- Elevance Health could see an approximately $500 million hit to its quality bonus revenue in 2025 after offsets from contracting provisions due to drops in its 2024 Medicare Advantage star ratings, Elevance CEO Gail Boudreaux said during a Wednesday call on the insurer’s third-quarter earnings results.
- The insurer’s three largest MA plans will experience a drop in 2024 star ratings after the CMS released its stars report on Friday. Boudreaux said management was “extremely disappointed” with the star ratings, adding that the insurer experienced declines in heavily weighted survey scores and was impacted by the new methodology used to calculate ratings.
- Elevance notched $42.5 billion in operating revenue in the third quarter, a 7.2% increase from the prior year period. The insurer raised its adjusted earnings outlook for 2023 and reported a $697 million business optimization charge related to job cuts and a strategic review.
Boudreaux said on the earnings call that the insurer was actively seeking ways to mitigate the financial impact of its MA star ratings drop and has outlined a plan to improve its stars performance in the future.
The CMS’ 2024 star ratings, released on Friday, are key financial indicators for insurers that impact 2025 payment years. Plans with four or more stars receive a 5% quality bonus adjustment for the following year and have their benchmark increased.
Elevance projects that the percentage of MA members in plans with four or more stars will drop to 34% in 2024, from approximately 64% this year, according to a Oct. 13 filing with the Securities and Exchange Commission.
“As [the CFO] and I both shared, we've already aggressively begun to mitigate that headwind for ‘25. And we do have a number of levers at our disposal — including contracts, diversification, operating expense efficiencies, capital deployment and looking at targeting network and product enhancements,” Boudreaux said.
The insurer’s adjusted earnings in the third quarter, which exclude one-time items, “handily” beat Wall Street expectations, according to an analyst note from TD Cowen. Elevance’s health benefits platform recorded $36 billion in operating revenue, representing a 4.8% growth from the prior year period. Carelon, Elevance’s health services arm, grew operating revenue over 14% year over year in the third quarter, notching $11.9 billion in operating revenue.
Elevance now expects its annual net income earnings to be greater than $26.40 per share. Last quarter, the insurer expected net income of at least $29.09 per share in 2023. The insurer’s adjusted earnings outlook, which excludes one-time items, is now expected to be $33.00 per share, up from $32.85 projected in the prior quarter.
The insurer recorded a one-time $697 million optimization charge in the third quarter. The optimization charge stemmed from a strategic review and included job cuts, write-offs of information technology assets and charges associated with closing data centers and offices. Elevance confirmed that it had made “adjustments” to its resources last week after employees took to social media to report job cuts.
Elevance’s medical membership in the third quarter decreased by 664,000, driven by a loss of Medicaid members. States were allowed to begin disenrolling Medicaid members from the safety-net program this spring after pandemic-era continuous enrollment provisions lapsed. The insurer’s total medical membership was 47.3 million as of Sept. 30.
Elevance CFO John Gallina said Medicaid redeterminations have been “very much front-loaded” for the payer, and that it’s experiencing enrollees who lose coverage for administrative reasons and then reenroll shortly after or transition to Affordable Care Act plans.
The payer still expects it’s going to retain about 40% to 45% of its Medicaid members, Gallina said during the conference call. The CFO said it expects to lose about 930,000 in Medicaid members.
Elevance reported a medical loss ratio of 86.8% in the third quarter