Elevance Health's Financial Outlook Amid Medicare Advantage Settlement
Elevance Health faces a potential financial impact this year, anticipating payments of approximately $935 million to the Centers for Medicare and Medicaid Services (CMS) due to inaccuracies in Medicare Advantage (MA) data reporting. This comes as they adjust their 2026 earnings projections following a strong performance in the first quarter.
Based in Indianapolis, Elevance raised its forecast for annual adjusted diluted earnings per share from a baseline of $25.50 to at least $26.75, exceeding investor expectations similar to UnitedHealth's recent report. Despite this increase, the forecast remains lower than the $30.29 achieved in 2025. The company also revised its guidance for unadjusted earnings per share down to at least $19.85, reflecting the anticipated settlement with CMS.
Regulatory Compliance and Settlement Efforts
Regulators identified inaccuracies in the submitted MA data, which is essential for reimbursement adjustments. These errors potentially resulted in overpayments to Elevance. The company aims to settle with CMS to avert potential sanctions, including restrictions on new MA enrollments. CEO Gail Boudreaux emphasized that the settlement would minimize risks and support Elevance’s growth in the MA market.
Following Elevance's request, CMS extended the deadline for compliance corrections from March to July 31. Boudreaux expressed confidence in aligning with CMS requirements to prevent sanctions. Analyst Ryan Langston from TD Cowen viewed the settlement amount as acceptable if future enrollment remains unaffected.
Financial Performance and Strategic Adjustments
Elevance’s report of controlled medical costs has positively influenced investor sentiment despite challenges from rising medical expenses. Strategies such as exiting unprofitable markets and reducing benefits aim to balance these costs. In the first quarter, Elevance's revenue rose to $50.2 billion, while net income declined to $1.8 billion, partly due to the CMS settlement. Nonetheless, adjusted earnings per share exceeded forecasts, boosting Elevance’s shares by 3%.
The medical loss ratio (MLR) was 86.8%, better than anticipated, although increased Medicaid spending affected margins due to reimbursement rate lags. This year, the company projects a Medicaid operating margin of approximately -1.75%, marking 2026 as a potentially challenging period.
Membership and Market Dynamics
While MA membership declined, Elevance aims for a 2% margin target by 2026, focusing on profitability in the MA segment, which contributes significantly to premium revenue. Overall, membership increased by 200,000, with gains in commercial and Affordable Care Act (ACA) plans balancing declines in MA and Medicaid. Elevance expects a drop in ACA enrollment later this year due to high premiums, potentially reducing it to around 900,000 by year-end.
Carelon, Elevance's health services segment, reported a slightly lower adjusted operating gain due to membership decreases. Insurers, including Elevance, continue to navigate regulatory and financial challenges in government-funded programs, strategically managing market dynamics to sustain and expand their business.