Elevance Health has revised its full-year earnings forecast downwards, disclosing a projected adjusted earnings of approximately $33 per share for 2024, significantly lower than its previous guidance of at least $37.20. This adjustment comes as the company's third-quarter revenue exceeded Wall Street's expectations; however, the earnings fell short due to ongoing issues within the Medicaid segment. The health insurer now finds itself in a position where the current consensus from Capital IQ suggests a normalized earnings per share (EPS) of $37.25.
The detrimental shift in outlook is attributed to the disconnect between the rates for Medicaid services and the acuity of the needs observed. In reaction to this news, Elevance’s shares dropped by 12% during pre-market trading hours, indicating investor concern regarding the anticipated earnings shortfall. Chief Executive Gail Boudreaux expressed optimism about the company’s long-term earnings potential, emphasizing their diverse business model as they face a "dynamic operating environment" coupled with the unprecedented hurdles in the Medicaid sector.
Boudreaux reassured stakeholders that efforts are underway to align Medicaid rates with member needs and enhance operational efficiencies, which could position the company for stronger performance post-challenges. In detail, for the quarter ending September 30, Elevance's adjusted EPS declined 6.9% compared to the previous year, landing at $8.37, which was below analysts' average forecast of $9.65.
The company did see an uptick in operating revenue, reporting $44.72 billion—an increase from $42.48 billion last year—which outpaced the analysts' estimate of $43.14 billion. However, medical membership has experienced a 3.3% decrease, totaling 45.8 million members. Driving this decline was a striking 19% drop in the Medicaid business, though this downturn was partially balanced by increases in Affordable Care Act health plans and the commercial employer group fee-based segment.
Notably, individual membership in the commercial risk-based segment surged by 30%, while the employer group category witnessed a 2.2% decrease. Sequentially, the consolidated membership remained relatively unchanged. The financials reveal that overall premiums rose by 4.4%, reaching $36.81 billion.
Product revenue demonstrated a robust advance of approximately 14%, whereas service fees saw a slight decline of 1%. Examining the business segments, health benefits revenue increased by 4.2% to $38.28 billion, while the Carelon division, which includes CarelonRx and Carelon Services, experienced a notable 15% growth, totaling $13.8 billion. The benefit-expense ratio for the quarter was recorded at 89.5%, up from 86.8% in the same period last year.
The company attributed this rise to the mismatched timing between Medicaid rates and the higher acuity of its members' health needs. During an earnings call, Boudreaux conveyed that "the issues impacting the Medicaid business are time-bound" and emphasized the constructive collaboration with state partners on rate renewals.
She noted that these momentary challenges are a result of the large scale and unprecedented shifts that arose with the conclusion of the public health emergency status..