Elevance HealthELV

Key highlights

• Profit outlook raised: The company increased its full year profit forecast to at least $27.00 per share, up from its prior guidance, based on strong results from the first half of the year. This suggests management is confident in its ability to manage rising healthcare costs and hit its target of returning to at least 12% profit growth in 2027.
• Medical costs increasing: The benefit expense ratio, which shows how much of every premium dollar is used to pay for medical care, rose to 89.7% from 88.9% a year ago. This increase was driven by higher medical spending in the government business, meaning the company had to pay out more for patient care in its Medicare and Medicaid plans.
• Membership count slipping: Total medical membership fell 1.5% to 44.9 million people compared to last year. Most of this decline came from a 15.9% drop in Medicare Advantage members and a 4.3% decrease in Medicaid enrollment, as the company intentionally moved away from less profitable plans.
• Carelon division growing: Revenue for Carelon, the division that provides pharmacy and healthcare services, grew 6% to $19.2 billion. This unit is becoming more important to the overall business as it expands its specialty pharmacy services and helps lower costs for the core insurance segment.
• Heavy technology investment: The adjusted operating expense ratio reached 11.0%, up from 10.0% a year ago. This increase was caused by deliberate spending on workforce and new technology meant to make the business run more efficiently over the long term.

Our take: This was a strong and disciplined quarter. While membership numbers are drifting lower, the company is successfully raising its prices and growing its Carelon health services division to offset those losses. Raising the full year profit guidance despite higher medical costs signals that the long term growth story remains healthy.