Elevance Health (ELV) Q2 FY26 earnings call: guidance and Q&A

Clarify the expected trajectory of Medicaid margins in the back half of the year, given the -1.75% full-year outlook, and provide more color on the criteria and sizing of planned Medicaid market exits.

Management expects second-half Medicaid margins to improve from Q2 due to favorable July 1st rate activity and continued execution on cost pressures. Market exits are based on strategic fit, operational requirements, and appropriate return on capital, not solely on current year performance, and are targeted actions to ensure long-term sustainability.

“we do expect the second half Medicaid margin profile to improve from the second quarter, and that's going to be supported by that favorable July 1st rate activity as well as our continued execution against the cost pressures that we've been discussing.”

asked by Albert Rice · answered by Mark Kaye

Provide an order of magnitude for the planned Medicaid market exits relative to the $57 billion revenue run rate, and explain why acuity is in line with expectations despite conservative assumptions and ongoing member attrition.

Medicaid cost trends are in line with expectations, driven by utilization among remaining members rather than a new step-wise acuity reset. The acuity of members leaving Medicaid is still lower, but the gap has narrowed. The company did not provide specific sizing for future exits but reiterated that decisions are based on sustainable performance and strategic fit.

“Importantly, I would say we are not seeing a new step-wise acuity reset. Membership and acuity remain broadly aligned with our assumptions and the incremental pressure is increasingly coming from utilization among members who remain in the program.”

asked by Justin Lake · answered by Mark Kaye

Understand the first-half performance of the Individual ACA business relative to expectations, the current risk adjustment position for 2026, and the impact of the favorable 2025 risk adjustment results on the quarter.

Final 2025 risk adjustment results were favorable, reinforcing confidence in estimation processes. This favorability is being prudently reestablished in the 2026 risk adjustment accrual, reflecting intentional conservatism given the developing ACA market and shifting member mix towards Bronze plans. The magnitude of the 2025 favorability can be inferred from the sequential move in reported ACA revenue.

“the final 2025 risk adjustment results were quite favorable relative to our prior estimate and that's reinforced our confidence in our estimation and reserving process. And you're able to give a sense of the magnitude of that simply by looking at our disclosures in the earnings release in terms of the sequential move quarter-over-quarter in reported ACA revenue.”

asked by Stephen Baxter · answered by Mark Kaye

Explain why seasonal favorability increased sequentially from $0.15 in Q1 to $0.25 in Q2, and whether there are indications this first-half upside would reverse in the back half, or if it's purely a conservative stance.

The $0.50 operating outperformance in Q2 was split between Medicare Advantage and Individual ACA. ACA favorability reflected more pronounced seasonality from Bronze plans (similar to Q1) and favorable 2025 risk adjustment results. The company is prudently reestablishing much of this favorability in 2026 accruals, indicating a conservative stance for the back half rather than an expectation of reversal.

“In the quarter, we had about $0.50 of operating outperformance. And I would say that was about equally split between Medicare Advantage and the individual ACA. In Medicare Advantage, that favorability primarily reflected the deliberate portfolio actions we took for 2026. Our favorable membership mix, better claims experience.”

asked by Andrew Mok · answered by Mark Kaye

How will the one-time, nonrecurring investments impact the 2027 growth rate and operational leverage? Specifically, are these technology or people investments, and what is their expected return?

The one-time investments in 2026 will not recur in 2027, providing leverage for future growth. They are focused on long-term capabilities like medical cost management (e.g., AI-enabled analytics for faster trend detection), member experience (Sydney Health), provider connectivity (Health OS for reduced friction), and scaling Carelon's value-based solutions. These are expected to improve both expense and medical cost structures, supporting the confidence in at least 12% adjusted EPS growth in 2027.

“So strengthening medical costs. In my opening comments, I talked about moving from months of identification to days and hours. And again, we're using this to strengthen our data and our insight capabilities and then take actions faster on medical cost management.”

asked by Lisa Gill · answered by Gail Boudreaux

Reconcile the improved Medicaid rate updates with an unchanged margin outlook, and explain why market exits are being discussed more now if the rate outlook is improving.

The unchanged margin outlook reflects prudence, as the full benefit of favorable July rates is moderated by timing and affected book portion. Medicaid cost trends are consistent with first-half experience, with utilization patterns being the primary driver. Market exits are strategic, long-term decisions based on sustainable performance and alignment with the dual footprint, not solely on current rate improvements, which are seen as a positive but not a complete solution for all markets.

“The July rate activity was favorable. And as we mentioned earlier, that does confirm that the rate environment is moving in the right direction though the full year benefit is obviously naturally moderated by the timing and the portion of the book that's affected.”

asked by Kevin Fischbeck · answered by Mark Kaye

How does the company reconcile its view of 2026 as the Medicaid trough year with upcoming macro headwinds like BBBA regulations, work requirements, and 1115 waivers?

Management believes these macro factors are manageable within their existing framework. While 2027 may see some incremental acuity pressure from BBBA community engagement and verification requirements, it's not viewed as a broad-based reset comparable to the post-PHE unwind, meaning the acuity shift is largely behind them. Work requirements from the interim final rule are anticipated to be phased, state-specific, and manageable, impacting only about 20% of their book (Medicaid expansion and waiver members).

“But importantly, from our perspective, we don't view that as a broad-based reset, anything comparable to the post-PHE unwind. And that's really significant because I would say that means the acuity shift to a large degree is behind us.”

asked by Scott Fidel · answered by Mark Kaye