Elevance Health Q3 2026 Earnings: Higher 2026 Outlook Masks Modest Underlying Revenue Growth

Elevance Health reported third-quarter operating revenue of $50.4B, up 0.7% year over year, while GAAP diluted EPS rose 17.9% to $6.27 and adjusted diluted EPS increased 15.9% to $6.99. The company raised its 2026 EPS and operating cash flow outlook, citing better-than-expected results in Medicaid, Medicare Advantage and Individual ACA plans.

The quarter was stronger than the revenue growth rate suggests, but the quality of the earnings improvement was mixed. Better medical-cost performance supported the operating result, while a $1.85-per-share net non-operating benefit, primarily investment-income valuation adjustments, made a substantial contribution to reported earnings.

Earnings Snapshot

The Bigger Story

Elevance’s key development was not its modest revenue growth, but its increased confidence that Health Benefits margins can recover in 2027 after a difficult period for Medicaid and Medicare Advantage profitability.

Management raised its 2026 adjusted EPS outlook to at least $29 and lifted its underlying 2026 earnings baseline to at least $26.75. That baseline excludes non-recurring investment income, other non-operating items and targeted one-time investments. Management also reiterated its expectation for at least 12% adjusted EPS growth in 2027 from that higher baseline.

The distinction matters. Third-quarter adjusted EPS benefited from roughly $0.50 per share of operating outperformance, according to management, but also from a $1.85-per-share net non-operating benefit. The higher baseline is intended to represent the more durable portion of the improvement, though investors will need to see whether rate alignment and medical-cost actions translate into sustained Health Benefits margin recovery.

Carelon remains the other central part of the investment case. Its revenue grew faster than the consolidated company and its operating gain rose 17%, helped by specialty-pharmacy profitability and risk-based Carelon Services solutions. The company is increasingly positioning Carelon’s pharmacy, behavioral health, home-based care and clinical-management capabilities as both a growth engine and a way to lower medical costs in the insurance business.

Revenue and Operating Performance

Operating revenue increased $353M to $50.4B. Higher premium yields, CarelonRx product revenue and service fees offset lower membership in Medicare Advantage, Medicaid and Employer Group risk-based plans.

Premium revenue was essentially flat at $41.7B, declining 0.2% year over year. That result reflects the core challenge facing the company: rate increases and yield improvement are supporting revenue per member, but enrollment losses are limiting overall premium growth.

Total medical membership declined by 487,000 members from a year earlier to 44.9M. Medicare Advantage membership fell 15.5% to 1.9M, Medicaid enrollment declined 4.9% to 8.2M, and Employer Group risk-based membership fell 6.9%. These declines were partly offset by 1.9% growth in Employer Group fee-based enrollment, which reached 21.0M.

The membership mix shift is important. Fee-based administrative-services membership can support service-fee revenue and commercial scale, but it does not carry the same premium revenue or underwriting economics as risk-based enrollment.

Health Benefits revenue increased 2.6% to $43.4B, driven by higher premium yields and service fees. Commercial revenue rose 3.8%, Individual revenue increased 6.6%, Medicaid revenue rose 5.7%, and Medicare revenue grew 0.8%. Federal Employee Program revenue declined 7.0%.

Carelon provided the more constructive revenue trend. Its combined operating revenue increased 5.0% to $19.3B, led by CarelonRx product revenue and expansion in Carelon Services’ risk-based offerings. On a reportable-segment basis, CarelonRx revenue rose 5.5% to $11.6B, while Carelon Services revenue grew 5.2% to $7.7B.

Management said Carelon Services entered 2027 with new wins in behavioral health, clinical care services, specialty and post-acute care. It also said retention exceeded 90% across most of its product and clinical-risk solutions. Those comments point to a durable base of business, although the company did not quantify the related contract value or revenue contribution.

Profitability and Margins

The consolidated benefit expense ratio improved 70 basis points to 90.6%, reflecting better-than-expected performance in Medicaid, Medicare Advantage and Individual ACA. The improvement was the main operating positive in the quarter.

Medicaid results benefited from recent rate actions, particularly July 1 updates that incorporated more current cost experience. Management said underlying Medicaid cost trend remained elevated but broadly stable. The company expects 2026 to represent the trough for Medicaid profitability and expects margins to improve in 2027 as rate adequacy improves and cost-management programs contribute more meaningfully.

Medicare Advantage also performed ahead of management’s outlook. Elevance attributed this to the product and geographic changes it made for 2026, a more favorable retained membership mix, plan design and medical-cost management. Management expects the Medicare Advantage business to deliver a full-year operating margin of at least 2% in 2026, with further improvement in 2027 toward its longer-term 3% to 5% target range.

Individual ACA performance improved as claims experience developed more favorably than expected. Management said the seasonal rise in plan-paid costs related to its higher bronze-plan mix was slower than anticipated, while enrollment remained stronger than expected. The company ended the third quarter with about 1.3M ACA members and expects to end 2026 with at least 1.2M.

The offset to the medical-cost improvement was higher spending. The adjusted operating expense ratio increased 90 basis points to 11.3%, driven by targeted one-time investments in member experience, medical-cost management, Carelon value-based solutions, dual-eligible growth initiatives and Medicare quality programs.

As a result, adjusted operating margin was flat at 2.7%, while reported operating margin declined 10 basis points to 2.5%. Health Benefits operating gain fell 27.5% to $436M and its operating margin dropped to 1.0% from 1.4%, reflecting investment spending despite the lower benefit ratio.

Carelon’s profitability moved in the opposite direction. CarelonRx operating gain rose 10.8% to $616M, with margin improving 20 basis points to 5.3%. Carelon Services operating gain increased 33.3% to $292M, and margin expanded 80 basis points to 3.8%.

GAAP EPS benefited substantially from non-operating items. Net investment income rose 65.9% to $1.0B, and management said a net non-operating benefit of $1.85 per share was primarily related to valuation adjustments within investment income, partly offset by state-tax items. This contribution lifted earnings but should not be treated as evidence of comparable operating-margin expansion.

Demand, Customers and Pricing

Commercial Group medical-cost trend remained elevated but stable, according to management, and was consistent with pricing assumptions. Elevance said it priced both 2026 and 2027 for a low-double-digit medical-cost trend environment.

The company said independent dispute resolution costs remain an industry-wide affordability issue, particularly in administrative-services-only business. Management said its own experience has been consistent with pricing assumptions and that the issue has been incorporated into forward claims and pricing assumptions. Still, elevated medical trend and the ongoing dispute-resolution process remain important variables for commercial margins and employer affordability.

Management described the 2027 commercial selling season as constructive. It said its request-for-proposal pipeline began above 1M members and that several large employers returned after leaving the company for roughly a year. Elevance highlighted demand for integrated medical and pharmacy offerings, including its Anthem Balance funded product and patient-advocacy programs.

Management said members in integrated medical and pharmacy plans have generated savings of up to $100 per member per month and experienced 30% or more fewer emergency-room visits. Those are management-reported program outcomes rather than consolidated financial results, but they illustrate why Carelon integration is central to the company’s commercial strategy.

What is Elevance Health’s guidance for full-year 2026?

Elevance raised full-year 2026 GAAP diluted EPS guidance to at least $22.00 and adjusted diluted EPS guidance to at least $29.00. The adjusted figure includes an estimated $7.00 per share of adjustment items, including the $4.28-per-share accrual related to a CMS notice involving historical Medicare Advantage risk-adjustment data.

The company also raised expected operating cash flow to at least $6.5B.

Management increased its 2026 earnings baseline to at least $26.75 per share. That baseline excludes non-recurring investment income and other non-operating items, as well as targeted one-time investments. From that baseline, management expects at least 12% adjusted EPS growth in 2027, driven by Health Benefits margin improvement, Carelon expansion and operating-efficiency initiatives.

Management expects Medicaid margins to improve in 2027, but said the pace of recovery will depend principally on how quickly state rates align with healthcare costs. It continues to view a 2% to 4% margin as the appropriate long-term range for Medicaid.

For Medicare Advantage, management expects margin improvement from at least 2% in 2026 toward the company’s 3% to 5% long-term target range. Approximately half of Elevance’s Medicare Advantage members are expected to be enrolled in plans rated 4 stars or higher for 2027, while the company maintained an enterprise-wide average of 4 stars.

Balance Sheet, Cash Flow and Capital

Operating cash flow was $1.3B in the third quarter, up $0.1B year over year, primarily due to favorable working-capital dynamics. Year-to-date operating cash flow reached $7.5B, compared with $4.2B in the prior-year period.

Cash and cash equivalents were $10.3B at September 30, up from $9.5B at year-end. Parent-company cash and investments totaled approximately $2.4B.

Long-term debt, excluding the current portion, was $30.4B, modestly below $30.8B at year-end. Elevance repaid a net $900M of short- and long-term borrowings during the first nine months of 2026.

The company repurchased 0.8M shares for $330M during the quarter at an average price of $398.75 per share and paid $373M in dividends. It had approximately $5.0B remaining under its board-approved repurchase authorization at quarter-end.

What Investors Should Watch

1. Medicaid Rate Adequacy and Margin Recovery

Elevance’s 2027 earnings outlook depends partly on Medicaid margins improving from what management considers a 2026 trough. Investors should watch whether states continue to incorporate current medical-cost trends and potential membership-acuity changes into 2027 rates.

2. Health Benefits Margin Conversion

The benefit expense ratio improved meaningfully in the third quarter, but Health Benefits operating margin still fell to 1.0% because operating expenses increased. Sustained margin recovery will require lower medical costs to outweigh continued investment spending.

3. Medicare Advantage Execution

The company expects at least a 2% Medicare Advantage operating margin in 2026 and further progress in 2027. Membership has declined sharply, so the key question is whether a smaller, more selective portfolio can produce durable profitability without sacrificing too much scale.

4. Carelon Growth and External Adoption

Carelon’s faster revenue growth and expanding margins were the quarter’s clearest operating strength. Investors should monitor whether external contract wins, retention and specialty-pharmacy performance translate into a larger share of enterprise earnings.

5. Non-Operating Earnings Contribution

The quarter’s EPS included a significant $1.85-per-share net non-operating benefit. Future results will need to show that the higher $26.75 earnings baseline is supported by underwriting, pricing and Carelon execution rather than investment-income variability.

AlgovestIQ Takeaway

Elevance delivered a better quarter than its 0.7% operating-revenue growth implies. Medical-cost performance improved across Medicaid, Medicare Advantage and Individual ACA, and Carelon produced solid growth in both revenue and operating profit. Those trends gave management enough confidence to raise its 2026 outlook and its stated earnings base entering 2027.

However, the quarter did not yet demonstrate broad operating leverage. Consolidated adjusted operating margin was flat, Health Benefits operating gain declined, and targeted investments increased the adjusted operating expense ratio by 90 basis points. The earnings result was also materially helped by investment-related valuation gains that are unlikely to represent a recurring operating driver.

The central investment question is whether Elevance can convert improving rate adequacy, more disciplined Medicare Advantage positioning and Carelon’s clinical capabilities into sustained Health Benefits margin expansion. The company’s 2027 target does not appear to rely on one business line alone, but Medicaid rate alignment and continued Carelon execution are especially important.

Evidence that Medicaid rates are catching up with costs, Medicare Advantage margins are progressing beyond 2%, and Carelon’s external-client growth is contributing to profit would strengthen the thesis. Conversely, persistent medical-cost pressure, further enrollment losses in risk-based products, or continued expense growth without offsetting margin gains would challenge the case for the company’s higher 2027 earnings baseline.