Elevance Health, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Amounts are in millions of dollars unless otherwise noted. Elevance Health, formerly Anthem, changed its name and ticker to ELV in June 2022. It provides health insurance, pharmacy benefit management and related health services, serving 47.5 million medical members at year-end.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Operating revenue | $155,660 | $136,943 | +13.7% |
| Total revenue, including investment income and gains/losses | $156,595 | $138,639 | +13.0% |
| Income before tax | $7,769 | $7,925 | -2.0% |
| Net income | $6,019 | $6,095 | -1.2% |
| Shareholders’ net income | $6,025 | $6,104 | -1.3% |
| Diluted EPS | $24.81 | $24.73 | +0.3% |
| Operating cash flow | $8,399 | $8,364 | +$35 |
Operating revenue growth reflected higher Medicaid premiums from membership growth and acquisitions, Medicare Advantage and commercial membership and rate increases, and higher CarelonRx pharmacy volume. Total revenue was affected by a $550 net loss on financial instruments in 2022, versus $318 in gains in 2021. Management reported consolidated operating gain of $8,452, up from $7,489; this is a non-GAAP segment-performance measure.
- Margins and costs: The benefit expense ratio was 87.4%, down 10 basis points from 87.5%; the SG&A expense ratio was 11.4%, down 20 basis points from 11.6%. Benefit expense rose 13.5% to $116,487, while SG&A increased 11.1% to $17,686. Operating margin varied by segment: Commercial & Specialty 7.0%, Government 3.4%, and CarelonRx 6.5%.
- Cash flow and liquidity: Operating cash flow was approximately 1.4 times net income. Cash and cash equivalents were $7,387 at year-end; cash, cash equivalents and investments in fixed maturity and equity securities totaled $35,044. The parent company held $1,209 in cash, cash equivalents and investments available for general corporate use.
- Debt: Long-term debt carrying value was $23,849, with $265 of short-term borrowings. Debt-to-capital was 39.9%, versus 38.9% in 2021. The company reported no outstanding balance under its $4,000 revolving credit facility or commercial paper program and compliance with debt covenants.
- Balance sheet: Total assets were $102,772 and total shareholders’ equity was $36,307. Medical claims payable was $15,596, up from $13,518.
Material changes versus 2021
- Medical membership grew by 2.2 million, or 4.8%, to 47.5 million. Medicaid membership rose 9.2% to 11.6 million, with growth primarily reflecting suspended eligibility recertifications and acquisitions; Medicare Advantage membership increased 6.3%.
- Government Business revenue increased 16.8% to $96,810; Commercial & Specialty increased 7.4% to $41,674; CarelonRx increased 12.2% to $28,526.
- Net income declined despite higher operating gain, primarily because financial-instrument results swung from gains to losses and intangible amortization rose. Diluted EPS edged up as average diluted shares fell 1.6%.
- Operating cash flow was nearly flat year over year. Cash increased by $2,507, while investing cash outflow decreased as acquisition spending and net investment purchases were lower than in 2021.
- Investment-related other comprehensive loss was $2,336, largely reflecting unrealized investment losses; accumulated other comprehensive loss increased to $2,503.
Outlook, risks and unusual items
- Outlook: The filing does not provide a clear numerical full-year 2023 earnings or EPS guidance value. Management expected Medicaid membership to decline as state redeterminations resumed from April 1, 2023, while anticipating growth in commercial coverage and Medicare, including exchange plans. It planned to offer Individual Public Exchange products in 138 of 143 rating regions in 2023, versus 122 in 2022.
- Medical cost and reserve risk: Results depend on pricing and forecasting healthcare utilization and unit costs. Management cited heightened claims-estimation uncertainty from slower claim submissions and COVID-19-related utilization. The $15,596 claims payable estimate was particularly sensitive to completion and trend assumptions; disclosed assumption ranges implied approximately $266 and $522 of liability variability, respectively.
- Regulatory and membership risk: Government program funding, Medicaid recertifications, Medicare Star ratings, risk-adjustment audits, minimum medical loss ratios and evolving healthcare and pharmacy regulation may affect enrollment, rates and profitability. About 73% of Medicare Advantage members were expected to be in plans rated 4.0 or higher for payment year 2023.
- Legal and contingency matters: The company deposited $506 into escrow toward its $596 share of the Blue Cross Blue Shield subscriber antitrust settlement, previously accrued; appeals remained pending. Provider litigation and follow-on cases continued. The DOJ Medicare risk-adjustment lawsuit and company-disclosed CareMore and HealthSun risk-adjustment investigations were ongoing; management said outcomes could not be determined. The aggregate range of reasonably possible losses in excess of established reserves was estimated at $0 to approximately $250.
- Unusual charges and transactions: Fourth-quarter 2022 office-space reductions and related impairments produced a $39 net charge, compared with $202 in 2021. The company completed the Integra acquisition in 2022; BioPlus closed in February 2023. A proposed acquisition of Blue Cross and Blue Shield of Louisiana was expected to close by year-end 2023, subject to approvals. On January 24, 2023, the company authorized a further $5,000 increase to its share repurchase authorization and declared a quarterly dividend of $1.48 per share.
- Other exposures: Risks include cybersecurity and privacy incidents, provider contracting and labor-cost inflation, competition, investment-market volatility, substantial debt, subsidiary dividend restrictions, and dependence on CVS Health for certain PBM administration under an agreement ending December 31, 2024.
Important facts for investors to verify
- Track Medicaid redetermination effects on membership, risk mix, premium rates and medical costs, and whether expected replacement coverage materializes.
- Compare actual claims development and utilization with the disclosed reserve assumptions and monitor future revisions to medical claims payable.
- Follow the status and potential financial impact of the Blue Cross Blue Shield antitrust appeals, provider litigation, DOJ risk-adjustment case and CareMore/HealthSun investigations.
- Assess how investment losses, interest rates and debt issuance affect earnings, equity, borrowing costs and capital returns.
- Review acquisition approvals, integration progress and the 2023 segment reorganization when comparing reported results across periods.