Elevance Health UBS Global Healthcare Conference - ELEVANCE HEALTH INC

Financial Performance:

• Targeting a solid baseline to achieve at least 12% adjusted EPS growth in 2027 from a 2026 baseline of $26.75.
• Medicare Advantage segment on track to achieve an operating margin of at least 2% in 2026, an improvement of over 100 basis points from 2025.
• Medicaid margins expected to hit their trough in 2026, with a recovery trajectory beginning in 2027 driven by rate alignment and medical cost management.
• ACA Marketplace margins are below normalized targets; the company is prioritizing rate adequacy over near-term competitiveness to ensure sustainable returns.
• Commercial fully insured business expects membership decline in 2027, offset by strong growth in fee-based arrangements.
• CarelonRx currently has mid-20% penetration of commercial ASO membership, presenting a significant expansion opportunity.

Guidance and Future Outlook:

• 2027 pricing assumes medical cost trends similar to 2026 levels; no reliance on lower trend for margin improvement.
• Long-term goal is to return Medicare Advantage to a 3% to 5% operating margin target, building on the current 2% trajectory.
• 2027 Medicaid rate renewals are expected to incorporate 2025–2026 cost experience, though full catch-up to current cost environment is pending.
• Expect continued membership attrition in the ACA market in 2027 due to the expiration of enhanced subsidies, anticipating a multi-cycle stabilization.
• Strategic focus for 2027 includes scaling risk-based clinical programs, expanding pharmacy relationships, and increasing external client adoption.

Business Segments and Product Lines:

• Medicare Advantage: Deliberate portfolio repositioning in 2026 improved economics; focus on dual-eligible members and "care in the home" solutions via Carelon.
• Medicaid: Implementing community engagement requirements (work requirements) expected to impact acuity and membership, particularly in expansion populations (approx. 20% of total Medicaid membership).
• Commercial: Strong national account selling season driving fee-based business growth; pricing reflects forward views on medical costs and IDR pressure.
• Carelon: Demonstrating $100 per member per month savings for employers via integrated medical/pharmacy benefits; 4% reduction in total cost for attributed cancer patients.
• ACA Marketplace: Retention better than expected in 2026 driven by lower-cost Bronze offerings; pricing strategy prioritizes affordability and sustainable margins.

Market and Competitive Landscape:

• Industry trend shifting toward fee-based, transparent contracting models rather than rebate/spread models; Elevance views this as manageable given its flexible existing model.
• CVS partnership extended via a new five-year agreement, maintaining continuity during the industry transition to predictable, lowest net-cost models.
• Competitive positioning in select markets prioritizes rate adequacy over market share to ensure sustainable returns.
• Peer activity regarding vertical separation (e.g., retail vs. insurance) is not altering Elevance's integrated strategy of connecting Health Benefits and Carelon.

Risks and Challenges:

• IDR (Independent Dispute Resolution): Rising dispute volumes and arbitration awards exceeding in-network rates continue to pressure commercial margins; pricing assumptions assume persistent elevated pressure.
• Medicaid Acuity: Uncertainty remains regarding how states will adjust rates for changes in membership acuity as community engagement requirements are implemented.
• Policy Uncertainty: Midterm election results and evolving federal/state policies (OBBA, ACA subsidies, Medicaid expansion) require active monitoring and advocacy.
• Medicare Cost Trends: Elevated costs in inpatient care and specialty pharmacy (oncology) remain key areas of focus and variability.

Management Commentary and Tone:

• Management expresses confidence in the "integrated model" where connecting Carelon's capabilities with Health Benefits drives enterprise value and external client adoption.
• Tone is pragmatic regarding external headwinds (IDR, Medicaid policy, subsidy expirations) but optimistic about internal operational levers (data, AI, cost management).
• Emphasis on "discipline" in pricing and capital allocation, prioritizing margin recovery and durable growth over aggressive volume expansion in difficult markets.
• Leadership views 2026 as the foundation for 2027 growth, distinguishing between immediate margin recovery and long-term client-driven expansion.

Analyst Questions and Answers:

• Q: Strategy for M&A and capital allocation? A: Near-term priority is integrating existing acquisitions; selective M&A evaluation expected to increase in 2027, focusing on chronic condition management and local density.
• Q: Impact of peer separation (retail vs. insurance)? A: Elevance remains committed to its integrated model; new CVS agreement supports the evolution toward fee-based models, not a reason to change strategy.
• Q: Medicaid rate adequacy for 2027? A: Preliminary rates show improvement, but full alignment with acuity changes is uncertain; some states may offer mid-cycle adjustments in early 2027.
• Q: ACA Marketplace risk pool normalization? A: Risk pool has not fully normalized; planning for continued attrition in 2027 with a multi-year stabilization timeline.
• Q: Carelon expansion beyond internal use? A: Success with dual-eligible and oncology clients validates the model; expansion to external clients is a key repeatable growth driver.

Other Key Points:

• AI and Data: Utilizing AI to identify member needs earlier, personalize experiences, and reduce manual provider interactions.
• HealthOS: Deployment of digital tools to automate routine tasks, reduce medical record requests, and streamline prior authorizations.
• Clinical Interventions: Expansion of risk-based models in complex areas like musculoskeletal, post-acute care, and oncology to lower total cost of care.
• Advocacy: Active stance on reforming the IDR process to ensure fair resolution without adding avoidable costs to employers and consumers.