Elevance Health Anticipates Margin Compression in 2026, Driven by Medicaid and Medicare Dynamics
Elevance Health (NYSE: ELV) has released fourth-quarter and full-year 2025 results, alongside a cautious 2026 outlook signaling expected margin pressure. While the company reported record operating revenue of $197.6 billion for 2025—up 13% from last year—management set 2026 earnings and enrollment expectations lower as Medicaid attrition and higher medical costs weigh on the Health Benefits segment.
2025 Financials Reflect Solid Top-Line Growth, Margin Pressure
Operating revenue for 2025 rose 13% to $197.6 billion, supported by higher premiums, acquisitions, and growth in Medicare Advantage membership. Still, operating gain dropped 8% to $7.2 billion and adjusted operating margin compressed 150 basis points to 3.8%, highlighting the pressure from increased benefit expenses and headwinds in government programs. The benefit expense ratio for the year climbed sharply to 90.0% from 88.5% in 2024.
| Key Metric | 2025 | 2024 | % Change |
|---|---|---|---|
| Operating Revenue | $197.6B | $175.2B | +12.8% |
| Adjusted Operating Gain | $7.5B | $9.3B | -19% |
| Adjusted EPS | $30.29 | $33.04 | -8.3% |
| Benefit Expense Ratio | 90.0% | 88.5% | +150 bps |
| Adjusted Operating Margin | 3.8% | 5.3% | -150 bps |
Medicaid and Medicare Trends Pressure Membership and Segment Profits
Medicaid membership dropped 4.7% to 8.5 million, offsetting gains in Medicare Advantage (up 7.9% to 2.2 million). This mix shift, paired with heightened cost trends in Affordable Care Act and Medicare Part D plans, drove Health Benefits segment margins down to 2.5% for the year.
| Membership Type | 2025 | 2024 | % Change |
|---|---|---|---|
| Medicaid | 8,500k | 8,917k | -4.7% |
| Medicare Advantage | 2,230k | 2,066k | +7.9% |
| Total Medical Membership | 45,232k | 45,734k | -1.1% |
The company's 2026 guidance suggests continued headwinds, with total year-end membership seen falling to 43.2-43.9 million, and Medicaid and Medicare Advantage enrollment set to decline further. Health Benefits operating margins are expected to contract by another 25-50 basis points next year.
CarelonRx and Carelon Services Stand Out as Growth Drivers
In sharp contrast to the core insurance book, Elevance's Carelon platforms posted robust growth. CarelonRx revenue climbed 20.7% to $43.4 billion and Carelon Services jumped 57.7% to $28.3 billion. These businesses provided margin support, with CarelonRx maintaining a 5.6% operating margin in 2025. However, even here, the company sees margin stabilization rather than expansion for 2026.
| Segment | 2025 Revenue | % Change | 2025 Operating Margin |
|---|---|---|---|
| CarelonRx | $43.4B | +20.7% | 5.6% |
| Carelon Services | $28.3B | +57.7% | 3.4% |
Strong Cash Returns and Outlook for 2026
Elevance returned $4.1 billion to shareholders in 2025 via buybacks and dividends, and finished the year with $2.6 billion in parent company cash and investments. For 2026, the company projects at least $5.5 billion in operating cash flow, while guiding for adjusted EPS of at least $25.50—a decline from 2025’s $30.29.
| 2026 Guidance | 2025 Actual | |
|---|---|---|
| GAAP Diluted EPS | At least $22.30 | $25.21 |
| Adjusted EPS | At least $25.50 | $30.29 |
| Operating Cash Flow | At least $5.5B | $4.3B |
| Adjusted Operating Gain | At least $6.8B | $7.5B |
Expense Control and Investment Continue Amid Market Volatility
Despite medical cost headwinds, Elevance kept its adjusted operating expense ratio nearly flat at 10.5%, demonstrating ongoing discipline. The company signaled continued investment in workforce, risk-based product expansion, and technology, aiming to support future growth and long-term EPS expansion—targeting at least 12% adjusted EPS growth in 2027.
Key Takeaway: 2026 As a Transition Year
With insurance enrollment and segment margins coming under renewed pressure, Elevance Health is preparing for a transition year, relying on strong pharmacy and services growth to soften the blow. The company’s guidance points to cautious optimism, as it maintains capital returns and investments for sustainable long-term growth, while acknowledging the cost and enrollment risks in government programs. The focus will be on whether Carelon can continue to offset core insurance challenges, as the industry faces heightened regulatory and competitive pressures in 2026.
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