Dive Brief:
Elevance cut its 2025 guidance on Thursday after posting mixed second quarter results as the insurer struggles with elevated costs in the Affordable Care Act exchanges and the safety-net Medicaid program.
The turbulence looks set to continue into 2026, mostly as a result of the GOP’s recently passed tax and policy megabill that includes steep cuts to Medicaid and an overhaul of ACA eligibility and enrollment processes, executives said.
Overall, Elevance’s profit fell 24% year over year in the second quarter to $1.7 billion. That’s despite revenue of $49.4 billion being up 14% from the same quarter last year. The insurer’s stock fell almost 11% in Thursday morning’s trade following the results.
Dive Insight:
Medical utilization came back with a vengeance after the COVID-19 pandemic in 2023 before accelerating last year, driving higher costs in government programs. At the same time, health insurers are absorbing regulatory changes that make it harder to predict utilization patterns and comfortably achieve profits, such as Medicaid resuming member eligibility checks after a pandemic-era pause and stricter risk adjustment policies in Medicare Advantage.
UnitedHealth and Centene both yanked their 2025 guidance after observing accelerating utilization this year, while Molina lowered its own outlook.
Elevance is now the latest to cut guidance. The Indianapolis-based payer, which covers almost 46 million people, lowered its outlook for adjusted earnings per share to around $30 for the year, instead of at least $34.15.
“We know this adjustment is disappointing,” Elevance CEO Gail Boudreaux said on a call with investors Thursday morning. But it “reflects the same pressures that others in the sector have now confirmed … [and] is anchored, in our view, that the elevated trends we are now observing will persist,” she said.
“Given the uncertainty in the broader [managed care] group, we believe that following [Centene] and [Molina’s] updates in recent weeks that the reduced guidance was broadly expected,” J.P. Morgan analyst Lisa Gill wrote in a note on the payer’s earnings.
Specifically, Elevance saw more former Medicaid beneficiaries shift into ACA plans in the quarter due to the resumed eligibility checks. At the same time, some ACA members were removed from the coverage due to an inability to pay their premiums.
All told, those trends drove a market-wide increase in members’ health needs, raising Elevance’s ACA spending, according to CFO Mark Kaye.
Utilization ran notably higher in behavioral health, specialty pharmacy and emergency room care — especially the latter. Elevance’s ACA members are utilizing the ER at almost two times the level of its commercial members, Kaye said.
Meanwhile, some providers are also billing more aggressively — including through the dispute resolution process set up by the No Surprises Act, a concern that led Elevance to sue two Georgia providers and their billing company in May.
And in the roughly two dozen states where Elevance manages Medicaid plans, the insurer is continuing to see higher acuity amid the eligibility checks, as people retaining coverage tend to be sicker and require more medical spending, executives said.
The concern is that in 2026, this could all get worse as a result of the “One Big Beautiful Bill” that President Donald Trump signed into law on July 4.
The massive reconciliation package includes $1 trillion in cuts to Medicaid, and implements nationwide work requirements mandating certain Medicaid beneficiaries report work, education or volunteering hours in order to qualify for the coverage. It also requires people receiving subsidies for ACA plans to more militantly justify their eligibility and removes windows for enrollment. The law also doesn’t extend more generous subsidies for ACA coverage that are credited with spurring record enrollment.
Some 12 million people are expected to lose insurance as a result of the law, and another 4 million because of the subsidy cutoff.
That will create significant ripple effects for the health insurance industry, which is predicated on being able to properly forecast utilization. That calculus gets notably trickier when membership rolls drastically change.
Elevance expects the ACA risk pools to further degrade next year, so is raising premiums as a result, executives said during the call.
“Ultimately we believe the ACA market will likely be smaller and higher acuity next year, especially if the enhanced subsidies expire,” Kaye said.
But it’s too early to say whether other policy changes, like increased ACA market integrity, will help or hurt insurers in the long-term, Boudreaux added.
As for Medicaid, Boudreaux noted that work requirements will create near-term enrollment pressures but can be worked through in the long-term. States also continue to update their rates to account for heightened utilization, and hopefully payment will soon catch up, according to the CEO.
“We still think that both Medicaid and the ACA markets are both very positive markets. Yes there’s been a period of dislocation in what’s happened — but again, it’s been unprecedented,” Boudreaux said.
In a bright spot for Elevance, the payer said its MA trend is coming in as expected. Higher costs in the privatized Medicare plans have been a stressor for some of Elevance’s peers.
Still, Elevance is focusing on nudging members towards plans like HMOs that allow it more direct control over spending, and on expanding dual Medicare-Medicaid plans that typically come with high margins, said Felicia Norwood, who leads government health programs for Elevance.
Overall, Elevance reported a medical loss ratio of 88.9% in the second quarter, around what analysts had expected though notably higher than the 86.3% lodged same time last year.
MLR, a percentage representation of how much in premiums an insurer spent on medical claims, is an important marker of cost trends during a specific period.
Elevance’s health benefits division reported revenue of $41.6 billion, up 12% year over year as Elevance charged higher premiums to try and cover the higher cost trend. However, the business’ $1.6 billion in income from operations was down 27% as medical expenses well outpaced the premium hikes.
Elevance’s health services business Carelon outperformed expectations, with operating income of $900 million, up 29% year over year.
Performance was particularly strong in Carelon Services, the non-pharmacy benefits segment of the division. Elevance said its late 2024 acquisition of home health company CareBridge contributed to the business’ margins in the quarter.
