Elevance Health UBS Global Healthcare Conference - ELEVANCE HEALTH INC

Explicit Guidance:

• EPS Growth: Confirmed target of at least 12% adjusted EPS growth in 2027, driven from a 2026 earnings baseline of at least $26.75 (excludes non-recurring items).
• Medicare Advantage Margin: On track to deliver at least 2% operating margin in 2026 (up >100 bps from 2025); long-term target remains 3–5%, with further improvement expected in 2027.
• ACA Segment Margin: Expecting 5–7% normalized margin for 2027.
• Medical Cost Trend: 2027 bids assume a similar level of medical cost trend to 2026; no reliance on trend normalization for margin improvement.
• Membership Outlook: Anticipates continued membership attrition in 2027 for ACA Marketplace due to subsidy expiration; expects margin recovery in Medicaid in 2027 after 2026 trough.
• Capex/Opex Efficiency: Plans to achieve operating expense reductions in 2027 via automation (HealthOS) and process streamlining as membership changes unfold.

Business-Segment Outlook:

• Medicaid: View 2026 as the trough; expects improvement in 2027 driven by state rate updates incorporating 2025/2026 cost experience, medical cost management initiatives, and potential mid-cycle rate adjustments. Community engagement requirements (work rules) are expected to impact membership acuity, concentrated in the Medicaid expansion population (20% of total Medicaid membership).
• Medicare Advantage: Deliberate portfolio actions (pricing, benefit design, geographic exits) to support margin improvement and targeted growth in dual-eligible populations; 2027 bids assume consistent cost trends with 2026.
• Commercial/ACA: Pricing reflects forward medical cost views; expecting membership decline in fully insured risk business in 2027, offset by strong growth in fee-based arrangements (national accounts and alternative funding).
• Carelon (Pharmacy & Clinical):
  • Risk-Based Solutions: Scaling capabilities in oncology, behavioral health, and care-in-the-home; targeting mid-teens medical cost savings (CareBridge serves 300k+ members).
  • Growth Driver: Expectation that external and internal expansion of risk-based clinical programs will more than offset anticipated affiliated health plan membership declines.
  • Penetration: Commercial ASO membership penetration for CarelonRx in mid-20% range, indicating room for growth.
  • Valuable Proof Points: Integrated medical/pharmacy models delivering up to $100 PMPM savings for employers; oncology programs delivering 4% reduction in total cost ($900+ PMPM savings) for attributed patients.
• KailonRx Margin: Long-term mid-single-digit margin target maintained, viewing the industry shift to transparent fee-based models as manageable and aligned with current business design.

Market and Competitive Outlook:

• Competition: Competitive positioning in 2027 broadly consistent with 2026; in select markets, prioritizing rate adequacy over near-term competitiveness to ensure sustainable returns.
• PBM Landscape: Industry transitioning to fee-based, predictable models focused on total/lowest net cost; views shift as an evolution in contracting rather than a fundamental value change. CVS partnership extended for five years (new agreement effective Q3) to support continuity while evolving specialty capabilities.
• Employer Trends: Rising interest in alternative funding arrangements and willingness to assume risk; employers prioritizing affordability and simplicity.
• IDR (Independent Dispute Resolution): Assumes elevated IDR-related cost pressure persists in 2027 pricing; no reliance on policy reform to resolve exposure.

Macro / Industry Outlook:

• Policy (OBBA/ACA/Medicaid): Navigating political shifts from midterms; monitoring ACA enhanced subsidies and Medicaid expansion (e.g., Texas). Advocating for IDR reform (No Surprises Act preservation) to ensure fair payment disputes without adding avoidable costs.
• Regulatory Environment: Working with states on community engagement requirement implementation for Medicaid (2027); federal court rulings on medical frailty exemptions may mitigate some coverage loss.
• Medical Cost Environment: Expecting elevated trend to persist in 2027, driven by inpatient care and specialty pharmacy (oncology); relying on clinical management rather than trend reversal for margin gains.
• Market Stabilization: Belief that ACA market will take more than one renewal cycle to stabilize following subsidy expiration.

Strategic Initiatives:

• M&A Appetite: Expect to evaluate selective M&A more actively in 2027 and beyond; prioritizes integration of existing acquisitions to realize value.
• M&A Focus Areas:
  • Carelon: Capabilities for complex/chronic condition management, risk-taking in high-cost care, and insights business.
  • Health Benefits: Targeted acquisitions for local density or specialized population capabilities.
• Operational Model: Expanding data and AI to identify member needs earlier and reduce manual work; leveraging HealthOS to reduce prior authorization workflows and medical record requests.
• Capital Deployment: Balancing investment in growth with continued capital returns to shareholders.

Risks and Headwinds to Outlook:

• Medicaid Rates: Pace of margin recovery depends on state actions (timing/adequacy of rate updates) and implementation of community engagement requirements.
• Membership Acuity: Uncertainty regarding the magnitude of membership changes due to work requirements; impact concentrated in Medicaid expansion population.
• IDR Uncertainty: Residual uncertainty on dispute volumes, arbitration outcomes, and timing of policy changes affecting pricing assumptions.
• Policy Implementation: Specifics of OBBA, ACA subsidies, and Medicaid expansion details matter; state-level implementation variance is a key variable.
• Medical Cost Trend: Continued elevation in inpatient and specialty pharmacy costs (oncology) could pressure margins if clinical interventions do not scale as expected.
• ACA Stabilization: Risk that the risk pool fails to normalize faster than expected, prolonging attrition.

Management Tone on the Future:

• Confidence: Confident in the 12% EPS growth trajectory for 2027; views the strategy as "breadth-based" rather than dependent on a single business assumption.
• Strategic Clarity: Emphasizes a shift from "restoring sustainable margins" to "establishing a stronger, more durable long-term growth model" via Carelon integration.
• Hedges: Explicitly states it is "too early to provide a range of potential membership outcomes" for Medicaid work requirements; assumes "elevated IDR pressure" rather than reform for pricing.
• Differentiation: Highlights Flywheel Effect of integrating health benefits with Carelon capabilities as a key differentiator vs. peers (e.g., CVS separation).

Miscellaneous:

• Valuation Metrics: Enterprise value measured via lower total medical costs, improved clinical outcomes, increased member retention, and broader external adoption.
• Timeline: Full details on Medicaid membership/acuity assumptions to be provided on the January 2027 earnings call.
• Open Enrollment: Early activity in the annual election period for Medicare Advantage developing broadly in line with expectations.