Elevance on Wednesday became the second major insurer to raise its 2026 earnings guidance on the back of better-than-expected first quarter results — though, a massive potential payout over faulty data reporting in Medicare Advantage could cut into Elevance’s bottom line this year.
The Indianapolis-based payer raised its annual adjusted diluted earnings per share guidance from at least $25.50 to at least $26.75. Investors had expected a raise, but not of this magnitude, echoing UnitedHealth’s unexpectedly robust beat-and-raise on Tuesday.
However, Elevance’s new outlook is still well below the $30.29 the company posted in 2025. And Elevance slashed its guidance for unadjusted earnings per share, which includes factors outside of the company’s control, to at least $19.85. Previously, Elevance had expected to bring in at least $22.30.
The insurer had to revise the outlook down after accounting for hundreds of millions of dollars it expects to have to pay the CMS this year.
In February, regulators warned Elevance it could face weighty sanctions — including a halt on new enrollment in its MA plans — after finding Elevance failed to correctly submit data on the health needs of its members in the privatized Medicare program.
That data is used to adjust reimbursement, so Elevance’s noncompliance could have resulted in the insurer being overpaid, the CMS said.
Elevance is now sizing a potential settlement at $935 million. The figure is a ballpark estimate. However, executives attempted to reassure investors that the payout is large enough to cover the matter — and to avoid threatened sanctions from the CMS, which would endanger Elevance’s reputation and future MA growth.
“I think it’s important too, to think about it — this relates to historical payment disputes that involve the interpretation of the risk adjustment policy during that period in question. Actually really important I think to remind everyone — it’s not about how we operate the business today,” CEO Gail Boudreaux said on a Wednesday morning call with analysts.
The CMS originally gave Elevance until the end of March to fix the issue, before extending the deadline to May 30 after the insurer argued it needed more time.
The CMS has now pushed the deadline back even further, to July 31, Boudreaux said.
“Based on the steps that CMS has prescribed and the current timeline which I shared, we believe and expect that if we complete those steps that the sanctions will not go into effect,” Boudreaux said.
“We view the [dollar] amount as a favorable outcome assuming no sanctions on future enrollment,” TD Cowen analyst Ryan Langston wrote in note Wednesday morning.
Operations improving at Elevance
Settlement aside, the picture painted by Elevance and UnitedHealth at the outset of this year — of medical costs more under control — has brightened Wall Street’s outlook for the health insurance sector, which has been plagued by runaway medical costs.
Margins have especially been pressured in government programs like MA and Medicaid in which insurers have less direct control over their reimbursement.
Investors have been unsure whether actions taken by insurers to claw out of the hole, like begging the government for higher rates, cutting unprofitable plans and curbing benefits, would be enough to cover persistently elevated medical utilization among their members.
Earlier this year, Elevance, which is mostly known for its Blues-licensed plans but also operates in MA, Medicaid and the Affordable Care Act exchanges, warned investors that it would bring in lower revenue this year — and post lower earnings — as a result of membership losses and continued cost pressures, especially in Medicaid.
Though Elevance’s first quarter revenue of $50.2 billion was up almost 3% year over year, the insurer’s net income of $1.8 billion was down more than 19% — in part due to the expected CMS settlement, which was logged as a quarterly expense.
Still, Elevance’s adjusted results — which companies argue are a better representation of their actual performance — gave Wall Street reason for optimism. The insurer posted adjusted earnings per share of $12.58 in the quarter, above analysts’ consensus expectations.
Shares in Elevance rose about 3% in Wednesday morning trade.
“While it is still early in the year, the trends we are seeing give us increased confidence in the trajectory of the business,” Boudreaux said.
Buoyancy in Medicare Advantage
Elevance posted a medical loss ratio, an important marker of spending on patient care, of 86.8% in the quarter, better than analysts had expected, though slightly higher than the first quarter last year.
The MLR bump reflected elevated spending in Medicaid, as state reimbursement rates continue to lag actual utilization trends in the safety-net program, executives said
Elevance expects its Medicaid operating margin to be about -1.75% this year, with executives calling 2026 a “trough year” for the business.
However, Elevance’s MLR improved in MA, a program that’s also been wracked by elevated spending.
MA makes up a relatively small slice of Elevance’s membership. The company has 1.9 million customers in the program, accounting for just 4% of its 45.4 million total members.
However, MA accounts for an outsized share of Elevance’s premiums — about 26% — so executives took a number of actions last year to try to boost margins in the business, including exiting unprofitable markets and steering seniors towards plans where it can more aggressively control costs.
Those actions appear to be having the desired effect. Elevance has lost about 330,000 MA members since the end of 2025, in line with the roughly 18% drop the company had expected.
The membership loss is coinciding with improving margins — Elevance is on track to reach its 2% MA margin goal in 2026, which Felicia Norwood, Elevance’s chief health benefits offer, called a “meaningful step up year over year” in January.
And looking into next year, Elevance is also on track to grow overall earnings at least 12%, executives said.
The path to that goal was oiled by the Trump administration this spring when regulators finalized an almost 2.5% rate hike in MA for 2027 — well above the flat rate update originally proposed, which had sent health insurers into a tizzy.
Payers argued they’ve had to absorb steep spending increases without adequate rate updates in federal programs. Regulators seemed open to that argument, nixing the rule’s biggest proposed reforms of MA, a program dogged by concerns about insurer gaming and overpayment.
During the call, Boudreaux said Elevance was “encouraged” to see the CMS boost final rates, but that the insurer would continue to prioritize MA plans that boost margins.
Comments from insurance executives about the final rate notice — including that the 2.5% bump is still inadequate to cover spending — suggest that most MA plans are unlikely to increase their benefits or coverage areas in 2027 as they continue to focus on margin growth.
Overall, Elevance’s membership actually increased compared to the end of 2025 by about 200,000 members, as losses in MA and Medicaid were offset by growth in its commercial and ACA businesses.
In particular, Elevance had more ACA members remain in its plans than expected, given how intensely the ACA exchanges have been roiled by the expiration of more generous subsidies for coverage this year.
Elevance ended the first quarter with 1.4 million individual ACA members, up from 1.3 million at the end of 2025. However, Elevance expects its ACA enrollment to tick down to 1.2 million members by the end of the second quarter, and the insurer could even end the year with as few as 900,000 enrollees in the exchanges as high premiums lead more members to drop coverage, executives said.
Shrinking membership in certain programs is also affecting Elevance’s health services division, Carelon.
Carelon, a key growth engine for the company, posted an adjusted operating gain of just over $1 billion in the quarter, slightly below analyst expectations.
Executives said Carelon’s margins were impacted by membership losses, given that Carelon provides services to Elevance’s health insurance plans.
