Elevance Health, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Unless stated otherwise, amounts are in millions of dollars. The filing reports annual results, not standalone fourth-quarter results.
Business context
Elevance is a U.S. health insurer and healthcare services company serving approximately 47.0 million medical members. Its businesses include Health Benefits, CarelonRx pharmacy services, and Carelon Services. Beginning in 2023, the company reorganized its reportable segments; prior-period segment data was recast for comparability.
Financial performance and position
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $170,209 | $155,660 | +9.3% |
| Total revenue, including investment income and financial-instrument gains or losses | $171,340 | $156,595 | +9.4% |
| Shareholders’ net income | $5,987 | $5,894 | +1.6% |
| Diluted EPS | $25.22 | $24.28 | +3.9% |
| Operating cash flow | $8,061 | $8,399 | −$338 |
| Benefit expense ratio | 87.0% | 87.6% | −60 bps |
| Operating expense ratio | 11.8% | 11.4% | +40 bps |
Premium revenue rose 7.2% to $142,854, primarily reflecting rate increases intended to better match care costs. Product revenue increased 29.9% to $19,452, led by CarelonRx growth and the BioPlus acquisition. Benefit expense increased 6.6% to $124,330; operating expense rose 13.5% to $20,087, including efficiency-program charges. Net investment income increased to $1,825, while net losses on financial instruments were $694, versus losses of $550 in 2022.
Segment operating revenue and operating gain were: Health Benefits, $148,571 and $6,888; CarelonRx, $33,835 and $1,975; and Carelon Services, $14,147 and $680. Year-over-year operating revenue rose 7.3%, 18.6%, and 10.0%, respectively. Segment operating margins were 4.6% for Health Benefits, 5.8% for CarelonRx, and 4.8% for Carelon Services. Corporate & Other reported an operating loss of $1,044, including $753 of 2023 business-efficiency charges.
Cash and cash equivalents were $6,526; total cash, cash equivalents, and fixed-maturity and equity securities were $37,245. Long-term debt was $24,895 at carrying value, plus $225 of short-term borrowings; the consolidated debt-to-capital ratio was 38.9%, down from 39.9%. The company had no outstanding commercial paper or borrowings under its $4,000 revolving credit facility and reported compliance with debt covenants. It generated $8,061 in operating cash flow and used $2,676 for share repurchases and $1,395 for dividends.
Material changes and unusual items
- Medical membership declined 1.2% to 46.961 million, mainly due to Medicaid eligibility redeterminations and lower Employer Group risk-based membership. Medicaid membership fell 9.2%; Individual membership rose 29.9%, Medicare Advantage 3.5%, and BlueCard 5.8%.
- The 2023–2024 Business Efficiency Program recorded $752 of expense, including IT and contract write-offs, workforce reductions, and facility-related impairments. It is expected to be substantially complete by the end of Q3 2024, with associated cash outlays primarily through 2024.
- Operating cash flow decreased from 2022, primarily due to working-capital timing. The company also spent $1,552 on acquisitions, net of cash acquired, and $1,296 on property and equipment.
- Medical claims payable was $16,111 at year-end. The company recorded $1,571 of favorable prior-year claims development in 2023, principally from more favorable trend and completion factors than previously estimated.
Outlook, risks, and contingencies
- Medicare Advantage Star ratings: 34% of Medicare Advantage members were in plans rated at least 4.0 Stars for 2024, versus 64% for 2023 ratings. Elevance expects this to reduce 2025 operating revenue by approximately $500, net of contracting offsets, and plans to mitigate the effect through operational and business measures.
- Membership and medical costs: Medicaid redeterminations were expected to continue through 2024. The company expects some affected members to seek coverage through commercial, Public Exchange, or Medicare plans. Higher utilization, provider and labor costs, specialty drugs, and pricing or rate-setting constraints could pressure margins.
- Regulatory and program exposure: Government programs generated approximately 29% of 2023 consolidated revenue. Changes in government funding, risk adjustment, minimum medical loss ratios, and Medicare or Medicaid rules could affect results.
- Legal matters: The DOJ Medicare risk-adjustment case remains pending; the company says it will defend the case. In separate CareMore and HealthSun reviews, Elevance self-disclosed concerns to authorities and submitted corrected data; HealthSun repaid approximately $53 million, and the DOJ declined to prosecute HealthSun in October 2023. Provider claims in the Blue Cross Blue Shield antitrust litigation remain unresolved; rehearing petitions concerning the subscriber settlement were pending at year-end.
- Strategic transactions: The BioPlus specialty-pharmacy acquisition closed in February 2023. Proposed acquisitions of Paragon Healthcare and Centers Plan for Healthy Living, and the proposed sale of life and disability businesses to The Standard, remained subject to closing conditions and approvals. The acquisition of Blue Cross and Blue Shield of Louisiana also remained subject to approvals.
- Other risks: The filing highlights cybersecurity and privacy incidents, dependence on third-party service providers (including CVS for certain CarelonRx functions under an agreement ending December 31, 2025), provider contracting, investment-market risk, indebtedness, and possible restrictions on subsidiary dividends. Elevance reported no known cybersecurity threat that had materially affected, or was reasonably likely to materially affect, the company as of December 31, 2023.
The filing gives no clear general 2024 earnings or EPS guidance. Management states that cash, investments, operating receipts, and available borrowing capacity should cover expected cash needs over the next 12 months. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting, although BioPlus was excluded from the 2023 control assessment.
Important facts for investors to verify
- Whether Medicaid membership losses and growth in other lines develop as expected, and how pricing and utilization affect the benefit expense ratio.
- Progress toward improving Medicare Advantage Star ratings and the actual 2025 revenue and earnings impact relative to the estimated $500 million revenue reduction.
- Claims-reserve development, including the assumptions behind the $16,111 claims liability and the $1,571 favorable prior-year development.
- Completion costs and realized savings from the efficiency program, alongside continued operating-expense growth.
- Outcomes of the DOJ risk-adjustment case and Blue Cross Blue Shield provider litigation, and status of the pending transactions.
- Debt maturities, regulated-subsidiary dividend capacity, capital deployment, and the effect of investment losses or market changes on earnings and liquidity.