Overview of Elevance Health

Elevance Health is one of the largest health insurance companies in the United States, serving nearly 46 million medical members through its affiliated health plans as of September 30, 2024. The company operates under several brand names, including Anthem Blue Cross/Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon. Elevance Health reports its results in four main segments: Health Benefits, CarelonRx, Carelon Services, and Corporate & Other.

Financial Performance

For the three months ended September 30, 2024, Elevance Health reported total operating revenue of $44,719 million, an increase of 5.3% from the same period in 2023. This increase was primarily due to higher premium revenues driven by rate increases across all business lines to keep up with medical cost trends, as well as increased product revenue from the CarelonRx pharmacy business.

Net income for the three-month period was $1,008 million, a decrease of 22.5% from the prior year. This decline was mainly due to lower operating gain in the Health Benefits segment, where Medicaid rates were inadequate to cover rising medical costs, as well as a decrease in the gain on the sale of the life and disability businesses.

For the nine months ended September 30, 2024, total operating revenue was $130,215 million, up 1.9% from the same period in 2023. Net income increased 7.7% to $5,558 million, driven by higher net investment income, the gain on the life and disability business sale, and lower amortization of intangible assets.

Earnings per share (EPS) for the three-month period was $4.36, down 20.0% from $5.45 in the prior year, while EPS for the nine-month period was $23.81, up 10.4% from $21.56 in 2023. The decrease in three-month EPS was due to the lower net income, partially offset by fewer diluted shares outstanding. The increase in nine-month EPS resulted from the higher net income and fewer diluted shares.

Operating cash flow for the nine months ended September 30, 2024 was $5,102 million, down from $11,032 million in the prior year period. This decrease was primarily due to the timing of payments received from the Centers for Medicare & Medicaid Services (CMS), the impact of Medicaid membership declines, and changes in working capital.

Membership and Other Metrics

Elevance Health’s total medical membership declined by 3.3% year-over-year to 45.8 million as of September 30, 2024. This was driven by a 19.0% drop in Medicaid membership due to eligibility redeterminations and certain market exits, partially offset by increases in Employer Group fee-based, Individual, and Federal Employees Health Benefits (FEHB) membership.

Other membership metrics showed mixed results. Dental and vision memberships increased, while Medicare Part D standalone membership declined slightly. The CarelonRx pharmacy business saw a 3.8% increase in quarterly adjusted scripts, while the Carelon Services segment served 3.3% fewer consumers.

Business Trends and Regulatory Environment

Elevance Health expanded its participation in the Individual state- or federally-facilitated marketplaces (Public Exchanges) for 2024, offering products in 141 of the 143 rating regions in which it operates, up from 138 regions in 2023. The company expects growth in its Public Exchange membership over time as Medicaid members lose eligibility and seek coverage elsewhere.

The Consolidated Appropriations Act of 2023 decoupled Medicaid eligibility redeterminations from the COVID-19 Public Health Emergency, allowing states to begin removing ineligible beneficiaries. This has led to a decline in Elevance Health’s Medicaid membership, which the company expects will be offset by growth in its commercial plans, including Public Exchanges.

The Inflation Reduction Act of 2022 had several impacts on Elevance Health’s business, including extending enhanced Premium Tax Credits through 2025, imposing a new corporate alternative minimum tax, and delaying the implementation of a Medicare drug rebate rule. The Consolidated Appropriations Act of 2021 also introduced new disclosure and reporting requirements related to broker compensation, mental health parity, pharmacy benefits, and surprise medical bills.

Operational Initiatives and Acquisitions

In the third quarter of 2023, Elevance Health implemented a “2023-2024 Business Efficiency Program” to refine its investments and optimize its physical footprint. This included write-offs of IT assets, contract exit costs, staff reductions, and the closure or partial closure of data centers and offices.

Elevance Health made several strategic acquisitions and investments during the period:

• In August 2024, the company made a $2,580 million equity investment to acquire a minority stake in a joint venture called Mosaic Health, which combines certain Carelon Health assets with two other healthcare companies.
• In March 2024, Elevance completed the acquisition of Paragon Healthcare, which provides infusion services and injectable therapies.
• In February 2023, the company acquired BioPlus, a large independent specialty pharmacy organization.
• In April 2024, Elevance sold its life and disability businesses to StanCorp Financial Group for a gain of $201 million.
• Elevance also announced plans to acquire Centers Plan for Healthy Living and CareBridge, which manage long-term care services for Medicaid and dual-eligible populations.

Litigation Matters

Elevance Health is a defendant in the Blue Cross Blue Shield Antitrust Litigation, a multi-district proceeding challenging elements of the licensing agreements between the Blue Cross Blue Shield Association and its member plans. In 2022, the company paid $596 million to settle the subscriber portion of the case, and in 2024 it accrued an estimated $666 million for the provider portion of the settlement, which is pending court approval.

Outlook and Analysis

Elevance Health’s financial results for the three and nine months ended September 30, 2024 were mixed, with revenue growth but declining profitability in the shorter term. The company’s medical membership declined, driven by Medicaid attrition, though it saw increases in some commercial and government-sponsored segments.

The regulatory environment continues to evolve, with new laws and regulations impacting Elevance Health’s business, including changes related to Medicaid eligibility, drug pricing, and mental health parity. The company is navigating these challenges while also pursuing strategic acquisitions and investments to expand its capabilities and market reach.

A key area of concern is the inadequacy of Medicaid rates to cover rising medical costs, which weighed on the Health Benefits segment’s profitability. Elevance Health will need to work closely with state governments to ensure Medicaid reimbursement keeps pace with medical inflation. The company’s ability to grow its commercial and government-sponsored businesses, including through the Public Exchanges, will also be crucial to offsetting the Medicaid membership declines.

Elevance Health’s strong liquidity and capital position, with $38.8 billion in cash, cash equivalents, and investments, provide flexibility to fund future growth initiatives, share repurchases, and dividends. However, the company’s debt-to-capital ratio of 38.2% bears watching, as rising interest rates could increase borrowing costs.

Overall, Elevance Health remains a leading player in the health insurance industry, but it faces headwinds from membership declines, medical cost inflation, and a complex regulatory environment. The company’s ability to navigate these challenges, execute on its strategic priorities, and maintain its financial strength will be key to its long-term success.