Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elevance Health Inc (ELV, Financial) reported adjusted diluted earnings per share of $10.12, reflecting a 12% growth year over year.
- The company reaffirmed its full-year guidance of at least $37.20, representing 12% growth year over year.
- Elevance Health Inc (ELV) demonstrated strong membership growth in its individual ACA business and high retention levels in national accounts.
- The company secured significant new business wins and re-procurements in Medicaid, positioning it for future growth.
- Carelon services delivered robust growth in operating revenue and earnings, gaining traction with external clients through new business wins and expansion of risk-based services.
Negative Points
- Elevance Health Inc (ELV) experienced attrition in its Medicaid membership by 354,000 lives year over year.
- The company is navigating industry-wide dynamics in its Medicaid business, including increased acuity and administrative challenges in redeterminations.
- Elevance Health Inc (ELV) reported a consolidated benefit expense ratio of 86.3%, with increased acuity in Medicaid partially offsetting improvements.
- The adjusted operating expense ratio increased by 50 basis points to 11.5% in the second quarter, driven by elevated investment costs in CarelonRx.
- The company anticipates higher Medicaid utilization in the second half of the year, which may impact its benefit expense ratio.
Q & A Highlights
Q: Can you elaborate on your plans to accelerate growth in 2025, given the challenges faced this year?
A: Gail Boudreaux, President and CEO: We expect to accelerate revenue growth across all our businesses in 2025. In our health business, we see strong momentum in commercial, particularly with the expansion of our individual ACA footprint. We anticipate a return to growth in Medicaid as redeterminations wind down and members re-enroll. Additionally, Carelon services are gaining traction with external clients, and we are integrating recent acquisitions in CarelonRx to scale our specialty pharmacy services.
Q: What are your expectations for Medicaid rate updates in the back half of the year, and how are you managing utilization trends?
A: Felicia Norwood, President of Government Health Benefits: We have visibility into nearly all our Medicaid premiums for 2024, and rate conversations with states are constructive. We expect rates to remain actuarially sound despite a potential short-term disconnect between rate timing and emerging acuity. Mark Kaye, CFO, added that Medicaid utilization reflects higher acuity and increased outpatient and elective procedures, which are accounted for in our full-year outlook.
Q: Can you discuss the progress and integration of recent acquisitions in CarelonRx, such as BioPlus and Paragon Healthcare?
A: Peter Haytaian, President of Carelon and CarelonRx: We are integrating recent acquisitions and scaling key value drivers. We began migrating Elevance scripts to BioPlus and are preparing for the Kroger specialty pharmacy acquisition. Paragon Healthcare offers significant opportunities to shift infusion spend from hospital settings to more appropriate ambulatory or home settings, enhancing our specialty strategy.
Q: How are you addressing the margin pressures in Medicaid and Medicare Advantage, and what is the trajectory for 2025?
A: Mark Kaye, CFO: Medicaid margins are compressed due to rate timing mismatches and higher acuity. We are working with states to ensure rates remain actuarially sound. Medicare Advantage margins are expected to improve in 2024 but will still be below long-term targets. We are seeing benefits from our commercial pricing initiatives, which are contributing to margin recovery.
Q: What are your expectations for Medicare Advantage growth in 2025, and how are you positioning your bids?
A: Felicia Norwood, President of Government Health Benefits: We are maintaining a disciplined approach to offering competitive benefits while balancing growth and margins. We are focused on sustainable growth, particularly in the D-SNP business, and are prioritizing local market dynamics. While it's early to determine 2025 growth, we feel confident in our positioning for long-term sustainability.
Q: Can you provide more details on the investments in CarelonRx and the opportunities for scaling specialty services?
A: Peter Haytaian, President of Carelon and CarelonRx: We are investing in infrastructure to handle increased capacity and migrating Elevance scripts to BioPlus. We are also preparing for the Kroger acquisition, which will add significant scale. Our strategy focuses on patient differentiation and integrating behavioral health and other services to deliver Whole Health.
Q: How are you progressing with your cost savings plan, and are the benefits being reinvested or dropping through to the bottom line?
A: Mark Kaye, CFO: We are on track to realize $750 million in gross run-rate expense efficiencies, benefiting both our operating performance this year and establishing a strong foundation for future growth. We anticipate significant improvement in our operating expense ratio in the second half of the year.
Q: Can you discuss the opportunities for growth in Carelon services, particularly with Blue Cross Blue Shield partners?
A: Peter Haytaian, President of Carelon and CarelonRx: We are engaged with most Blue Cross Blue Shield partners and are seeing strong growth in Carelon services. Our strategy focuses on landing and expanding, converting capabilities to risk-based services, and leveraging our integrated value story. We are also targeting behavioral health and post-acute capabilities for future growth.
Q: How are you managing the impact of Medicaid redeterminations on utilization trends and MLR expectations?
A: Mark Kaye, CFO: We expect the pull-forward effect of increased utilization due to redeterminations to abate as the year progresses. We are working with states to address rate timing mismatches and ensuring members are appropriately categorized. Our full-year MLR guidance accounts for these dynamics.
Q: Can you provide more details on your long-term growth targets and the potential for Carelon's earnings power?
A: Mark Kaye, CFO: Our growth algorithm targets at least 12% average annual growth in adjusted diluted EPS, driven by upper single-digit revenue growth and operating margin expansion. Carelon's growth potential is significant, with opportunities to expand risk-based revenue and membership. Our long-term targets reflect the embedded earnings power of Carelon's evolving capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
