Dive Brief:
- Elevance raised its 2026 earnings guidance on Wednesday after a better-than-expected third quarter — including in Medicaid, leading the insurer to forecast it might lose less in the safety-net insurance program this year than previously thought.
- It’s a positive development for Elevance, which has been dogged by a mismatch between state rates and member acuity in Medicaid, after policy changes coming out of the coronavirus pandemic caused healthier beneficiaries to leave the program.
- Elevance previously predicted its Medicaid business, which accounts for one-third of the insurer’s total premiums, would operate at a -1.75% margin this year. But now, Elevance expects its full-year Medicaid operating margin to be slightly ahead of that outlook, CFO Mark Kaye said on a call with investors Wednesday morning.
Dive Insight:
Elevance posted net income of $1.4 billion in the third quarter, up almost 15% year over year, despite revenue of $51.4 billion remaining essentially flat.
The positive results were expected after upbeat commentary from executives during the Indianapolis-based insurer’s investor day last month. It was a “solid” quarter, TD Cowen analyst Ryan Langston commented in a Wednesday note.
Elevance is mostly known for its Blues-licensed plans but also operates in a variety of government programs, including Medicaid. The insurer covers 8.2 million beneficiaries of the safety-net insurance program in more than a dozen states.
But Medicaid has posed a challenge since 2024, as its population became sicker and necessitated higher spending on their care. State rate updates have trailed rising acuity, tamping down on profits for managed care organizations.
The mismatch spurred Elevance to exit Washington, D.C.’s Medicaid market this summer, and share plans to leave additional Medicaid markets through the end of 2027.
But stronger-than-expected July 1 rate updates from some states are boosting Elevance’s Medicaid performance, executives said on the earnings call.
Elevance still continues to expect 2026 to be a trough year for Medicaid margins, before they bounce back in 2027. The insurer is still focused on curtailing costs, including by restricting behavioral healthcare like applied behavioral analysis therapy for individuals with autism, which has been a major driver of spending.
Elevance is also “advancing targeted network actions,” CEO Gail Boudreaux said, suggesting a continued commitment to additional Medicaid exits.
But “the most important point is that Medicaid is moving from stabilization to improvement,” Boudreaux added.
Still, Medicaid is facing looming turbulence from the GOP’s “Big Beautiful Bill” passed last summer. Elevance executives have told investors that the changes, including a controversial mandate linking Medicaid eligibility to employment, are largely manageable.
Yet despite the work requirement kicking in in a little over two months, states are still making decisions that’ll have major ramifications on how many Medicaid members Elevance is able to retain — and how much it’s paid for their care, according to Felicia Norwood, Elevance’s chief health benefits officer.
Some states are considering how work requirements are expected to leave a smaller and sicker Medicaid population in their rates for 2027. But “that varies state by state, Norwood said. “We are encouraged by what we’re seeing in our 2027 rates ... but wait to hear how states ultimately implement those community engagement requirements.”
Affordable Care Act and Medicare Advantage plans, which have also been pressured by higher spending, also contributed to Elevance’s outperformance in the third quarter, executives said.
Elevance has retained more individual ACA plans than expected, and now expects to end 2026 with at least 1.2 million members, up from its prior expectation of 1 million.
Elevance had expected higher ACA costs in the back half of 2026, as its members hit their deductibles, saddling the insurer with more spending. But that’s coming through more slowly than expected, according to Kaye.
“We now expect a modestly higher full-year operating margin as claims continue to develop favorably,” the CFO said.
Seniors in Elevance’s MA plans are also more profitable this year, after Elevance trimmed underperforming plans and prioritized HMOs, plans with narrower networks, for 2026. The insurer plans to continue its emphasis on HMOs, and on members dually eligible for Medicare and Medicaid, in its 2027 products, which should “advance the business towards our target margin range,” Kaye said.
Overall, Elevance posted a medical loss ratio, an important marker of spending on patient care, of 90.6%, down from 91.3% in the third quarter last year. Elevance said better medical cost trends across its government businesses contributed to the improvement.
Though, Elevance’s health benefits division reported just $436 million in the quarter, down 27% year over year and below what analysts had expected. Kaye said it would have been higher, but Elevance funneled dollars into operational investments in areas like member experience, medical cost management, growth in its dual-eligible business and quality initiatives.
Meanwhile, Elevance’s health benefits business Carelon posted stronger profits than expected, with operating income of $908 million up 17% year over year.
Elevance raised its 2026 guidance for adjusted diluted earnings per share, diluted earnings per share and operating cash flow following the results.
Also on Wednesday, Elevance announced that Jeff Park, an executive with more than two decades of experience in the healthcare and pharmacy industries, would become president of Carelon effective in December.
Park, formerly the president of prescription marketplace company Waltz Health, is taking the reins from Kaye, who’s led Carelon since May after former president Peter Haytaian’s departure
