Elevance’s second-quarter earnings alleviated recent cost trend and utilization concerns, as the health insurer reported lower medical spending than analysts expected.
The payer beat Wall Street expectations for the quarter with revenue of $43.7 billion, up 13% year over year, and profit of $1.9 billion, up 14% year over year.
Elevance raised its full-year earnings guidance on the results, causing its stock to rise 6% in Wednesday morning trading.
“In short, against deteriorating expectations, this was a good quarter,” SVB Securities analyst Whit Mayo commented in a note.
Elevance reported a medical loss ratio of 86.4%, down 70 basis points year over year due to premium rate adjustments reflecting the post-pandemic cost of care, CFO John Gallina told investors on a Wednesday morning call.
The results “should be reassuring to investors,” said Jefferies analyst David Windley. “Yet, they confound efforts to explain industry-wide utilization."
Medical cost fears flared in in mid-June when health insurers UnitedHealth and Humana warned investors of an unexpected surge in outpatient utilization among seniors that could drive higher-than-anticipated spending in the quarter.
The cost concerns led investment firms to downgrade a handful of major payers, including Elevance, heading into earnings season.
“I do think part of the confusion out there is trying to understand what is happening versus what was expected,” Gallina said on the call, noting that providing healthcare continues to be more expensive than it was pre-pandemic. “We had already included the elevated cost structure into our projections and into our guidance ... There really isn’t anything all that surprising or all that different from our overall expectations.”
“It’s really not a lot of pent-up demand or deferred care,” Gallina concluded.
Elevance operates a number of government and commercial health insurance including offerings Blue Cross Blue Shield plans in 14 states. The payer grew its medical membership 2% year over year to close out the quarter with 48 million members.
Elevance’s Medicaid membership fell by 135,000 people over the second quarter as states resumed Medicaid eligibility checks that were put on hold during the COVID-19 public health emergency.
Payers with significant exposure to redeterminations like Elevance — the second-largest Medicaid managed care organization in the U.S., after Centene — are trying to recapture lost Medicaid lives in other plans, including on the Affordable Care Act exchanges.
It’s still very early in the redeterminations process, but Elevance is seeing “encouraging” signs that many Medicaid members who lose coverage are transitioning onto ACA plans, according to Gallina.
“Our expectation is that commercial membership growth will reaccelerate in the back half of this year and into 2024,” Gallina said.
In states that have front-loaded or accelerated eligibility checks, Elevance is seeing many members lose coverage for administrative reasons, management said.
The Biden administration and consumer advocates have raised concerns about administrative disenrollments, which occur due to things like paperwork errors, despite beneficiaries remaining eligible for Medicaid coverage.
“We do expect that many of these members will return to Medicaid once we continue our outreach and they’re able to provide the documentation to the states that they need,” said Felicia Norwood, president of Elevance’s government health benefits business.
Elevance expects about 40% to 45% of beneficiaries added to Medicaid during the public health emergency will stay on the safety-net coverage by the end of the redeterminations cycle, while 20% will end up on its ACA products, according to Gallina.
Carelon, Elevance’s health services arm, reported mixed results in the quarter, with earnings slightly underperforming analyst expectations.
The unit, which includes Elevance’s pharmacy benefit management company CarelonRx, is currently integrating specialty pharmacy BioPlus, which caters to patients with complex and chronic conditions like cancer.