Elevance Health Inc. (NYSE: ELV), a prominent health insurance provider, experienced a decline in its stock price following the release of its fourth-quarter 2025 financial results and a subdued forecast for fiscal 2026. Despite some recovery from initial losses during premarket trading, investor sentiment reflected caution in response to the company's conservative guidance.
For the fourth quarter ending December 31, 2025, Elevance Health posted revenues of $49.3 billion, marking a 10% increase year over year. However, this figure fell short of the consensus analyst estimate of $49.82 billion. On a full-year basis, the company's operating revenue reached $197.6 billion, representing a 13% increase over 2024.
The revenue growth over the quarter and year was primarily driven by higher premium yields within the Health Benefits segment, contributions from recent acquisitions, and expansion in Medicare Advantage membership. These positive factors were partially offset by declining membership volumes in the Medicaid segment, indicating some attrition in that business line.
In terms of profitability, Elevance Health's adjusted earnings per share exceeded expectations, reporting $3.33 against the consensus of $3.10 for the quarter. Despite this positive earnings surprise, underlying cost metrics highlighted rising expense pressures.
The company's benefit expense ratio increased to 93.5% in the fourth quarter, up 110 basis points compared to the previous period. This rise primarily reflects heightened medical cost trends, notably within Affordable Care Act (ACA) health plans, as well as seasonal fluctuations in Medicare Part D costs driven by legislative changes under the Inflation Reduction Act. Over the full year, the benefit expense ratio escalated to 90%, a 150 basis point increase year over year, underscoring persistent elevated medical cost pressures.
Operating expenses also saw an uptick, with the operating expense ratio at 11% for the quarter and 10.6% for the full year. When adjusted, these figures respectively stood at 10.8% and 10.5%, signifying a marginal increase in administrative and other operational costs.
Segment-level performance displayed varied trends. The Health Benefits unit recorded operating revenues of $41.8 billion in the fourth quarter, an 11% increase driven by higher premium rates, acquisition contributions, and Medicare Advantage membership growth, partially counterbalanced by Medicaid membership losses. As of year-end, medical membership totaled approximately 45.2 million, down 1% year over year, primarily due to attrition in the Medicaid segment.
The Carelon segment experienced a robust 27% increase in operating revenue, reaching $18.7 billion, fueled by growth in CarelonRx product sales, expansion of Carelon Services risk-based offerings, and the acquisition of CareBridge.
During the subsequent conference call, executives disclosed a membership rise of approximately 10% following the 2026 open enrollment period. However, the company’s CEO emphasized that 2026 would be a year concentrated on execution and strategic repositioning. Notably, management anticipates a decline in Medicaid membership alongside a potential shift in the acuity profile of its insured population over time.
Additionally, a significant decline is expected in Medicare Advantage membership for 2026, with projections indicating a high teens percentage drop. Cost pressures are also anticipated to persist within Medicaid and ACA plan segments throughout the year.
The leadership expressed skepticism regarding the Centers for Medicare & Medicaid Services (CMS) proposed payment rates for 2027. Specifically, the Medicare Agency's suggested inflation of just 0.09% falls substantially short of the company's current trends in medical cost inflation and healthcare utilization, further complicating financial planning.
Looking ahead to the fiscal 2026 guidance, Elevance Health forecast adjusted earnings per share of at least $25.50, notably lower than Wall Street expectations of $26.90. The company projects mid-single-digit declines in revenue for 2026 attributable to reduced premium pricing.
Forecasted expense ratios include a benefit expense ratio centered around 90.2% with a tolerance range of plus or minus 50 basis points. The adjusted operating expense ratio is anticipated at approximately 10.6%, also with a 50 basis point variance.
Medical enrollment is expected to contract to a range between 43.175 million and 43.875 million members by year-end 2026, down from 45.232 million in 2025. This reduction is part of the broader membership attrition trends noted in Medicaid and Medicare Advantage segments.
While CMS projects a modest increase in payments to Medicare Advantage plans of over $700 million — equivalent to a 0.09% growth in 2027 — this is significantly lower than Elevance Health’s anticipated medical cost inflation conveyed during their earnings discussion, which ranges between 4% and 6%.
Following the earnings release, Elevance Health’s shares rallied 3.37%, trading at $333.80 per share as of the close on the announcement day, reflecting some investor optimism despite the softer outlook.
In summary, Elevance Health's Q4 and full-year results underline ongoing challenges from rising medical cost trends and evolving membership dynamics. The firm’s conservative guidance and highlighted uncertainties regarding regulatory payment rates illustrate a cautious stance for 2026, emphasizing the need for focused operational execution and strategic adjustments.