Elevance Health, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. Elevance serves more than 47 million medical members. The company changed its name from Anthem, Inc. to Elevance Health, Inc. in June 2022; its reporting segments remained unchanged.
Financial performance and condition
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $39,625 | $35,548 | $115,993 | $100,925 |
| Total revenues | $39,939 | $35,822 | $116,666 | $102,058 |
| Net income | $1,613 | $1,502 | $5,058 | $4,970 |
| Shareholders’ net income | $1,618 | $1,509 | $5,076 | $4,967 |
| Diluted shareholders’ EPS | $6.68 | $6.13 | $20.86 | $20.09 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $9,917 | $6,692 |
- Growth and profitability: Q3 operating revenue rose 11.5%, net income 7.4%, and diluted EPS 9.0% year over year. For the nine months, operating revenue rose 14.9%, net income 1.8%, and diluted EPS 3.8%.
- Margins and claims: Benefit expense ratio was 87.2% in Q3 versus 87.7% a year earlier; management said it would have been approximately flat absent a reclassification of certain quality-improvement costs. Nine-month ratio was 86.8% versus 86.7%. SG&A ratio was 11.4% in Q3 versus 11.1%, and 11.3% year to date versus 11.6%. Shareholders’ net income as a percentage of total revenues was 4.0% in Q3 and 4.3% year to date, down from 4.2% and 4.9%, respectively.
- Cash flow and liquidity: Nine-month operating cash flow increased $3,225, primarily from the timing of CMS payments, partly offset by the subscriber antitrust settlement payment. Cash and cash equivalents were $8,872 at September 30, up from $4,880 at year-end 2021. Cash, cash equivalents and fixed-maturity and equity securities totaled $36,523. Management said available cash, operations, investments and credit facilities should cover expected needs for the next 12 months.
- Debt: Balance-sheet debt, including short-term borrowings and current and long-term debt, totaled approximately $23,772. The consolidated debt-to-capital ratio was 39.7%, compared with 38.9% at year-end 2021; the company reported compliance with its debt covenants. The revolving facility was expanded to $4,000 and extended to April 2027. Commercial paper outstanding was $675.
- Capital and investments: Nine-month share repurchases were $1,748 and dividends paid were $924. Available-for-sale fixed-maturity securities had a $2,877 gross unrealized loss at quarter-end; accumulated other comprehensive loss was $2,784, largely reflecting investment-market declines.
Material changes and operating drivers
- Revenue growth reflected Medicaid membership and premium increases, Medicare Advantage and commercial growth, pharmacy script volume, acquisitions, and reinstatement of a Medicaid directed-payment program. Medical membership rose 4.9% year over year to 47.283 million.
- Government Business revenue grew 13.4% in Q3 and 18.3% year to date. Segment operating gain fell 10.2% in Q3, principally due to administrative costs supporting growth, but increased 14.7% year to date.
- Commercial & Specialty operating gain increased 26.6% in Q3 but was slightly lower year to date. IngenioRx operating gain rose 16.0% in Q3 and 10.8% year to date. Other segment operating gain increased from a lower base.
- Year-to-date net income growth was limited by net losses on financial instruments versus gains in 2021 and higher intangible amortization related to acquisitions and rebranding. Q3 IngenioRx results included a favorable out-of-period fee-revenue adjustment.
- The May 2022 Integra Managed Care acquisition added New York Medicaid long-term-care operations. Prior-year acquisitions, including MMM and myNEXUS, also affected comparisons.
Outlook, risks and contingencies
- Outlook: No specific full-year earnings or EPS guidance is provided in the supplied filing text. Management expected higher Q4 claims from a more normal flu season and incremental COVID-19 costs versus Q2 and Q3. It expected Medicaid membership to decline when eligibility recertifications resume after the public health emergency, while anticipating growth in commercial and exchange coverage among some people leaving Medicaid.
- Claims uncertainty: COVID-19 continues to affect utilization and claims-submission patterns, increasing uncertainty in incurred-but-not-reported reserves. Favorable prior-period medical-claims development was $901 for the first nine months of 2022, versus $1,822 in 2021.
- Regulatory and market risks: The filing highlights healthcare-cost and utilization trends, premium adequacy, Medicare and Medicaid oversight and funding, COVID-19, regulatory changes, competition, cybersecurity, investment-market volatility, and dependence on provider and PBM arrangements. The Inflation Reduction Act includes provisions affecting exchange subsidies, Medicare drug pricing and benefits, and a 1% stock-repurchase excise tax beginning after December 31, 2022.
- Litigation: The Blue Cross Blue Shield subscriber antitrust settlement received court approval, and Elevance paid its remaining $506 million share into escrow; the company’s aggregate settlement payment was $596 million. Appeals were filed, and settlement obligations become effective after appellate rights are exhausted in a manner affirming the order. Provider and follow-on litigation remain unresolved. The company estimates aggregate reasonably possible losses in excess of established reserves of $0–$250 million where estimable.
- The DOJ Medicare risk-adjustment case will proceed in the Southern District of New York after the court denied transfer and dismissal motions. Elevance also disclosed voluntary CMS/DOJ inquiries into risk-adjustment practices at CareMore and HealthSun, cooperation with investigations, and data corrections underway; potential outcomes are not clear from the filing.
- Other notable items include approximately $830 million of remaining commitments under an IT-services agreement and increased amortization following reclassification and shortened lives of certain brand-related intangible assets.
Key facts for investors to verify
- Whether Medicaid recertifications, membership changes, and related revenue and claims develop as management expects after the public health emergency.
- Claims reserve development and the impact of utilization trends, including COVID-19 and seasonal flu, on benefit costs and margins.
- Progress and financial exposure from the subscriber settlement appeals, provider antitrust litigation, DOJ risk-adjustment case, and CareMore/HealthSun investigations.
- Whether investment-market losses remain primarily unrealized and how interest rates and credit conditions affect portfolio values and investment income.
- How acquisition and rebranding-related amortization, plus the disclosed out-of-period IngenioRx adjustment, affect future comparability and segment results.
- Actual liquidity needs, debt levels, regulated-subsidiary capital and dividend capacity, and future repurchases and dividends.