Q4 2023 Earnings Summary
- Elevance Health is effectively capitalizing on Medicaid redeterminations by expanding its ACA exchange membership, demonstrating strong growth in individual markets and outpacing market growth, with expectations for continued growth as they maximize access to care for redetermined Medicaid beneficiaries.
- Carelon, Elevance Health's services segment, experienced strong growth in 2023, exceeding initial guidance with an approximately 18.6% increase, driven by strategic acquisitions like BioPlus and new product launches. The company is excited about the momentum going into 2024, including the acquisition of Paragon Healthcare, and expects continued expansion in specialty pharmacy and home delivery services.
- Elevance Health remains confident in the long-term potential of the Medicare Advantage market, seeing it as a strong and growing segment. The company has intentionally repositioned its Medicare business to improve sustainability and margins, expecting to grow this business profitably even in a hypercompetitive market, and anticipates accelerated growth in 2025 through its "flywheel for growth," including improvements in both the health benefits business and Carelon segment, as well as operational efficiencies from digitization and AI investments.
- Elevance Health is facing significant Medicare Advantage membership declines, expecting to lose approximately 174,000 members due to exiting underperforming markets and reduced supplemental benefits in Puerto Rico, leading to an expected flat MA membership in 2024, which may limit growth prospects.
- The company's Medicare Advantage margins are currently below their long-term target margin range, and there is uncertainty about when margins will return to target levels, potentially impacting profitability.
- Elevance Health expects revenue growth in its Carelon Rx segment to slow significantly in 2024, from 18.6% growth in 2023 to low single digits expected in 2024, indicating challenges in sustaining high growth in this segment.
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Medicare Advantage Growth
Q: Why is MA growth lower than expected?
A: The company made disciplined decisions to enhance financial performance, exiting underperforming markets on the mainland, resulting in a decline of about 84,000 members. In Puerto Rico, they reduced supplemental benefits to improve performance, expecting a membership decline of around 90,000 in 2024. Excluding these planned attritions, net Mainland MA membership is on track to grow by high single digits despite aggressive competition. -
Flat MLR Guidance
Q: Why is 2024 MLR guidance only flat?
A: Despite expected margin improvements, the company guides to a flat benefit expense ratio of 87% for 2024. This reflects a consistent approach to reserves and prudence around utilization, given the dynamic operating environment, especially in government businesses. Intentional management actions in commercial and appropriate expectations in Medicare Advantage utilization contribute to this outlook. -
Medicare Advantage Outlook
Q: What's the MA market outlook and Elevance's potential?
A: The company views Medicare Advantage as a strong long-term market, with over 50% of seniors selecting MA today. They've made strategic investments and positioned themselves for sustainable performance. They believe they can grow the MA business profitably, even in competitive markets, by adding value for seniors and focusing on whole health. -
Medicaid Redetermination Impact
Q: Update on Medicaid redeterminations and 2024 guidance?
A: Medicaid redeterminations are approximately 2/3 complete. The company has seen more front-loaded disenrollment, notably in large states with accelerated processes. They've adjusted Medicaid retention assumptions to about 30% of PHE-related growth. Updated projections are factored into their membership guidance. -
2024 Margin Drivers
Q: What's driving margin progression in 2024?
A: Operating margins are expected to expand by 25 to 50 basis points in 2024. This is driven by continued underwriting discipline in commercial, Medicare margin expansion by balancing growth and margin, and operating expense leverage with a guide down to an 11.1% operating expense ratio. -
Carelon Margin Expansion
Q: What's driving Carelon's margin expansion in 2024?
A: Carelon's margin expansion is propelled by growth in services focusing on high-cost, complex areas. New offerings in 2024 include full-risk opportunities in oncology and behavioral health. These initiatives, though lower margin in early years, are significant and propel the business trajectory. -
Risk Enrollment Decline
Q: How much risk enrollment loss is commercial vs. Medicaid?
A: Most of the 1 million-plus decline in risk membership for 2024 is driven by Medicaid redeterminations and prior footprint adjustments. Commercial risk membership is expected to be approximately flat while improving margins. -
Medicare Advantage Margins
Q: Will MA margins be within 3%-5% target in 2024?
A: Medicare Advantage margins are currently below the long-term target range of 3% to 5%. Despite benefits repositioning, the company does not expect to be within that target in 2024. -
Carelon Rx Growth Slowdown
Q: Why is Carelon Rx growth slowing in 2024?
A: In 2023, growth of around 18.6% was driven by the BioPlus acquisition. For 2024, growth is expected to be in low single digits. The slowdown reflects the non-recurrence of acquisition-related boosts, but the company is excited about momentum with new product launches and strategic initiatives. -
Value-Based Care Strategy
Q: How is value-based care strategy evolving?
A: The company remains consistent in its value-based care strategy, with over 60% of business in value-based arrangements. They focus on aligning with providers on cost, quality, and outcomes. There's a focus on enablement rather than ownership, particularly in specialty, high-cost areas like oncology and behavioral health.