Elevance Health, Inc. (ELV) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call showed strong financial performance with a 15% revenue increase and significant EPS growth. Despite some challenges in Medicaid and ACA margins, the company is taking proactive measures to address these. Share repurchases indicate confidence, and the optimistic guidance suggests future growth. The Q&A section highlighted strategic actions to stabilize markets and improve cost structures, which are positive indicators. Overall, the company's initiatives and financial outlook suggest a positive stock price movement over the next two weeks.
Key Financial Performance
GAAP diluted earnings per share (EPS) $7.72 for Q2 2025, reflecting the company's performance in the quarter.
Adjusted diluted earnings per share (EPS) $8.84 for Q2 2025, consistent with expectations. The full-year 2025 adjusted EPS guidance was revised to approximately $30 due to elevated medical cost trends in ACA and slower Medicaid rate alignment.
Medical membership 45.6 million at the end of Q2 2025, down approximately 200,000 sequentially. This decline was driven by a reduction in Medicaid membership and lower effectuation rates in the ACA business.
Operating revenue $49.4 billion for Q2 2025, a 14% year-over-year increase. This growth was driven by higher premium yields due to elevated cost trends and acquisitions in home health and specialty pharmacy.
Consolidated benefit expense ratio 88.9% for Q2 2025, an increase of 260 basis points year-over-year. This was driven by ACA and Medicaid businesses, partially offset by a favorable out-of-period settlement with a value-based care provider.
Adjusted operating expense ratio 10.0% for Q2 2025, improved by 140 basis points year-over-year. This improvement reflects strategic investments in innovative care models, artificial intelligence, and pharmacy services.
Carelon Rx operating revenue Grew by over 20% year-over-year in Q2 2025, driven by traction with larger clients and scaling specialty pharmacy assets.
Carelon Services revenue and operating gain Grew by greater than 50% year-over-year in Q2 2025, supported by the expansion of risk-based relationships and the integration of CareBridge.
Debt-to-capital ratio 40.8% at the end of Q2 2025, providing flexibility for strategic investments and capital deployment.
Operating cash flow $2.1 billion for Q2 2025, with a full-year expectation of approximately $6 billion, reflecting the revised earnings outlook and discrete working capital items.
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Operating Highlights
Carelon Rx: Gained traction in the market with its integrated medical pharmacy offering and grew operating revenue by over 20%.
Carelon Services: Delivered strong results with CareBridge scaling rapidly across dual eligible and high-acuity Medicaid populations, achieving greater than 50% growth in revenue and operating gain.
Medicare Advantage: Continued strength in portfolio with stable utilization and disciplined cost management.
ACA Market: Membership shifts from Medicaid into ACA following redetermination process, leading to elevated medical cost trends and lower effectuation rates.
Medicaid: Higher acuity and increased member utilization due to ongoing disenrollment, with a prolonged margin recovery period expected.
Cost Management: Disciplined cost management across key parts of the business to navigate evolving dynamics in ACA and Medicaid markets.
AI and Analytics: Implemented AI-enabled tools like Health OS and intelligent clinical assist to streamline workflows and accelerate routine approvals. Advanced analytics used to identify fraud, waste, and abuse.
Value-Based Care: Expanded portfolio in behavioral health and oncology, with over one-third of benefit expense in downside risk arrangements.
Pricing Adjustments: Repriced ACA products for rising cost intensity and engaged with state partners for Medicaid rate alignment.
Operational Streamlining: Streamlined prior authorization processes, with over half of electronic requests processed in real time.
Technology Investments: Invested in innovative care models, artificial intelligence, and pharmacy services to support long-term success.
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Risk or Challenges
Revised Full-Year EPS Guidance: The company has revised its full-year 2025 adjusted EPS guidance to $30, reflecting elevated medical cost trends in ACA and slower-than-expected Medicaid rate alignment. This indicates persistent cost pressures and challenges in aligning rates with current trends.
Elevated Medical Cost Trends: The ACA market is experiencing elevated medical cost trends due to membership shifts from Medicaid and lower effectuation rates, leading to increased morbidity. This poses a challenge to cost management and profitability.
Medicaid Cost Trends: Medicaid cost trends are decelerating slower than expected, with higher acuity and increased member utilization. Rate updates lag current trends, leading to a prolonged margin recovery period.
Market-Wide Morbidity Increase: The ACA market-wide morbidity increase, driven by Medicaid redetermination and lower effectuation rates, is causing elevated medical costs and risk pool deterioration.
Regulatory and Policy Changes: The expiration of enhanced subsidies in 2026 and potential Medicaid work requirements could lead to enrollment pressures and further risk pool shifts, impacting financial stability.
Operational and Strategic Execution Risks: The company faces challenges in stabilizing trends in high-cost areas like specialty services, post-acute care, and outpatient settings. Efforts to streamline care delivery and improve pricing alignment are critical but challenging.
Medicaid Rate Recovery: Medicaid rate recovery is lagging behind current cost levels, with states taking time to incorporate the latest experience into rates, delaying financial stabilization.
Membership Decline: The company experienced a sequential decline of 200,000 medical members, driven by Medicaid membership reductions and lower ACA effectuation rates, impacting revenue and market share.
Dynamic Operating Environment: External conditions remain dynamic, with industry-wide morbidity increases and slower Medicaid cost trend deceleration, creating uncertainty in financial and operational planning.
Carelon Profitability Challenges: Carelon Rx's profitability was impacted by ongoing growth initiatives, indicating challenges in scaling operations while maintaining financial performance.
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Guidance & Outlook
Revised Full Year 2025 Adjusted EPS Guidance: The company has revised its full-year 2025 adjusted EPS guidance to approximately $30, reflecting elevated medical cost trends in ACA and slower-than-expected Medicaid rate alignment. This adjustment assumes that the elevated trends will persist and does not anticipate a near-term recovery.
Stabilization and Margin Recovery Plans: The company is focusing on stabilizing trends in high-cost areas such as specialty services, post-acute care, and certain outpatient settings. Efforts include streamlining prior authorization processes, leveraging AI-enabled tools, and expanding value-based care arrangements to improve care coordination and cost predictability.
ACA Market Outlook: Products have been repriced to account for rising cost intensity. A broader market reset is expected in 2026 due to the expiration of enhanced subsidies, which will drive further risk pool changes.
Medicaid Market Outlook: The company is proactively engaging with state partners to ensure upcoming rate cycles reflect the developing acuity environment. While rate recovery has lagged, a meaningful catch-up is expected as utilization data becomes more actionable.
Medicare Advantage Strategy: The company is maintaining a disciplined approach to pricing and focusing on margin normalization supported by stable utilization and Carelon-led clinical programs.
2026 Preliminary Outlook: Actions taken in 2025 are designed to stabilize trends, improve pricing alignment, and restore operating leverage over time. The company expects to address market-wide morbidity and risk pool deterioration in ACA and anticipates a prolonged Medicaid margin recovery period.
Carelon Growth and Investments: Carelon Rx grew operating revenue by over 20%, driven by larger clients and specialty pharmacy assets. Carelon Services delivered over 50% growth in revenue and operating gain through risk-based relationships and integration of CareBridge. Investments in innovative care models, AI, and pharmacy services are prioritized for long-term success.
Capital Deployment and Cash Flow: The company ended the quarter with a debt-to-capital ratio of 40.8% and expects approximately $6 billion in operating cash flow for the full year, reflecting the revised earnings outlook and discrete working capital items.
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Shareholder Return Plan
Dividend Payments: Year-to-date, we've returned approximately $2 billion to investors.
Share Repurchase: No specific mention of a share repurchase program in the transcript.
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Key Q&A
Q:Can you help delineate the pressure you're seeing in the ACA business between unit cost trends and shifts in the risk pool?
A:The pressure in the ACA business is primarily due to three factors: 1) Risk pool acuity and morbidity have risen due to a higher proportion of healthier members exiting the market and higher acuity members from Medicaid moving into ACA, accounting for about 70% of the impact. 2) Utilization is higher in categories like emergency room visits, behavioral health services, and specialty pharmacy. 3) Some providers are employing aggressive coding tactics, contributing to higher costs, which accounts for about 30% of the impact. The risk adjustment remains unchanged as the uptick in member acuity is market-wide and not specific to Elevance's membership mix.
Q:Can you size the relative impact of ACA and Medicaid on the guidance revision?
A:The reduction in full-year guidance is slightly more weighted towards ACA. For Medicaid, the delay in updated rates due to data alignment is a factor, while for ACA, repricing and the potential loss of enhanced subsidies next year are challenges. Margin recovery in ACA next year is uncertain.
Q:How do you address the concern of being underpaid in Medicaid due to base period rates being incorrectly set and forward trend disconnects?
A:Elevance is working with states to align rates with the acuity of the population. The company is sharing data with states to ensure rates reflect current trends. Discussions with states have been constructive, and rates are expected to normalize over a couple of rate cycles. Medicaid margins are expected to improve year-over-year in the back half of the year but remain below long-term targets.
Q:What are you seeing on Medicare Advantage trends and bids for 2026?
A:Medicare Advantage trends remain elevated but consistent with expectations. For 2026 bids, Elevance is taking a disciplined approach, focusing on geographies and plan types like HMOs and duals, and prioritizing margin recovery. The company is leaning into sustainable long-term value and has been implementing a multiyear strategy for stability in the marketplace.
Q:Can you comment on utilization trends by category and prior period development?
A:In the ACA marketplace, utilization is elevated in emergency room visits and behavioral health services. Members in the ACA cohort are utilizing the emergency room at nearly twice the level of commercial group members. Prior period development for the quarter was approximately $40 million, with no significant issues to note.
Q:What are the assumptions for Medicaid and ACA margins and potential growth above the 12% LRP next year?
A:Elevance does not break out individual business margins but expects ACA operating margins to decline year-over-year in the high single-digit percent range. Medicaid margins are expected to improve year-over-year in the back half but remain below long-term targets. The company is taking disciplined pricing actions and addressing cost trends to position for potential growth above the 12% LRP next year, though uncertainties like enhanced subsidies in ACA remain.
Q:What cost structure initiatives are being implemented to address controllable areas?
A:Elevance is focusing on technology transformation to simplify and automate processes, using AI to identify trends earlier, and addressing billing abnormalities. The company is taking legal action against misuse of the IDR process and leveraging Carelon to manage specialty services. These initiatives aim to improve affordability and address market-wide issues like increased acuity in the ACA market.
Q:How is the current environment affecting capital allocation strategy?
A:Elevance is maintaining flexibility in share repurchases to adapt to the dynamic rate and margin environment. The company is focusing on integration and scaling of recent acquisitions, with lower levels of M&A activity this year. The long-term capital allocation strategy remains consistent, targeting 50% of free cash flow for M&A and reinvestment and 50% for shareholder returns.
Q:What steps are being taken to create more stability and predictability in the ACA and Medicaid markets?
A:Elevance is working with CMS to promote stability in the ACA market through measures like eliminating monthly special enrollment periods and strengthening pre-enrollment verification. Rate filings for 2026 will account for current acuity and potential risk pool deterioration. In Medicaid, the company is collaborating with states to align rates with member acuity and address policy shifts. The company views these markets as valuable and is addressing short-term volatility.
Q:What are the expectations for further attrition in ACA enrollment and its impact on the risk pool?
A:Elevance assumes membership stability in the ACA base for the remainder of 2025 but expects a Q4 surge in utilization as members schedule elective care before potential subsidy expiration. The company has embedded this assumption into its full-year guidance outlook.
Q:What is the impact of increased coding and AI-enabled documentation on costs?
A:Elevance has identified isolated pockets of increased coding driven by AI-enabled tools, which can inflate unit costs. The company supports responsible innovation but is addressing aberrant patterns through payment integrity processes. Legal action is being taken against misuse of the IDR process, and technology is being used to identify and address billing abnormalities.
Q:How is Elevance addressing Medicaid redetermination challenges and potential work requirements?
A:Elevance is partnering with states to address redetermination challenges and align rates with member acuity. The company is leveraging its capabilities to support states in implementing work requirements and addressing operational challenges. Elevance views these as short-term issues and remains committed to Medicaid as a core strategic franchise.
Q:How are Carelon margins and growth-related pressures evolving?
A:Carelon services margins are slightly down year-over-year due to growth in CareBridge and expansion of risk arrangements. Pharmacy margins are lower due to significant growth, particularly in large accounts, but operating performance has improved. The company is investing in differentiated services and expects continued growth and expansion in Carelon.
Q:What are the expectations for ACA Q4 surge and other back-half assumptions?
A:Elevance expects a Q4 surge in ACA utilization due to potential subsidy expiration, which has been factored into guidance. Other back-half assumptions include a discrete non-operating tax benefit and savings from cost management programs, which will offset higher trends.
Q:What is the outlook for Medicaid margins and potential state exits?
A:Elevance expects Medicaid margins to improve sequentially and over the long term as rates align with member acuity. The company is not considering state exits at this time, as states have been responsive to data and rate adjustments. Medicaid remains a core strategic franchise for Elevance.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on certain topics, such as the exact assumptions for ACA Q4 surge utilization, specific margin breakdowns for individual businesses, and the potential impact of work requirements on Medicaid. Responses often included general statements about ongoing efforts and partnerships without concrete data or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACA Medicaid
AG Research
AI tool
Advantage discipline
Advantage portfolio
Albert
Bank
Boudreaux
CEO
Carelon
Carillon
Co Research
Executive VP
Government Health
Health Conference
Investor Relations
LLC Research
President Government
President Investor
Research Division
Research LLC
Securities LLC
VP President
care delivery
commitment
control
core
decision
integrity
outcome
pricing
program
reset
risk uncertainty
setting
strength
term value
value care
ELV Transcript
Elevance Health, Inc. (ELV) Q4 2025 Earnings Call Transcript
Unknown1-28
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.
Elevance Health, Inc. (ELV) Q2 2025 Earnings Call Transcript
Positive7-17
The earnings call showed strong financial performance with a 15% revenue increase and significant EPS growth. Despite some challenges in Medicaid and ACA margins, the company is taking proactive measures to address these. Share repurchases indicate confidence, and the optimistic guidance suggests future growth. The Q&A section highlighted strategic actions to stabilize markets and improve cost structures, which are positive indicators. Overall, the company's initiatives and financial outlook suggest a positive stock price movement over the next two weeks.
Elevance Health Inc. (NYSE:ELV) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings report shows strong financial metrics like revenue and EPS growth, but also highlights challenges such as increased costs and membership growth issues. The Q&A section reveals management's confidence in managing costs and growth, but some responses lacked clarity, particularly on risk coding and Medicaid rates. The share repurchase indicates confidence, but the economic pressures on healthcare costs and higher benefit expense ratio offset the positives, leading to a neutral sentiment overall.
ELV Report
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