ELV · Q1 2026 Earnings

Cautious

Elevance Health

Reported April 22, 2026

30-second summary

Elevance raised FY26 adjusted EPS guidance to "at least $26.75" (from at least $25.50) — but the underlying operating baseline raise is $0.25 ($25.50 → $25.75 per Mark Kay's 2027 algorithm reference), with the remaining ~$1.00 coming from non-recurring Q1 investment income. Q1 BER printed 86.8%, up 40bps YoY, reflecting elevated Medicaid trend partially offset by improved Medicare performance. GAAP EPS guide was cut $2.45 to "at least $19.85" on a $935M accrual for the CMS risk-adjustment matter, with a July 31 compliance deadline still open. The underlying business is tracking modestly ahead; the regulatory liability is now quantified but unresolved.

Headline numbers

EPS

Q1 FY2026

$12.58

Revenue

Q1 FY2026

$49.50B

+1.5% YoY

Operating margin

Q1 FY2026

4.2%

Key financials

Q1 FY2026

Metric	Q1 FY2026	YoY	Q4 FY2025	QoQ
Revenue	$49.50B	+1.5%	$49.30B	+0.4%
EPS	$12.58	—	$3.33	+277.8%
Operating margin	4.2%	—	0.6%	+360bps

Guidance

FY2026 GAAP EPS guidance lowered by $2.45 due to CMS matter, but adjusted EPS raised $1.25 on underlying business strength and cost controls; operating cash flow reaffirmed.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Diluted EPS (GAAP)	FY 2026	at least $22.30	at least $19.85	-$2.45 below prior guide	Lowered
Adjusted Diluted EPS (non-GAAP)	FY 2026	at least $25.50	at least $26.75	+$1.25 above prior guide	Raised

Reaffirmed unchanged this quarter: Operating Cash Flow (at least $5.5 billion)

Segment KPIs

Q1 FY2026

Segment	Q1 FY2026	YoY
Health Benefits	$42.5B	+2.6%
CarelonRx	$10.6B	+4.8%
Carelon Services	$7.365B	+12.7%
Commercial	$13.238B	+7.2%
Medicare	$10.991B	-3.6%
Medicaid	$14.28B	+1.7%
Federal Employee Program	$3.981B	+9.7%

Other KPIs

Q1 FY2026

Segment	Q1 FY2026
Total Medical Membership	45.4 million
Commercial Risk-Based Membership	4.863 million
Medicare Advantage Membership	1.899 million
Medicaid Membership	8.456 million
CarelonRx Quarterly Adjusted Scripts	80.3 million
Carelon Services Consumers Served	92.9 million
Benefit Expense Ratio	86.8%
Adjusted Operating Margin	6.5%

Management tone

Q2 contrition → Q3 "$27 baseline, invest into the trough" → Q4 "FY26 is the trough at $25.50" → Q1 "underlying business strength, increased visibility, raise to $26.75" (operating baseline $25.75).

Three quarters ago management was contrite about a second consecutive cut; two quarters ago they anchored buyside math to $27 and called FY26 the trough; last quarter they put a $25.50 floor on FY26 and reaffirmed the 2027 12% algorithm; this quarter they raised the headline floor to $26.75, with the operating baseline moving $0.25 to $25.75 and the balance from non-recurring investment income. The press-release phrasing — "supported by underlying business strength, actions to reduce medical costs, and increased visibility" — is the most forward-leaning language in four quarters. The risk: the raise sits alongside an unresolved CMS matter where the July 31 compliance deadline could still produce sanctions if remediation steps aren't completed.

The Medicaid framing shifted from "negative 1.75% trough" to "trough confirmed, 2027 inflection." Last quarter management set the FY26 Medicaid margin target at approximately negative 1.75% — a deeper trough than buyside expected. In Q&A this quarter (Justin Lake, Wolf), the answer was that timing of reverifications has been "modestly more favorable than originally assumed" and that 2027 will benefit from improved rate alignment. The composite mid-single-digit 2026 rate increase is, for the first time, characterized as moving the rate-trend gap rather than just lagging it. The Medicaid story is no longer "how bad does the trough get" but "how steep is the 2027 recovery."

CMS matter formally embedded with quantification, not soft-pedaled. The $935M accrual is described in Q&A (Ryan Langston, TD Cowen) as the "current best estimate of probable exposure" for historical risk-adjustment policy interpretation disputes, with management explicitly stating they expect sanctions will not go into effect if compliance steps are completed by July 31. The tone is direct: this is a quantified historical liability, not an ongoing compliance problem. Whether the buyside accepts that framing depends on the July 31 outcome.

AI moved from "investing into the trough" (Q3) to operating-model evidence (Q1). Last quarter the AI story was prospective. This quarter management framed AI as embedded across clinical, operational, and administrative workflows with measurable impact on cost management and member engagement, and the Carelon integrated whole-health programs were cited as having reduced hospital readmissions by 20% and generated >10% savings on post-acute care. The shift from "we will spend" to "here are the proof points" is the most concrete validation of the investment thesis since Q3.

Q&A highlights

AJ Rice · UBS

Are you hearing anything different in PBM and commercial employer selling seasons regarding activity levels, employer priorities, and emphasis on AI and economic uncertainty?

Commercial: strong early wins, record pipeline for 2027, employer focus on affordability and simplicity, consolidation of multi-carrier relationships. PBM/Carillon: strong ASO selling season with several national account wins, improved win rates, total sales ahead of plan with two marquee national wins. Integrated medical-pharmacy clients seeing $100+ PMPM savings and fewer ER visits.

Record pipeline level for 2027 national account selling seasonCarillon Rx ASO delivering strong resultsIntegrated medical-pharmacy clients achieving $100+ per member per month savingsSignificant reduction in ER visits with aligned medical-pharmacy benefit

Justin Lake · Wolf Research

Medicaid membership declined only 1.5% excluding Indiana growth in Q1; are declines concentrated in lower-utilizing members pressuring risk pool, and what acuity pressure assumptions are embedded in margin guidance?

Company remains comfortable with high single-digit decline guidance, expects to finish toward higher end of range. Timing has been modestly more favorable than assumed. Full-year guidance assumes greater membership pressure from reverifications in balance of year. Management views 2026 as the trough for Medicaid and believes 2027 will benefit from better rate alignment.

Q1 Medicaid membership down ~1.5% ex-Indiana growthExpects to finish year toward higher end of high single-digit decline rangeTiming of reverifications modestly more favorable than originally assumed2026 viewed as trough year for Medicaid margins

Lisa Gill · J.P. Morgan

Carillon margin came in below expectations despite reiterated guidance; what is the progression to recover margin? Status on federal and state PBM legislation impacts?

Carillon Rx Q1 performance in line with expectations with mid-5% margin guidance maintained. Revenue growth driven by strong revenue per script and external ASO business, offset by lower script volume from affiliated health plan. First quarter reflected normal seasonality. Federal regulatory direction toward transparency and stronger alignment is consistent with Carillon's integrated model; strategy not dependent on single economic mechanism.

Carillon Rx mid-5% margin guidance maintainedStrong revenue per script performanceExternal ASO business momentumSpecialty and home dispensing improvements

Ryan Langston · TD Cowan

How are CMS settlement conversations progressing and how was the $935 million accrual figure derived?

The $935 million accrual represents current best estimate of probable exposure for historical risk adjustment policy interpretation disputes. Relates to historical periods, not current operations or compliance. Company moved quickly to engage constructively with CMS since February notice. Working through CMS-outlined process with July 31 compliance deadline. Based on current timeline, company expects if compliance steps completed, sanctions will not go into effect.

$935 million accrual recorded for historical risk adjustment exposureRelates to policy interpretation disputes in historical periodsDirect engagement with CMS following February noticeJuly 31, 2026 compliance deadline

Aaron Wright · Morgan Stanley

What are proof points and quantification of AI/automation efficiency gains, long-term goals, and how are incremental investments tracking toward 2027-2028?

Company investing over $1 billion in digital and AI-enabled capabilities. AI embedded in practical ways: virtual assistant with 22 million regular users improving consumer effort scores; Sydney personalized matching tool connecting 20%+ of members; clinical operations improving decision-making and payment integrity with prior authorization denials reduced ~70%; 60,000+ associates already using AI productivity tools. Not approaching AI as separate experimentation but as scaling support for core business strategy.

Over $1 billion invested in digital and AI-enabled capabilitiesVirtual assistant used by 22 million commercial members regularlySydney matching tool connected 20%+ of membersPrior authorization denials reduced by ~70%

Answers to last quarter's watch list

Q1 FY2026 BER print vs the 90.2% ± 50bps FY guide — Q1 printed 86.8%, up 40bps YoY versus Q1 2025 86.4%, reflecting elevated Medicaid trend partially offset by Medicare improvement. Management characterized medical costs as "modestly better than assumed" in the quarter, contributing roughly two-thirds of operating outperformance, but did not formally re-set the FY BER guide. Q1 BER is seasonally lower than FY ratio so direct comparison to the 90.2% FY anchor is not clean. Status: Continue monitoring — directionally in line, FY framework unchanged.

Whether the "at least $25.50" FY26 EPS floor gets raised, held, or quietly trimmed at Q1 — Headline raised to "at least $26.75" but the operating baseline lift is $0.25 (to $25.75 per Mark Kay), with the balance from ~$1 of non-recurring Q1 investment income. After two years of cuts, even a modest operating raise alongside reaffirmation of the 2027 12% algorithm is constructive — though smaller than the headline implies. Status: Resolved positively (with caveat)

Medicare Advantage margin progress against the "at least 2% operating margin in 2026" target — MA membership now 1.899M (down 14.8% sequentially from 2.230M at Dec 31, 2025), and Mark Kay reaffirmed Medicare is "on track to achieve an operating margin of at least 2% this year." Medicare segment revenue -3.6% YoY confirms the book is shrinking as designed. Segment-level MA margin disclosure was not broken out in the release. Status: Continue monitoring — management commentary affirmative, explicit MA-only margin still undisclosed.

Medicaid margin trajectory vs the ~negative 1.75% 2026 target — Q&A characterized reverification timing as "modestly more favorable than assumed" and 2026 as the confirmed trough. Q1 Medicaid revenue +1.7% YoY and membership down only 1.5% ex-Indiana. Mark Kay reaffirmed comfort with the negative 1.75% full-year operating margin outlook. Status: Continue monitoring — directionally constructive, no Q1 segment-margin print disclosed.

Operating cash flow conversion — Reaffirmed at "at least $5.5B" FY26 inclusive of potential CMS matter cash payments — i.e., absorbing a potential $935M outflow without lowering the target. Q1 operating cash flow was $4.3B, up $3.3B YoY on favorable working capital. Status: Resolved positively — strong Q1 print and FY reaffirmation under absorbed pressure.

Carelon Services growth floor — Printed +12.7% YoY in Q1 FY2026 on revenue of $7.365B, with operating gain down 4.3% and operating margin 6.4% (-110bps YoY) reflecting continued investment in risk-based capability scaling. Status: Continue monitoring — revenue growth maintained, margin pressure from investment cycle.

What to watch into next quarter

Whether the FY26 BER guide of 90.2% ± 50bps gets formally refreshed at Q2: Q1 printed 86.8% (+40bps YoY) with management citing modestly better claims experience. Watch whether Q2 brings a formal BER re-set or whether management continues to hold the framework while flowing outperformance to the EPS line.

July 31 CMS compliance deadline outcome: management expects sanctions will not take effect if remediation steps complete on time. A clean resolution would unlock the cut $2.45 of GAAP EPS as a one-time absorption; a missed deadline or escalated sanctions would convert the historical accrual into an ongoing compliance issue.

Carelon Services margin trajectory: Q1 op margin 6.4% (-110bps YoY) on continued risk-based investment. Watch whether Q2 stabilizes margin as affiliated-membership headwind annualizes or whether the investment cycle extends margin compression further.

Whether prior FY26 revenue framework ("low single digit decline") gets formally replaced: Q1 revenue +1.5% YoY is meaningfully better than the implied trajectory. Management did not restate the revenue guide. A Q2 reintroduction of a positive or flat FY revenue framework would be a second-derivative positive on top of the EPS raise.

Medicare Advantage margin disclosure: with MA membership down 14.8% sequentially in Q1, the strategic-exit thesis needs the "at least 2%" operating margin to validate. Watch whether Q2 brings explicit MA margin disclosure.

2026 selling-season conversion of the "record 2027 pipeline": management cited a record national-account pipeline and two marquee PBM wins. Watch Q2/Q3 for explicit 2027 commercial membership additions and CarelonRx ASO wins — pipeline-to-bookings conversion is the only verification of the underlying-strength claim that anchored the operating baseline raise.

Sources

Elevance Health Q1 FY2026 Earnings Release: https://www.sec.gov/Archives/edgar/data/1156039/000115603926000039/a1q2026elvearningsrelease.htm
Elevance Health Q1 FY2026 earnings conference call — prepared remarks and Q&A

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