Dive Brief:
Elevance’s profits took a serious hit in the fourth quarter of 2024, falling to $418 million — down more than half from $856 million in the prior-year period — amid higher medical costs in the safety-net Medicaid program, according to financial results released Thursday morning.
Yet the insurer’s earnings were in line with analyst expectations after a hard year. Investors also found reason for optimism in revenue growth, with Elevance’s topline of $45 billion up about 6% year over year. Elevance’s stock, and shares in managed care peers, rose in Thursday morning trading following the results.
Still, Elevance’s guidance for 2025 implies the insurer expects spending to remain elevated this year, and some market watchers are concerned about the health of Elevance’s growth outlook for privatized Medicare plans — another source of shrinking margins.
Dive Insight:
Elevance’s fourth-quarter results were mixed but better than many feared after a tumultuous 2024.
The Indianapolis-based insurer dropped long-term growth forecasts for its health insurance business in the summer, citing higher than expected membership losses from Medicaid, along with slowing growth in Medicare Advantage. Three months later, Elevance lowered its 2024 profit guidance for the full company, citing a mismatch between the cost of covering healthcare and state payment rates in Medicaid.
Both the membership losses and the payment mismatch are a result of the same process: Medicaid unwinding, in which states resumed checking their members’ eligibility for the safety-net program in 2023 after taking a break during the COVID-19 pandemic.
Millions of Americans have lost Medicaid coverage as a result, and the individuals remaining in the program skew sicker (and therefore more expensive). Meanwhile, states have worked to increase payment rates to insurers in Medicaid managed care programs, but aren’t doing so quickly enough for insurers’ liking.
This has had a big impact on Elevance, the second-largest Medicaid managed care organization with contracts with more than two dozen states.
Elevance’s medical loss ratio, a key metric of how much insurers spend on healthcare costs, was 92.4% in the fourth quarter, up from 89.5% in the third quarter and from 89.2% in the fourth quarter of 2023.
Small changes in MLR can result in significant changes to an insurer’s profitability — the MLR increase coincided with a 75% drop in operating profits for Elevance’s health benefits business year over year.
In Medicaid, higher costs were concentrated in behavioral health and inpatient services that haven’t yet been captured by state rate increases, CFO Mark Kaye said on a Thursday morning call with investors.
Elevance has visibility into 70% of premiums for its Medicaid members at this point, and expects rates to stabilize in the first half of 2025 before Medicaid margins improve in the back half of the year, according to Felicia Norwood, who runs Elevance’s Medicare and Medicaid businesses.
January updates were “insufficient” and July rates “will be critical as well as we continue to close and narrow that gap,” Norwood said.
Still, Elevance expects costs to rise further in 2025, projecting a MLR of 89.1% at the midpoint. In comparison, Elevance’s full-year MLR for 2024 was 88.5%.
Shrinking margins in Medicare Advantage plans also hit Elevance last year, causing the payer to trim benefits and exit underperforming markets to try and improve profitability in 2025.
The CMS has yet to release official figures on MA enrollment coming out of last fall’s signup period, but Elevance’s membership growth was in line with the insurer’s expectations and “really good in terms of the positioning of product and geography and overall,” CEO Gail Boudreaux said on the call.
Elevance expects to end this year with 2.2 million to 2.5 million MA members, representing growth of about 7% to 9%.
Most of that growth already happened in open enrollment, executives said. Only a small number of seniors aging into Medicare or people becoming eligible for joint Medicaid-Medicare coverage are expected to join its plans over the rest of 2025.
A 7% to 9% growth rate is consequential but not massive, analysts said. It’s also in line with growth expectations from peer and MA market giant UnitedHealthcare, which reported earnings last week.
All told, the forecast avoids a worst-case scenario of Elevance adding significantly more members than it should and being saddled with high spending on their care (a situation that happened to peers CVS and Humana in 2024), according to investors.
Still, some investors have raised concerns that Elevance only stopped that runaway growth by halting commissions to brokers selling certain low-margin plans during the Medicare open enrollment period, and that the company did in fact misprice its 2025 coverage.
Executives attempted to tamp down on those concerns during the call. Much of the insurer’s growth during open enrollment was in HMO plans, which limit coverage to a set group of providers and give insurers more control over spending, Norwood said.
Similarly, the majority of enrollment was from existing members, Boudreaux said, which give insurers more visibility into their costs.
It’s the first earnings season since the December killing of UnitedHealthcare CEO Brian Thompson made clear the intensity of public animus against insurers for restricting access to medical care. Elevance was swept up in the firestorm over news reports that the insurer planned to curb anesthesia coverage, leading Elevance to rescind the policy one day after Thompson’s death.
Elevance executives didn’t address the crime directly on Thursday. But Boudreaux spent more time than usual at the outset of the call arguing that Elevance improves health outcomes and lowers costs for its members.
“We recognize that the healthcare ecosystem is grappling with significant challenges,” the CEO said. “We’re addressing these challenges with great urgency.”
Overall, Elevance brought in $175.2 billion in 2024, up 3% year over year, thanks to higher premiums in its insurance plans and growth in health services business Carelon. Full-year profit of almost $6 billion was essentially flat year over year.
The insurer ended 2024 with 45.7 million covered lives, down about 2% as growth in employer and Affordable Care Act plans failed to fully offset the extent of Medicaid losses.
