Elevance Health, Inc. Q3 FY2024 earnings call

• Third quarter adjusted diluted earnings per share were $8.37, below expectations due to elevated Medicaid medical costs.
• Full-year adjusted diluted earnings per share outlook reduced to approximately $33 due to ongoing challenges in Medicaid rate alignment with acuity.
• In Medicaid, working with states to reflect member acuity in rates; rate increases are high but insufficient to cover cost trends.
• In Medicare, taking deliberate steps for long-term sustainability, with 2025 bids balanced for margin and membership.
• In Commercial, strong growth in individual ACA plans and national accounts, with expansion into new states under WellPoint.
• In Carelon, scaling enterprise flywheel for growth, including acquisition of Kroger Specialty Pharmacy and CareBridge, and growth in Carelon Services.

Medicaid: Adjusted diluted earnings per share were below expectations due to elevated medical costs. Rate increases are the highest in a decade but inadequate to cover 2024 cost trend (3x to 5x historical averages). Revenue contribution from Medicaid is impacted by these cost issues. Medicare: Positioned well for 2025, expecting growth in Medicare Advantage membership, with a balanced approach to margin and membership. Medicare Advantage Star quality ratings are a priority. Commercial: Performing well, with growth in individual ACA health plans and national accounts. Revenue contribution from commercial is strong. Carelon: CarelonRx expanding customer base, Carelon Services growing above initial outlook, and acquisition of CareBridge for home health business. Revenue contribution from Carelon is increasing.

• Reduced full-year adjusted diluted earnings per share outlook to approximately $33 due to elevated Medicaid costs and timing disconnect between rates and acuity.
• Expect continued momentum in commercial business, balanced growth in Medicare Advantage, stability in Medicaid as redeterminations normalize, and scaling of Carelon.
• 2025 adjusted EPS growth outlook is mid-single-digit percent range, reflecting ongoing Medicaid rate acuity mismatch.

• Elevated medical costs in Medicaid, which are 3x to 5x historical averages and not fully covered by current rate increases.
• Timing disconnect between Medicaid rates and member acuity, as states often use data more than a year old in rate setting.
• Challenges in aligning Medicaid rates with member acuity, which is a time-bound issue but currently impacting financial results.

Q: How did the third quarter results and Medicaid challenges impact the full-year outlook?

A: Gail Boudreaux and Mark Kaye explained that elevated Medicaid medical costs and timing disconnect between rates and acuity led to reducing the full-year adjusted diluted earnings per share outlook to approximately $33.

Q: What is the outlook for Medicare Advantage in 2025?

A: Felicia Norwood stated that Elevance Health expects to grow individual Medicare Advantage membership in line or slightly better than the broader market in 2025, with a balanced approach to margin and membership.

Q: How is Carelon performing?

A: Pete Haytaian mentioned CarelonRx is expanding customer base, Carelon Services is growing above initial outlook, and the acquisition of CareBridge is strengthening Carelon’s home health business.