Elevance Health, Inc. Quarterly Report on Form 10-Q For the Period Ended September 30, 2024

Press release · 10/26 04:47
Elevance Health, Inc. Quarterly Report on Form 10-Q For the Period Ended September 30, 2024

Elevance Health, Inc. Quarterly Report on Form 10-Q For the Period Ended September 30, 2024

Elevance Health, Inc. reported its quarterly financial results for the period ended September 30, 2024. The company’s revenue increased by 12.1% to $34.4 billion, driven by growth in its health insurance and pharmacy benefit management segments. Net income rose to $1.4 billion, or $6.03 per diluted share, compared to $1.1 billion, or $4.83 per diluted share, in the same period last year. The company’s operating cash flow was $2.5 billion, and its free cash flow was $1.8 billion. Elevance Health’s balance sheet remained strong, with a cash and investments balance of $4.3 billion and a debt-to-equity ratio of 0.4. The company’s financial performance was driven by its ability to grow its customer base, increase revenue per customer, and improve its operating efficiency.

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, as Medicaid rates were insufficient 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. The increase was again driven by higher premium rates and CarelonRx revenue growth, partially offset by declining Medicaid membership.

Net income for the nine-month period was $5,558 million, an increase of 7.7% from the prior year. This improvement was primarily due to higher net investment income, the gain on the sale of the life and disability businesses, and lower amortization of intangible assets, which offset the higher medical costs in the Health Benefits segment.

Elevance Health’s fully diluted earnings per share (EPS) was $4.36 for the three months ended September 30, 2024, down 20.0% from the prior year period. For the nine months, EPS was $23.81, up 10.4% year-over-year. The changes in EPS were driven by the fluctuations in net income, as well as a decrease in the number of diluted shares outstanding.

Segment Performance

The Health Benefits segment, which includes the company’s core insurance operations, saw a 4.2% increase in operating revenue for the three-month period, but a 12.5% decline in operating gain. This was primarily due to Medicaid rates failing to keep up with rapidly rising medical costs, especially as the Medicaid membership mix shifted due to eligibility redeterminations.

The CarelonRx pharmacy business had a strong quarter, with operating revenue up 7.3% and operating gain up 29.8%, driven by higher prescription volumes and the acquisition of Paragon Healthcare.

Carelon Services, which provides medical management, behavioral health, and post-acute care services, saw operating revenue increase 32.2% for the three months and 24.8% for the nine months. However, operating gain declined 4.2% in the three-month period due to higher medical costs in the post-acute business and the impact of Medicaid membership losses.

The Corporate & Other segment, which includes corporate expenses and businesses that do not meet the criteria for a reportable segment, reported an operating loss of $999 million for the three-month period, a 33.7% increase. This was largely due to the accrual for the settlement of the Blue Cross Blue Shield antitrust litigation.

Business Trends and Regulatory Environment

Elevance Health made the strategic decision to expand its participation in the Affordable Care Act’s individual health insurance marketplaces, or “Public Exchanges,” for 2024, now offering plans in 141 of the 143 rating regions where it operates.

The company expects growth in its commercial insurance business, including the Public Exchanges, as Medicaid members lose coverage due to the resumption of eligibility redeterminations and seek alternative options. However, this shift in membership has put pressure on Medicaid profitability, as rates have not kept pace with rising medical costs.

The Inflation Reduction Act of 2022 has impacted Elevance Health’s business in several ways, including extending enhanced premium subsidies for the Public Exchanges through 2025 and imposing new taxes. Other regulatory changes, such as the Consolidated Appropriations Act of 2021 and 2023, have also affected the company through new disclosure requirements, mental health parity rules, and surprise billing protections.

Business Optimization and Acquisitions

In the third quarter of 2023, Elevance Health implemented a “Business Efficiency Program” to optimize its operations, including writing off certain IT assets, reducing staff, and consolidating data centers and offices. These actions were substantially finalized by the end of the third quarter of 2024.

The company has also been active on the acquisition front, completing the purchases of Paragon Healthcare, a provider of infusion and specialty pharmacy services, and BioPlus, a large independent specialty pharmacy organization. Elevance Health also made an equity investment to form a joint venture called Mosaic Health with Clayton, Dubilier & Rice, which will combine certain Carelon Health assets with two other healthcare companies.

Additionally, Elevance Health sold its life and disability insurance businesses to StanCorp Financial Group, resulting in a gain of $201 million.

Outlook and Risks

Elevance Health faces several key risks and uncertainties going forward. These include:

  • Continued pressure on Medicaid profitability due to inadequate rate increases to cover rising medical costs
  • Potential decline in Public Exchange enrollment if the enhanced premium subsidies are not extended by Congress beyond 2025
  • Regulatory changes and new requirements, such as the mental health parity rules, that could impact operations and financial results
  • Cyber-attacks or data security breaches that could disrupt the business
  • Potential downgrades in the company’s credit ratings, which could limit future borrowing and increase costs
  • Litigation risks, including the ongoing Blue Cross Blue Shield antitrust case

To mitigate these risks, Elevance Health is focused on diversifying its business, improving operational efficiency, and enhancing its healthcare services and capabilities through strategic investments and acquisitions. The company is also closely monitoring the regulatory environment and working to adapt its products and operations accordingly.

Overall, Elevance Health delivered a mixed financial performance in the first nine months of 2024, with revenue growth but pressure on profitability, particularly in its core Health Benefits segment. The company’s strategic initiatives, including expanding its presence in the Public Exchanges and investing in healthcare services, aim to position it for long-term success, but it will need to navigate a complex regulatory landscape and rising medical costs to achieve its goals.