Elevance Hits $2.3B In Profit But Trims Long-Term Guidance

Dive Brief:

• Elevance reported solid second-quarter results on Wednesday — including $2.3 billion in profit — but the company still lowered long-term revenue growth guidance for its health insurance business. That disconnect raised red flags for analysts.
• Changing revenue growth forecasts for health benefits in the middle of the year “is unusual,” commented Jefferies analyst David Windley in a Wednesday note. “We can’t identify a single, large item that would compel [the reduction] off-cycle.”
• During a call with investors Wednesday, Elevance management cited several factors for dropping the guidance, including significant member losses from Medicaid redeterminations and Medicare Advantage bids for 2025 that could slow growth.

Dive Insight:

Elevance beat Wall Street expectations for earnings and revenue in second-quarter results posted Wednesday. That’s despite revenue dropping slightly year over year to $43.2 billion because of attrition in Medicaid membership.

Yet Elevance’s topline was still better than analysts expected, thanks to the insurer raising its premiums this year in light of members using more healthcare services than they did during COVID-19.

Elevance’s medical loss ratio — a marker of spending on patient care — was 86.3% in the quarter, slightly down from 86.4% at the same time last year. The MLR was better than analysts forecast, as Elevance’s increase in premiums offset a step-up in medical utilization, including in Medicaid.

States resumed checking Medicaid beneficiaries’ eligibility for the safety-net insurance last spring. Since then, millions of people have been removed from the program — many of them incorrectly due to administrative errors.

Redeterminations have also caused financial consternation for private insurers that contract with states to manage the care of their Medicaid beneficiaries, like Elevance.

Before redeterminations began, Elevance had 11.9 million Medicaid members. The insurer ended the second quarter this year with just over nine million.

Individuals losing Medicaid are more likely to be young and healthy, so remaining Medicaid populations are skewing sicker. Insurers have complained states’ payment rates aren’t keeping pace with shifting risk pools, leaving them on the hook for a higher share of medical costs. Those concerns have continued despite most states wrapping up or being close to completing redeterminations.

Elevance’s member mix has shifted, resulting in higher acuity. But the payer is working with states to improve its rates, said Felicia Norwood, who runs Elevance’s Medicare and Medicaid businesses, during the Wednesday call.

“We fully expect our rates to remain actuarially sound,” though disconnects between rates and acuity are possible, Norwood said.

Elevance’s Medicaid members also used more services than expected in the quarter, including outpatient and home healthcare, according to CFO Mark Kaye. That’s expected to continue into the second half of 2024, bumping Elevance’s full-year MLR to the upper end of its guidance range, Kaye said.

Redeterminations could also be a growth opportunity, according to management. The insurer wants to expand its Affordable Care Act plans in areas with high levels of disenrollments, CEO Gail Boudreaux said on the call. That way, Elevance can capture more individuals that turn to the insurance exchanges after they lose Medicaid coverage.

Elevance also expects a significant number of disenrolled people to rejoin Medicaid, though that’s taking longer than previously thought, Boudreaux said.

Boudreaux also said the payer was “pleased” about its recent legal win over the CMS, which prompted the government to rerun Medicare Advantage star ratings, which underpin lucrative bonuses for insurers. Now, Elevance expects 56% of its members to be in plans rated at least four stars or in new contracts that are similarly reimbursed. That should help offset MA funding cuts, Boudreaux said.

Payers have been up in arms about the government lowering MA reimbursement, including through changes to how it adjusts payment for sicker members along with rate cuts for 2025.

Insurers including Elevance have cut benefits and exited markets to protect profits. Elevance focused on balancing growth and margins in recently submitted bids for 2025, though it’s too early to discuss how its bids will affect Elevance’s MA growth, according to Norwood.

“We have to wait to see what emerges once we have greater information from our competitors,” Norwood said.

Elevance’s health services business, Carelon, also reported revenue growth in the quarter as it continues to expand its offerings. Carelon, which includes a pharmacy benefit manager, has pursued a string of M&A to build out its specialty pharmacy business, most recently agreeing to buy Kroger’s specialty pharmacy in March.

Elevance expects that deal to close in the second half of this year. And Carelon is open to additional acquisitions, division president Pete Haytaian said on the call.

”We’ll continue to be opportunistic as it relates to our specialty strategy,” Haytaian said.