Elevance Health rings in strong Q3, projects 2026 Medicaid decline

Elevance Health kept medical costs under control during a financially strong third quarter. Whether the health insurer can continue to due so amid Medicaid and Medicare challenges remains questionable.

Elevance reported a third-quarter medical loss ratio, the percentage of premiums spent on medical care, of 91.3%, up from 89.5% in the year-ago quarter. The insurer’s $50.1 billion in quarterly operating revenue rose 12%.

But Wall Street analysts were more interested in the insurer’s projection of a 125 basis points decline in its 2026 Medicaid business. The two key drivers are rates that “continue to lag higher acuity and then persistently elevated cost trends,” explained Mark B. Kaye, executive vice president and chief financial officer.

“[In] our view, 2026 will be the low point for us in Medicaid margins, and we're going to see sequential improvement in 2027,” Kaye added.

The end of the COVID-19 “continuous coverage” provision led to the largest Medicaid eligibility review in history, with millions being disenrolled. In addition, Medicaid remains the largest payer for long-term care, with costs rising fast as the population ages.

It is adding up to a tremendous strain on many state budgets.

Analysts asked several questions about projected Medicaid margins, including whether Elevance might exit some states. Felicia Norwood, president of Elevance's government health benefits business, conceded that there is “a great variability in performance” of Medicaid programs from state to state. But Elevance wants to work with individual state leaders to make Medicaid work, she said.

“With that said, if a state isn't going to deliver the expectations that we need from a financial perspective, we will certainly consider exiting that business if we can't deliver on the long term,” Norwood added.

Elevance struggled in its earnings reports in the first two quarter of 2025.

In Other News

Affordable Care Act subsidies. CEO Gail Boudreaux did not wait for a question to be asked about the lingering fate of enhanced ACA subsidies. Congress shut down the federal government in a budget battle over whether to extend the subsidies.

The current subsidies expanded eligibility to those with incomes over 400% of the federal poverty level and provided larger subsidies to current enrollees, both of which will revert to pre-2021 levels on Jan. 1, 2026.

Bordeaux was not about to take sides.

“We're really proud of the role that we play in the ACA marketplace, and we still remain very committed to the affordable access for individuals and families who rely on these plans,” she said. “We are ready and prepared for a range of policy outcomes, including both the renewal and potential modification of those enhanced subsidies.”

Technology investment. Elevance is budgeting “several hundred millions dollars” for 2026 investments that include a big focus on artificial intelligence, Kaye said.

Elevance has embedded AI in many of its processes and is seeing improved efficiency and outcomes, Bordeaux explained. The insurer recently made an agreement with OpenAI to allow its employees to earn formal certifications in AI "fluency," ranging from foundational skills like prompt engineering to advanced AI-enabled work.

“We see it as a strategic enabler of what we are trying to accomplish, which will really drive more affordable, accessible and personalized care,” she said.

Quarterly Snapshot

• Medicare Advantage membership affected by about 150,000 members from service area and plan exits.
• About 55% of Medicare Advantage members in 4-Star or higher contracts for payment year 2027, up from about 40%.
• Expanding digital innovations, such as HealthOS, AI-enabled clinical support, and a digital virtual assistant increased access to care, reduced costs, and created greater efficiency.
• Operating cash flow of $1.1 billion impacted by Blue Cross Blue Shield Provider Settlement Agreement payment.

Management Perspective

“One of the things that's changed, certainly in the conversations this time around, is states are certainly more receptive to ways that can help reduce the overall cost of the Medicaid program and improve affordability. So, one of the things that we've been doing is providing them with options around the levers that they have that can certainly address some of the program changes that are increasing cost and utilization in the program.”

CEO Gail Boudreaux

By The Numbers

• Operating Revenue: $50.1 billion ($44.7 billion in Q3 2024)
• Benefit Expense Ratio: 91.3% (89.5% in Q3 2024)
• Adjusted Operating Gain: $1.3 billion ($2.5 billion in Q3 2024)
• Earnings Per Share: Adjusted per diluted share of $6.03 ($8.60 in Q3 2024)
• Share Repurchases: $875 million in Q3 2025
• Dividend Declared: $381 million in Q3 2024
• Stock Price Movement: Down 1.8% to $347.80 at midday Tuesday

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.