Elevance Health is working to mitigate rising costs in its Medicaid business amid what executives describe as a challenging year ahead.
The company reported its third-quarter earnings on Oct. 21, with senior leadership telling investors that escalating Medicaid costs, driven by higher member acuity and utilization, will continue to pressure margins into 2026.
“Continued membership reverifications and state program changes have driven acuity higher, and we are planning for at least a 125 basis point year over year decline in Medicaid margins as rates like acuity and utilization trends remain elevated,” CEO Gail Boudreaux said.
Elevance outlined its strategy to address the cost pressures, which includes expanding behavioral health interventions, tackling specialty pharmacy costs, and optimizing sites of care. CFO Mark Kaye said that recent Medicaid disenrollments have primarily affected lower-acuity members, and the higher acuity and utilization have not been fully offset by rate updates from state Medicaid programs.
“While next year will reflect challenging Medicaid dynamics, membership changes, and disciplined investment, we expect 2027 to mark a return to a more balanced earnings growth profile,” Mr. Kaye said.
The company also faces uncertainty in its ACA business as it prepares for the potential expiration of enhanced premium tax credits at the end of this year. If the subsidies expire, Elevance expects a “material contraction” in the ACA marketplace, with a sicker member pool and higher premiums. Ms. Boudreaux noted that the company has prepared for various policy outcomes and will work with regulators to ensure continued coverage for affected members.
Elevance Health posted a net income of about $1.2 billion during the third quarter, up 17.8% from roughly $1 billion at the same time last year. Total revenues reached $50.7 billion, which marked a 12% increase year over year. The company reaffirmed its 2025 earnings per share guidance of $30 and anticipates a full-year medical loss ratio of 90%. The company had roughly 8.6 million Medicaid members as of Sept. 30.
