Why did Elevance's margins decline in the third quarter of 2024?

The primary driver was a timing mismatch between Medicaid rates and the higher acuity of Medicaid members, which pushed the benefit expense ratio up 270 basis points to 89.5%. Medicaid membership also fell 19% year over year due to eligibility redeterminations and footprint adjustments, and the mix shift toward higher-acuity members weighed on Health Benefits operating gain.

How much did Elevance cut its 2024 earnings guidance?

Management now expects 2024 GAAP diluted EPS of approximately $26.50 and adjusted diluted EPS of approximately $33.00. The filing does not state the prior guidance figures, so the size of the cut relative to earlier expectations cannot be determined from this document.

What was behind the gap between GAAP and adjusted earnings?

Adjustments in the quarter included $669 million of litigation and settlement expenses, $268 million of business optimization charges, $125 million of net losses on financial instruments, $122 million of amortization of intangibles, $42 million of transaction and integration costs, and a $39 million loss on sale of business, partially offset by a $329 million tax benefit from non-GAAP adjustments.

Is Elevance still returning capital to shareholders?

Yes. The Audit Committee authorized an $8.0 billion increase to the share repurchase program, on top of roughly $3.1 billion remaining at quarter end, to be used over multiple years. The company also declared a $1.63 per share quarterly dividend for Q4 2024. Management noted that repurchases remain subject to market and industry conditions and to cash flow adequacy.

How are the non-Medicaid businesses performing?

Carelon performed well, with operating revenue up 15% to $13.8 billion and operating gain up 20% to $0.8 billion, helped partly by a one-time favorable intra-year true-up in CarelonRx. Commercial membership also grew, with Employer Group fee-based members up 2.1% and Individual (ACA) members up 30% year over year, which partially offset Medicaid losses.

ELV 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed October 17, 2024. Cited figures are marked; the original filing is the authoritative source.

Elevance Health (ELV) reported third quarter 2024 results on October 17, 2024, with operating revenue of $44.7 billion^a (up 5.3% year over year) and adjusted operating gain of $2.4 billion.

GAAP diluted EPS was $4.36^b versus $5.45 a year earlier, while adjusted diluted EPS was $8.37 versus $8.99. The quarter was dominated by margin pressure in Medicaid: the benefit expense ratio rose 270 basis points to 89.5%, driven mainly by a timing mismatch between Medicaid rates and higher member acuity. Health Benefits operating margin fell to 4.2% from 5.0%, and Medicaid membership declined 19% year over year to 8.9 million, reflecting eligibility redeterminations and footprint changes.

Offsetting this, Carelon and CarelonRx performed well. Carelon operating revenue grew 15% to $13.8 billion^c, and CarelonRx operating margin expanded to 6.8%. Operating expense discipline was strong, with the adjusted operating expense ratio improving 150 basis points to 9.6%, and Days in Claims Payable declined to 42.8 days.

Management's 2024 outlook was cut to GAAP EPS of approximately $26.50^d and adjusted EPS of approximately $33.00, reflecting the Medicaid timing issues. Capital allocation remained shareholder-friendly despite the earnings pressure.

The Board's Audit Committee authorized an $8.0 billion increase to the share repurchase program, to be used over a multi-year period, and declared a fourth-quarter dividend of $1.63 per share. Investors should weigh the strength of the diversified businesses against near-term Medicaid margin risk and the GAAP charges, including $669 million in litigation and settlement expenses, that drove the gap between GAAP and adjusted results.

02—Key points

Key Highlights

Operating revenue rose 5.3% to $44.7 billion, driven by higher Health Benefits premium yields and CarelonRx product revenue growth, partly offset by Medicaid membership attrition.
Benefit expense ratio increased 270 basis points to 89.5%, primarily due to the timing mismatch between Medicaid rates and higher member acuity, compressing Health Benefits operating margin to 4.2% from 5.0%.
2024 EPS outlook lowered: GAAP diluted EPS now approximately $26.50 and adjusted diluted EPS approximately $33.00, reflecting Medicaid pressures.
Q3 GAAP diluted EPS of $4.36 (down 20%) was weighed by $669 million in litigation and settlement expenses and $268 million in business optimization charges; adjusted EPS was $8.37 versus $8.99.
Carelon operating revenue grew 15% to $13.8 billion, and CarelonRx operating margin expanded 120 basis points to 6.8%, supporting segment earnings.
Adjusted operating expense ratio improved 150 basis points to 9.6%, and Days in Claims Payable fell to 42.8 days from 48.6 a year earlier.
Board increased the share repurchase authorization by $8.0 billion, and the Q4 2024 dividend of $1.63 per share was declared, payable December 20, 2024.

03—Questions

Frequently Asked Questions

Why did Elevance's margins decline in the third quarter of 2024?
The primary driver was a timing mismatch between Medicaid rates and the higher acuity of Medicaid members, which pushed the benefit expense ratio up 270 basis points to 89.5%. Medicaid membership also fell 19% year over year due to eligibility redeterminations and footprint adjustments, and the mix shift toward higher-acuity members weighed on Health Benefits operating gain.
How much did Elevance cut its 2024 earnings guidance?
Management now expects 2024 GAAP diluted EPS of approximately $26.50 and adjusted diluted EPS of approximately $33.00. The filing does not state the prior guidance figures, so the size of the cut relative to earlier expectations cannot be determined from this document.
What was behind the gap between GAAP and adjusted earnings?
Adjustments in the quarter included $669 million of litigation and settlement expenses, $268 million of business optimization charges, $125 million of net losses on financial instruments, $122 million of amortization of intangibles, $42 million of transaction and integration costs, and a $39 million loss on sale of business, partially offset by a $329 million tax benefit from non-GAAP adjustments.
Is Elevance still returning capital to shareholders?
Yes. The Audit Committee authorized an $8.0 billion increase to the share repurchase program, on top of roughly $3.1 billion remaining at quarter end, to be used over multiple years. The company also declared a $1.63 per share quarterly dividend for Q4 2024. Management noted that repurchases remain subject to market and industry conditions and to cash flow adequacy.
How are the non-Medicaid businesses performing?
Carelon performed well, with operating revenue up 15% to $13.8 billion and operating gain up 20% to $0.8 billion, helped partly by a one-time favorable intra-year true-up in CarelonRx. Commercial membership also grew, with Employer Group fee-based members up 2.1% and Individual (ACA) members up 30% year over year, which partially offset Medicaid losses.

04—Continue

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