Elevance Health, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in millions except per-share data. The company changed its name from Anthem, Inc. to Elevance Health, Inc. effective June 27, 2022, and began trading as ELV on June 28.
Business context and performance
Elevance served 47.1 million medical members at June 30, up 2.7 million, or 6.1%, year over year. It operates Commercial & Specialty, Government, IngenioRx and Other segments. Government membership growth, particularly Medicaid, was supported by the temporary suspension of eligibility recertifications, acquisitions and organic growth.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $38,482 | $33,279 | $76,368 | $65,377 |
| Total revenue | $38,632 | $33,851 | $76,727 | $66,236 |
| Net income | $1,650 | $1,801 | $3,445 | $3,468 |
| Shareholders’ net income | $1,653 | $1,793 | $3,458 | $3,458 |
| Diluted EPS | $6.79 | $7.25 | $14.18 | $13.95 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $4,993 | $4,188 |
Financial position, margins and capital
- Margins: Benefit expense ratio was 87.0% in Q2 versus 86.8%; 86.5% for the first half versus 86.2%. SG&A ratio improved to 11.1% from 11.5% in Q2 and to 11.3% from 11.8% for the first half.
- Segment operating gain: Q2 Government Business was $996, IngenioRx $479, Commercial & Specialty $806 and Other $86. First-half gain was $4,814, up from $4,242; Commercial & Specialty gain fell 8.3% to $1,888, while Government gain rose 32.6% to $1,785.
- Cash and investments: Cash and cash equivalents were $6,456 at June 30. Management reported $34,396 of cash, cash equivalents and investments in fixed maturity and equity securities, up $736 from year-end 2021. Parent-company cash, cash equivalents and investments available for general corporate use were $948.
- Debt and liquidity: Total debt was approximately $23,588, including short-term borrowings and current and long-term debt. The debt-to-capital ratio was 39.7%, versus 38.9% at year-end; the company reported compliance with covenants. It had $550 of commercial paper outstanding and no borrowings under its $4,000 revolving facility. The facility was extended to April 2027 and increased from $2,500 to $4,000.
- Capital returns: First-half share repurchases were $1,169 and dividends paid were $618. The quarterly dividend was $1.28 per share; a third-quarter dividend at the same rate was declared after quarter-end.
Material changes versus prior comparable periods
- Operating revenue rose 15.6% in Q2 and 16.8% for the first half, mainly on Medicaid premium growth, Medicare and Commercial membership and rate increases, higher pharmacy revenue, and acquisitions including MMM, Ohio Medicaid membership and Integra.
- Q2 net income declined 8.4%, while first-half net income declined 0.7%. Results included net losses on financial instruments of $231 in Q2 and $382 for the first half, compared with gains in the prior-year periods. Higher intangible amortization also weighed on earnings; these effects were partly offset by increased segment operating gain.
- First-half diluted EPS increased 1.6% to $14.18, primarily reflecting fewer diluted shares; Q2 diluted EPS fell 6.3% to $6.79.
- First-half operating cash flow increased $805 to $4,993. Cash rose partly because operating cash generation exceeded uses for investments, acquisitions, capital spending, buybacks and dividends.
- Investment-market declines drove a $1,979 first-half shareholders’ other comprehensive loss, largely from unrealized investment losses; accumulated other comprehensive loss increased to $2,149 from $178 at year-end.
Outlook, commentary and risks
- The filing provides no specific full-year revenue, earnings or EPS guidance. Management cautions that interim results are not necessarily indicative of full-year results and expects available cash, operating receipts, investments and borrowing capacity to fund expected needs.
- Management expects Medicaid membership to decline when eligibility recertifications resume after the public health emergency, which had been extended through October 2022; it anticipates some members may seek Commercial coverage. Recertification timing may vary by state.
- COVID-19 remains a source of uncertainty for utilization, testing, treatment and claims costs. Management anticipated additional COVID-related claims during the remainder of 2022 and noted that utilization of non-COVID services recovered during Q2.
- Medical claims estimates remain uncertain because of COVID-related utilization and submission patterns. Favorable prior-period claims development was $972 for the first half of 2022, compared with $1,772 in 2021.
- The company completed its Integra Managed Care acquisition in May 2022. It is also reorganizing brands as Anthem Blue Cross/Blue Cross and Blue Shield, Wellpoint and Carelon; IngenioRx was expected to become CarelonRx in January 2023. The branding change increased amortization as some intangible-asset lives were shortened or reclassified.
- Contingencies: Elevance’s estimated share of the proposed Blue Cross Blue Shield subscriber antitrust settlement is $594; $507 remained accrued at June 30, subject to court approval and appeals. The provider litigation remains unresolved. The filing estimates aggregate reasonably possible losses above established reserves of $0 to approximately $325, where estimable. It also describes Medicare risk-adjustment litigation and government investigations involving CareMore and HealthSun; outcomes cannot presently be determined.
- Other risks include healthcare cost and utilization trends, regulatory and reimbursement changes, investment-market volatility, Medicaid and Medicare program requirements, litigation, acquisition execution, and substantial indebtedness. Management said it was cooperating with DOJ investigations and had begun submitting data corrections to CMS in the CareMore and HealthSun matters.
Key facts for investors to verify
- Whether Medicaid redeterminations begin as expected, and the resulting effect on membership, revenue and margins.
- Medical cost trends and claims-reserve development, including the impact of COVID-19 and the unusually significant favorable prior-period reserve releases.
- Whether investment losses and unrealized portfolio declines continue, and how these affect earnings, equity and capital.
- Progress and potential financial exposure in the Blue Cross Blue Shield settlement, provider litigation, Medicare risk-adjustment case and CareMore/HealthSun investigations.
- Integra and other acquisitions’ contribution to growth and returns, alongside higher amortization and integration costs.