Elevance Health, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Amounts are in millions of dollars except per-share data, ratios, and membership.
Business context
Elevance is a health insurer and healthcare services company with 46.2 million medical members at quarter-end. It reports four segments: Health Benefits, CarelonRx, Carelon Services, and Corporate & Other. The company noted that results for this seasonal interim period are not necessarily indicative of full-year results.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Operating revenue | $42,273 | $41,898 | +0.9% |
| Total revenue, including investment income and financial instrument losses | $42,577 | $42,172 | +1.0% |
| Net income | $2,249 | $2,004 | +12.2% |
| Shareholders’ net income | $2,246 | $1,989 | +12.9% |
| Diluted EPS | $9.59 | $8.30 | +15.5% |
| Operating cash flow | $1,978 | $6,469 | −$4,491 |
| Benefit expense ratio | 85.6% | 85.8% | −20 bps |
| Operating expense ratio | 11.6% | 11.5% | +10 bps |
Shareholders’ net income was 5.3% of total revenue, versus 4.8% a year earlier. Segment operating gain was $3,016, up 6.5%, and total operating margin was 7.1%, versus 6.8%.
Segment operating gain: Health Benefits $2,287 (+6.4%); CarelonRx $523 (+2.1%); Carelon Services $290 (+26.6%); Corporate & Other operating loss $84, compared with a $59 loss. Carelon Services revenue grew 15.9%; Health Benefits revenue was nearly flat.
At March 31, cash and cash equivalents were $6,226, and fixed-maturity and equity securities totaled $30,921. The company reported $37,147 of cash, cash equivalents, and those securities combined. Total assets were $111,894; total liabilities were $71,184; and total equity was $40,710. Debt-to-capital was 39.4%, up from 38.9% at year-end. Balance-sheet debt included $1,575 of short-term borrowings, $2,900 of current long-term debt, and $21,976 of long-term debt. The company reported $1,350 of commercial paper outstanding and $225 of Federal Home Loan Bank borrowings.
Operating cash flow fell largely because CMS premium payments received in Q1 2023 included April 2023 payments. Cash declined by $300 during Q1 to $6,226. Cash dividends were $1.63 per share; the company repurchased $566 of stock.
Material changes versus Q1 2023
- Revenue growth reflected premium-rate increases and higher CarelonRx product revenue, partly offset by Medicaid membership attrition.
- Net income and EPS rose, supported by higher segment operating gains, investment income, lower intangible amortization, and fewer diluted shares. Net investment income increased 20.2% to $465; net losses on financial instruments increased to $161 from $113.
- Medical membership declined 3.9% to 46.2 million, mainly due to Medicaid attrition and redeterminations. Medicaid membership fell 21.5% to 9.3 million; Individual membership rose 32.3% to 1.2 million.
- CarelonRx revenue included a full quarter of BioPlus results; Paragon Healthcare was acquired on March 11, 2024.
Outlook, commentary, risks, and unusual items
- Outlook: The filing does not provide a clear full-year earnings or EPS guidance figure. Management expects the Medicaid redetermination process to run through mid-2024 in most states and anticipates some people leaving Medicaid may seek commercial or Public Exchange coverage.
- Medicare Advantage ratings: Updated 2024 Star ratings mean an estimated 49% of members are in plans rated at least 4.0 stars, versus 64% for the prior ratings. Management estimates this will reduce 2025 operating revenue by approximately $310 and expects to partially offset the impact through efficiencies, capital alternatives, and network enhancements.
- Claims estimates: Q1 included $1,205 of favorable prior-period claims development, compared with $1,068 in Q1 2023. The company identifies medical claims payable estimates as a significant area of judgment.
- Transactions and efficiency program: The sale of the life and disability businesses to The Standard closed April 1, 2024; related assets and Q1 results were not material. The Centers acquisition is expected to close in Q3 2024, subject to approvals; the Louisiana Blue Cross and Blue Shield acquisition remains pending. The efficiency program is expected to be substantially complete by Q3 2024, with related cash payments continuing through 2024.
- Litigation and regulatory matters: The provider portion of the Blue Cross Blue Shield antitrust litigation and an appeal involving Express Scripts remain unresolved. The DOJ Medicare risk-adjustment False Claims Act case is in discovery. Management says it believes it has meritorious defenses and does not expect known proceedings, in aggregate, to materially affect financial position, but states outcomes remain uncertain.
- Other risks: The filing cites medical cost and utilization trends, government program funding and regulation, Star ratings, competition, cybersecurity and technology disruptions, litigation, acquisitions, and indebtedness. The company says it expects available cash, investments, operating receipts, and borrowing facilities to fund expected needs over the next 12 months.
Investor verification priorities
- Verify the drivers and sustainability of earnings growth, including the $1,205 favorable claims development and the effect of lower intangible amortization.
- Track Medicaid membership attrition, Public Exchange growth, and whether premium rates keep pace with medical cost trends.
- Assess the financial impact of the Medicare Advantage Star-rating change and the expected $310 revenue reduction in 2025.
- Monitor operating cash flow, debt maturities and short-term borrowing, and capital deployment through dividends, repurchases, and acquisitions.
- Follow the outcomes of the antitrust, Express Scripts, and Medicare risk-adjustment matters, as well as pending acquisitions and the NewCo partnership.