Elevance Health, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; dollar amounts are in millions unless otherwise noted. Prior-period figures were restated following adoption of long-duration insurance accounting guidance; management said adoption had no overall material impact.
Business context
Elevance is a health insurer and healthcare services company, serving approximately 48.0 million medical members. Its 2023 reporting segments are Health Benefits, CarelonRx, Carelon Services, and Corporate & Other. Comparative segment results were recast to the new structure.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total operating revenue | $43,377 | $38,482 | $85,275 | $76,368 |
| Total revenues | $43,672 | $38,632 | $85,844 | $76,727 |
| Net income | $1,856 | $1,634 | $3,860 | $3,413 |
| Shareholders’ net income | $1,853 | $1,637 | $3,842 | $3,426 |
| Diluted EPS | $7.79 | $6.73 | $16.10 | $14.05 |
| Benefit expense ratio | 86.4% | 87.1% | 86.1% | 86.6% |
| Operating expense ratio | 11.1% | 11.1% | 11.3% | 11.3% |
- Q2 operating revenue rose 12.7% and shareholders’ net income rose 13.2% year over year; diluted EPS increased 15.8%. For the first half, operating revenue increased 11.7%, shareholders’ net income 12.1%, and diluted EPS 14.6%.
- Q2 operating gain was $2,628, up from $2,346. Segment Q2 operating gains were Health Benefits $2,148, CarelonRx $496, Carelon Services $136, and Corporate & Other loss of $152. CarelonRx’s operating margin was 5.9%, down from 6.8%; Health Benefits’ was 5.7%, up from 5.2%.
- Six-month operating cash flow was $8,419, versus $4,993, mainly reflecting timing of CMS payments and higher net income, partly offset by working-capital timing. Cash and cash equivalents were $9,991 at June 30.
- Cash, cash equivalents, and fixed-maturity and equity securities totaled $39,059. Total debt was approximately $25,124, including short-term borrowings; consolidated debt-to-capital was 39.6%, versus 39.9% at year-end. The $4,000 revolving credit facility had no borrowings outstanding; the company reported covenant compliance.
- First-half dividends were $2.96 per share and cash repurchases were $1,268. The quarterly dividend was increased to $1.48 per share, with a third-quarter payment declared after period-end.
Material changes and management commentary
- Revenue growth reflected premium rate increases and Medicaid and Medicare Advantage membership growth, plus CarelonRx external pharmacy growth and the BioPlus acquisition. Medical membership increased 2.0% year over year to 47.989 million.
- Benefit expense rose 9.8% in Q2, below premium growth, and the benefit expense ratio improved 70 basis points. Management attributed the improvement to premium increases intended to better reflect care costs; medical cost trends and membership growth still raised benefit expense.
- CarelonRx revenue increased 19.7% in Q2, while operating gain rose 3.5%; management cited BioPlus and external customer growth, partly offset by a favorable prior-year adjustment that did not recur. Corporate & Other’s operating loss widened, primarily due to higher unallocated corporate expenses.
- Medical claims payable included $1,112 of favorable prior-period claims development during the first half, compared with $972 in the prior-year period. Management attributed this largely to more favorable-than-expected claims trends and completion factors.
- Operating cash flow benefited from timing of CMS receipts, so the first-half increase should not be assumed to recur at the same level.
Outlook, risks, and contingencies
- The filing provides no specific full-year 2023 earnings or revenue guidance. Management said interim results are not necessarily indicative of full-year results and cited seasonality and market conditions.
- Medicaid eligibility redeterminations resumed beginning April 1, 2023; most of Elevance’s Medicaid markets had begun redeterminations by June 30, and the company reported membership declines. Management expects some people leaving Medicaid to seek commercial coverage over time, including through the exchanges.
- Elevance expects to sell its life and disability businesses to The Standard by the end of Q1 2024, subject to approvals and closing conditions. The BCBS Louisiana acquisition is expected by the end of Q4 2023, also subject to conditions. BioPlus was acquired in February 2023.
- Key exposures include medical-cost utilization and provider-cost trends, government program funding and regulation, Medicaid membership changes, Medicare risk-adjustment requirements, competition, investment-market changes, cyber and technology risks, and substantial debt and financing costs.
- Legal matters include Blue Cross Blue Shield antitrust litigation, a federal Medicare risk-adjustment False Claims Act case, and DOJ investigations concerning risk-adjustment practices at CareMore and HealthSun. Elevance said outcomes could not be determined. It estimated aggregate reasonably possible losses in excess of established reserves of $0 to approximately $250; this range does not resolve exposure in matters whose outcomes or losses cannot be estimated.
- The subscriber antitrust settlement payment of $596 was accrued in 2020; $506 was placed in escrow in 2022, with appeals pending at the filing date. The provider litigation and follow-on cases remain ongoing.
Important facts for investors to verify
- How Medicaid redeterminations affect membership, premium revenue, and the expected transition of members to commercial plans.
- Whether medical-cost trends and claims reserve development remain consistent with current pricing and the favorable first-half claims development.
- Segment-level margins, especially CarelonRx, and the effects of BioPlus integration and nonrecurring prior-year adjustments.
- Cash-flow sustainability after the timing-driven benefit from CMS receipts, alongside acquisition, capital expenditure, dividend, and repurchase spending.
- Developments in the Medicare risk-adjustment investigations and litigation, antitrust appeals, and the related potential financial exposure.
- Completion timing and terms of the proposed BCBS Louisiana acquisition and life and disability divestiture.