Elevance Health is reducing its involvement in the Medicaid sector, driven by worries about the program’s profitability in the long run.
This summer, the company exited the Medicaid market in Washington, D.C., and plans to withdraw from additional Medicaid markets in the next 18 months, as discussed during a conference call following Elevance’s recent financial report.
This decision exemplifies a broader trend of insurers retreating from less profitable markets to stabilize their margins after a challenging few years.
Medicaid is a crucial area for Elevance, based in Indianapolis. Although the company is widely recognized for its Blues License plans, it also operates several government programs and currently serves 8.4 million Medicaid beneficiaries across various states and Washington, D.C. In the second quarter, the Medicaid segment generated $14.4 billion in premiums, making up roughly one-third of the insurer’s overall premium income.
Yet, the projected operating profit margin for Medicaid this year is -1.75%. Elevance has had difficulty managing rising expenditures since some healthier recipients exited due to policy changes linked to the pandemic. According to the executives, state rate adjustments have not kept up with the increasing costs for those remaining in the program.
Elevance has seen some improvements in its Medicaid margins, but while recent rate updates provided some relief, spending—especially on healthcare—remains a concern, as CFO Mark Kaye noted during the call.
The Medicaid market is also facing potential upheaval from the Republican-backed “Big Beautiful Act,” which includes substantial Medicaid spending cuts that could impact state funding, benefits, and retention of members.
Elevance clarified that its decision to downscale Medicaid operations isn’t a reaction to federal policy shifts. Felicia Norwood, the company’s chief health benefits officer, mentioned that most changes brought on by the Big Beautiful Bill are manageable, including the contentious requirement linking Medicaid eligibility to employment.
While this area of business is forecasted to improve, executives pointed out that some markets simply aren’t viable.
“Ultimately, involvement in Medicaid has to be strategically and financially viable within our diverse portfolio,” Norwood stated, adding that Elevance plans to continue operating in areas with a significant number of beneficiaries eligible for both Medicare and Medicaid, as well as those that present opportunities for its medical services division, Careon.
“If these conditions aren’t present, we will take necessary, measured steps,” she added.
Effective August 1, Elevance will exit the Medicaid market in Washington, D.C., as reported by sources familiar with the situation.
While Elevance doesn’t provide specifics on revenue or enrollment for Medicaid in particular states, the D.C. contract involves 250,000 enrollees and totals $8.8 billion over five years, divided between its WellPoint subsidiary and two other insurers, MedStar and AmeriHealth.
In a statement, Elevance CEO Gail Boudreau indicated that as evaluations continue, further exits from Medicaid markets may happen within the next year and a half, particularly where sustainable performance seems unlikely.
Executives did not elaborate on the potential size or locations of future exits during the conference call when analysts pressed for details.
Elevance’s withdrawal from Medicaid highlights ongoing discussions among insurers regarding their strategies for profit recovery, especially after notable increases in healthcare costs over recent years in government programs like Medicare, Medicaid, and the Affordable Care Act, which have pressured profits.
The company had a strong Q1, and many publicly traded insurers, including Elevance, reported surprisingly good results in the spring, which boosted investor confidence and led to rising stock prices in managed care.
Heading into the second quarter earnings season, signs looked promising, as insurance executives expressed confidence in their ability to manage healthcare costs. Interestingly, HCA Healthcare noted that healthcare utilization appears to be declining. While this poses challenges for hospital operators, it benefits insurance companies.
Elevance’s second quarter results generally met expectations, exceeding predictions for both revenue and earnings, which also helped improve its financial outlook for 2026.
They raised the forecast for adjusted diluted earnings per share from at least $26.75 to at least $27, although this remains below the adjusted diluted EPS of $30.29 for 2025.
The company’s net income was $1.5 billion for the quarter, a decrease of over 16% from the previous year, while operating revenue was $49.8 billion, marking a 1% increase year-over-year. The revenue bump was largely due to premium increases in its health insurance plans and enhanced sales through Careon.
However, it could have been higher—Elevance reported a loss of about 470,000 members since the first quarter, lowering its total membership to 44.9 million.
The employer-sponsored plans suffered particularly high membership losses as key clients dropped off, and declines were expected within both Medicaid and the ACA due to many dropping coverage because of higher premiums following the diminishment of subsidies.
On a more positive note, Elevance’s retention rate for the ACA was actually better than anticipated, and the company is now projecting ACA membership to reach 1 million by the end of 2026, an increase from prior expectations of 900,000 exchange members.
The medical loss ratio, which indicates spending on patient care, rose to 89.7% compared to 88.9% the previous year. Although this was higher than analysts predicted, it was largely attributed to reduced ACA spending as more members opted for lower-cost bronze plans earlier this year.
This increase was countered by rising costs in both Medicaid and Medicare Advantage, the private Medicare programs that are an integral part of Elevance’s operations and significantly affect its overall revenues.
Overall, the second quarter performance of Elevance was generally viewed as “good,” according to Leerink analyst Whit Mayo.
While the company exceeded expectations, the extent of the upside was not as pronounced as some had hoped considering the buildup to the quarter.
“With MCO stocks having risen since Q1 and utilization trends indicated by hospital operator HCA, moderate gains and price hikes may not satisfy market expectations,” remarked Jefferies analyst David Windley.
After the earnings report, Elevance’s stock dropped by 9% during Wednesday’s trading.
As Elevance works to stabilize its operations, the company plans to invest in various one-time initiatives in the latter half of 2026 aimed at bolstering its business. These include early detection of healthcare cost trends, streamlining the patient experience, and expanding Carelon services, which are pivotal for growth.
Kaye also mentioned that Elevance has fully resolved an issue with CMS regarding compensation for Medicare Advantage services that lacked enough supporting data. CMS had almost suspended enrollment but Elevance managed to rectify the situation. The company had estimated a potential liability of up to $1.5 billion but ultimately paid $342 million.
“As of July 9, we’ve completed all steps required by CMS and received written confirmation that no sanctions will be enforced, signaling that this matter is closed,” Kaye stated in a phone call. “We are glad to have reached this resolution and are eager to continue offering our Medicare Advantage plans uninterrupted.”
