Elevance Health Earnings Call Flags Reset Before Rebound

Elevance Health, Inc. ((ELV)) has held its Q4 earnings call. Read on for the main highlights of the call.

Elevance Health’s Earnings Call Weighs Near-Term Pain Against Longer-Term Promise

Elevance Health’s latest earnings call struck a cautious but measured tone, as management balanced solid recent performance and encouraging growth initiatives against clear near-term headwinds. While the company delivered strong fourth-quarter revenue and robust 2025 earnings—helped by sizable one-time benefits—it also laid out a reset for 2026, with lower EPS guidance, pressure from elevated medical costs, and shrinking Medicaid and Medicare membership. Management framed 2026 as a trough year, but reiterated confidence in returning to at least 12% earnings growth in 2027 through disciplined pricing, portfolio repositioning, and continued expansion of its Carillon platform and ASO business.

Strong EPS in 2025, Boosted by Nonrecurring Items

Elevance reported adjusted diluted EPS of $3.33 for the fourth quarter and $30.29 for full-year 2025, underscoring another year of strong profitability. However, results were flattered by about $3.75 per share of favorable nonrecurring items, which inflates the year-on-year comparison and sets a high bar for 2026. Management was clear that these one-time benefits are not sustainable, making the reported 2025 earnings more of a peak than a new base. The distinction is critical for investors recalibrating expectations ahead of a reset year.

Double-Digit Q4 Revenue Growth Despite Industry Pressures

Operating revenue in the fourth quarter rose 10% year-over-year to $49.3 billion, driven by premium rate adjustments, recognition of higher cost trends, and recent acquisitions. This growth performance stands out in a challenging environment where payers are coping with elevated utilization and regulatory shifts. The revenue expansion shows that Elevance is still able to grow the top line through pricing and strategic deals even as it prepares for a 2026 pullback linked to risk-based membership declines.

2026 EPS Reset and Path Back to 12% Growth in 2027

Elevance set 2026 adjusted diluted EPS guidance at “at least” $25.50, notably below 2025’s $30.29, reflecting both the absence of one-offs and real margin pressure. At the same time, management reaffirmed its long‑term algorithm targeting at least 12% EPS growth in 2027 off this lower 2026 base. In effect, 2026 becomes a reset year from which the company expects to re-accelerate. The message to investors is that while near-term profit is under pressure, the structural earnings power of the business remains intact once pricing, product design, and portfolio mix fully catch up to current cost trends.

Carillon Growth Highlights Emerging Strengths

Carillon, Elevance’s services and pharmacy platform, was a relative bright spot, with services revenue growing nearly 60% in 2025 and pharmacy up more than 20%. Management noted that after adjusting for internal membership headwinds, external services growth would have landed in the high-teens to low-twenties, and pharmacy (Rx) in the low double digits. This performance underscores rising external demand for Carillon’s capabilities and suggests the platform could become a more meaningful profit contributor over time, even if near-term affiliated membership losses are masking some of that momentum.

Digital and Member-Facing Initiatives Gain Traction

Elevance is leaning into technology and member-facing programs as a way to improve outcomes and better manage costs. Patient advocacy programs now serve more than 7 million members, up nearly 20% year-over-year, showing growing engagement with support services. The company is also investing in real-time decision-making, committing to make more than 80% of prior authorization decisions in real time by 2027, supported by continued rollout of its HealthOS platform for real-time data exchange. These initiatives are intended to both enhance customer experience and create more precise control over utilization trends.

Robust Capital Return and Strengthened Liquidity

Capital deployment remained shareholder-friendly in 2025. Elevance repurchased $2.6 billion of stock during the year, including $470 million (1.4 million shares) in the fourth quarter, and returned a total of $4.1 billion to shareholders. Looking ahead to 2026, the company plans to allocate about $2.3 billion to share repurchases and expects operating cash flow of at least $5.5 billion, up from $4.3 billion in 2025. These figures signal confidence in the company’s balance sheet and cash generation even as earnings dip, and provide a partial offset to softer operating metrics.

Commercial and ASO Business Remains a Relative Outperformer

Despite turbulence in government programs, Elevance’s commercial and ASO (self-funded employer) business showed solid momentum. Management cited a productive selling season, strong client retention, and success in competitive situations—winning 9 out of 11 “second‑blue” bids as a key indicator of sales strength. This underscores the resilience of Elevance’s employer franchise and suggests that the commercial segment remains a stabilizing anchor while Medicaid and Medicare undergo a reset.

Targeted Cost Management and Advanced Analytics to Counter Utilization

In response to elevated medical cost trends, Elevance is scaling analytics and targeted cost management. The company is using data to pinpoint outlier utilization patterns, such as in substance use disorder treatment, and is tightening specialty pharmacy management while expanding behavioral health support. Enhanced care management programs are being deployed to address high-need members and reduce avoidable high-cost episodes. These actions are core to the company’s strategy to bend the cost curve back toward more sustainable levels over the next few years.

Membership Declines in Medicaid and Medicare Drag on Growth

Enrollment trends are a key headwind. Elevance ended 2025 with 45.2 million members, a decline of about 500,000, or roughly 1%, year-over-year. For 2026, the company expects same-store Medicaid membership to fall by around 750,000 and Medicare Advantage membership to drop by a high‑teens percentage. Notably, the Medicare decline is largely driven by deliberate portfolio actions to reposition benefits and pricing rather than purely by competitive losses. Even so, the combined impact of declining risk-based membership across government programs weighs heavily on 2026 revenue and earnings expectations.

Medicaid Losses and 2026 as a Trough Year

The most acute pain point is Medicaid, where Elevance expects the operating margin to be approximately negative 1.75% in 2026. Management characterizes 2026 as a trough for this business, citing elevated utilization and reimbursement rates that lag actual experience. Medicaid cost trends are expected to run roughly twice the historical average mid‑single‑digit range, compressing margins and forcing negotiations with state partners. Elevance is effectively signaling that it will accept short-term losses in Medicaid while it works through rate resets and program redesigns.

Revenue Pullback and EPS Compression in 2026

The combination of membership losses and pricing lag sets up a weaker 2026 top line. Elevance expects operating revenue to decline in the low single-digit percent range, driven by a low double-digit percentage decline in risk-based membership. Given the step down from 2025’s $30.29 adjusted EPS (inflated by nonrecurring items) to at least $25.50 in 2026, investors face a compressed earnings year. Management’s framing of this period as a necessary reset is intended to reassure that the trend should reverse as pricing, product changes, and membership mix stabilize.

Elevated Cost Trend Keeps Medical Loss Ratios High

Medical cost pressure remains broad-based. Elevance reported a consolidated benefit expense ratio of 93.5% in the fourth quarter and 90.0% for the full year, reflecting high medical spending relative to premium revenue. For 2026, the company expects a consolidated medical loss ratio of about 90.2%, plus or minus 50 basis points, as cost trends stay in the mid-single-digit range across major business lines. This elevated baseline constrains margin expansion and is central to why the company is revisiting pricing strategies and benefit designs across its portfolio.

Flat Medicare Rates Tighten the Squeeze on Advantage Plans

On the Medicare front, the advance notice for Medicare Advantage rates was effectively flat, which management said does not keep pace with real-world utilization and cost trends. This mismatch creates pressure on both benefit richness and affordability, limiting the funding available to plans to maintain competitive offerings. As a result, Elevance is pulling back from some less attractive Medicare segments and repositioning its portfolio, accepting near-term membership declines in exchange for more sustainable margins.

Recalibrated Long-Term Margin Targets Reflect a More Conservative Stance

Elevance used the call to reset expectations for long-term profitability. The company clarified an enterprise margin target of 5%–6%, with the health benefits segment now targeted at mid‑single-digit margins, adjusted for the current business mix. CarillonRx margin expectations were also revised lower, reflecting a shift toward more upmarket and specialty business, which tends to carry different economics. These recalibrations signal a more conservative and arguably more realistic long-term view, trading some upside for greater credibility and alignment with actual cost trends.

CarillonRx Growth Tempered by Affiliated Membership Declines

While Carillon’s external growth is strong, near-term performance at CarillonRx is being muted by lower affiliated health plan membership. As Elevance sheds risk-based members in Medicaid and Medicare, the internal prescription volume feeding CarillonRx shrinks, reducing near-term margin and revenue contribution from dispensing. Management emphasized that this internal drag masks the underlying strength of external demand, suggesting that once membership stabilizes, CarillonRx’s growth profile could look more attractive.

ACA Book Repositioned for Higher Risk and Morbidity

Elevance has repositioned its individual ACA business to account for higher expected morbidity following the expiration of enhanced subsidies. The company is guiding to at least 900,000 ACA members by year-end 2026, while cautioning that retention and payment behavior will remain a swing factor through April. This more conservative stance on risk and pricing is designed to protect margins in the exchange business, even if it dampens membership growth.

Guidance and Outlook Emphasize 2026 as a Reset Year

For 2026, Elevance guided to adjusted diluted EPS of at least $25.50, down from 2025’s $30.29, and expects revenue to decline in the low single-digit range as risk-based membership falls by a low double-digit percent. Key financial pillars include a projected consolidated medical loss ratio of about 90.2% (±50 bps), an adjusted operating expense ratio of 10.6% (±50 bps), and operating cash flow of at least $5.5 billion. The company plans around $2.3 billion of share repurchases and expects days in claims payable to remain in the low‑40s. By line of business, guidance calls for a roughly -1.75% Medicaid margin with mid‑single‑digit cost trends, high‑teens Medicare Advantage membership declines but Medicare margins improving to at least 2%, ACA year‑end membership of at least 900,000, and low‑single-digit operating gain growth for Carillon amid strong external revenue. Elevance reiterated its long-term enterprise margin target of 5%–6%, mid‑single‑digit margins for Health Benefits and CarillonRx, and a long‑term EPS growth algorithm of at least 12%, with about two‑thirds of 2026 EPS expected in the first half and a front-loaded first quarter.

In sum, Elevance’s earnings call presented a nuanced picture: solid current financials and promising growth engines in Carillon and ASO, offset by meaningful near-term pressure from Medicaid and Medicare, elevated medical costs, and a deliberate portfolio reset. Management is clearly asking investors to look through a difficult 2026, framed as a trough year, toward a more normalized 2027 where EPS growth returns to at least 12%. For investors, the story hinges on whether the company can successfully execute on its pricing, cost management, and portfolio repositioning plans while maintaining the momentum in its higher-growth service and commercial businesses.