Elevance Health exceeded Wall Street expectations for the second quarter as executives sought to reassure investors that medical costs do not remain higher than anticipated.
The posture differs from rival UnitedHealth Group's announcement last week that pent-up demand for surgeries from Medicare Advantage members was dragging margins at its insurance and provider arms. Competitor Humana has also reported higher-than-expected Medicare Advantage utilization.
“There has not been a lot of pent-up demand or deferred care in general. The healthcare system was pretty much open for business for quite a significant portion of 2022,” Elevance Health Chief Financial Officer John Gallina said during the company's second-quarter earnings call on Wednesday.
Elevance reported a 13.2% second-quarter net income increase to $1.9 billion, or $7.79 a share, on revenue growth of 12.7% to $43.4 billion. It reported a 12% increase in operating gain to $2.6 billion.
The company raised its full-year net income guidance by 15 cents to at least $29.09 per share. Its operating margin remained flat at 6.1%. The company's stock opened at $474 on Wednesday, up 6.8% from the prior day's close.
The company’s health insurance business was responsible for the lion's share of Elevance's growth, with operating gain jumping 20.6% to $2.1 billion because of commercial premium increases and Medicare Advantage enrollee growth, Gallina said. Operating margins at its insurance arm increased to 5.7%, up from 5.2% during the same period last year.
Elevance, which manages Blue Cross and Blue Shield plans in 14 states, is the largest U.S. insurer with 47.9 million members, up 2% from the second quarter last year. The company expects its $2.5 billion proposed acquisition of Blue Cross and Blue Shield of Louisiana to close this year, Gallina said.
States resumed checking individuals’ Medicaid eligibility on April 1 after pausing during the COVID-19 public health emergency, and Elevance has so far lost 135,000 Medicaid enrollees during redeterminations, according to a filing the company submitted to the Securities and Exchange Commission Wednesday. In spite of redeterminations, the company’s Medicaid membership grew 5.2% year-over-year to 11.7 million.
"While it's still very early in the redeterminations process, at this time we're seeing many Medicaid members losing coverage for administrative reasons and we expect many consumers will likely re-enroll in the near-to intermediate-term," Gallina said.
The Medicaid membership loss has not adversely affected the company's risk pool, he said.
Healthcare services arm Carelon reported a 6.8% rise in operating gain to $632 million on revenue growth of 18.4% to $11.9 billion. Margins declined to 5.3%, from 5.9% previously. Carelon President Peter Haytaian said during the call that changes in the company’s pharmacy business eroded margins.
“There was a one-time favorable position that improved in pharma last year that we’re not seeing this year,” Haytaian said. “Overall pharma performed very, very well.”
The company’s CarelonRx pharmacy benefit manager reported a 3.5% rise in operating gain to $496 million on a 19.7% boost in revenue to $8.5 billion. The company’s integration of specialty pharmacy provider BioPlus is tracking ahead of schedule and will be complete by early next year, Gallina said. CarelonRx also aims to launch a digital home delivery pharmacy business later this year, he said.
The Carelon Services technology arm reported a 20.3% increase in operating gain to $136 million on revenue growth of 15.3% to $3.4 billion. The company is in the process of expanding its durable medical equipment services provider business to its commercial segment, and growing its post-acute care home care provider business, Gallina said.
“We see a lot of opportunity not only internally, but also to sell [Carelon's services] within the Blues,” Haytaian said.
Correction: A previous version of this story had incorrect information about Elevance Health's second-quarter net income and mischaracterized its operating gain.