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# Elevance Health, Inc. (NYSE: ELV) — Narrative, FY26Q3 Quarter ended September 30, 2026. Elevance Health reports in US dollars on a calendar fiscal year. Amounts the filings state in millions are converted to billions here where noted. --- ## Business *From the FY2025 Form 10-K (fiscal year ended December 31, 2025), accession 0001156039-26-000013.* Elevance Health is one of the largest health insurers in the United States by medical membership, covering about 45.2 million medical members at December 31, 2025. It earns money in three ways: risk-based premiums from health plans it underwrites for individuals, employers, Medicare and Medicaid; administrative fees from self-funded employers whose claims it processes and whose members use its provider networks; and pharmacy and health-service fees through its Carelon businesses. Premiums were $164.64 billion of 2025's $197.58 billion operating revenue. About 32% of 2025 consolidated revenue came from U.S. government agencies (31% in 2024, 29% in 2023), mostly in the Health Benefits segment. The company is an independent licensee of the Blue Cross and Blue Shield Association (BCBSA). It is the Blue Cross licensee for California and the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties around Kansas City), Nevada, New Hampshire, New York (the New York City metropolitan area and upstate), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In most of those areas it trades as Anthem Blue Cross or Anthem Blue Cross and Blue Shield. Outside them it operates as Wellpoint, Carelon, MMM and Simply Healthcare, and it is licensed for insurance in all 50 states, D.C. and Puerto Rico. At December 31, 2025 it provided health benefit and other services to about 34 million Blue-branded enrollees. The company calls the BCBS brand the most recognized in the industry and says it is typically the largest participant in each of its Blue markets. The business is organised as three go-to-market brands (Anthem, Wellpoint, Carelon) and reported in four segments: - **Health Benefits.** Plans for Individual (on- and off-exchange ACA), Employer Group risk-based, Employer Group fee-based (self-funded), BlueCard host, Medicare (Medicare Advantage including Special Needs Plans, Medicare Supplement, and Medicare-Medicaid dual plans), Medicaid, and the Federal Employee Program (FEP). It also sells stop loss, dental, vision and supplemental health cover. In 2025 it provided Medicaid and other state-sponsored services in 22 states plus D.C. and Puerto Rico. The 10-K stated that the company would no longer offer Medicare Part D plans in 2026. 2025 operating revenue was $167.09 billion: Commercial $50.40 billion (of which Individual $9.30 billion), Medicare $44.75 billion, Medicaid $56.62 billion and FEP $15.32 billion. - **CarelonRx.** The pharmacy benefit and pharmacy services business, serving the company's own health plans and outside customers. It covers home delivery and specialty pharmacy, claims adjudication, formulary management, pharmacy networks and rebate administration, plus ambulatory infusion centers added through the March 2024 acquisition of Paragon Healthcare. Core pharmacy services are delegated to CaremarkPCS Health, a CVS Health subsidiary, under an agreement then running through December 31, 2027. 2025 operating revenue was $43.40 billion. - **Carelon Services.** Healthcare services and analytics sold to the company's own plans and to unaffiliated plans. Carelon Health covers specialty benefit management, post-acute and home-based care (including CareBridge, acquired December 2024), behavioral health, care navigation, palliative care, and a stake in the Mosaic Health primary-care joint venture with Clayton, Dubilier & Rice. Carelon Insights covers payment integrity, subrogation, clinical data exchange and analytics. Much of the segment works under risk-based contracts with health plans. 2025 operating revenue was $28.32 billion. - **Corporate & Other.** Businesses below the reporting threshold, plus unallocated corporate expenses. Medical membership at December 31, 2025 was mostly fee-based. Of 45.23 million medical members, Employer Group fee-based made up 20.58 million, BlueCard 6.51 million, Medicaid 8.50 million, Employer Group risk-based 3.62 million, Medicare Advantage 2.23 million, FEP 1.60 million, Individual 1.31 million and Medicare Supplement 0.88 million. Under prospective rating, the company sets a fixed premium at the start of each contract period and keeps any gain or loss against the medical costs it assumed. Medicare revenue comes from annual bids submitted to CMS. Under the ACA's minimum medical loss ratio rules, 53.5% of 2025 premium revenue and 18.7% of medical membership were subject to rebate thresholds. Carelon Services' risk contracts with the company's own plans move claims volatility out of Health Benefits in exchange for agreed pricing. At December 31, 2025 the company had about 97,100 employees, 71,900 of them in the United States and 25,200 abroad. --- ## Risk factors *From the FY2025 Form 10-K, accession 0001156039-26-000013. The Q3 2026 Form 10-Q (accession 0001156039-26-000071) reports no material changes to these risk factors.* These are the substantive risks, condensed: - **Medical cost prediction and pricing.** Commercial and Medicaid premiums are generally fixed for 12 months using data from months before the period starts. Medicare revenue rests on bids submitted to CMS six months before the contract year. Costs above projections therefore cannot be recovered within the year. The company names its own experience: shifts from Medicaid into Individual ACA after redeterminations, together with lower effectuation rates, drove a market-wide rise in morbidity and elevated cost trends. The expiry of enhanced premium tax credits at the end of 2025 adds uncertainty to Public Exchange pricing and enrollment. - **Government program exposure.** Medicare and Medicaid rates are set by governments, can be cut or adjusted retroactively, and depend on budgets. CMS's version 28 change to the risk-adjustment model altered risk scores for a larger share of Medicare Advantage members. State Medicaid contracts are re-bid competitively and have not always been renewed. CMS Star Ratings decide quality bonus payments: about 40% of Medicare Advantage members were in plans rated 4.0 stars or higher under the 2025 ratings (payment year 2026), against about 59% under the 2026 ratings (payment year 2027). - **Risk-adjustment audits.** CMS RADV audits, Office of Inspector General reviews and the company's own data reviews have led to, and can lead to, data corrections and significant payment adjustments. Certain contracts had pending RADV audits awaiting CMS finalisation. In May 2025 CMS announced it would substantially increase the scale and pace of these audits. - **Membership concentration and attrition.** Enrollment can fall from Medicaid eligibility changes, including OBBBA work and community-engagement requirements, as well as layoffs at employer customers, market exits and price-driven churn. Revenue is concentrated in California, New York, Virginia, Indiana, Ohio, Georgia, Florida and Texas. - **Product mix.** Risk-based products, which individuals, small groups and government programs tend to buy, are generally more profitable than administrative-services products. A shift toward fee-based business would hurt margins. - **Cybersecurity and data.** The company handles large volumes of protected health information, some processed outside the U.S. A breach could bring litigation, regulatory penalties, remediation costs and membership losses. It has been subject to such litigation and investigations before. - **Provider relationships and out-of-network costs.** Provider consolidation and large-employer direct contracting weaken the company's bargaining position. Under the No Surprises Act, related litigation has reduced the weight of the Qualifying Payment Amount in independent dispute resolution, which may raise out-of-network payments. - **Dependence on CVS and other vendors.** CVS performs core pharmacy benefit functions for CarelonRx, including claims adjudication, network and rebate administration and back-end home-delivery dispensing. A single vendor also provides wide-ranging technology infrastructure. - **Pharmacy benefit regulation.** California's PBM law (price transparency, spread-pricing limits, rebate pass-through, fiduciary duties) and the federal Consolidated Appropriations Act of 2026 both constrain the PBM model. The federal act requires commercial rebate and fee pass-through 30 months after enactment and delinks PBM compensation from drug prices in Medicare Part D from 2028. - **BCBSA license.** Losing the Blue licenses would end use of the brand in the affected areas. It would also trigger a re-establishment fee of $98.33 per licensed enrollee, about $3 billion on roughly 34 million enrollees at December 31, 2025. Under the subscriber antitrust settlement, some large self-funded national employers can request a second Blue plan bid. - **Litigation and investigations.** These include False Claims Act exposure, antitrust follow-on suits from parties that opted out of the BCBSA settlements, and malpractice exposure from the company's growing direct care delivery. - **Holding-company structure and leverage.** Cash at the parent depends on dividends from regulated subsidiaries, which are limited by state law and capital rules. The company carries substantial debt, and a ratings downgrade would raise borrowing costs. - **Intangible assets.** Goodwill and other intangibles were about $39.5 billion at December 31, 2025, 32.5% of total assets. Acquisitions that underperform could force impairments. - **AI and technology execution.** Systems built on AI raise accuracy, bias, privacy and regulatory risks. Failing to modernise or integrate systems could damage pricing, reserving and service. --- ## Management's discussion: FY2025 *From the FY2025 Form 10-K MD&A, accession 0001156039-26-000013. Adjusted EPS is from the fourth-quarter 2025 earnings release, Form 8-K accession 0001156039-26-000006.* Revenue grew in 2025 but profit fell, because medical costs rose faster than premiums. Operating revenue rose 12.8% to $197.58 billion. The increase came from premium rate increases set to reflect medical cost trends, the late-2024 acquisitions (CareBridge and the Centers Plan for Healthy Living Medicaid long-term care plan in New York), and Medicare Advantage growth, partly offset by Medicaid attrition. The benefit expense ratio rose 150 basis points to 90.0% because of higher medical cost trend in every Health Benefits line, principally the ACA business. Shareholders' net income fell 5.3% to $5.66 billion, and diluted EPS fell 1.8% to $25.21 on 224.6 million diluted shares. Adjusted diluted EPS, as reported in the earnings release, was $30.29. The segments diverged: - **Health Benefits:** operating revenue up 11.2% to $167.09 billion; operating gain down 33.4% to $4.16 billion; margin 2.5% against 4.2% in 2024. Higher medical cost trends and spending on workforce and technology outweighed higher revenue. Medicare revenue rose 21.6% and Medicaid 9.0%. - **CarelonRx:** operating revenue up 20.7% to $43.40 billion on higher prescription volume and acquisitions; operating gain up 11.3% to $2.42 billion. - **Carelon Services:** operating revenue up 57.7% to $28.32 billion, driven by CareBridge and expanding risk-based specialty and behavioral health capabilities; operating gain up 33.9% to $960 million, mainly on better post-acute performance. - **Corporate & Other:** operating loss narrowed to $337 million from $1.27 billion. The 2024 figure included a $666 million accrual for the company's share of the BCBSA provider antitrust settlement, which was paid in September 2025. The operating expense ratio improved to 10.6% from 11.4% on operating leverage and the absence of the 2024 settlement charge. The effective tax rate fell to 15.6% from 24.5% because of a discrete non-operating benefit from an internal restructuring of subsidiaries and favourable resolution of uncertain tax positions. Medical membership fell by 502,000 (1.1%) to 45.23 million. Medicaid lost 417,000 members, mainly to redeterminations, and BlueCard, Employer Group risk-based and FEP also declined. Medicare Advantage added 164,000 (up 7.9%) and Individual added 20,000. Operating cash flow fell to $4.29 billion, about 0.8 times net income, from $5.81 billion. The causes were the provider settlement payment, unfavourable working capital and lower earnings. Medical claims payable was $17.08 billion at year end, and prior-year reserves developed favourably by $1.29 billion. The debt-to-capital ratio was 42.1%. In September 2025 the revolving credit facility was enlarged to $5.0 billion and extended to September 2030, and in October 2025 the commercial paper programme was raised to $5.0 billion. The company bought back 7.43 million shares for $2.61 billion in 2025 and had $6.70 billion of repurchase authorization left at year end. It received $2.54 billion of subsidiary dividends in 2025 and expected about $2.1 billion in 2026. The 2025 business acquisitions cost about $414 million in cash, with the acquired intangible assets allocated entirely to Health Benefits; the 10-K does not name the targets. --- ## Current quarter: Q3 2026 *From the Form 10-Q for the quarter ended September 30, 2026, accession 0001156039-26-000071, and the third-quarter 2026 earnings release, Form 8-K accession 0001156039-26-000068.* ### Results Third-quarter earnings rose even though operating profit fell slightly. Investment income and lower amortization lifted net income, and the medical loss ratio improved. Operating revenue was $50.44 billion, up 0.7%. Premiums were flat at $41.70 billion, as premium rate increases offset lower Medicare Advantage, Medicaid and Employer Group risk-based membership. Product revenue rose 4.8% to $6.45 billion and service fees rose 6.8% to $2.28 billion. The benefit expense ratio improved 70 basis points to 90.6%; the release attributes this to better performance in Medicare Advantage and Individual ACA. Net investment income rose to $1.04 billion from $625 million, mainly from alternative investments. Shareholders' net income rose 14.8% to $1.37 billion and diluted EPS rose 17.9% to $6.27. Adjusted diluted EPS was $6.99, up from $6.03. The effective tax rate rose to 25.1% from 15.6% because the prior-year quarter had benefited from more purchased investment tax credits. Total operating gain slipped 2.0% to $1.27 billion. The operating expense ratio rose 90 basis points to 11.4% on technology investment, premium taxes and spending on regulatory matters. By segment, Health Benefits weakened while Carelon grew: - **Health Benefits:** operating revenue up 2.6% to $43.36 billion; operating gain down 27.5% to $436 million; margin 1.0% against 1.4%. Higher medical costs and targeted technology spending outweighed higher premium yields. Medicare revenue rose only 0.8% because of what the company calls deliberate repositioning of its Medicare Advantage business. Medicaid revenue rose 5.7%, Commercial 3.8% (Individual ACA up to $2.51 billion from $2.36 billion), and FEP fell 7.0%. - **CarelonRx:** operating revenue up 5.5% to $11.60 billion on higher revenue per prescription despite 2.8% fewer adjusted scripts (82.6 million); operating gain up 10.8% to $616 million on better specialty pharmacy profitability. - **Carelon Services:** operating revenue up 5.2% to $7.71 billion; operating gain up 33.3% to $292 million on specialty and home-based care. Behavioral health contracts performed worse. A care-delivery contract with an unaffiliated customer was partly terminated and modified, and the segment's unaffiliated premiums fell to $669 million from $1.76 billion. For the nine months, operating revenue rose 1.0% to $149.76 billion and shareholders' net income fell 10.2% to $4.59 billion. Diluted EPS was $21.01 against $22.67, and adjusted diluted EPS was $27.06 against $26.88. Health Benefits operating gain fell 20.3% to $3.49 billion on higher medical costs and operating expenses. The nine-month benefit expense ratio edged up to 89.0% from 88.9%, mainly because of elevated Medicaid cost trend. The Corporate & Other loss widened to $1.28 billion. That loss included a $935 million accrual for the CMS risk-adjustment matter, $147 million of business-optimization charges and $133 million of transaction and integration costs. ### Membership Medical membership was 44.88 million at September 30, 2026, down 487,000 (1.1%) from a year earlier: - Medicare Advantage fell 347,000 (15.5%) to 1.90 million. - Medicaid fell 425,000 (4.9%) to 8.22 million. - Employer Group risk-based fell 250,000 (6.9%) to 3.37 million. - FEP fell 83,000 to 1.55 million. - Commercial fee-based rose 603,000 (2.2%) to 27.61 million, and BlueCard rose 202,000. - Individual was roughly flat at 1.35 million. - Standalone Medicare Part D membership fell to 79,000 from 217,000. ### Cash, balance sheet and capital return Nine-month operating cash flow was $7.51 billion against $4.21 billion, mainly from favourable working capital. Third-quarter operating cash flow was $1.3 billion. Days in claims payable stood at 44.9, 3.5 days more than a year earlier. Cash and investments totalled $39.06 billion, with $2.42 billion at the parent company. The debt-to-capital ratio improved to 40.7% from 42.1% at year end. On March 15, 2026 the company repaid $750 million of 1.500% senior notes at maturity. No commercial paper or Federal Home Loan Bank advances were outstanding at September 30, 2026. In the first nine months the company repurchased 5.2 million shares for $1.69 billion, an average of $324.88 per share. That included 0.8 million shares for $330 million in the third quarter. Authorization of $5.01 billion remained. The quarterly dividend was raised to $1.72 per share from $1.71. ### Guidance With third-quarter results the company raised full-year 2026 guidance to at least $22.00 of GAAP diluted EPS, at least $29.00 of adjusted diluted EPS and at least $6.5 billion of operating cash flow. The largest single adjustment between the two is the $935 million CMS accrual, $4.28 per share before tax effects. Management says it is confident of at least 12% adjusted EPS growth in 2027 from a 2026 earnings baseline of at least $26.75. That baseline excludes non-recurring investment income, other non-operating items and targeted one-time investments. ### CMS risk-adjustment matter In February 2026 CMS raised Medicare Advantage risk-adjustment data submission issues covering diagnosis codes with dates of service from 2015 to April 2023, and threatened enrollment sanctions. The company accrued about $935 million at March 31, 2026 as its best estimate of the exposure from resubmitting the data. On May 27, 2026 it paid CMS $342 million, leaving a $593 million accrual at September 30, 2026. It says the final liability could reasonably range from about $320 million below to $320 million above the original accrual. On July 13, 2026, CMS wrote that the required steps were complete, sanctions would not be imposed, and the enforcement process was closed. ### Other developments in the quarter - **No Surprises Act disputes.** After the federal Independent Dispute Resolution operations rule was finalised in May 2026, the company recorded $669 million of liabilities for IDR judgments and disputes: $44 million on fully insured business and $625 million on administrative-services business. Most of the administrative-services amount is recoverable from customers, and it booked $575 million of related self-funded receivables, net. A further $324 million of potential IDR liabilities, about 94% of it administrative-services, was not accrued. - **CVS agreement.** CarelonRx signed a new five-year agreement with CVS's CaremarkPCS Health running from January 1, 2027 to December 31, 2031, with certain early-termination rights and at least 18 months of transition services if it ends. - **Liberty Dental.** In September 2026 the company amended its agreement with the majority owners of Project Freedom Holdings, the parent of LIBERTY Dental Plan Corporation, in which it holds 40%. The put and call options were replaced with a variable-priced forward contract to buy the majority owners' shares on specified dates in 2027, subject to regulatory approvals. The price is based on earnings multiples and is expected to total up to $600 million on current projections. The change produced a $169 million realised gain in the quarter. - **Mosaic Health.** The company holds about 40% of the Mosaic Health venture. Put and call options could require it to buy the majority owners' units as early as 2028 and no later than 2030. The net put option is carried at $1.33 billion against an estimated fair value of $2.76 billion. - **Operating Model Transformation Program.** This 2026–2027 programme to cut organisational layers, realign roles and modernise technology, including AI, cost $18 million in the quarter and $147 million year to date. The remaining severance liability was $99 million, with cash outlays expected through 2028. - **Litigation.** - In the federal securities class action *Miller v. Elevance Health* (S.D. Ind.) over 2024 earnings guidance, the court in September 2026 denied the company's motion to dismiss, allowing parts of the claims to proceed. Three related derivative suits are pending. - In the Department of Justice False Claims Act suit over Medicare risk-adjustment data (*United States v. Anthem*, S.D.N.Y., filed March 2020), fact discovery runs to November 20, 2026 and expert discovery to August 2, 2027. - Among BCBSA antitrust follow-on cases, *Hoover* was dismissed with prejudice in July 2026. - **Regulation.** The 10-Q says expiry of the enhanced ACA premium tax credits at the end of 2025 has raised exchange premiums for affected individuals and hurt Individual enrollment. Other changes cited: - CMS's 2027 Notice of Benefit and Payment Parameters added exchange enrollment and eligibility requirements; parts were stayed by a federal court in July 2026. - Several provisions of the 2025 Marketplace Integrity and Affordability rule were vacated in June 2026, a decision under appeal. - The OBBBA's Medicaid provisions, including more frequent reverifications and work requirements, take effect mainly in 2027 and 2028. - CMS has begun its expanded RADV audits. - The company expanded its exchange business into Washington in 2026. --- ## Subsequent events *From the Form 10-Q, accession 0001156039-26-000071, and the Form 8-K of October 21, 2026, accession 0001156039-26-000068.* The 10-Q contains no separate subsequent-events note. It discloses no acquisition, divestiture, debt issuance or borrowing after September 30, 2026. Post-period items it does disclose: - **Dividend.** On October 20, 2026 the Audit Committee declared a fourth-quarter dividend of $1.72 per share, payable December 18, 2026 to shareholders of record on December 4, 2026. - **2027 Star Ratings.** CMS released the company's 2027 Star Ratings, which set Medicare Advantage payments for 2028, in October 2026. About 49% of current Medicare Advantage members are in plans rated 4.0 stars or higher, against about 55% that the 10-Q cites for the 2026 ratings at the time they were issued. - **BCBSA follow-on litigation.** In October 2026 the California Superior Court issued an order on the standard of review in the *VHS Liquidating Trust v. Blue Cross of California* provider antitrust case. Trial is set for March 2027. The Liberty Dental purchase agreed in September 2026 remains pending, with purchase dates in 2027 and an expected price of up to $600 million.