What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-17 compared with 2025-04-22 · 158 added, 104 removed, 337 unchanged (44% of the section changed)

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References to the “states” include the District of Columbia and Puerto Rico, unless the context otherwise requires.

Results of operations, cost of care trends, investment yields and other measures for the three months ended March 31, 2025 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2025, or any other period.

Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, 2025 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2025, or any other period.

Elevance Health is a health company with the purpose of improving the health of humanity.

We are one of the largest health insurers in the United States in terms of medical membership, serving approximately 45.8 million medical members through our affiliated health plans as of March 31, 2025.

We are one of the largest health insurers in the United States in terms of medical membership, serving approximately 45.6 million medical members through our affiliated health plans as of June 30, 2025.

We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans.

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Business Trends

We continue to participate in the Individual state- or federally-facilitated marketplaces (the “Public Exchange”) in nearly all of our Anthem Blue Cross and Anthem Blue Cross and Blue Shield service areas.

We anticipate continued growth in our existing Public Exchange membership and have expanded into select service areas in Florida, Maryland, and Texas in 2025, using our Simply Healthcare and Wellpoint brands, and we are actively evaluating expansion opportunities in additional marketplaces beyond 2025.

Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact significant modifications to existing laws and regulations, including changes to available Individual premium subsidies and insurer taxes and fees.

CarelonRx markets and offers pharmacy services to our affiliated health plan customers throughout the country and to customers outside of the health plans we own.

Our comprehensive pharmacy services portfolio includes all core pharmacy services, such as home delivery and specialty pharmacies, claims adjudication, formulary management, pharmacy networks, rebate administration, a prescription drug database and member services, as well as infusion services and injectable therapies.

CarelonRx delegates certain core pharmacy services to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation (“CVS”), pursuant to an agreement (the “CVS Agreement”) with the current contractual term extending through December 31, 2027.

We can elect to have CVS continue to provide services to us for a three-year extension period on the same terms and conditions as in the current CVS Agreement in the event of a termination or non-renewal by either party.

Medical Cost Trends:

Our medical cost trends are primarily driven by changes in the utilization of services across all provider types and the unit cost of these services.

We work to mitigate these trends through various medical management programs such as care and condition management, program integrity and specialty pharmacy management and utilization management, as well as benefit design changes.

There are many drivers of medical cost trends that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high-cost prescription drugs, new indications of existing prescription drugs, provider contracting inflation, labor costs and healthcare fraud, waste and abuse.

Membership shifts from Medicaid into our Individual ACA business following the redetermination process that began in April 2023, together with lower membership effectuation rates, particularly in geographies with high concentrations of highly subsidized members, have driven a market-wide increase in morbidity, resulting in elevated medical cost trends.

The increase in Medicaid cost trend has decelerated, but at a more modest pace than anticipated, due to higher member acuity and an increase in utilization.

Pricing Trends:

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Revenues from the Medicare and Medicaid programs are dependent, in whole or in part, upon annual funding from the federal government and/or applicable state governments.

Product pricing remains competitive.

Pricing of the Medicare and Medicaid programs may not adequately reflect current underlying healthcare cost trends given the timing lag between when pricing is established and the start of the applicable contract, which could adversely affect our financial results.

If the approvals of any annual premium rate changes by contracted government agencies are delayed, we are required to defer the recognition of any premium rate increases to the period in which the premium rates become final.

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Premium rate decreases are recognized in the period the change in premium rate becomes effective and the change in the rate is known, which may be prior to the period in which the contract amendment affecting the rate is finalized.

Medical Cost Trends:

Our medical cost trends are primarily driven by changes in the utilization of services across all provider types and the unit cost of these services.

Affordable Care Act :

We have expanded into select service areas in Florida, Maryland, and Texas in 2025, using our Simply Healthcare and Wellpoint brands.

Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact significant modifications to existing laws and regulations, including changes to available Public Exchange premium subsidies and insurer taxes and fees.

CarelonRx markets and offers pharmacy services to our affiliated health plan customers throughout the country and to customers outside of the health plans we own.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in our 2024 Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

The budget reconciliation legislation of 2025, One Big Beautiful Bill Act (the “OBBBA”), was signed into law on July 4, 2025.

The OBBBA contains a variety of provisions that could impact our business and results of operations including:

changes to Medicaid renewal and eligibility rules, including more frequent redeterminations for beneficiaries receiving coverage through the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”) and a requirement for adults made eligible under the ACA, to meet work or community engagement standards;

changes to federal requirements regarding Medicaid state directed payments and provider taxes, including taxes on managed care organizations;

delays in the implementation of Medicaid final regulations on certain eligibility and enrollment provisions;

applies cost sharing to certain services for adults made eligible under the ACA’s Medicaid expansion;

reduces the allowable home equity asset threshold for members seeking eligibility for Medicaid long term care services;

grants to the U.S.

Department of Health and Human Services (“HHS”) the authority to approve certain state home and community-based services waivers;

eliminates the repayment limit for excess advanced premium tax credits under the ACA;

modifies rules regarding HSA-eligible plans under the ACA and makes permanent the safe harbor first established under the Coronavirus Aid, Relief, and Economic Security Act, allowing pre-deductible coverage of telehealth services for HSA high-deductible health plans;

and establishes a new rural health transformation program, among other provisions.

Additional federal and state guidance is expected to be issued in order to implement these OBBBA provisions, most of which have effective dates in 2027 and 2028.

In addition, in June 2025, CMS finalized the Marketplace Integrity and Affordability Regulation which modifies the ACA exchange open enrollment periods and eligibility for premium tax credits among other requirements.

In September 2024, the HH S, the U.S Department of Labor, and the U.S Department of the Treasury (collectively, the “Tri-Agencies”) issued final regulations related to mental health parity that will require health plans to make administrative and operational changes to comply with these final regulations.

While some provisions became effective on January 1, 2025, additional guidance from the Tri-Agencies will be necessary to assess the full impact of these regulations on our operations and financial results.

Litigation has been filed challenging these final regulations.

The Consolidated Appropriations Act of 2023 decoupled Medicaid eligibility redeterminations from the COVID-19 Public Health Emergency initially declared in January 2020.

As a result, states were permitted to begin removing ineligible beneficiaries from their Medicaid programs starting April 1, 2023, and the majority of our Medicaid markets began doing so as of June 30, 2023.

Although most states have completed this process, Centers for Medicare and Medicaid Services (“CMS”) has provided that states have until December 31, 2025 to complete these eligibility redeterminations.

Although most states have completed this process, the Centers for Medicare and Medicaid Services (“CMS”) has provided that states have until December 31, 2025 to complete these eligibility redeterminations.

The Inflation Reduction Act of 2022 contains a variety of provisions that have impacted, and continue to impact, our business including by extending the American Rescue Plan Act of 2021’s enhanced Premium Tax Credits (“PTC”) through 2025;

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If Congress does not act to extend the enhanced PTC, they will expire at the end of 2025, which could have a material adverse effect on our business and results of operations.

In September 2024, the U.S.

Departments of Health and Human Services (“HHS”), Labor, and Treasury (collectively, the “Tri-Agencies”) issued final regulations related to mental health parity that will require health plans to make administrative and operational changes to comply with these final regulations.

Litigation has been filed challenging these final regulations.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), continues to impact our business and results of operations, including pricing, minimum medical loss ratios, and the geographies in which our products are available.

The ACA continues to impact our business and results of operations, including pricing, minimum medical loss ratios, and the geographies in which our products are available.

We also expect further and ongoing regulatory guidance on a number of issues related to Medicare, including evolving methodology for ratings and quality bonus payments.

CMS also frequently proposes changes to its program that audits data submitted under the risk adjustment programs in ways that could increase financial recoveries from plans.

For additional discussion regarding regulatory trends and uncertainties, and risk factors that could cause actual results to differ materially from those contained in forward-looking statements, see Part I, Item 1, “Business – Regulation,” Part I, Item 1A, “Risk Factors” and the “Regulatory Trends and Uncertainties” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report on Form 10-K.

CMS also frequently proposes changes to its program that audits data submitted under the risk adjustment programs in ways that could increase financial recoveries from pla ns.

For example, in May 2025, CMS announced plans to substantially increase the scale and pace of Risk Adjustment Data Validation (“RADV”) audits of Medicare Advantage plans, which could adversely affect our financial condition and results of operations.

1A, “Risk Factors” and the “Regulatory Trends and Uncertainties” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report on Form 10-K.

Other Significant Items

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Centers is a managed long-term care plan that serves New York state Medicaid and dual-eligible Medicaid/Medicare members, enabling adults with long-term care needs and disabilities to live safely and independently in their own home.

This acquisition aligns with our strategic plan to grow the Health Benefits segment and leverage industry-leading expertise while serving Medicaid and dual-eligible populations.

This acquisition aligns with our strategic plan to grow the Health Benefits segment and leverage industry-leading expertise while serving Medicaid and dual-eligible Medicaid/Medicare populations.

Measurement period adjustments during the three months ended June 30, 2025 included $264 increase in indefinite-lived intangible assets, ($166) reduction in goodwill, ($157) reduction to tangible net assets acquired, and a $59 increase to finite-lived intangible assets.

On December 10, 2024, we completed our acquisition of RSV QOZB LTSS, Inc.

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This acquisition aligns with Carelon Services’ care at home strategy and our vision to be an innovative, valuable, and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

Measurement period adjustments during the three months ended June 30, 2025 included a ($690) reduction to finite-lived intangible assets, a ($438) reduction to contingent consideration liability, $183 increase in goodwill and $73 decrease to tangible net assets acquired.

On August 6, 2024, we made an equity investment of $2,580 that resulted in our minority interest ownership of approximately 35% of Augusta Topco Holdings, L.P.

(“Mosaic Health”), a joint venture with Clayton, Dubilier & Rice (“CD&R”) that is designed to accelerate innovation in care delivery across multiple regions in the United States by bringing together certain care delivery and enablement assets of Carelon Management Services Inc (“CMSI Assets”), a Carelon Health business, and two CD&R portfolio businesses, apree health and Millennium Physician Group.

Our additional contribution of the CMSI Assets to Mosaic Health was completed on January 1, 2025, for which we received an additional $300 of equity (approximately 5% ownership) in Mosaic Health.

On March 11, 2024, we completed our acquisition of Paragon Healthcare, Inc.

and its subsidiaries (“Paragon”).

Paragon, which operates as part of CarelonRx, provides infusion services and injectable therapies through its omnichannel model of ambulatory infusion centers, home infusion pharmacies, and other specialty pharmacy services.

This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

Our additional contribution of

the CMSI Assets to Mosaic Health was completed on January 1, 2025, for which we received an additional $300 of equity (approximately 5% ownership) in Mosaic Health.

On April 1, 2024, we completed the sale of our life and disability businesses to StanCorp Financial Group, Inc.

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The related net assets held for sale for the life and disability businesses divested and results of operations as of and for the three months ended March 31, 2024 were not material.

For additional information, see Note 3, “Business Acquisitions and Divestitures” and Note 5, “Investments” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional information, see Note 3, “Business Acquisitions and Divestitures”, Note 5, “Investments” , and Note 6, “Derivative Financial Instruments” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Litigation Matters

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The Court granted preliminary approval of the Provider Settlement Agreement on December 4, 2024 .

If approved by the Court, the Provider Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $666, and will contain certain non-monetary terms including (i) expansion of certain opportunities to contract with providers in contiguous service areas, (ii) certain prompt pay commitments, and (iii) various technological enhancements to the BlueCard program.

A Final Fairness Hearing is scheduled for July 29, 2025.

If app roved by the Court, the Provider Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $666, and will contain certain non-monetary terms including (i) expansion of certain opportunities to contract with providers in contiguous service areas, (ii) certain prompt pay commitments, and (iii) various technological enhancements to the BlueCard program.

We recognized our estimated payment obligation under the Provider Settlement Agreement of $666 in September 2024.

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Selected Operating Performance

For the twelve months ended March 31, 2025, total medical membership declined by 0.5%.

This was primarily driven by attrition in Medicaid membership, including as a result of eligibility redeterminations and certain market exits, and decreases in our Commercial Fee-Based business.

For the twelve months ended June 30, 2025, total medical membership declined by 0.3%.

This was primarily driven by attrition in Medicaid membership, primarily as a result of eligibility redeterminations, and decreases in our Commercial Fee-Based business.

These decreases were partially offset by increases in our Medicare Advantage and Individual ACA businesses.

Operating revenue for the three months ended March 31, 2025 was $48,765, an increase of $6,492, or 15.4%, from the three months ended March 31, 2024.

The increase was primarily a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends, recent acquisitions, growth in Medicare Advantage and Individual ACA membership, and growth in CarelonRx product revenue, partially offset by membership attrition in our Medicaid business.

Net income for the three months ended March 31, 2025 was $2,184, a decrease of $65, or 2.9%, from the three months ended March 31, 2024.

The decrease was primarily due to a decreased operating gain within our Health Benefits segment, increased operating loss in our Corporate and Other segment and increased net losses on financial instruments.

These decreases were partially offset by increases in operating gain in our CarelonRx and Carelon Services businesses, increased net investment income and decreased income tax expense.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $9.61 for the three months ended March 31, 2025, which represented a 0.2% increase from EPS of $9.59 for the three months ended March 31, 2024.

The increase in EPS resulted primarily as a result of fewer diluted shares outstanding.

Operating cash flow for the three months ended March 31, 2025 and 2024 was $1,017 and $1,978, respectively.

The decrease in net cash provided by operating activities was primarily due to timing related changes in working capital.

Operating revenue for the three months ended June 30, 2025 was $49,421, an increase of $6,198, or 14.3%, from the three months ended June 30, 2024.

Operating revenue for the six months ended June 30, 2025 was $98,186, an increase of $12,690, or 14.8%, from the six months ended June 30, 2024.

The increases for both the three and six months ended June 30, 2025 were primarily a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends,

recent acquisitions, and growth in Medicare Advantage and Individual ACA membership, partially offset by membership attrition in our Medicaid business.

Net income for the three months ended June 30, 2025 was $1,744, a decrease of $557, or 24.2%, from the three months ended June 30, 2024.

Net income for the six months ended June 30, 2025 was $3,928, a decrease of $622, or 13.7%, from the six months ended June 30, 2024.

The decreases for both the three and six months ended June 30, 2025 were primarily due to decreased operating gain within our Health Benefits segment and increased net losses on financial instruments.

These decreases were partially offset by increases in operating gain in our CarelonRx and Carelon Services businesses and decreased income tax expense.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $7.72 for the three months ended June 30, 2025, which represented a 21.6% decrease from EPS of $9.85 for the three months ended June 30, 2024.

Our EPS was $17.33 for the six months ended June 30, 2025, which represented a 10.9% decrease from EPS of $19.44 for the six months ended June 30, 2024.

The decrease in EPS for both periods resulted primarily from decreased shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Operating cash flow for the six months ended June 30, 2025 and 2024 was $3,071 and $2,425, respectively.

The increase in net cash provided by operating activities was primarily due to favorable working capital impacts, partially offset by a lower net income for the six months ended June 30, 2025.

Membership and Other Metrics

The following table presents our medical membership by customer type as of March 31, 2025 and 2024.

The following table presents our medical membership by customer type as of June 30, 2025 and 2024.

Also included below is other membership by product and other metrics.

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Carelon Services Consumers Served 97.3 102.3 (5) (4.9) %

1 BlueCard ® membership at March 31, 2024 has been restated lower by 190 to align to our current reporting, which is the BCBSA reporting methodology.

2 We are no longer presenting our Life and Disability membership following the sale of that business on April 1, 2024.

Medical Membership

The decrease in medical membership was primarily driven by attrition in Medicaid membership, including as a result of eligibility redeterminations and certain market exits, and decreases in our Commercial Fee-Based business.

The decrease in medical membership was primarily driven by attrition in Medicaid membership, including as a result of eligibility redeterminations, and decreases in our Commercial Fee-Based business.

These decreases were partially offset by increases in our Medicare Advantage and Individual ACA businesses.

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Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three months ended March 31, 2025 and 2024 are as follows:

Our consolidated summarized results of operations and other financial information for the three and six months ended June 30, 2025 and 2024 are as follows:

Three Months Ended

March 31 Change

June 30 Six Months Ended

June 30 Change

Three Months Ended

Six Months Ended June 30

2024 2025 vs.

2025 2024 2025 2024 $ % $ %

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Net income 1,744 2,301 3,928 4,550 (557) (24.2) % (622) (13.7) %

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests (1) (1) (2) (4) — NM 2 NM

Shareholders’ net income $ 1,743 $ 2,300 $ 3,926 $ 4,546 $ (557) (24.2) % $ (620) (13.6) %

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Diluted shareholders’ earnings per share $ 7.72 $ 9.85 $ 17.33 $ 19.44 $ (2.13) (21.6) % $ (2.11) (10.9) %

$ 9.61 $ 9.59 $ 0.02 0.2 %

Effective tax rate 23.9 % 22.9 % 22.8 % 23.2 % 100 bp 3

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2 Benefit expense ratio represents benefit expense as a percentage of premium revenue.

Premiums for the three months ended March 31, 2025 and 2024 were $40,887 and $35,696, respectively.

Premiums for the three months ended June 30, 2025 and 2024 were $41,271 and $35,416, respectively.

Premiums for the six months ended June 30, 2025 and 2024 were $82,158 and $71,112, respectively.

3 bp = basis point;

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4 Operating expense ratio represents operating expense as a percentage of total operating revenue.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Total operating revenue increased primarily as a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends, recent acquisitions, growth in Medicare Advantage and Individual ACA membership, and growth in CarelonRx product revenue, partially offset by membership attrition in our Medicaid business.

Net investment income increased primarily due to higher income from alternative investments.

Net losses on financial instruments increased due to losses on other invested assets and equity securities.

Benefit expense increased primarily due to higher medical cost trends across all lines of business within our Health Benefits segment.

Our benefit expense ratio increased primarily as a result of Medicaid rates being inadequate to cover medical cost trends, partially offset by higher Medicaid premium increases to cover out of period premium taxes.

Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

Total operating revenue increased primarily as a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends, recent acquisitions, and growth in our Medicare Advantage membership, partially offset by membership attrition in our Medicaid business.

Net investment income decreased primarily due to lower income from fixed maturity securities.

Net losses on financial instruments increased due to higher losses on other invested assets partially offset by lower losses from fixed maturity securities sales.

Benefit expense increased primarily due to higher medical cost trends across all lines of business within our Health Benefits segment, partially offset by a favorable out-of-period settlement from a value-based care provider.

Our benefit expense ratio increased primarily as a result of higher medical cost trend in our Medicaid business and Individual and Small Group ACA plans (“Affordable Care Act health plans”).

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated pharmacy customers.

Cost of products sold increased as a result of higher script utilization.

Operating expense improved primarily due to disciplined cost management, partially offset by an increase in premium taxes and assessments.

Our operating expense ratio decreased primarily due to operating expense leverage associated with growth in operating revenue.

Other expense increased primarily due to higher interest expense related to our issuances of senior secured notes during the latter half of 2024.

The increase also reflects higher amortization of intangible assets acquired in our fourth quarter of 2024 acquisitions.

Our effective tax rate increased primarily due to the non-recurrence of a favorable resolution of an uncertain tax position recognized during the three months period ended June 30, 2024.

Our shareholders’ net income as a percentage of total revenues decreased in the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 as a result of all factors discussed above.

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

Total operating revenue increased primarily as a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends, recent acquisitions, and growth in our Medicare Advantage and Individual ACA membership, partially offset by membership attrition in our Medicaid business.

Net investment income increased primarily due to higher income from alternative investments, partially offset by lower income from fixed maturity securities.

Net losses on financial instruments increased due to higher losses on other invested assets partially offset by lower losses from fixed maturity securities sales.

Our benefit expense ratio increased primarily as a result of higher medical cost trend in our Medicaid and Affordable Care Act health plans.

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated pharmacy customers.

Cost of products sold increased as a result of higher script utilization.

Operating expense increased primarily due to premium tax expenses, some of which were out of period.

Our operating expense ratio decreased primarily due to operating expense leverage associated with growth in operating revenue and ongoing cost management, partially offset by an out of period premium tax expense related to Medicaid.

The increase was partially offset by disciplined cost management.

Other expense increased primarily due to higher interest expense related to our issuances of senior secured notes during the latter half of 2024.

The increase was also due to higher amortization of other intangible assets related to the intangible assets acquired during the acquisitions we completed in the fourth quarter of 2024.

Our effective tax rate decreased primarily due to the favorable resolution of uncertain tax positions and the impact of certain investment credits.

Our shareholders’ net income as a percentage of total revenues decreased in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 as a result of all factors discussed above.

The increase also reflects higher amortization expense on the intangible assets recognized from the acquisitions we completed in the fourth quarter of 2024.

Our effective tax rate decreased primarily due to the impact of certain investment-related activities, partially offset by the non-recurrence of a favorable resolution of an uncertain tax position recognized during the six months ended June 30, 2024.

Our shareholders’ net income as a percentage of total revenues decreased in the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 as a result of all factors discussed above.

Reportable Segments Results of Operations

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For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table presents a summary of the reportable segment financial information for the three months ended March 31, 2025 and 2024:

The following table presents a summary of the reportable segment financial information for the three and six months ended June 30, 2025 and 2024:

Six Months Ended

Three Months Ended

March 31 Three Months Ended

June 30 Three Months Ended

Six Months Ended

2025 2024 2025 2024 $ % $ %

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Operating Margin

Health Benefits 5.4 % 6.1 % (70) bp

CarelonRx 6.0 % 6.5 % (50) bp

Carelon Services 7.5 % 7.2 % 30 bp

Health Benefits 3.8 % 5.8 % 4.5 % 6.0 % (200) bp (150) bp

CarelonRx 5.0 % 5.7 % 5.5 % 6.1 % (70) bp (60) bp

Carelon Services 5.4 % 4.6 % 6.4 % 5.8 % 80 bp 60 bp

Total operating margin

6.5 % 7.1 % (60) bp

4.9 % 6.4 % 5.7 % 6.8 % (150) bp (110) bp

bp = basis point;

one hundred basis points = 1%.

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

Health Benefits

Operating revenue increased primarily as a result of higher premium yields driven by premium rate increases in all of our lines of business in recognition of medical cost trends and growth in our Medicare Advantage and Individual ACA membership.

Operating gain decreased primarily as a result of Medicaid rates being inadequate to cover medical cost trends, partially offset by premium rate increases in most lines of business and enhanced operating efficiencies.

Operating revenue increased primarily as a result of higher premium yields driven by premium rate increases in all of our lines of business in recognition of medical cost trends, recently closed acquisitions and growth in our Medicare Advantage membership, partially offset by lower Medicaid membership.

Operating gain decreased primarily as a result of Medicaid and Affordable Care Act health plan rates being inadequate to cover medical cost trends, partially offset by a favorable out-of-period settlement from a value-based care provider.

Operating revenue increased primarily due to higher prescription volume associated with growth in pharmacy membership and revenue related to recent acquisitions.

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Operating revenue increased primarily due to the acquisition of CareBridge in December 2024 and the continued expansion of risk-based capabilities in our specialty care solutions and behavioral health services.

The increase in operating gain was primarily driven by improved performance in our post-acute care, specialty care solutions and behavior health services, as well as the acquisition of CareBridge.

The increase in operating gain was primarily driven by improved performance in our post-acute care, specialty care solutions and behavioral health services, as well as the acquisition of CareBridge.

Corporate & Other

Operating revenue increased primarily due to higher affiliated revenues.

Operating loss decreased primarily due to operating expense leverage.

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

Health Benefits

Operating revenue increased primarily as a result of higher premium yields driven by premium rate increases in all of our lines of business in recognition of medical cost trends, growth in our Medicare Advantage membership and recently closed acquisitions, partially offset by lower Medicaid membership.

Operating gain decreased primarily as a result of Affordable Care Act health plans and Medicaid rates being inadequate to cover medical cost trends, partially offset by a favorable out-of-period settlement from a value-based care provider.

Operating revenue increased primarily due to higher prescription volume associated with growth in pharmacy membership and revenue related to recent acquisitions.

The increase in operating gain was primarily driven by the growth of product revenue, partially offset by expenses associated with the launch of additional services by CarelonRx.

Carelon Services

The increase in operating gain was primarily driven by improved performance in our post-acute care, specialty care solutions and behavioral health services, as well as the acquisition of CareBridge.

Corporate & Other

Operating revenue increased primarily due to higher affiliated revenues.

Operating loss increased primarily due to an increase in unallocated corporate expenses.

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We consider our most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical claims payable, goodwill and other intangible assets and investments.

Our accounting policies related to these items are discussed in our 2024 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2024, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of March 31, 2025, our critical accounting policies and estimates have not changed from those described in our 2024 Annual Report on Form 10-K.

Our accounting policies related to these items are discussed in our 2024 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2024, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of June 30, 2025, our critical accounting policies and estimates have not changed from those described in our 2024 Annual Report on Form 10-K.

We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements.

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Our accounting policies related to medical claims payable are discussed in the references cited above.

As of March 31, 2025, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2024 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the three months ended March 31, 2025 and 2024, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the three months ended March 31, 2025 and 2024, which are the trend and completion factors.

As of June 30, 2025, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2024 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the six months ended June 30, 2025 and 2024, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the six months ended June 30, 2025 and 2024, which are the trend and completion factors.

These two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations.

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Changes in Key Assumptions

Three Months Ended

Six Months Ended

Assumed trend factors $ 1,013 $ 621

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Total $ 1,065 $ 1,473

The favorable development recognized in the three months ended March 31, 2025 resulted from favorable development in the completion factors resulting from the latter part of 2024 developing faster than expected as well as trend factors in late 2024 developing more favorably than originally expected.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 66.2% and 63.8% for the three months ended March 31, 2025 and 2024, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly faster during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

The favorable development recognized in the six months ended June 30, 2025 resulted from trend factors in late 2024 developing more favorably than originally expected as well as a smaller contribution from faster than expected development of completion factors from the latter part of 2024.

The favorable development recognized in the six months ended June 30, 2024 resulted from favorable development in the completion factors resulting from the latter part of 2023 developing faster than expected as well as trend factors in late 2023 developing more favorably than originally expected.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 80.3% and 79.8% for the six months ended June 30, 2025 and 2024, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly faster during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net medical claims payable less prior year redundancies in the current period in order to demonstrate the development of prior year reserves.

For the three months ended March 31, 2025, this metric was 7.1%, mainly driven by both favorable completion factor development from 2024 and favorable trend factor development at the end of 2024.

For the three months ended March 31, 2024, this metric was 8.2%, driven by both favorable completion factor development from 2023 and favorable trend factor development at the end of 2023.

For the six months ended June 30, 2025, this metric was 7.3%, which was mainly driven by favorable trend factor development at the end of 2024, with favorable completion factor development from 2024 also contributing.

For the six months ended June 30, 2024, this metric was 10.2%, driven by both favorable completion factor development from 2023 and favorable trend factor development at the end of 2023.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims.

We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology.

For the three months ended March 31, 2025, this metric was 0.8%, which was calculated using the redundancy of $1,025.

For the three months ended March 31, 2024, the comparable metric was 1.0%, which was calculated using the redundancy of $1,205.

For the six months ended June 30, 2025, this metric was 0.9%, which was calculated using the redundancy of $1,065.

For the six months ended June 30, 2024, the comparable metric was 1.2%, which was calculated using the redundancy of $1,473.

We believe these metrics demonstrate an appropriate and consistent level of reserve conservatism.

New Accounting Pronouncements

For information regarding new accounting pronouncements that were issued or became effective during the three months ended March 31, 2025, see the “ Recently Adopted Accounting Guidance ” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

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For a more detailed overview of our liquidity and capital resources management, see the “ Introduction ” section included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three months ended March 31, 2025, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the three months ended March 31, 2025 and 2024 is as follows:

Three Months Ended

For additional information regarding our sources and uses of capital during the three and six months ended June 30, 2025, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the six months ended June 30, 2025 and 2024 is as follows:

Six Months Ended

2025 2024 Change

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Net cash provided by operating activities $ 3,071 $ 2,425 $ 646

Proceeds from the sale of subsidiaries, net of cash sold — 399 (399)

Issuances of short- and long-term debt, net of repayments — 2,580 (2,580)

Proceeds from sales, maturities, calls and redemptions of investments, net of purchases 329 — 329

Changes in securities lending payable 466 320 146

Proceeds from issuance of common stock under employee stock plans 21 157 (136)

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Cash dividends (771) (757) (14)

Changes in securities lending collateral (466) (321) (145)

Changes in bank overdrafts — (479) 479

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Effect of foreign exchange rates on cash and cash equivalents 2 (5) 7

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

$ 272 $ (8) $ 280

The decrease in net cash provided by operating activities was primarily due to timing related changes to working capital.

Other significant changes in sources or uses of cash year-over-year included an increase in repayments of short- and long-term debt, net of issuances, lower amounts for purchase of subsidiaries, net of cash acquired, increased proceeds from investments, net of purchases from sales, maturities, calls, and redemptions, changes in bank overdrafts and increased amounts for repurchase and retirement of common stock and purchases of property and equipment.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $34,712 at March 31, 2025.

Since December 31, 2024, total cash, cash equivalents and investments in fixed maturity and equity securities decreased by $1,004, primarily due to cash used for

repayments of short- and long-term debt, net of issuances, repurchase and retirement of common stock, cash dividends, and purchases of property and equipment.

This decrease was partially offset by cash generated from operations, decline in purchases of subsidiaries,net of cash acquired and changes in bank overdrafts.

The increase in net cash provided by operating activities was primarily due to favorable working capital impacts, partially offset by a lower net income for the six months ended June 30, 2025.

Other significant sources of cash year-over-year included increased proceeds from sales, maturities, calls, and redemptions of investments, net of purchases, changes in bank overdrafts, lower amounts for purchase of subsidiaries, net of cash acquired and decreased purchases of property and equipment.

Other significant uses of cash year-over-year included an increase in repayments of short- and long-term debt, net of issuances and increased amounts for repurchase and retirement of common stock.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $35,879 at June 30, 2025.

Since December 31, 2024, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $163, primarily due to cash generated from operations, decline in purchase of subsidiaries, net of cash acquired, an increase in proceeds from sales, maturities, calls and redemptions of investments, net of purchases, change in bank overdrafts, and lower purchases of property and equipment.

This increase was partially offset by increased cash used in repayment of short- and long-term debt, net of issuances, and increased repurchase and retirement of common stock.

Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies.

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In addition, we have agreed to certain undertakings to regulatory authorities, including the requirement to maintain certain capital levels in certain of our subsidiaries.

At March 31, 2025, we held $1,419 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

At June 30, 2025, we held $2,224 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

Periodically, we access capital markets and issue debt (“Notes”) for long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases.

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Our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies.

Our consolidated debt-to-capital ratio was 41.3% and 43.0% as of March 31, 2025 and December 31, 2024, respectively.

Our consolidated debt-to-capital ratio was 40.8% and 43.0% as of June 30, 2025 and December 31, 2024, respectively.

Our senior debt is rated “A” by S&P Global Ratings, “BBB+” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc.

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We do not believe the restrictions contained in our 5-Year Facility covenants materially affect our financial or operating flexibility.

We had no amounts outstanding under the 5-Year Facility as of March 31, 2025 or December 31, 2024.

As of March 31, 2025, we were in compliance with all of the debt covenants under the 5-Year Facility.

We had no amounts outstanding under the 5-Year Facility as of June 30, 2025 or December 31, 2024.

As of June 30, 2025, we were in compliance with all of the debt covenants under the 5-Year Facility.

We have an authorized commercial paper program of up to $4,000, the proceeds of which may be used for general corporate purposes.

Should commercial paper issuance become unavailable, we have the ability to use a combination of cash on hand and/or our 5-Year Facility to redeem any outstanding commercial paper upon maturity.

We had no commercial paper outstanding at either March 31, 2025 or December 31, 2024.

We had no commercial paper outstanding at either June 30, 2025 or December 31, 2024.

We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York (collectively, the “FHLBs”).

As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements.

We had $250 and $365 of outstanding short-term borrowings from the FHLBs as of March 31, 2025 and December 31, 2024, respectively.

As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral

requirements.

We had $360 and $365 of outstanding short-term borrowings from the FHLBs as of June 30, 2025 and December 31, 2024, respectively.

We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders.

The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.

For additional information regarding our sources and uses of capital at March 31, 2025, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional information regarding our sources and uses of capital at June 30, 2025, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition to regulations regarding the timing and amount of dividends, our regulated subsidiaries’ states of domicile have statutory risk-based capital (“RBC”) requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital for Health Organizations Model Act (the “RBC Model Act”).

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the impact of cyber-attacks or other privacy or data security incidents or our failure to comply with any privacy, data or security laws or regulations, including any investigations, claims or litigation related thereto;

failure to effectively maintain and modernize our information systems;

failure of our information systems or technology, including artificial intelligence, to operate as intended;

failure to effectively maintain and modernize our information systems, or failure of our information systems or technology, including artificial intelligence, to operate as intended;

failure to effectively maintain the availability and integrity of our data;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis