Health insurer Elevance beats profit estimates on lower medical costs

By Sriparna Roy and Puyaan Singh

(Reuters) -Elevance Health beat Wall Street estimates for quarterly profit on Wednesday as the health insurer spent less than expected on covering the medical costs of its members.

Strength in its health services unit Carelon, higher premiums and membership growth in its Obamacare and commercial health plans helped results in the second quarter, partially offsetting a drop in memberships for Medicaid plans.

Unlike rivals such as UnitedHealth (NYSE:) and Humana (NYSE:), Elevance has a lower exposure to government-backed Medicare Advantage (MA) plans for people aged 65 and older, where medical costs have been elevated as older adults seek procedures that were delayed during the pandemic.

For the second quarter, Elevance’s medical loss ratio – the percentage of premiums spent on medical care – was 86.3%, slightly lower than the 86.4% reported last year and the 86.42% that analysts were expecting according to LSEG data.

The company’s medical costs support a high but stable backdrop for demand for healthcare services, consistent with rival UnitedHealth’s earnings on Tuesday, said Bernstein analyst Lance Wilkes.

Carelon, under which Elevance operates its pharmacy benefit management unit, reported a nearly 10% rise in revenue to $13.3 billion, helped by demand for its medical benefit and behavioral health management services, as well as the acquisition of Paragon Healthcare in the first quarter.

Memberships for government-backed Medicaid insurance plans that help cover medical care costs for people with limited income fell 23.2% to 9.03 million, Elevance said.

A decrease in the number of people eligible for its Medicaid plans this year due to the end of pandemic-era policy has led to a shift in membership to sicker patients who need more medical care, the company said at an industry conference last month.

For the second quarter, it reported an adjusted profit of $10.12 per share, compared with estimates of $10.01.