Elevance Health, Inc. 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to Elevance Health's third quarter 2026 earnings conference call.

My name is Nathan Rich, vice president of investor relations. With us today on the earnings call are Gail Boudreaux, president and CEO, Mark Kaye, our CFO, Felicia Norwood, our chief health benefits officer, and Morgan Kendrick, president of our commercial health benefits business. Gail will highlight our third quarter performance and discuss the progress we're making on our strategic priorities. Mark will then discuss our financial results and the drivers supporting our earnings outlook in greater detail. After our prepared remarks, the team will be available for a question and answer session. During the call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, elevancehealth.com. We will also be making forward-looking statements on this call.

Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Elevance Health. These risks and uncertainties may cause actual results to differ materially from our current expectations, and we advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.

Good morning, and thank you for joining us. Elevance Health delivered strong third quarter results with Medicaid, Medicare Advantage, and individual ACA each contributing to our better-than-expected performance. These results reflect focused execution across the enterprise. They support a higher earnings outlook for 2026 and increase our confidence in the sustainability of our performance entering 2027. We are revising our 2026 adjusted diluted earnings per share guidance to at least $29, reflecting operating outperformance as well as favorable non-operating items. More importantly, we're raising our 2026 earnings baseline to at least $26.75. That increase reflects better underlying results and greater confidence in the durability of that performance. From this higher baseline, we remain confident in our ability to deliver at least 12% adjusted diluted earnings per share growth in 2027.

We expect that growth to be driven by continued margin improvement in health benefits, broader adoption of Carelon's value-based solutions, and greater operating efficiency across the enterprise. We are bringing together the scale and local presence of our health benefits business with Carelon's clinical and operational expertise to improve outcomes and make care more affordable. As we extend these solutions across our health plans and to external clients, we expect to improve medical cost management, increase operating leverage, and deliver greater value for those we serve. We are already seeing measurable results. Carelon's risk-based oncology solution connects treatment planning with personalized support throughout a member's cancer journey. Through earlier identification of risks and more coordinated intervention, our cancer care engagement program has reduced avoidable inpatient admissions by 15% in the commercial market.

Our Elevate medical cost management platform is helping our teams identify emerging cost drivers earlier and translate those insights into targeted action. This year, the platform has identified more than $300 million in anticipated savings. We are encouraged by these results and see significant opportunity as we deploy these capabilities more broadly across the enterprise. Now let me turn to our performance by line of business. In Medicaid, third quarter performance was ahead of our outlook, primarily reflecting the benefit of recent rate actions. We are now tracking slightly ahead of our prior full year margin guidance. We remain focused on the drivers within our control. We are expanding evidence-based clinical oversight in behavioral health, strengthening care management, and advancing targeted network actions while preserving access to appropriate care.

Looking to 2027, we expect Medicaid margins to improve as rates become better aligned with cost trends and the actions we are taking continue to gain traction. In Medicare Advantage, we have repositioned our portfolio around the products and markets where we can deliver sustainable value for members. These deliberate actions, together with improved medical cost performance and continued execution, are delivering the results we expected and positioning the business for more sustainable growth over time. We are carrying that same discipline into the 2027 annual election period with an emphasis on HMO plans and serving dual-eligible members. Our plan designs prioritize stability in the benefits members value most and reflect a measured view of cost trends. This approach supports further margin improvement in 2027 as we advance toward our long-term operating margin target.

We recently received our 2027 star ratings and are pleased that approximately half of our Medicare Advantage members will be enrolled in plans rated four stars or higher. We again achieved an enterprise-wide average of four stars in a competitive and dynamic environment. Our stars performance remains a multi-year priority, and we continue to invest in member experience, clinical quality, and care provider engagement to improve on these results. In commercial, we maintain a consistent and disciplined approach to the 2027 selling season. That approach reflects prudent pricing, the value of our integrated medical and pharmacy offering, and our unwavering focus on affordability. We continue to see strong demand for our Anthem Balance funded product and the differentiation created by our patient advocacy programs. These capabilities are increasing member engagement, strengthening clinical support, and supporting disciplined cost management.

Turning to Carelon, we are pleased with its strong performance in the quarter. We're bringing together pharmacy, behavioral health, and home-based care to create more integrated solutions that address a broader set of client needs. Our focus remains on deepening adoption across our health plans, expanding external client relationships, and delivering measurable value. As a result, Carelon is becoming an increasingly important contributor to both affordability and enterprise earnings growth. In summary, execution is strengthening across the enterprise. We are raising our 2026 guidance, increasing our earnings baseline, and entering 2027 with greater momentum and visibility. We see a clear path to delivering at least 12% adjusted earnings per share growth in 2027, supported by continued margin improvement in health benefits, ongoing expansion of Carelon, and greater operating efficiency across the enterprise. Beyond 2027, we believe the actions we are taking today position us to drive sustainable long-term earnings growth.

Before closing, I want to thank our associates. Their commitment, expertise, and execution are central to our progress and to the difference we make for the people we serve. With that, I'll turn the call over to Mark to review our third quarter financial results and outlook in greater detail.

Thank you, Gail, and good morning, everyone. Third quarter adjusted diluted earnings per share of $6.99 exceeded our outlook. Improved operating performance across the enterprise supports both our increased 2026 earnings guidance and a higher earnings baseline as we enter 2027. Results were driven by approximately $0.50 per share of operating outperformance. Favorable benefit expense performance in the quarter reflected recent Medicaid rate actions, disciplined execution in Medicare Advantage, and improved claims experience in our individual ACA business. We also recorded a net non-operating benefit of $1.85 per share, primarily related to valuation adjustments within investment income, partly offset by certain state tax items. Based on these results, we are raising our 2026 adjusted diluted earnings per share guidance to at least $29. Our earnings baseline increases by $0.75 to at least $26.75, reflecting third quarter operating outperformance and an improved full year outlook for individual ACA.

Looking ahead to next year, we remain confident in delivering at least 12% adjusted EPS growth in 2027 from this higher baseline. We expect broad-based operating improvement across our diversified portfolio, with multiple earnings drivers supporting our outlook. Let me now review our third quarter results in greater detail. We ended the quarter with approximately 44.9 million medical members. Growth in our commercial fee-based membership offset anticipated attrition in our Medicaid business. Operating revenue increased just under 1% to $50.4 billion, driven by higher premium yields, CarelonRx product revenue, and service fees, which helped offset lower health plan membership. Our consolidated benefit expense ratio was 90.6%, an improvement of 70 basis points. Medicaid, Medicare Advantage, and individual ACA each delivered results favorable to our outlook. Our adjusted operating expense ratio increased 90 basis points to 11.3%.

This quarter, we again made targeted one-time investments in member experience, medical cost management, and Carelon's value-based solutions. We also funded actions to support growth in our dual-eligible business and initiatives that enhance quality, including Stars. In Medicaid, cost trend remained elevated but relatively stable compared with the second quarter. Our results in the quarter benefited from recent rate actions, and we now expect our full-year operating margin to be slightly ahead of our prior outlook. We are encouraged by the progress in rate alignment and continue to take targeted action on the medical cost drivers within our control. We continue to view 2026 as the trough for our Medicaid margin and expect improvement in 2027. In Medicare Advantage, the product and geographic actions we took for 2026, along with the quality of our retained membership mix, support a full-year operating margin of at least 2%.