So, Elevance Health Inc. (ELV) had a pretty good quarter. The health insurer reported first-quarter adjusted earnings of $12.58 per share, which handily beat the consensus estimate of $10.79. Revenue came in at $49.49 billion, up 1.5% from a year ago and also above expectations.
The growth story here is about premium yields and pharmacy. Higher premium yields in the company's main Health Benefits segment, plus growth in its CarelonRx pharmacy revenue, drove the top line. That helped offset some expected declines in membership across Medicare Advantage, Medicaid, and employer group plans.
But, as often happens in insurance, the cost side tells another part of the story. The benefit expense ratio—basically, how much of premium revenue goes toward paying medical claims—was 86.8%. That's up 40 basis points from a year ago. The company pointed to "expected elevated medical cost trend" in its Medicaid business as a key driver, though it said improved performance in Medicare helped offset that a bit.
Then there are the one-time items. The operating expense ratio of 12.8% included a hefty $935 million accrual. That represents the company's "current best estimate" of a potential exposure related to a notice from the Centers for Medicare & Medicaid Services (CMS). It's a placeholder for a possible future cost. On top of that, Elevance recorded a $129 million charge tied to "business optimization," which is corporate-speak for simplifying and restructuring the organization.
Drilling into the segments, the Health Benefits unit posted operating revenue of $42.5 billion, up 2.6%. Total medical membership stood at about 45.4 million people as of March 31. The Carelon segment, which includes services and pharmacy, saw operating revenue jump 7.9% to $18 billion, thanks to scaling its risk-based solutions and pharmacy products.
Perhaps the most positive takeaway for investors is the guidance hike. Elevance now expects full-year 2026 adjusted earnings per share of at least $26.75. That's up from its previous guidance of at least $25.50 and above the Wall Street estimate of $25.83. It's a sign of confidence, albeit a cautious one.
On an investor call, President and CEO Gail Boudreau framed it this way: "We are operating with greater alignment, accountability, and clarity across the enterprise, and that progress is showing up in our results. In the first quarter, our performance exceeded expectations, driven by underlying business strength along with ACA seasonality and non-recurring investment income. While it is still early in the year, the trends we are seeing give us increased confidence in the trajectory of the business."
She added that the outlook is "grounded in prudent, achievable assumptions" with clear visibility into key performance drivers, supported by improving claims experience.
Investors seemed to take the mixed news in stride. Elevance Health shares were up 0.39% at $329.39 at the time of publication.
