Elevance Health, one of the nation's largest health insurers, reported fourth-quarter results Wednesday morning that showcased the company's scale while highlighting the persistent challenges facing managed care companies in 2026. The Indianapolis-based insurer posted record annual revenue but tempered expectations for the year ahead as Medicaid economics remain challenging.

The Fourth Quarter Numbers

Elevance delivered results largely in line with expectations:

  • Q4 operating revenue: $49.3 billion, up 10% year-over-year
  • Full-year revenue: $197.6 billion, up 13% from 2024
  • Benefit expense ratio: 93.5% in Q4, up 110 basis points from prior year
  • Full-year benefit expense ratio: 90.0%, up 150 basis points year-over-year

The elevated benefit expense ratio—a key metric showing what percentage of premiums goes to paying medical claims—reflects higher medical cost trends, particularly in Affordable Care Act health plans and Medicare Part D programs affected by Inflation Reduction Act changes.

"We delivered fourth quarter results in line with our outlook, reflecting disciplined execution in a dynamic environment. As we enter 2026, our focus is on advancing affordability and making healthcare easier to access and navigate for members."

— Elevance Health management

The Medicaid Margin Problem

The most concerning element of Elevance's report centers on its Medicaid business. The company disclosed that Medicaid operating margins are expected to decline to negative 1.75% in 2026, deteriorating from negative 0.5% in 2025.

This persistent "timing mismatch"—where state payment rates fail to keep pace with rising care costs—has plagued the entire managed Medicaid industry. Several factors drive the pressure:

Redetermination Aftermath

The post-pandemic Medicaid redetermination process, which removed millions of ineligible enrollees from state rolls, left behind a population with higher average healthcare needs. Those who remained enrolled tend to be sicker and more expensive to cover.

State Budget Constraints

State governments, facing their own budget pressures, have been slow to adjust Medicaid payment rates upward despite clear evidence of rising medical costs. Rate negotiations often lag actual cost trends by 12-18 months.

Utilization Increases

Healthcare utilization patterns have normalized post-pandemic, with members accessing care at higher rates than during COVID restrictions. This return to normal utilization increases costs for plans that had grown accustomed to lower usage.

The Medicare Rate Shock

Elevance's challenges extend beyond Medicaid. The company, like its peers, faces headwinds from the Trump administration's proposal to keep Medicare Advantage payment rates essentially flat for 2027.

The Centers for Medicare & Medicaid Services proposed a net average payment increase of just 0.09% for Medicare Advantage plans—dramatically below the 4-6% increase Wall Street had anticipated. This announcement sent health insurer stocks tumbling earlier this week:

  • UnitedHealth: Down nearly 20%
  • Humana: Down more than 20%
  • Elevance: Down approximately 13%
  • CVS Health: Down approximately 14%

While Medicare Advantage rates won't be finalized until April, and insurers are lobbying aggressively for higher payments, the initial proposal signals a tougher environment than the industry had hoped for.

2026 Outlook: A "Foundation" Year

Management positioned 2026 as a transitional year focused on building the foundation for future growth. The company expressed confidence in returning to at least 12% adjusted earnings-per-share growth in 2027, but that means accepting more modest results this year.

Key elements of the 2026 strategy include:

  • Pricing discipline: Implementing rate increases to catch up with cost trends
  • Network management: Negotiating tighter provider contracts and steering members to cost-effective options
  • Administrative efficiency: Continuing technology investments to reduce operating costs
  • Portfolio optimization: Exiting unprofitable markets or products where necessary

The Dividend Signal

Despite the challenging outlook, Elevance maintained its commitment to shareholder returns. The company declared a first-quarter 2026 dividend of $1.72 per share, payable March 25 to shareholders of record on March 10.

This consistent dividend signals management's confidence in the company's long-term cash generation, even as near-term margins face pressure.

Industry Implications

Elevance's results and outlook have broader implications for the managed care sector:

Medicaid Specialists at Risk

Companies with concentrated Medicaid exposure, like Molina Healthcare and Centene, face similar or potentially worse margin pressures. Diversified insurers like Elevance can offset Medicaid losses with other business lines; pure-play Medicaid companies cannot.

Medicare Advantage Economics Shifting

The Medicare Advantage business, long a growth engine for insurers, is entering a more challenging phase. Flat government payments combined with rising medical costs will force difficult choices about benefits, provider networks, or profitability.

Employer-Sponsored Insurance Holding Steady

The commercial insurance market, while competitive, remains more stable than government programs. Elevance and peers may increase their focus on this segment as government program economics deteriorate.

What Investors Should Watch

For those holding or considering health insurance stocks, several metrics deserve attention:

  • Medical loss ratio trends: Are companies successfully managing care costs, or is the ratio continuing to rise?
  • Membership changes: Are insurers growing enrollment or trimming unprofitable lives?
  • State rate negotiations: When do Medicaid rate adjustments kick in?
  • Final Medicare Advantage rates: April's announcement will be crucial

The Bottom Line

Elevance Health's results illustrate the challenging environment facing health insurers in 2026. The company's scale and diversification provide some protection, but even the industry's largest players cannot escape the fundamental pressure of medical costs rising faster than payment rates.

For investors, the health insurance sector may offer value if you believe current headwinds are temporary and manageable. But the path to recovery requires either higher government payments or successful cost management—neither of which is guaranteed. Caution remains warranted until visibility improves on both Medicare and Medicaid economics.