Elevance Health, Inc. (ELV) September 2026 Conference Transcript

All right. Well, thanks everyone for joining us for the final day of the conference. Really pleased to have Elevance Health for Fireside Chat today. With us from the company is CFO Markay, Nathan Rich from Investor Relations. Mark, thanks for being here. I guess first, you know, any kind of opening comments you'd like to make, perhaps, you know, how performance is going so far in the third quarter? And maybe reframe for us also just generally, like, how to think about, you know, maybe the jump-off point that we should be thinking about to achieve, you know, kind of the EPS growth of 12% or at least 12% you're targeting, you know, for 2027.

So firstly, a big thank you, Steve, to yourself and to Wells Fargo for having us. I think that's a great starting point for the conversation today. As reflected in the Form 8K we filed this morning, we are reaffirming our 2026 adjusted EPS guidance of at least $27, as well as our full year benefit expense ratio outlook. Year-to-date, our results have demonstrated improved execution across our broad and diversified portfolio, consistent with the framework that we outlined at the beginning of the year. And that momentum continued through July and August, and as such, third quarter adjusted EPS is currently tracking ahead of the outlook we provided on our second quarter earnings call, and that's supported by that favorable benefit expense performance, as well as strong operating execution across the enterprise. We are encouraged by how results are developing through the first two months of the quarter, and that reinforces, or further reinforces, our confidence in our full year outlook. Importantly, we still have one month remaining, and we'll provide obviously a more complete update when we report the third quarter in October. And then looking ahead just to 2027, we remain committed to delivering at least 12% adjusted EPS growth off of our 2026 ending earnings baseline. And that outcome is supported by multiple levers across both health benefits and Calon, and it's not dependent upon the performance of any single line of business. And then finally, just to add, we continue to invest with discipline. We're using AI to improve productivity and operating efficiency, and to deploy capital in ways that support durable earnings, earnings or durable enterprise earnings growth in 2027 and beyond.

Okay yeah fantastic thanks for that. Yeah maybe we could you know obviously cost trend is a very front and center for the issue for the industry given where we've been over the past couple of years. Your comments today dovetail into this a little bit. You know maybe just expand a little bit on cost trend and what you're seeing as you have the first couple months of the quarter that you're talking about now.

I see that's a That's a great question. So as I noted, our overall experience through August has been favorable to our expectations, although the underlying drivers do vary by market. So in Medicare Advantage, performance remains ahead of expectations, and this reflects the intentional product and geographic actions that we took for 2026, the quality of the membership that we've retained, and continued execution on our medical cost initiatives. And together, those factors support our path to an operating margin of at least 2% this year. In Medicaid, the benefit-expense ratio has developed more favorably than anticipated. And that reflects the benefit of recent rate actions. And that is translating into margin performance slightly ahead of our full-year outlook. In individual ACA, claims experience is also tracking modestly better than expected. And the significant shift towards bronze products has created more back half weighted pattern of plan paid costs. And that cost emergence has developed more slowly than we anticipated. And as such we're being very thoughtful about how we incorporate this experience in our risk adjustment position overall. But overall I would say really our individual ACA business is performing well and it is modestly ahead of our expectations. And then last in the employer group, cost trend is developing in line with how we priced the business and we continue to see a broadly elevated cost trend base but very consistent with what we expected this year. And so our focus really remains in helping employers manage affordability while delivering a better experience for their members. And so taken together, as we look across the portfolio, we're very pleased with our performance so far in the third quarter.

Yeah, fantastic. So, yeah, maybe now we'll kind of go business by business and discuss this, you know, a little bit more. I mean, maybe we could start on Medicare Advantage. Obviously, you know, clearly, you know, like a strong start to the year. You outperformed in the first half of the year. It sounds like that continues thus far. I guess maybe talk a little bit more about what's driving the outperformance and I guess how what you're seeing in Q3 perhaps compares to the first half of the year.

We're pleased with the progress that we're seeing in Medicare Advantage. The favorable performance that we saw in the first half has continued so far into the third quarter. And the performance here really reflects the intentional portfolio actions we took to strengthen our HMO and DSNIP footprint and improve our value proposition and underlying economics. As well as better underlying claims experience and that's supported by continued execution against our cost-of-care initiatives. And I think CareBridge here is a good example of how we are strengthening that execution. It allows us to engage more effectively with complex and dual eligible members in the home, allows us to coordinate care earlier, and allows us to reduce that avoidable utilization. And so across multiple payer relationships we are seeing CareBridge help demonstrate medical cost savings in that mid-teens percentage range. And so we continue to have confidence in our margin outlook for the year and in the underlying actions we're taking to improve the economics of the business over the long term.

Great. And maybe help us think about, you know, the margin objectives and Medicare Advantage that you have for 2027 as we think about, you know, what's going to be, you know, in your bids. I guess maybe also contrast bid assumptions that you use to develop 2027 relative to the approach you took for 2026?

Yeah, Steve, that's a very timely question. So our approach in both years is really grounded in the same objectives, deliver a strong value proposition for seniors and sustainable financial performance for the company. We're going to stay pretty high level until the plan details are public but broadly speaking our 2027 bids are designed to build on the progress that we made in 2026 while continuing to take a very measured view of the cost environment. As we develop the bids we did use advanced analytics to understand which benefits matter the most to members and where we may have some flexibility and that's allowed us to preserve stability in areas like maximum out-of-pocket and our everyday options allowance while making more targeted changes. DSNIP does remain an important area of growth for us, particularly in fully integrated models where we bring together our Medicare, our Medicaid, and our Calon capabilities to best serve members with more complex needs. We see incremental opportunity for margin improvement in 2027 and obviously further progress over time towards our 3% to 5% operating margin target.

Okay, thank you. Maybe now to touch on star ratings. You know, star ratings have obviously become, you know, a more volatile input for the industry in recent years, and then you also have litigation that's added to the complexity of that. I guess, how does the company manage this key driver, and how are you thinking about the range of potential outcomes on stars over the next couple of years?

Yeah, we have, as we also heard from some of our peers yesterday, We have received plan preview too from CMS. But similar to their comments, as a reminder, you know, CMS does ask plans not to disclose those results until STAR ratings are officially released in October. So I'm not gonna get ahead of the process today. What I can say is that STARS remains an important multi-year operating priority for us. And to your point, the program continues to see changes in measures and cut points and methodologies. And so our engagement with CMS really is centered on transparency and consistency, as well as comparable treatment for similarly situated plans. Operationally, our focus is on the areas that we can control. So think here, clinical quality, care management, provider data connectivity, and member engagement, really including those capabilities that help us reach higher needs members more effectively. And so if I step back, you know, we do take a very long-term view of STARS. Our priority here is really to improve quality for members in ways that also support better performance in Medicare Advantage over time.

Got it. And then maybe the last one on MA. Obviously, there was some, you know, some dialogue with CMS earlier in the year. You know, maybe give us the update on kind of what, you know, the latest is on the progress to fully remediate and resolve CMS issues that you talked about.

This is probably the simplest question for me to address today. The issue has been resolved. We reached a final resolution with CMS in July, and that resolution allows us to continue offering our Medicare Advantage plans to beneficiaries without interruption. We're obviously very pleased to have completed that process, and our focus now is really on serving members and executing really well through the upcoming annual election period.

Great.

Maybe to pivot then to Medicaid you know with the second quarter you improved the Medicaid rate outlook you know maybe talk a little bit more about some of the drivers of that I guess how much of that came from you know rates that again like you're seeing and benefiting from in the second half of this year versus rates that maybe benefited the first half of the year we are encouraged by how the Medicaid rate environment has developed we now have very good visibility into the vast majority of our Medicaid premiums, Medicaid premium revenue for the rest of the year and the benefit that we're seeing from recent rate actions that I mentioned is weighted more towards the second half of the year. We have also to your point seen some favorable off cycle items but I would really not characterize those as material relative to the overall rate activity. The key point here with a broader positive is really that states are increasingly incorporating more recent cost experience into their actuarial work. And that improves the alignment between rates and costs, and supports our view that 2026 should be the trough for Medicaid margins.

And I think your opening comments might have alluded to, you know, maybe the answer to this, but you've had some obviously positive development on rates. You In the second quarter, you were describing cost and acuity as broadly in line with expectations, but there wasn't a change to the margin outlook at that time, which I think was a little confusing to folks. I guess, how should we interpret the balance of those two items and thinking about Medicaid margins, maybe expand on that a little bit for what you're expecting now in the balance of the year?

Overall, we're encouraged by how the business is developing relative to our full-year expectations. As I mentioned earlier, our benefit expense ratio is developing more favorably than we anticipated. And that's supported principally by recent rate actions that are providing increasing support to the business. At the same time, membership and acuity remain broadly consistent with the assumptions embedded in our outlook, which gives us added confidence in the framework that we laid out earlier this year. We also remain focused on the areas within our control, including helping members receive clinically appropriate care and reducing unnecessary costs across the system. And so taken together, Medicaid margin performance is tracking slightly ahead of our full year outlook. And I would say we are very pleased with the progress that we're seeing.

Right. And then you touched on this a little bit, but, you know, maybe we could expand a little bit on, you know, how we're thinking about Medicaid into 2027 and the implementation of work requirements. I mean, clearly, you know, there's some positives to think about, whether it's, you know, rate catch up or cost of care initiatives, but, you know, also some negatives, you know, incremental acuity, potential dislocation of forward cost trend. and I guess how is the company thinking about the balance of those items, and is there any credence to the thought that you're getting rate now to help you this year that you might have otherwise gotten in next year instead?

That's a super question, actually a very timely one. So as we look to 2027, we continue to expect improvement in Medicaid margins, and that's gonna be supported first and foremost by better alignment between rates and the underlying cost experience in the business. States are increasingly reflecting more recent cost trends in their actuarial processes, but they're also making program design changes to support long-term sustainability. We have taken targeted actions to better manage medical costs, particularly in areas where we have seen persistent trend and expect the benefit, or expect that benefit to continue building over time. The One Big Beautiful Bill Act, it will also shape membership and acuity dynamics as we move into 2027. We currently expect the majority of our states to begin implementing community engagement requirements in January 2027 with the timing and the magnitude of the impact driven by each state's implementation approach. So while we are mindful of the potential acuity impact from implementation, we believe improved rate alignment together with the actions that we're taking on cost will support Medicaid margin improvement in 2027, even as the One Big Beautiful Bull Act takes effect.

Yeah, and maybe to expand a bit on that, I guess it'd be great to hear the latest on your discussion with state partners. What's really changed versus a year or two ago when we think about the actual actuarial process that's in play?

Yeah, I appreciate that follow-up. Look, I'd characterize the discussions with state partners as constructive and increasingly data-driven. The most important change really from a year or two ago is improved visibility. During the post-PHE unwind, states and health plans were working through significant changes in enrollment, acuity, and utilization. And today we have a much more mature claims and eligibility information. We also have better state-by-state cohort analysis and really a clearer understanding of the categories that are driving cost pressure. And that improved visibility is influencing the actuarial dialogue. There hasn't been one uniform methodology or methodological change across every state. Rate setting obviously still has an inherent lag. However, states are increasingly using more recent experience and requesting supplemental current data to inform rate adequacy and forward trend assumptions. And that's making the process, in my opinion, much more responsive to the cost environment that we're experiencing. I'd also add that part of our role as a payer is to bring actionable evidence to those discussions. And we provide state and population-specific insights on utilization, acuity, and the underlying cost drivers as we work with states on targeted clinical and program design solutions. And importantly, you know, the objective here is broader than advocating for a higher headline rate. It's about achieving actuarially sound funding and building sustainable Medicaid programs that really preserve that access and the quality for the members that they serve.

And then you've talked about, you know, most recently in the second quarter call, considering exiting Medicaid markets where you don't see a path to sustainable performance. You know, we obviously know about Washington, D.C. More recently, Louisiana looks like you'll be exiting. I guess we're in a pretty unusual environment with Medicaid performance. I guess how can we better understand how you're judging these states and thinking about what's sustainable versus what's not sustainable?

Also a great question. So Medicaid remains an important part of our diversified portfolio. and we continue to see attractive opportunities where the state partnership, the program design, the economics, where they're all aligned. At the same time, we're going to be very disciplined about where we participate. We recently made the decision to exit the District of Columbia, and we will also be ending our participation in the joint venture with Blue Cross Blue Shield of Louisiana at the end of this year. And the way we think about these decisions is over a multi-year horizon based on cumulative performance and the forward path to really acceptable returns. And that assessment includes elements like rate adequacy, benefit and program design, policy stability, network operating requirements, etc. But it's really our ability to work constructively with the state to address the underlying drivers of cost. We also consider strategic fit, particularly alignment with our dual strategy and the opportunity to deploy Klon capabilities like Cambridge and behavioral health. And the point here is that strategic value cannot substitute for actually sound rates and a sustainable operating threshold. And so finally I'd note here, the threshold for exiting a market as you would expect, Steve, it's appropriately high, and where we see a credible path to sustainable performance, we remain very committed to investing in that market and then working with our state partners to realize that opportunity. Okay.

Thanks for that. Maybe to pivot now, I guess, to the exchanges, and again, I think you touched on this a little bit in the opening commentary, but, you know, overall, the commentary on the exchanges was pretty positive with the second quarter, but, you know, it looked like the upside in the quarter itself was primarily attributable to out of period items, and the guidance at that time at least seemed to reflect pretty minimal profitability for the current year. Can you help us kind of square your thinking and commentary on exchanges? And to the extent that you're now trending a little bit more favorably perhaps, again, when do you think you'll start to recognize it into the P&L? Sounds like Q3.

Yeah, so coming into the year, we expected a modest improvement in profitability in our individual ACA business. And during the first half, results have benefited from the more pronounced seasonality associated with our bronze product mix. Now given that claims experience as well as the fact that utilization patterns and risk adjustments were still developing, we didn't believe it was prudent to carry the full amount of that first-half favorability through the balance of the year. Now that we've got greater visibility into the third quarter underlying claims experience has continued to track modestly better than our expectations and in particular the increase in cost emergence we anticipated in the second half has developed more gradually than we assumed. We are also reflecting that emerging experience in both our current period risk adjustment payable and our assessment of the full year performance And so overall, I think we would say or we would characterize the trajectory here is incrementally better than it was at the time of our second quarter earnings call. We now obviously have greater evidence that the improvement extends beyond first-half seasonality, and we expect that to translate into modestly better full-year performance for the business.

And there's been a lot of focus on the potential for some second-half actions by the Trump administration to address program integrity challenges. I guess, can you describe a little bit how you're accounting for any potential direct exposure to this membership and how you're thinking about the potential impacts to risk adjustment and your assumed risk adjustment position?

We fully support measures that strengthen program integrity and enrollment verification in the individual ACA market. Ensuring that individuals are appropriately enrolled and that subsidy eligibility is accurately determined is critical to protecting consumers and taxpayers and supporting the long-term sustainability of the marketplace. As such, we are working very closely with the CMS and state regulators, and we view their efforts to address improper enrollment as constructive. The impact will obviously vary by state and market mix, but really based on what we see today, we don't expect a material impact on the business. Separately, we are continuing to advocate for reforms that do address misuse of the independent dispute resolution or IDR process that providers have used, and we believe this represents another meaningful opportunity to reduce avoidable costs across the healthcare system.

Yeah, maybe to expand a little bit on that, I guess to check in on the kind of the employer risk book, I guess update us on how the employer risk book is performing. I think you reported the second quarter results before a lot of the sort of noise on IDR started. So maybe just expand a little bit. What impact is IDR having on cost trend this year? I guess how does that compare to what you experienced in 2025 and how are margins performing today versus targeted levels?

Our employer group risk business is performing in line with expectations. Commercial medical cost trend remains elevated, and the experience we're seeing is consistent with the assumptions that we embedded in our 2026 pricing. We'll obviously continue to manage the environment through disciplined pricing and targeted cost of care initiatives. With respect to the independent dispute resolution process, the impact on our business has not differed materially from what we contemplated in our outlook. At the system level, however, IDR has become a significant affordability concern. We strongly support the original intent of the No Surprises Act and its protections against unexpected out-of-network bills, but the volume and economics of the the dispute process have expanded well beyond what was initially contemplated. Based on the current trajectory, dispute volumes are expected to exceed 3.9 million cases in 2026. And due to adverse incentives, providers are prevailing in about 85% of those cases, with award volumes averaging about eight times in-network rates. Eight times. In 2025 alone, you know, we've estimated the IDEO process added about $15 billion of incremental cost to the healthcare system. And so we think there's a real opportunity to preserve those important consumer protections while addressing, you know, the inappropriate uses of the process. And then finally, you know, as we look to 2027, we'll continue to reflect the cost environment appropriately in our pricing. And we're going to advocate for reforms or continue to advocate for reforms that improve affordability for our members and more importantly for the broader healthcare system.

Okay that's great and maybe it makes sense to pivot now to Caroline. I guess starting with Caroline Rx and maybe update us on you know how this year is tracking relative to guidance. I mean we've heard from some competitors in the space about some headwinds that are you know maybe a little bit more specific to them things like GLP-1s and 340B but broadly I guess how's this business performing and what are the key trends to watch over the next couple of years, especially as the industry goes through a period of change?

So CareLon RX is tracking in line with our full-year outlook, supported by momentum in specialty pharmacy and expanding relationships with our ASO customers. Our strategy really remains anchored in the integration of medical and pharmacy management, and that model is designed to lower the total cost of care, which really positions us well as the market moves towards greater predictability. On GLP-1s, we have not seen a material change in utilization affecting our PBM results. Our Kelon Rx ASO book skews towards small and mid-sized employers, where coverage for weight loss GLP-1s remains limited and has generally become more selective. And so where clients do provide coverage, we have a weight management program that helps support appropriate access and outcomes while managing affordability. And we manage GLP-1s as part of the holistic care that we provide to members, not as a prescription volume opportunity. On 340B, we would not assume a direct, or you should not assume a direct read-through from others. Our exposure is much more limited, with more direct impact concentrated in specialty pharmacy rather than our core PBM. And based on obviously what we see today, we don't expect 340B to be a material headwind to Calon Rx. And so finally, I'd say, you know, we've got pretty compelling evidence that the integrated medical and pharmacy model delivers value. Members with integrated benefits have generated savings of about $100 per member per month. They've also experienced 30% fewer emergency room visits. We've seen a 10% reduction in high cost specialty drug administration, et cetera. And so, you know, looking ahead, I'd say that the key growth drivers here our deeper ASO penetration, the continued scaling of our specialty and dispensing business, and then really that stronger integration of pharmacy decisions with medical outcomes and total cost of care.

Great. And then maybe to pivot to the services business, you talked a lot about the investments you're making. I'd love to hear a little bit more about that. You mentioned some benefits from investing into the platform and scaling newer risk-based programs with the second quarter results. Maybe you could touch on that.

Steve, thank you. And I appreciate you throwing in an additional KELON question. The investment thesis here for KELON services is really pretty straightforward, right? We've gotta build a clinical platform that allows us to identify need earlier, intervene across more of the care journey, and then selectively take risk where we can improve both outcomes and total cost of care. Health OS and our AI-enabled workflows form an important part of that foundation. And they improve clinical data connectivity, they help us identify rising risk members earlier, and then allow us to coordinate care more effectively across the settings. They can also reduce administrative friction for care providers and make clinical decision making faster and most importantly more consistent. And so we are then using that foundation to expand risk-based clinical models in those high-cost fragmented areas like oncology, serious mental illness, post-acute care, and musculoskeletal. And I would say our approach here is quite disciplined. We've got to prove that model first within the affiliated health benefits population, then demonstrate, or use that population to demonstrate measurable clinical and financial value, and then only scale it externally when the model and the economics are repeatable. And an example I can give here is that, you know, we recently applied that approach to our MSK capability within commercial and within an external blues plan. Our last point here is that the programs are not all going to scale at the same margin or at the same earnings cadence, but performance is broadly going to be in line with the expectations. And we really do expect these capabilities to become larger contributors to revenue and operating gain as they mature, reprice, and gain scale.

All right, well, good news. I have another Carillon question. So, you know, maybe you could touch a little bit on, you know, how we should be thinking. Obviously, your own membership is a pretty key input, you know, for the Carillon businesses, you know, going into 2027. Any kind of initial framing there that you might offer? And then just remind us as we think about the margins, you know, really on the health plan side of the business starting to improve, You know, how does that translate through to performance for Keralon Services?

Thanks, Steve. You know, as we look to 2027, changes in affiliated membership could affect volumes, you know, across both Keralon Rx and Keralon Services. And we are incorporating potential pressure from Medicaid and individual ACA risk membership into our early planning. Importantly, however, you know, Keralon's growth is not dependent upon affiliated membership alone. We remain confident in KELON's underlying earnings trajectory, supported by external growth, deeper penetration of KELON capabilities across Elevance, and the ongoing scaling of our clinical and pharmacy solutions. KELON also plays an important role in supporting health benefits margins by lowering the cost of care and improving outcomes. And those capabilities demonstrate value within Elevance and allows us to gain greater confidence in deploying them more broadly than across the affiliated populations. And in my mind, that creates what I think of as a self-reinforcing growth model. Broader internal adoption strengthens health benefits performance while building the proof points needed to expand with external customers, which then supports Kalon's growth over time.

Okay, great. And then, you know, obviously, AI is a huge focus across all our companies and across the market. Maybe help us think about the return profile of the AI investments you're making, the timeline to unlock return on those investments. And I guess how do you think about, you know, what could make the returns, you know, durable, you know, as competitors, especially in the insurance businesses, pursue, you know, sort of similar objectives?

Thanks, Steve. I appreciate talking about AI just for a little bit. You know, we do think about the return profile here in stages. The investments that we are accelerating this year are focused on high volume workflows where implementation is already underway. And as a result, we do expect benefits to begin emerging in the near term through early identification of cost trends, more timely cost of care actions, and then improved operating efficiency. The more meaningful opportunity, financial opportunity builds really as those capabilities then begin to scale across the enterprise and become embedded in that day-to-day decision-making. And over time we see the potential to improve both medical cost performance and the administrative cost structure of the business. For example here we are using AI to identify emerging costs and quality trends earlier. You know our platforms like HealthOS can then help us engage care providers sooner which supports better clinical decisions and and reduces administrative friction across the system. And that durability comes not from the technology alone, but from most importantly, how it's integrated into our operating model. Health benefits provides that visibility into where cost and quality issues are emerging. And then you can think about care learners then bringing that clinical, the pharmacy, the care management capabilities then needed to intervene effectively. I also think AI tools are gonna become increasingly accessible across the industry, but the combination in our minds of our data, our integrated capabilities, and the scale that we have, which supports more than 100 million people does create that reinforcing advantage. And so as the platform learns and improves, we really believe it can generate more effective interventions and increasingly durable value over time.

Great, maybe just time for one more question. Just as we think about capital deployment, I mean, maybe just spend a minute on the current priorities from the company and any kind of notable contrast or not versus, you know, maybe the past few years.

It's a great place to end. So our capital deployment framework remains unchanged. We continue to balance organic reinvestment, discipline, strategic M&A, dividends and share repurchases, while preserving balance sheet, you know, flexibility to respond to opportunities as they arise. The distinction today is really the near-term waiting within that framework. We are placing greater emphasis on integrating and scaling the capabilities that we have already added, as well as funding targeted organic investments that really can strengthen our long-term earnings potential for the business. At the same time, we will remain opportunistic on share repurchases. With our operating cash flow guidance this year of at least six billion. We do have the capacity to support those priorities while maintaining a strong balance sheet. And so a good example I can give here is our decision this year to redeploy a portion of the non-recurring, below the line favorability into those accelerated investments in medical cost management, the member and provider experience, and then obviously Calon and enterprise productivity. And we very strongly believe that that's an attractive use of capital because these are targeted investments designed to improve execution, lower unit costs, and then support more durable earnings growth over time. And so I'd simply say the framework has not changed, but the near-term mix reflects the opportunities we see today. Thank you.

Fantastic. I think that's where we're going to have to leave it. So thank you very much for your time today. I appreciate you being here. Likewise. Thank you very much, Steve. Thank you.