Elevance Health, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Elevents Health Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star then 1 on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star then 2. These instructions will be repeated prior to the question and answer portion of this call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the company's management. Please go ahead.

Good morning, and welcome to Elevance Health's third quarter 2025 earnings conference call. My name is Nathan Rich, Vice President of Investor Relations. With us this morning on the earnings call are Gail Boudreau, President and CEO, Mark Kay, our CFO, Pete Haitayan, President of Carillon, Morgan Kendrick, president of our commercial health benefits business, and Felicia Norwood, president of our government health benefits business. Gail will begin the call with the discussion of our third quarter performance, our planning assumptions for 2026, and the progress we've made against our strategic initiatives. Mark will then discuss our financial results and outlook in greater detail. After our prepared remarks, the team will be available for Q&A. During the call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, ElevanceHealth.com. We will also be making forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Elevance Health. These risks and uncertainties may cause actual results to differ materially from our current expectations. We advise the listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.

Good morning, and thank you for joining us. Healthcare is at a pivotal moment. The industry has been challenged by rising medical and pharmacy costs. and regulatory changes that will impact coverage for millions of Americans. At Elevance Health, we're focused on lowering the total cost of care and improving the member experience. We're acting with urgency through an integrated clinical and benefits approach, leveraging value-based care to align incentives, improve outcomes, and guide people to high-value, lower-cost settings. Tools like HealthOS and our AI-enabled clinical support are already reducing friction, beating decisions, and bending the cost curve. Our third quarter results reflected solid execution with the benefit expense ratio in line with our expectations. While results included approximately $1 of favorable items below the line, underlying performance remained consistent with the outlook we shared last quarter. We are reaffirming 2025 adjusted EPS of approximately $30 and continue to view $27 as the appropriate earnings baseline, excluding $3 of discrete, non-recurring items. As we plan for 2026, our posture is prudent and practical, and we're approaching next year with discipline and focus. We want to set expectations that reflect today's realities acknowledge uncertainties that remain, and be clear about the levers we control. While we are still in our planning process for next year, there are a few key assumptions that will shape our outlook. Starting with Medicaid, continued membership re-verifications and state program changes have driven acuity higher, and we are planning for at least a 125 basis point year-over-year decline in Medicaid margins, as rates like acuity and utilization trends remain elevated. This is an initial input at this early stage, not formal guidance. In Medicare Advantage, we've taken disciplined actions to improve profitability in 2026, focusing on products that drive retention and value, while exiting plans not aligned with our long-term strategy. For the 2027 payment year, approximately 55% of our MA members will be in four-star or higher contracts, including three five-star contracts, up from about 40% for payment year 2026, demonstrating steady improvement in STARS performance and strong returns on the investments we've made. In commercial, our integrated medical pharmacy model and advocacy solutions continue to resonate with employers, We maintained a disciplined approach to pricing and were pleased with strong client retention. We continue to see expansion in our fee-based relationships, driven by new client growth and sustained high retention among our large employer customers. Our industry-leading Net Promoter Scores reflect the trust employers place in our model. In the ACA market, our products are positioned to provide value to members While reflecting the higher acuity observed this year, we have taken a disciplined approach to pricing while continuing to design offerings that ensure affordability and access. The anticipated expiration of enhanced subsidies would significantly impact membership in 2026. If the subsidies are extended, we will work closely with states to support implementation and ensure continued access for consumers who rely on this coverage. CARE-1 is expanding external relationships and scaling pharmacy, behavioral health, specialty care management, and home-based services, embedding value-based care principles throughout. External revenue grew double digits year over year, reflecting broad momentum across pharmacy, behavioral, and specialty services. Clients are turning to us for the value we deliver. Carolin Rx had another strong selling season for 2026 with several national account wins and high retention. Carolin services continues to deepen its partnerships with external clients driven by high value solutions and the launch of new innovative products. At the same time, enrollment dynamics and health benefits will create a directional headwind for Carol on next year, which we will size when we provide our earnings guidance in January. In Medicaid, re-verification effects have raised acuity and sustained higher cost trends, and states are preparing program changes that will influence the pace of rate adequacy. We are proactively working with our state partners on rate alignment, recommending program improvements such as benefit refinements, and supporting states as they implement program changes. In parallel, we're expanding behavioral health interventions, strengthening specialty drug management, and optimizing sites of care. These steps are designed to improve program effectiveness and bend the cost curve. We are creating our own future through innovation. By year end, more than 10 million members will have access to our AI-enabled virtual assistant, demonstrating how digital innovation is enhancing access, efficiency, and engagement across our platform. For providers, we've lowered the number of prior authorization requests in the last two years. And providers on our HealthOS platform benefit from aligned data sharing, faster approvals, and reduced administrative burden. These initiatives collectively improve affordability, experience, and productivity across Elevance Health Looking ahead, by January, we expect greater visibility across our Medicaid rate cycle, marketplace subsidies, and Medicare AEP results. A more complete picture of 2025 trends will refine our outlook for medical costs and the impact of our care management programs. With these inputs, we will then establish guidance that is both prudent and achievable. Capital deployment remains an important lever in our long-term earnings growth algorithm. Following several years of strategic acquisitions to expand Carillon's capabilities, our focus is now on integrating those assets. We remain committed to disciplined capital allocation, balancing investment and growth with consistent shareholder returns. We will prioritize returning capital to shareholders through share repurchases, while remaining disciplined stewards of capital. Stepping back, our message today is straightforward. We delivered results consistent with our revised outlook and reaffirm our 2025 adjusted EPS of approximately $30. We're approaching 2026 with discipline and focus, and we'll provide an EPS range in January. While we recognize the external environment remains dynamic, we are confident in our strategy, our execution, and our ability to drive sustainable value for our stakeholders. With that, I'll turn it over to Mark to discuss our financial results and outlook in more detail.