10-K: Elevance Health Reports Mixed 2025 Results Amidst Growth and Rising Costs

Elevance Health's 2025 annual report shows revenue growth driven by acquisitions and Medicare Advantage, but net income and cash flow declined due to higher medical costs and a significant legal settlement.

Summary

• Total operating revenue increased by 12.8% to $197,584 million in 2025, up from $175,204 million in 2024.
• Shareholders' net income decreased by 5.3% to $5,662 million in 2025, down from $5,980 million in 2024.
• Diluted earnings per share (EPS) for 2025 was $25.21, a 1.8% decrease from $25.68 in 2024.
• Operating cash flow for 2025 was $4,290 million, approximately 0.8 times net income, a decrease from $5,808 million in 2024.
• Medical membership decreased by 0.5 million, or 1.1%, to 45.2 million members as of December 31, 2025, primarily due to Medicaid eligibility redeterminations and declines in BlueCard, Employer Group risk-based, and FEP businesses.
• Medicare Advantage membership increased by 7.9% (164,000 members) and Individual business membership increased by 1.6% (20,000 members) in 2025.
• The benefit expense ratio increased to 90.0% in 2025 from 88.5% in 2024, driven by higher medical cost trends, particularly in the ACA business.
• The effective income tax rate decreased significantly to 15.6% in 2025 from 24.5% in 2024, due to a discrete non-operating tax benefit from an internal restructuring and favorable resolution of uncertain tax positions.
• CarelonRx operating revenue grew by 20.7% to $43,400 million, and Carelon Services operating revenue increased by 57.7% to $28,316 million, largely due to acquisitions and expansion of risk-based capabilities.
• The company repurchased 7.4 million shares of common stock at an aggregate cost of $2,605 million in 2025.
• Approximately 59% of Medicare Advantage members are enrolled in plans rated at least 4.0 Stars or higher for payment year 2027, up from 40% for payment year 2026.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral-to-slightly-negative filing. While revenue growth and strong performance in CarelonRx and Carelon Services are positive, the decline in net income, EPS, and operating cash flow, coupled with rising medical costs in the core Health Benefits segment and membership attrition, present challenges. The improved Medicare Star Ratings are a notable positive, but regulatory uncertainties and ongoing litigation add a layer of caution.

Positives

• Total operating revenue increased by 12.8% to $197,584 million, driven by premium rate increases, recent acquisitions, and Medicare Advantage growth.
• CarelonRx segment operating revenue increased by 20.7% to $43,400 million, with operating gain up 11.3% to $2,418 million, reflecting growth in product revenue and recent acquisitions.
• Carelon Services segment operating revenue surged by 57.7% to $28,316 million, with operating gain up 33.9% to $960 million, primarily due to the acquisition of CareBridge and expansion of risk-based capabilities.
• Medicare Advantage membership increased by 7.9% (164,000 members) and Individual business membership increased by 1.6% (20,000 members).
• The company's 2026 Star Ratings (for 2027 payment) show 59% of Medicare Advantage members in plans rated 4.0 Stars or higher, a notable improvement from 40% in 2025.
• The effective income tax rate decreased to 15.6% in 2025 from 24.5% in 2024, due to a discrete non-operating tax benefit and favorable resolution of uncertain tax positions.
• The debt-to-capital ratio improved slightly to 42.1% in 2025 from 43.0% in 2024, indicating reduced leverage.
• The company maintains a strong financial condition with $37,236 million in consolidated cash, cash equivalents, and investments as of December 31, 2025.

Negatives

• Shareholders' net income decreased by 5.3% to $5,662 million in 2025, primarily due to decreased operating gain within the Health Benefits segment.
• Diluted EPS decreased by 1.8% to $25.21 in 2025.
• Operating cash flow decreased to $4,290 million in 2025 from $5,808 million in 2024, mainly due to the Provider Settlement Agreement payment and unfavorable working capital impacts.
• Total medical membership declined by 1.1% (0.5 million members) in 2025, driven by attrition in Medicaid membership due to eligibility redeterminations, and decreases in BlueCard, Employer Group risk-based, and FEP businesses.
• The Health Benefits segment's operating gain decreased by 33.4% to $4,158 million, primarily due to higher medical cost trends and increased investments in workforce and technology.
• The benefit expense ratio increased by 150 basis points to 90.0% in 2025, reflecting higher medical cost trends across all lines of business, particularly in the ACA market.
• Net losses on financial instruments increased to $653 million in 2025 from $445 million in 2024, due to higher losses on other invested assets.
• Other expense increased by 15.0% to $2,030 million, driven by higher interest expense from new senior notes and increased intangible asset amortization from acquisitions.

Risks

• Failure to accurately predict, price for, and manage healthcare costs could adversely affect profitability, cash flows, financial condition, and results of operations.
• Significant reduction in enrollment in health benefits programs, pharmacy services, or diversified products, particularly in states with large regional concentrations, could have an adverse effect.
• Cyber-attacks or other privacy/data security incidents could result in unauthorized disclosure of sensitive information, disrupt operations, lead to remediation expenses, liability, litigation, and reputational damage.
• Failure to responsibly use and protect data, or if data is found inaccurate/unreliable, could lead to adverse consequences for the business and customers.
• Risks associated with participating in Medicare and Medicaid programs, including payment rates, compliance with government contract requirements, and regulatory oversight, could adversely affect the business.
• A change in healthcare product mix from more profitable to less profitable products could impact profitability.
• Failure to develop and maintain satisfactory relationships with hospitals, physicians, pharmacy service providers, and other healthcare providers could adversely affect the business.
• Dependence on third parties for various services and functions, including pharmacy benefit manager services delegated to CVS, poses risks of service disruptions or unfavorable contract terms.
• Failure to properly maintain the integrity or availability of data, or to successfully maintain, protect, and upgrade information systems (including AI-powered systems), could adversely affect the business.
• Risks associated with the use of Artificial Intelligence (AI), including accuracy, harmful bias, discrimination, intellectual property infringement, data privacy, and cybersecurity, could adversely affect the business and reputation.
• Pandemics, extreme events, large-scale medical emergencies, and public health crises could increase healthcare costs, impair service provision, and cause economic instability.
• Significant government regulation and unpredictable changes in federal and state laws/regulations may adversely affect the business, including pricing, product offerings, and compliance costs.
• Exposure to litigation, including claims relating to health benefits denial, false claims, professional liability, anti-competitive practices, and privacy violations, could result in substantial costs and reputational damage.
• Risks associated with providing health benefits and other healthcare diversified products and services, including direct care delivery, medical malpractice claims, and compliance with medical practice regulations.
• Pharmacy services business and related operations are subject to various risks and uncertainties, including evolving regulations, pricing pressures, and non-compliance with laws.
• Termination or changes in terms of license agreements with the Blue Cross and Blue Shield Association (BCBSA) could adversely affect the business, including a potential Re-establishment Fee of approximately $3 billion.
• Indiana law, other applicable laws, articles of incorporation, bylaws, and BCBSA license agreements may prevent or discourage takeovers and business combinations.
• Negative publicity and sentiment in the healthcare industry could adversely affect the business, talent attraction, and regulatory oversight.
• Intense competition in many markets and failure to adapt to industry changes or implement strategic growth opportunities could adversely affect the ability to compete and grow.
• Risks associated with mergers, acquisitions, joint ventures, strategic alliances, and investments, including failure to achieve anticipated benefits, undisclosed liabilities, and integration difficulties.
• Intense competition to attract and retain employees, and challenges in managing key executive succession and retention, are critical to success.
• Restrictions on the ability to obtain funds from regulated subsidiaries could limit the ability to repurchase shares, pay dividends, and meet obligations.
• Substantial outstanding indebtedness and potential future indebtedness could adversely affect the ability to pursue business opportunities and react to economic changes.
• A downgrade in credit ratings could adversely affect the business, cash flows, financial condition, and results of operations.
• Possible impairment of the value of intangible assets if future results do not adequately support goodwill and other intangible assets.
• Decrease in the value of investments due to varying economic and market conditions, potentially resulting in losses charged to income.
• Adverse or volatile securities and credit market conditions could impact liquidity or increase financing costs.
• Requirement to restate financial results in the event of inappropriate application of accounting principles or identification of errors.
• Changes in tax laws and regulations, uncertainty in interpretation, or unfavorable resolutions of exams could impact deferred tax assets/liabilities or effective tax rate.
• Significant failure of internal control over financial reporting or failure to remediate identified deficiencies.
• Provider fraud that is not prevented or detected and impacts medical costs or exposes the company to regulatory scrutiny.
• Failure of corporate governance policies or procedures or breakdowns in oversight that could impair risk management, compliance, or strategic execution.

Future Outlook

Elevance Health expects the Public Exchange market to be influenced by policy and regulatory changes, particularly around federal subsidies, compliance requirements, and market stability. The company will no longer offer Medicare Part D plans in 2026. They anticipate continued expansion through organic growth, strategic acquisitions, and efficient capital use in existing and new markets, aiming to diversify revenue and earnings through pharmacy and other healthcare services. The company estimates approximately $2,100 million in dividends from subsidiaries in 2026 and intends to utilize its $6,695 million share repurchase authorization over a multi-year period.

Management Comments

• We believe healthcare is local and that our broad local presence positions us to meet evolving local customer needs.
• We aim to provide innovative, affordable and choice-based products; distinctive service; simplified transactions; and improved access to information that supports quality care.
• We expect to continue to rationalize our portfolio of businesses and products and align our investments to optimize our core businesses, invest in high-growth opportunities, and accelerate value creation through expanded capabilities and services.
• Managing operating expenses remains critical to our overall profitability.
• We continue to enhance interactions with our customers, care providers, brokers, agents, employees and other stakeholders through technological solutions and operational improvements.
• Our medical policy committee establishes national clinical policies and guidelines, which are reviewed at least annually or updated sooner when new clinical evidence becomes available.
• We remain committed to assisting our members in making informed and value-based healthcare decisions, providing for easier navigation of healthcare services and delivering a better healthcare experience.
• We seek to understand our members' health-related social needs to create a healthcare system that synchronizes care delivery for physical, behavioral, social and pharmacy needs.
• We are committed to ensuring that all people, regardless of age, race or ethnicity, sexual orientation, gender identity, disability, and geographic or financial access, can receive individualized care.
• The foundation of our strategy starts with our culture, and our associates are critical to fulfilling our purpose of improving the health of humanity.
• We believe we have built a high-performance culture that enhances our ability to deliver on our commitments and long-term strategy, as well as guides us to address the challenges of today.
• Elevance Health is committed to maintaining a fair and equitable pay workplace grounded in our pay-for-performance philosophy.

Industry Context

StockSavvy.ai notes that Elevance Health's performance reflects broader industry trends, including rising healthcare costs and increased utilization, particularly in Medicaid and ACA markets. The company's strategic focus on integrated whole-health solutions through its Carelon businesses aligns with the industry's shift towards value-based care and managing complex populations. The expansion into new service areas and continued investment in digital platforms and AI-powered solutions are consistent with the competitive landscape's emphasis on innovation and technological advancement. The expiration of enhanced Premium Tax Credits (PTCs) and ongoing regulatory changes, such as the OBBBA and PBM reforms, highlight the dynamic and often unpredictable legislative environment impacting health insurers.

Comparison to Industry Standards

• Elevance Health's increase in Medicare Advantage plans rated 4.0 Stars or higher (59% for 2027 payment year, up from 40% for 2026) indicates strong performance in quality metrics, which is a key competitive differentiator and revenue driver in the Medicare market, often outperforming some peers in improving Star Ratings year-over-year.
• The company's investment in AI tools and solutions for operational enhancement and member experience aligns with industry leaders like UnitedHealth Group (Optum) and Cigna (Evernorth) who are also heavily leveraging advanced analytics and AI to drive efficiencies and improve care outcomes.
• The acquisition of CareBridge and Centers Plan for Healthy Living demonstrates a strategic move into value-based care and long-term services and support, mirroring similar expansions by diversified health services companies seeking to manage total cost of care and address social determinants of health.
• The reported pay equity analysis (female associates earn >99 cents for every dollar earned by similarly situated males; ethnic minority associates earn >99 cents for every dollar earned by similarly situated whites) positions Elevance Health favorably against many corporate benchmarks, demonstrating a strong commitment to fair compensation practices.
• The increase in the benefit expense ratio to 90.0% in 2025, particularly in the ACA business, suggests that Elevance Health is experiencing similar medical cost pressures as other major health insurers operating in these volatile markets, such as Centene and Molina Healthcare, which often face higher morbidity rates in subsidized exchange populations.

Management Changes

Corporate Governance

Legal Proceedings

• The Provider Settlement Agreement in the In re Blue Cross Blue Shield Antitrust Litigation became effective on September 19, 2025, requiring a monetary settlement payment (accrued $666 million in September 2024) and non-monetary terms including expanded provider contracting opportunities, prompt pay commitments, and technological enhancements to the BlueCard program.
• Ongoing follow-on cases from entities that opted out of the Subscriber Settlement Agreement (e.g., Alaska Air Group, JetBlue Airways Corp., Bed Bath & Beyond Inc., Hoover, VHS Liquidating Trust) and the Provider Settlement Agreement remain pending, with the company intending to vigorously defend these suits.
• A civil lawsuit by the U.S. Department of Justice (United States v. Anthem, Inc.) filed in March 2020 (amended July 2020) alleges false certification of diagnosis data for Medicare Part C risk-adjustment purposes and knowing failure to delete inaccurate diagnosis codes. Fact discovery is ongoing with a deadline of June 30, 2026, and expert discovery by March 8, 2027.
• The company is subject to various other pending and threatened legal actions and governmental investigations incidental to its business, including claims for coverage denial, false claims act laws, professional liability, anti-competitive activities, and privacy violations. These could result in substantial costs, management distraction, negative media, and regulatory sanctions.

Related Party Transactions

• In 2025, related party transactions with Mosaic Health included care delivery and enablement services to Elevance Health subsidiaries amounting to $732 million, reported in benefit expense.
• In 2025, related party transactions with Liberty Dental included administrative services to Medicare Advantage members under a capitated arrangement amounting to $583 million.

Stakeholder Impact

• **Shareholders**: Potential negative impact on net income and EPS due to higher medical costs and legal settlements. Share repurchase program and consistent dividends aim to return value. Regulatory changes and litigation outcomes could introduce volatility.
• **Customers (Members)**: Continued focus on integrated whole-health solutions, care management programs, and digital engagement (Sydney Health) aims to improve health outcomes and experience. However, premium increases and potential changes in Public Exchange subsidies could affect affordability and enrollment.
• **Employees**: Significant investment in human capital development (26 hours/associate in 2025), fair pay practices, and a mixed in-office/hybrid/remote workplace strategy aim to attract and retain talent. Workforce reductions from business efficiency programs could impact some employees.
• **Care Providers**: Continued promotion of value-based payment models and collaboration with providers aims to improve quality and cost-effectiveness. However, intense competition for contracts and potential disputes over reimbursement could affect relationships.
• **Suppliers/Vendors**: Dependence on third-party service providers (e.g., CVS for pharmacy services) creates operational risks if performance is disrupted. New regulations like the Consolidated Appropriations Act of 2026 will impact PBM compensation and reporting requirements.
• **Regulatory Authorities**: Ongoing scrutiny of business practices, particularly in Medicare and Medicaid programs, and new regulations (OBBBA, IRA, transparency rules) require significant compliance efforts and may lead to investigations, fines, or sanctions.

Next Steps

• Continue to rationalize the portfolio of businesses and products and align investments to optimize core businesses, invest in high-growth opportunities, and accelerate value creation.
• Work on program improvements in partnership with states, strengthen care management, and optimize clinical strategy to improve effectiveness and lower Medicaid costs.
• Monitor and adapt to policy and regulatory changes in the Public Exchange market, particularly around federal subsidies, compliance requirements, and market stability.
• Implement pharmacy benefit manager reforms as required by the Consolidated Appropriations Act, with various provisions becoming effective in 2026 and 2028.
• Continue to defend against the U.S. Department of Justice's civil lawsuit regarding Medicare Risk Adjustment, with fact discovery ongoing until June 30, 2026, and expert discovery until March 8, 2027.
• Address follow-on cases from entities that opted out of the BCBSA Antitrust Litigation settlements.
• Evaluate the effects of the adoption of ASU 2024-03 (expense disaggregation disclosures) on consolidated financial statements and disclosures, effective for fiscal years beginning after December 15, 2026.
• Evaluate the impact of ASU 2025-06 (internal-use software accounting) on consolidated financial statements and disclosures, effective for fiscal years beginning after December 15, 2027.
• Pay a quarterly cash dividend of $1.72 per share on March 25, 2026, to shareholders of record as of March 10, 2026.
• Utilize the remaining $6,695 million authorization for common stock repurchases over a multi-year period, subject to market and industry conditions.

Key Dates

Recommendation

Elevance Health's 2025 results present a mixed picture. While strong revenue growth and robust performance in the CarelonRx and Carelon Services segments are positive indicators of strategic diversification, the decline in net income, EPS, and operating cash flow, coupled with elevated medical cost trends in the core Health Benefits segment and membership attrition in Medicaid, signal underlying pressures. The improved Medicare Star Ratings are a significant positive for future revenue, but ongoing legal challenges and regulatory uncertainties, particularly regarding government programs and PBMs, introduce considerable risk. A seasoned investor would likely maintain a 'hold' position, awaiting clearer trends in medical cost management and the resolution of key regulatory and legal matters before making a more definitive move. The company's commitment to share repurchases and dividends provides some support, but the operational headwinds warrant caution.

Keywords

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