforts are focused on cost management, addressing high trend drivers like behavioral health, and ensuring program integrity.
Q:What gives confidence in the long-term EPS growth target of 12%+ starting in 2027?
A:Gail Boudreaux explained that the 2026 EPS guidance of at least $25.50 is prudent and achievable, based on actions already underway to improve margins. The confidence in 2027 growth is driven by multiple independent levers, including pricing, care management, and portfolio decisions. The diversified platform and disciplined execution across Commercial, Medicare, Carelon, and Medicaid provide a clear path for growth.
Q:What investments were pulled forward, and how do they impact the 2026 guidance?
A:Mark Kaye clarified that $1 of investments was pulled forward, with $0.25 deployed towards retention and workforce investments. This was enabled by favorable tax-related benefits in 2025. The remaining $0.75 of investments is embedded in the 2026 guidance.
Q:What changes were made to the long-term margin profile for Health Benefits and CarelonRx?
A:Mark Kaye stated that the Health Benefits segment margin was recalibrated to reflect the current portfolio mix, with ACA representing a larger share. There is no change in underlying margin expectations for any line of business. For CarelonRx, margins were adjusted due to growth in upmarket accounts and specialty business, which have lower margin profiles. Policy considerations also influenced the adjustments.
Q:What is the ACA membership outlook for 2026, and are there any notable changes in utilization patterns?
A:Mark Kaye stated that ACA membership is expected to be at least 900,000 by year-end 2026, reflecting the expiration of enhanced premium tax credits and intentional exits for sustainability. Membership is up 10% post-open enrollment, with growth in new markets offsetting attrition in core states. Utilization patterns will become clearer by early April as members work through billing cycles.
Q:What are the capital deployment priorities for 2026, and what is the M&A outlook?
A:Mark Kaye stated that near-term capital allocation will focus on maintaining balance sheet strength, funding targeted investments, and opportunistic share repurchases. M&A activity will be lower in the first half of 2026, with a focus on integrating recent acquisitions and scaling their value. Longer-term priorities remain unchanged, including reinvestment, disciplined M&A, and shareholder returns.
Q:What is the strategic rationale behind the membership declines across various businesses?
A:Gail Boudreaux explained that the declines are due to deliberate decisions to prioritize margin improvement and sustainability. In Commercial, pricing discipline led to exits from unprofitable accounts. Medicaid declines reflect redetermination impacts, while Medicare repositioning focused on D-SNP products. The strategy aims to position the business for future growth with strong margins.
Q:What is the response to the recent MA rate notice, and how does it impact the business?
A:Gail Boudreaux stated that the flat advanced notice does not keep pace with medical cost trends, creating pressure on benefits and affordability. The company will continue to advocate for appropriate funding and predictable risk adjustment changes. The disciplined approach to Medicare positioning will continue, focusing on protecting seniors' access and affordability.
Q:What is the impact of affiliated membership losses on Carelon's revenue and margins?
A:Peter Haytaian stated that affiliated membership losses create headwinds for Carelon, but external growth momentum offsets this impact. Services revenue growth would have been in the high teens to low 20s, and Rx revenue growth in the low double digits without the membership losses. The business is focused on external growth and expanding risk-based solutions.
Q:What is the outlook for Medicaid membership and margins in 2026?
A:Felicia Norwood stated that Medicaid membership is expected to decline by 750,000 due to stringent eligibility reverification requirements. Mark Kaye added that Medicaid margins are expected to be around -1.75%, reflecting elevated cost trends, lagging rates, and tighter cost management efforts.
Q:What is the impact of commercial risk membership declines on long-term margin guidance?
A:Mark Kaye stated that the decline in commercial risk membership is due to pricing discipline and intentional exits from unprofitable accounts. The long-term margin guidance reflects the current business mix, with no further significant attrition expected. Morgan Kendrick highlighted strong ASO growth and retention in national accounts.
Q:How does Carelon's growth and margin profile evolve with external client expansion?
A:Peter Haytaian stated that Carelon's external growth momentum is strong, with the best year for external sales in both services and Rx. The business is expanding risk-based solutions and diversifying its portfolio. External growth offsets affiliated membership losses, and the focus is on serving complex populations with programs like oncology and severe mental illness.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers or lacked clarity on the following topics: 1) Specific details on how the advanced MA rate notice will be mitigated beyond general advocacy and disciplined positioning. 2) Quantification of the impact of policy changes on CarelonRx margins. 3) Detailed breakdown of the $1 investment pulled forward and its specific impact on 2026 guidance. 4) Exact components of Medicaid membership declines and their reconciliation with margin stability.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Affordability challenge
Beautiful Bill
Big Beautiful
Bill Act
Carelon platform
CarelonRx Carelon
CarelonRx digit
Health review
Medicaid Medicare
Medicaid analytics
Medicare election
Relations Boudreaux
Services membership
Services update
ability utilization
access care
access quality
account selling
action ability
action hold
area healthcare
care coordination
care need
care program
change state
community
confidence
consistency
face
foundation
health plan
margin improvement
pharmacy health
planning assumption
power platform
priority
program member
repositioning
requirement
utilization trend
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Elevance Health, Inc. (ELV) Q4 2025 Earnings Call Transcript
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The earnings call presents several concerns: declining Medicaid margins, membership losses, and unclear management responses. Despite some positive aspects like Carelon growth and strategic repositioning, these are overshadowed by negative trends and uncertainties, particularly around Medicare and Medicaid. The Q&A revealed further risks and lack of clarity, which likely weigh on investor sentiment. Given these factors, along with the absence of strong positive catalysts, a negative stock price reaction is anticipated.
Elevance Health, Inc. (ELV) Q3 2025 Earnings Call Transcript
Unknown10-21
The earnings call reflects concerns about Medicaid margin decline, ACA market contraction, and lack of clarity on certain financial metrics. Despite some positive developments in specialty pharmacy and Medicare strategy, the overall tone is cautious with significant risks in Medicaid and ACA markets. The revised EPS guidance and potential Medicaid margin trough in 2026 suggest challenges ahead. The market is likely to react negatively, especially without clear guidance on key metrics, leading to a predicted stock price movement in the -2% to -8% range.
ELV Report
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