Elevance Health is shrinking its Medicaid business, worried about future profits in the beleaguered safety-net insurance program.
The insurer is leaving Washington, D.C.’s Medicaid market this summer, and plans to exit additional Medicaid markets over the next 18 months, executives said during a call to discuss Elevance’s second quarter financial results Wednesday morning.
It’s the latest example of insurers exiting underperforming markets to try to recoup margins after a difficult few years.
The safety-net insurance is a major business for Indianapolis-based Elevance, which is mostly known for its Blues-licensed plans but also operates in a variety of government programs. Elevance covers 8.4 million Medicaid beneficiaries in more than a dozen states and Washington, D.C. The business accounted for $14.4 billion in premiums in the second quarter — about one-third of the insurer’s total premium revenue.
But Medicaid is expected to operate at a -1.75% operating margin this year. Elevance has struggled to contain higher spending after policy changes coming out of the coronavirus pandemic caused healthier beneficiaries to leave the program. State rate updates haven’t kept pace with higher acuity of those remaining, according to insurance executives.
Though Elevance has made some recent progress on improving its Medicaid margins — July 1 rate updates were better than expected — spending remains elevated, especially on behavioral health services, specialty drugs, outpatient surgeries and emergency room care, CFO Mark Kaye said on the call.
Medicaid is also facing looming turbulence from the GOP’s “Big Beautiful Bill” passed last summer, which includes almost $1 trillion in Medicaid spending cuts, threatening state funding, benefits and member retention.
Elevance said that the decision to downsize its Medicaid business isn’t driven by policy changes out of Washington. Changes from the “Big Beautiful Bill,” including a controversial mandate linking Medicaid eligibility to employment, are largely manageable, according to Felicia Norwood, Elevance’s chief health benefits officer.
The division’s operating performance should keep getting better. But certain markets just don’t make sense, executives said.
“At the end of the day, Medicaid participation has to make strategic and financial sense for us within our diversified portfolio,” Norwood said, adding that Elevance will continue operating in markets where it has a large population of members dually eligible for Medicare and Medicaid, potential to sell products from its health services division Carelon and sustainable margins.
“Where those conditions aren't present, we’re going to take the disciplined action that we need to,” Norwood added.
Elevance is exiting the Washington, D.C. Medicaid market effective August 1, according to a notice filed with the district’s Department of Health Care Finance.
Elevance doesn’t break out revenue or enrollment for specific Medicaid states. But the D.C. contract covers 250,000 enrollees at a combined value of $8.8 billion over five years, split between Elevance’s subsidiary Wellpoint and two other participating insurers, MedStar and AmeriHealth.
“As we continue our assessment, we expect to exit additional Medicaid markets over the next 12 to 18 months where we do not see a path to sustainable performance,” Elevance CEO Gail Boudreaux said.
Executives did not answer multiple analyst questions on the call about the size or location of future exits.
Elevance’s Medicaid departures illustrate how insurers are still rethinking their margin recovery strategies after surging medical spending, especially in government businesses like Medicare, Medicaid and the Affordable Care Act, drove down profits over the past two years.
Insurers are coming off a buoyant first quarter, where it appeared those strategies were starting to bear fruit. Major publicly traded payers — including Elevance — posted unexpectedly robust beat-and-raises in the spring, fueling optimism for investors and driving a rally in managed care stocks.
Signs leading up to the earnings season for the second quarter were also positive, with insurance executives telling investors they were confident that medical costs were well in hand. HCA Healthcare also disclosed that medical utilization appears to be lowering — bad for the hospital operator but a boon for insurers.
Elevance largely delivered in the second quarter, outperforming Wall Street’s revenue and earnings expectations and boosting its 2026 earnings guidance on the strength of the results.
Elevance raised its outlook for adjusted diluted earnings per share to at least $27, up from at least $26.75. The company had raised the outlook after posting its first quarter results in April too, though the heightened outlook is still well below the $30.29 in adjusted diluted EPS that Elevance posted in 2025.
Elevance brought in $1.5 billion in net income in the quarter, down more than 16% year over year, on operating revenue of $49.8 billion, up 1% year over year. Revenue rose thanks to Elevance hiking premiums in its health insurance plans and higher sales from Carelon.
It would have been even higher, but Elevance lost a significant number of members: The company’s medical membership dropped by almost 470,000 people compared to the first quarter, leaving Elevance’s total enrollment at 44.9 million people.
Membership losses were especially steep in Elevance’s employer-sponsored plans, due to the loss of a major customer, and expected attrition in Medicaid and the ACA, where higher premiums as a result of the loss of more generous subsidies have led a number of people to drop coverage.
Though, Elevance’s ACA retention was actually better than the company had expected. Elevance now expects to end 2026 with as many as 1 million ACA members, up from its prior expectations of 900,000 exchange enrollees.
Elevance’s medical loss ratio, a marker of spending on patient care, rose to 89.7%, up from 88.9% same time last year. The MLR, which was better than analysts’ expected though not by much, was driven by lower ACA spending from more members shifting into cheaper bronze plans, which come with lower costs earlier in the year.
That benefit was offset by elevated costs in Medicaid and Medicare Advantage, the privatized Medicare program that makes up a small slice of Elevance’s business but has an outsized effect on earnings.
Overall, Elevance’s second quarter performance was just “fine,” Leerink analyst Whit Mayo commented in a note on the results.
Though the company generally exceeded expectations, the magnitude of the outperformance was weaker than some had expected given the buildup into the quarter.
“Given the rally in MCO stocks since 1Q (plus low [utilization] signals like that from [hospital operator HCA] yesterday), a small beat and raise is unlikely to be satisfactory for the market,” Jefferies analyst David Windley said.
Elevance’s stock slid 9% in morning trade Wednesday after announcing the results.
As it continues to right the ship, Elevance said it plans to make a number of one-time investments in the back half of 2026 to bolster operations, including detecting medical cost trend earlier, simplifying the patient experience and expanding Carelon’s services, which have been a growth driver for the company.
Kaye also shared that Elevance has fully settled allegations from the CMS that it was reimbursed for MA services that weren’t properly supported by data. The CMS came close to pausing enrollment in Elevance’s MA plans this year over the matter, but backed off after Elevance paid the government more than $342 million in May.
The settlement was not as steep as it could have been: Elevance had estimated its exposure was likely around $935 million but could be as high as $1.5 billion.
“As of July 9, we completed all steps required by CMS and have subsequently received written confirmation from CMS that sanctions will not be imposed and the matter is closed,” Kaye said on the call. “We are pleased to have reached this resolution and look forward to offering our Medicare Advantage plan to beneficiaries without interruption.”
