HTN’s View: Elevance’s strategy isn’t much different from the other major payers right now: respect the dynamic trend environment, focus on higher-acuity SNPs and HMOs in MA, and in commercial, tout your alternative plan design offerings. It’s clearly working: stronger operating performance in MA, Medicaid, and ACA contributed ~$0.50 of EPS overperformance vs. the outlook, and Carelon contributed an increasingly large share of the company’s operating gains.
Elevance beats analyst expectations for adj. EPS ($6.99 vs. $4.69 expected), raised FY EPS guidance, and improved MLR by ~70 bps YoY
Q3 results included revenue up 0.7% YoY to $50.4b and adjusted EPS of $6.99, well above analyst expectations, driven largely by investment income growth of ~66% YoY. Elevance raised FY EPS guidance to at least $22 per share and adjusted EPS to at least $29 per share, while reiterating its commitment to 12% EPS growth for 2027 of the original baseline. Operating margin was slightly down YoY, but adjusted operating margin was flat.
In MA, Elevance’s strategy is focused on a smaller footprint of HMO and D-SNP plans going into 2027 on the road back to target margins
Management sees the portfolio pruning it made going into 2026 getting the MA business to at least 2% operating margins, with 2027 continuing the journey back to target margins. Bucking the industry trend, Elevance didn’t mention C-SNP plans at all, seeming to view D-SNPs as a better fit given their Medicaid business.
Medicaid revenue and margins benefited from favorable rate adjustments, but less clarity on rates matching potential acuity shifts post H.R.1 implementation
Medicaid continues to outperform thanks to favorable state rate updates and a stabilizing trend. The big question on everyone’s mind, especially analysts, is whether and how well those rates account for potential acuity shifts from implementing H.R. 1’s work requirements, but Elevance is optimistic margins will continue to improve even with acuity pressure from work-requirement disenrollments.
Elevance insulated from NSA IDR pressure by growing ASO book; alternative plan designs still the belle of the ball in a solid 2027 selling season.
A surprising benefit to Elevance as the market shifts to more ASO products is that it has insulated the company from the worst of the NSA IDR pressure. Also in the commercial segment, Anthem's balance-funded product gets a shout-out during what they characterized as a solid 2027 selling season, further bolstered by the second blue bid and some jumbo client win-backs.
ACA Marketplace attrition has been lower than expected in a Bronze-r book
In a bit of a surprise, the ACA book is performing better than expected, including retention, with membership up sequentially from Q2 2026. Elevance expects a modestly higher full-year margin than expected. Looking ahead to 2027, management cautioned that the market was still digesting the acuity shifts from the eAPTC expirations, suggesting 2028 at the earliest would be the year the market stabilizes.
Carelon continues to power operating gains with management eager to talk up services business
Management pivoted to Carelon every time they could during Q&A, and the graphic above shows why: it’s an increasingly large driver of the company’s operating gains. CarelonRx had a solid quarter, with management sharing“up to $100 PMPM” in savings for integrated medical/pharmacy customers and vignettes on behavioral health services and oncology offerings.
