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    Elevance Health Inc (ELV)

    Business Description

    Elevance Health is a leading health insurer in the United States, providing services to over 46 million medical members through its affiliated health plans . The company operates under several core brands, including Anthem Blue Cross/Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon, and organizes its business activities into four main segments . Elevance Health offers a wide range of health plans and services, pharmacy services, and healthcare-related services, contributing significantly to its overall revenue .

    1. Health Benefits Segment - Offers a comprehensive suite of health plans and services to various members, including Individual, Employer Group risk-based, Employer Group fee-based, BlueCard, Medicare, Medicaid, and Federal Employees Health Benefits (FEHB) program members. Includes specialty and other insurance products such as stop loss, dental, vision, and supplemental health insurance benefits .

    2. CarelonRx Segment - Provides pharmacy services to both affiliated health plan customers and external customers. Offers a comprehensive pharmacy services portfolio, including home delivery, specialty pharmacies, claims adjudication, formulary management, pharmacy networks, and infusion services .

    3. Carelon Services Segment - Integrates various healthcare-related services, including utilization management, behavioral health, integrated care delivery, palliative care, payment integrity services, and health and wellness programs. Includes Carelon Global Solutions, which provides data management, information technology, and business operations services .

    4. Corporate & Other Segment - Encompasses businesses that do not individually meet the quantitative threshold for an operating segment, as well as corporate expenses not allocated to other segments .

    Q3 2024 Summary

    Initial Price$541.38July 1, 2024
    Final Price$511.26October 1, 2024
    Price Change$-30.12
    % Change-5.56%

    What went well

    • Elevance Health expects to grow individual Medicare Advantage membership in line or slightly better than the broader market in 2025 due to strategic actions taken to create a sustainable foundation for growth, including exiting underperforming markets and focusing on high-priority segments.
    • The company's CarelonRx segment is performing strongly, with growth in specialty pharmacy and infusion services, and has secured significant wins going into 2025, contributing positively to overall performance.
    • Management remains confident in achieving at least 12% adjusted EPS growth over the long term, driven by the strength of Elevance Health's diverse and complementary businesses, including strong acceleration in revenue growth and expanded ACA footprints.

    What went wrong

    • Medicaid cost trends are developing worse than expected, primarily due to elevated medical costs in the Medicaid business, which is causing margins to remain pressured. Management expects Medicaid margins to remain below long-term targets through 2025.
    • Elevated utilization trends in Medicaid, notably in behavioral health, are driving higher medical costs and impacting profitability.
    • Uncertainty in achieving long-term earnings growth targets due to ongoing Medicaid challenges. Management acknowledges that while they believe in their long-term growth algorithm, Medicaid margins in '25 are expected to remain below long-term targets.

    Q&A Summary

    1. Medicaid Cost Trends and Margin Impact
      Q: Why are Medicaid costs accelerating so much now?
      A: We experienced accelerated cost trends in Medicaid throughout the third quarter, with trends running around 3x to 5x the historical average depending on the state. This is driven by higher overall membership acuity due to redetermination cycles now being substantially complete. While rate increases have been higher than historical averages, they remain insufficient to fully cover the claims trends we're seeing.

    2. Medicaid Rate and Acuity Mismatch
      Q: When will Medicaid rates catch up with higher acuity?
      A: We expect the mismatch between rates and acuity to narrow as state rate updates increasingly reflect the underlying member acuity. However, given the states' processes rely on data that can lag by 1 to 2 years, it's going to take time before this is fully reflected in their rate schedules, possibly persisting through 2025.

    3. 2025 Margin Outlook and Profitability
      Q: How will the Medicaid pressures affect 2025 margins?
      A: We anticipate that Medicaid margins in 2025 will remain below our long-term target due to the timing disconnect between rates and acuity. Nevertheless, we believe this is time-bound, and over the long term, we are confident in achieving our margin targets as rates catch up with acuity.

    4. Medicare Advantage Competitiveness and Margins
      Q: Is the Medicare Advantage environment playing out as expected?
      A: Yes, we feel well-positioned in Medicare Advantage, having taken strategic actions last year to create a sustainable foundation for growth. We expect to grow in line or slightly better than the market and are confident in our product positioning for 2025, with margins expected to improve compared to 2024.

    5. Impact on Carelon Health Businesses
      Q: How are Medicaid dynamics affecting Carelon Health?
      A: While we're pleased with Carelon Services' growth exceeding 30% year-over-year, the behavioral health trends in Medicaid are impacting our margin profile in the short term. We're also seeing effects from the acceleration of risk arrangements, but we feel very good about the long term.

    6. Pharmacy Trends and CarelonRx
      Q: Are you seeing accelerating Rx trends in specialty pharmacy?
      A: We've seen an increase in Medicare Advantage Part D specialty drug utilization, but trends in unit costs have been in line with our assumptions. CarelonRx has strong results, and we're very pleased with our strategy and growth, making good progress in specialty pharmacy and infusion.

    7. Commercial Business and ACA Exchanges
      Q: How is the margin profile for Exchanges and Commercial business?
      A: We feel really good about our Commercial business overall, including Individual ACA. We're positioned well in the geographies we serve, expecting to improve our market share by about 2 points moving forward, and we anticipate the business will meet our economic expectations.

    8. Medicaid Profitability and State Rates
      Q: Is the Medicaid book profitable today?
      A: Yes, the Medicaid business is expected to be profitable this year, albeit below our target margin range. We continue to work diligently with our state partners to ensure rates align with member acuity, but this process will take time.

    9. Utilization Trends
      Q: What is increasing more than your expectations?
      A: In Medicaid, we are seeing ongoing pockets of elevated trend, most notably in behavioral health. In Medicare, trends were slightly elevated due to incremental pressure from the Two-Midnight Rule and a late summer surge in COVID cases.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Health Benefits37,28038,00036,74436,547148,57137,25837,15938,278
    - Commercial----43,266---
    - Medicare----35,067---
    - Medicaid----56,601---
    - FEHB----13,637---
    CarelonRx8,0248,4668,5188,82733,8358,0678,7749,143
    Carelon Services3,3123,4413,3744,0214,1474,0094,5454,638
    Corporate & Other251287242-30147912712274
    Eliminations-6,969-6,817-6,398-6,639-26,823-7,188-7,377-7,414
    Premiums35,86836,58935,25935,138142,85435,69635,41636,809
    Product Revenue4,0224,8595,1775,39419,4524,4995,5305,887
    Service Fees2,0081,9292,0441,9227,9032,0782,2772,023
    Commercial & Specialty Business--------
    Government Business--------
    Other--------
    Total Operating Revenue41,89843,37742,48042,454170,20942,27343,22344,719
    Total Revenue42,17243,67242,48043,016171,34042,577--

    Executive Team

    NamePositionStart DateShort Bio
    Gail K. BoudreauxPresident and Chief Executive OfficerNovember 2017Gail K. Boudreaux has served as the President and CEO of Elevance Health since November 2017. She previously led GKB Global Health, LLC, and held executive roles at UnitedHealth Group and Aetna, Inc. .
    Mark B. KayeExecutive Vice President and Chief Financial OfficerNovember 1, 2023Mark B. Kaye joined Elevance Health as EVP and CFO on November 1, 2023. He was previously EVP and CFO at Moody's Corporation and held senior roles at Massachusetts Mutual Life Insurance and Voya Financial .
    Peter D. HaytaianExecutive Vice President and President, Carelon and CarelonRxOctober 2021Peter D. Haytaian has been EVP and President of Carelon and CarelonRx since October 2021. He joined Elevance Health in 2012 and has held various leadership roles, including President of the Medicaid business .
    Charles M. Kendrick, Jr.Executive Vice President and President, Commercial & Specialty Health BenefitsOctober 2021Charles M. Kendrick, Jr. has served as EVP and President of Commercial & Specialty Health Benefits since October 2021. He joined the company in 1995 and has held numerous leadership roles .
    Ratnakar V. LavuExecutive Vice President and Chief Digital Information OfficerFebruary 5, 2024Ratnakar V. Lavu will join Elevance Health as EVP and Chief Digital Information Officer on February 5, 2024. He previously served as Global Chief Digital Information Officer at Nike, Inc. .
    Felicia F. NorwoodExecutive Vice President and President, Government Health BenefitsJune 2018Felicia F. Norwood has been EVP and President of Government Health Benefits since June 2018. She was previously Director of The Department of Healthcare and Family Services for Illinois and held leadership roles at Aetna .
    Blair W. TodtExecutive Vice President and Chief Legal and Administrative OfficerNovember 2020Blair W. Todt has served as EVP and Chief Legal Officer since November 2020 and was promoted to Chief Administrative Officer in April 2023. He previously held leadership roles at Health Care Service Corporation and WellCare Health Plans .
    Ronald W. PenczekChief Accounting Officer and ControllerDecember 2015Ronald W. Penczek has been the Chief Accounting Officer and Controller since December 2015. He joined Elevance Health in 2005 and has held various finance roles, including Vice President and Controller .

    Questions to Ask Management

    1. Given the ongoing pressures on Medicaid margins due to the mismatch between rates and member acuity and your expectation that these pressures will continue through 2025 , what specific actions are you taking to realign rates with acuity more quickly, and how confident are you in returning Medicaid margins to your target range?

    2. Your long-term goal is to achieve at least 12% annual EPS growth , but with a mid-single-digit EPS growth outlook for 2025 and continued Medicaid margin pressures , how do you plan to accelerate earnings growth in 2026 and 2027 to meet this target, and should investors expect any adjustments to your long-term growth algorithm?

    3. With the decline in the percentage of Medicare Advantage members in plans rated 4 stars or higher due to higher cut points and a major contract narrowly missing 4 stars by 0.0004 , what strategies are you implementing to improve star ratings, and how might this impact your competitiveness and revenue growth in the Medicare Advantage market?

    4. Considering increased utilization trends in Medicare, including pressures from the Two-Midnight Rule and a late summer surge in COVID , how are you adjusting your pricing and cost management strategies for 2025 to account for these trends, and what impact do you anticipate on your Medicare margins?

    5. CarelonRx's strong performance included a one-time favorable revenue adjustment, and specialty pharmacy trends increased as expected ; can you discuss the sustainability of CarelonRx's earnings growth in the face of rising specialty drug costs, and how does this align with your long-term margin expectations for the segment?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateOctober 15, 2024
    End Date/DurationNo specific end date
    Total additional amount$8,000 million
    Remaining authorization amount$11,111 million
    DetailsFlexible repurchase program; discretionary and part of capital management strategy

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and FY 2025
    • Guidance:
      • Adjusted Diluted EPS: Reduced to approximately $33 due to elevated medical costs in the Medicaid business .
      • Benefit Expense Ratio: Expected to be more than 100 basis points higher, approximately 88.5% .
      • Operating Cash Flow: Expected to be approximately $4.5 billion .
      • 2025 Outlook:
        • Adjusted EPS Growth: At least in the mid-single-digit percent range .
        • Revenue Growth: In line with the long-term growth algorithm in the high single-digit percent range .
        • Medicaid Margins: Expected to remain below the long-term target .
      • Long-term Growth: At least 12% growth in adjusted diluted EPS annually on average over time .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Adjusted Diluted EPS: Reaffirmed at least $37.20, representing 12% growth year-over-year .
      • Enterprise Operating Margin Target: 6.5% to 7% by 2027 .
      • Benefit Expense Ratio: Expected in the upper half of the initial range, 87% to 87.5% .
      • Operating Revenue Growth: Upper single-digit growth .
      • Capital Deployment: Expected to deliver one-third of the targeted adjusted diluted EPS growth rate .
      • Operating Cash Flow: Slightly north of $7 billion .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Adjusted EPS: Increased by $0.10 to be greater than $37.20 .
      • Long-term Adjusted EPS Growth: 12% to 15% CAGR through 2027 .
      • Seasonality of Adjusted Diluted EPS: Approximately 55% of earnings in the first half of the year .
      • Operating Cash Flow: At least $8.1 billion .
      • Days in Claims Payable (DCP): Mid- to upper 40s range .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Adjusted Diluted EPS: Greater than $37.10, reflecting at least 12% growth .
      • Total Medical Membership: 45.8 million to 46.6 million, down approximately 750,000 year-over-year .
      • Medicaid Membership: 8.8 million to 9.2 million, with a net loss of approximately 930,000 members .
      • Commercial Membership: Growth of over 750,000, ending in the range of 32.4 million to 32.8 million .
      • Medicare Advantage Membership: Expected to be approximately flat .
      • Operating Revenue: Flat to up low single digits .
      • Operating Earnings: At least $10.3 billion, reflecting 9% growth .
      • Benefit Expense Ratio: Flat at 87%, plus/minus 50 basis points .
      • Operating Cash Flow: Includes impact of approximately $300 million of state-based payments .
      • Dividend: 10.1% increase, raising it to $1.63 per share .