What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-15 compared with 2026-04-22 · 136 added, 100 removed, 366 unchanged (39% 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, 2026 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2026, 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, 2026 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2026, 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 45.4 million medical members through our affiliated health plans as of March 31, 2026.

We are one of the largest health insurers in the United States in terms of medical membership, serving approximately 44.9 million medical members through our affiliated health plans as of June 30, 2026.

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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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.

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, including increased utilization of specialty pharmaceuticals, 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 (as defined below) 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.

Medicaid cost trends remain elevated due to higher population acuity and increased utilization of services.

In response, we are working on program improvements in partnership with the states, strengthening care management, and optimizing our clinical strategy to improve effectiveness and lower costs.

In response, we are working on program improvements in partnership with the states, strengthening care and provider network management, optimizing our clinical strategy to improve effectiveness and enhancing payment integrity to manage costs.

Pricing Trends:

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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.

In 2025, we expanded our operations into select service areas in Florida, Maryland and Texas and in 2026, into Washington through our Simply Healthcare and Wellpoint brands.

In 2025, we expanded our operations into select service areas in Florida through our Simply Healthcare brand, and Maryland and Texas through our Wellpoint brand.

In 2026, we expanded into Washington through our Wellpoint brand.

Going forward, we expect the Public Exchange to be influenced by policy and regulatory changes, particularly around federal subsidies, compliance requirements, and market stability.

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The OBBBA includes provisions that could impact our business and operations including:

requiring more frequent Medicaid redeterminations for beneficiaries receiving coverage under a state ’ s Medicaid expansion program implemented pursuant to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, (collectively, the “ACA”);

requiring more frequent Medicaid reverifications for beneficiaries receiving coverage under a state ’ s Medicaid expansion program implemented pursuant to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”);

and imposing work or community engagement requirements on certain adults in the ACA Medicaid expansion population.

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States may choose to implement certain Medicaid provisions as early as 2026.

In May 2026, the U.S.

Department of Health and Human Services, Labor, and the Treasury (collectively, the “Tri-Agencies”) issued final regulations updating the federal Independent Dispute Resolution (“IDR”) process used to determine compensation to be paid by health plans to out-of-network providers in certain scenarios under the No Surprises Act.

The regulations are primarily procedural in nature and address the operations and administration of the IDR process.

Additional regulatory guidance or rulemakings are possible, and changes resulting from any such guidance or rulemakings, as well as current and potential litigation, arbitration proceedings, and government audits related to the IDR and No Surprises Act, could have an adverse effect on our business, cash flows, results of operations and financial condition.

In February 2026, Congress passed the Consolidated Appropriations Act of 2026, which includes pharmacy benefit manager reforms requiring pharmacy benefit managers to remit all rebates, fees (other than bona fide service fees), and other remuneration received from entities such as manufacturers and group purchasing organizations to commercial plan sponsors, and to provide detailed commercial claims reporting, effective 30 months after enactment.

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Also, in September 2025, CMS issued guidance modifying eligibility requirements for ACA catastrophic plans.

In September 2024, the U.S.

Department of Health and Human Services , 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.

In September 2024, 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 is necessary to assess the full impact of these regulations on our operations and financial results.

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CMS required states to complete Medicaid eligibility redeterminations by December 31, 2025.

Although the federally mandated Medicaid eligibility redetermination period has ended, states continue to conduct regular eligibility reverifications and the effects on Medicaid enrollment, member acuity, utilization and state rate-setting, as well as changes arising from the OBBBA, may continue to affect our business.

In addition, subsequent budget reconciliation legislation enacted during 2023 through 2025 included provisions affecting Medicaid eligibility enrollment and program financing, which may influence state Medicaid policies and beneficiary coverage dynamics over time.

The Inflation Reduction Act of 2022 (“IRA”) includes several provisions that have impacted, and continue to impact, our business.

These provisions include extending the American Rescue Plan Act of 2021’s enhanced PTCs through 2025;

These provisions include extending the American Rescue Plan Act of 2021’s enhanced Advance Premium Tax Credits (“APTCs”) through 2025;

imposing a new corporate alternative minimum tax;

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and delaying the implementation of the Trump Administration Medicare drug rebate rule until at least 2032.

From 2021 to 2025, Individual market enrollment grew significantly, driven in part by enhanced PTCs, which reduced Public Exchange coverage premiums for individuals who qualified.

From 2021 to 2025, Individual market enrollment grew significantly, driven in part by APTCs, which reduced Public Exchange coverage premiums for individuals who qualified.

This, in combination 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 enhanced PTCs expired on December 31, 2025.

As a result, the cost of Public Exchange coverage premiums has increased for those individuals previously receiving the enhanced PTCs, which may negatively impact our Individual market enrollment.

The APTCs expired on December 31, 2025.

As a result, the cost of Public Exchange coverage premiums has increased for those individuals previously receiving the APTCs, which has impacted our Individual market enrollment.

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.

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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.

The outcome of RADV audits could adversely affect our financial condition and results of operations.

CMS has initiated these RADV audit changes, and the outcome could adversely affect our financial condition and results of operations.

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 2025 Annual Report on Form 10-K.

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Business and Operational Matters

In the first quarter of 2026, based on a strategic review of our operations, assets and investments, management implemented the 2026 - 2027 Operating Model Transformation Program (the “Transformation Program”) to streamline decision-making, simplify organizational structures, and enhance the use of advanced technologies, including artificial intelligence, across the enterprise.

In the first quarter of 2026, based on a strategic review of our operations, assets and investments, management initiated the 2026 - 2027 Operating Model Transformation Program (the “Transformation Program”) to streamline decision-making, simplify organizational structures, and enhance the use of advanced technologies, including artificial intelligence, across the enterprise.

The Transformation Program includes initiatives to reduce organizational layers, realign roles and responsibilities, and design workflows to support more efficient, technology-enabled operations.

These actions also include the modernization of certain information technology platforms, targeted workforce reductions and role realignments.

Actions to be taken under the Transformation Program were ongoing as of March 31, 2026.

Actions to be taken under the Transformation Program were ongoing as of June 30, 2026.

Pursuant to CMS’ Medicare Advantage Star Ratings system, CMS annually awards between 1.0 and 5.0 Stars to Medicare Advantage plans based on performance in several categories.

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Our 2026 Star Ratings reflect that approximately 59% of our Medicare Advantage members are enrolled in plans rated at least 4.0 Stars or higher, or the equivalent.

As previously communicated, on February 27, 2026, the Company was notified by the Centers for Medicare & Medicaid Services (“CMS”) of its intent to impose intermediate sanctions on the Company based on alleged noncompliance by the Company with certain Medicare Advantage risk adjustment data submission requirements related to diagnosis codes previously disclosed to CMS.

On March 13, 2026, CMS notified the Company that it was granting the Company’s request for an extension of the effective date of the sanctions from March 31, 2026 to May 30, 2026 and also removed certain of the Company’s MA-PD plans from the threatened sanctions and granted a waiver for various Employee Group Waiver Plans.

CMS subsequently modified the compliance timeline.

The Company now has until July 31, 2026 to complete a series of steps required by the agency to avoid sanctions.

While the Company is working with CMS to complete these steps to reach a resolution that avoids the imposition of sanctions or other remedies, there can be no assurance that such a resolution can be achieved.

The Company is also currently contesting CMS’ action through an administrative process.

In connection with the notice that the Company received in February 2026 from CMS regarding certain Medicare Advantage risk adjustment data submission requirements related to diagnosis codes for dates of service 2015 through April 2023, CMS provided a series of steps required to be completed by July 31, 2026 in order to avoid sanctions being imposed on the Company.

On July 13, 2026, the Company received a letter from CMS stating that the Company has completed all required steps, sanctions will not be imposed and the enforcement process for this matter has been closed.

Litigation Matters

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The cases were brought by two nationwide classes of plaintiffs, health plan subscribers and providers.

The BCBSA and Blue plans approved a settlement agreement and release with the subscriber plaintiffs (the “Subscriber Settlement Agreement”), which received final approval from the Court in September 2022.

The ultimate amount paid by the Company under the Subscriber Settlement Agreement was $604, which was primarily accrued in 2020.

The Subscriber Settlement Agreement and the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement became effective in June 2024 with the request for the second Blue plan bid provision effective in September 2024.

The BCBSA and Blue plans approved and entered into a settlement agreement and release with the subscriber plaintiffs (the “Subscriber Settlement Agreement”) and a separate settlement agreement and release with the provider plaintiffs (the “Provider Settlement Agreement”), which settlement agreements received final approval from the Court in September 2022 and August 2025, respectively.

A number of follow-on cases involving entities that opted out of the Subscriber Settlement Agreement have been filed.

The BCBSA and the Blue plans approved a settlement agreement and release (the “Provider Settlement Agreement”) with the provider plaintiffs, and in October 2024, the provider plaintiffs filed a motion for preliminary approval with the Court.

The Court granted preliminary approval of the Provider Settlement Agreement in December 2024 .

A Final Fairness Hearing was held in July 202 5, and the Court issued a Final Approval Order for the Provider Settlement Agreement in August 2025.

The Provider Settlement Agreement required the defendants to make a monetary settlement payment and also required that 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, be implemented on a timeline set forth in the Provider Settlement Agreement.

The effective date of the Provider Settlement Agreement was September 19, 2025.

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

A number of follow-on cases involving entities that opted out of the Provider Settlement Agreement have been filed and have been centralized in the BCBSA Litigation multi-district proceeding.

Additionally, follow-on cases involving the entities that opted out of the Provider Settlement Agreement have been filed and centralized in the BCBSA Litigation multi-district proceeding.

For additional information regarding the BCBSA Litigation, see Note 10, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation ,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Selected Operating Performance

For the twelve months ended March 31, 2026, total medical membership declined by 0.9%.

This was primarily driven by attrition in Medicaid membership, primarily as a result of eligibility redeterminations, and decreases in our Medicare Advantage, Employer Group Risk-Based and FEP ® businesses.

From June 30, 2025 to June 30, 2026, total medical membership declined by 1.5%.

This was driven by attrition in Medicaid membership, primarily as a result of eligibility redeterminations, and decreases in our Medicare Advantage, Employer Group Risk-Based and FEP ® businesses.

These decreases were partially offset by increases in our Employer Group Fee-Based business.

Operating revenue for the three months ended March 31, 2026 was $49,494, an increase of $729, or 1.5%, from the three months ended March 31, 2025.

The increase for the three months ended March 31, 2026 was primarily a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends and growth in CarelonRx product revenues, partially offset by membership attrition.

Shareholders' net income for the three months ended March 31, 2026 was $1,764, a decrease of $419, or 19.2%, from the three months ended March 31, 2025.

The decrease in net income for the three months ended March 31, 2026 was primarily due to decreased operating gain in all lines of business and increased interest expense.

These decreases were partially offset

by decreased net losses on financial instruments, increased net investment income, decreased income tax expense and decreased amortization of other intangible assets.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $8.00 for the three months ended March 31, 2026, which represented a 16.8% decrease from EPS of $9.61 for the three months ended March 31, 2025.

The decrease in EPS for the three months ended March 31, 2026 resulted primarily from decreased shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Operating cash flow for the three months ended March 31, 2026 and 2025 was $4,332 and $1,017, respectively.

The increase in net cash provided by operating activities was primarily due to favorable working capital impacts.

Operating revenue for the three months ended June 30, 2026 was $49,826, an increase of $405, or 0.8%, from the three months ended June 30, 2025.

Operating revenue for the six months ended June 30, 2026 was $99,320, an increase of $1,134, or 1.2%, from the six months ended June 30, 2025.

The increases for the three and six months ended June 30, 2026 were primarily the result of premium rate increases in our Health Benefits segment in recognition of medical cost trends and growth in CarelonRx product revenues, partially offset by membership attrition.

Shareholders’ net income for the three months ended June 30, 2026 was $1,463, a decrease of $280, or 16.1%, from the three months ended June 30, 2025.

Shareholders’ net income for the six months ended June 30, 2026 was $3,227, a decrease of $699, or 17.8%, from the six months ended June 30, 2025.

The decrease in net income for the three months ended June 30, 2025 was primarily due to a decrease in operating gain in our Corporate and Other, Health Benefits and Carelon Services

The decrease was partially offset by increased net investment income, decreased net losses on financial instruments and decreased income tax expense.

The decrease in net income for the six months ended June 30, 2026 was primarily due to the loss contingency accrual for our best estimate of the identified potential exposure for the resubmission of certain historical Medicare Advantage risk adjustment data within our Corporate & Other segment and a decrease in operating gain in our Health Benefits and Carelon Services segments.

The decrease was partially offset by decreased net losses on financial instruments, increased net investment income and decreased income tax expense.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $6.71 for the three months ended June 30, 2026, which represented a 13.1% decrease from EPS of $7.72 for the three months ended June 30, 2025.

Our EPS was $14.73 for the six months ended June 30, 2026, which represented a 15.0% decrease from EPS of $17.33 for the six months ended June 30, 2025.

The decreases 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, 2026 and 2025 was $6,245 and $3,071, respectively.

The increase in net cash provided by operating activities was primarily due to favorable working capital impacts, partially offset by lower shareholders’ net income for the six months ended June 30, 2026.

Membership and Other Metrics

The following table presents our medical membership by customer type as of March 31, 2026 and 2025.

The following table presents our medical membership by customer type as of June 30, 2026 and 2025.

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

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Dental Administration membership decreased primarily due to unfavorable in-group change within other BCBSA plans.

Vision membership increased due to higher sales in our Medicaid, Employer Group and Individual health plans, partially offset by lower sales in our Medicare business.

Vision membership increased primarily due to higher sales in our Medicaid, Employer Group and Individual health plans, partially offset by lower sales in our Medicare business.

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three months ended March 31, 2026 and 2025 are as follows:

Our consolidated summarized results of operations and other financial information for the three and six months ended June 30, 2026 and 2025 are as follows:

Three Months Ended

March 31 Change

June 30 Six Months Ended

June 30 Change

Three Months Ended

June 30 Six Months Ended

2025 2026 vs.

2026 2025 2026 2025 $ % $ %

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Net loss (gain) attributable to noncontrolling interests

9 (1) 13 (2) 10 NM 15 NM

Shareholders’ net income $ 1,463 $ 1,743 $ 3,227 $ 3,926 $ (280) (16.1) % $ (699) (17.8) %

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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, 2026 and 2025 were $41,024 and $40,887, respectively.

Premiums for the three months ended June 30, 2026 and 2025 were $41,279 and $41,271, respectively.

Premiums for the six months ended June 30, 2026 and 2025 were $82,303 and $82,158, 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, 2026 Compared to the Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025

Total operating revenue increased primarily as a result of premium rate increases in our Health Benefits segment in recognition of medical cost trends and growth in CarelonRx product revenues, partially offset by membership attrition.

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Net losses on financial instruments decreased due to lower impairment on other invested assets and lower realized losses on sales of financial instruments.

Benefit expense increased primarily due to higher medical costs across most lines of business within our Health Benefits segment.

These increases were partially offset by decreases in Carelon Services benefit expense related to the partial termination and modification of a care delivery services contract with an unaffiliated customer.

Our benefit expense ratio increased primarily as a result of expected elevated medical cost trend in our Medicaid and Medicare businesses, partially offset by improved performance in our Individual ACA business.

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 a higher cost per prescription in 2026, reflecting pricing impacts and product mix, despite lower adjusted prescription volumes.

Operating expense increased primarily due to increases in targeted investments to support and strengthen our workforce and accelerate technology adoption, an increase in expenses to address regulatory matters and an increase in premium tax expenses and assessments.

Our operating expense ratio increased primarily due to targeted investments to support and strengthen our workforce and accelerate technology adoption, an increase in expenses to address regulatory matters and an increase in premium tax expenses and assessments.

Other expense decreased primarily due to a decrease in amortization of other intangible assets due to assets being amortized under an accelerated depreciation method, which results in higher expense recognition in earlier periods and progressively lower amortization in later periods, partially offset by an increase in interest expense.

Our effective tax rate increased primarily due to the net increase in reserves for uncertain tax positions.

Our shareholders’ net income as a percentage of total revenues decreased in the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 as a result of all factors discussed above.

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

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 decreased due to lower impairment on other invested assets and lower realized losses on sales of financial instruments.

Benefit expense increased primarily due to higher medical costs across all lines of business within our Health Benefits segment, with the exception of Medicare.

Our benefit expense ratio increased primarily as a result of expected elevated medical cost trend in our Medicaid business, partially offset by improved performance in Medicare Advantage.

Our benefit expense ratio increased primarily due to expected elevated medical cost trend in our Medicaid business, partially offset by improved performance in our Individual ACA business.

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 a higher cost per prescription in 2026, reflecting pricing impacts and product mix, despite lower adjusted prescription volumes.

Operating expense increased primarily due to the loss contingency accrual for our best estimate of the identified potential exposure for the resubmission of certain historical Medicare Advantage risk adjustment data and increased corporate expenses, primarily associated with the Operating Model Transformation Program.

Our operating expense ratio increased primarily due to the loss contingency accrual for our best estimate of the identified potential exposure for the resubmission of certain historical Medicare Advantage risk adjustment data and increased corporate expense, primarily associated with the Operating Model Transformation Program.

Operating expense increased primarily due to the loss contingency accrual for our best estimate of the identified potential exposure for the resubmission of certain historical Medicare Advantage risk adjustment data, increases in targeted investments to support and strengthen our workforce and accelerate technology adoption and increases related to the Transformation Program.

investments to support and strengthen our workforce and accelerate technology adoption and increases related to the Transformation Program.

Our effective tax rate increased primarily due to an increase in our reserve for uncertain tax positions and a prior year favorable resolution of uncertain tax positions that did not recur in 2026.

Our shareholders’ net income as a percentage of total revenues decreased in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 as a result of all factors discussed above.

Our effective tax rate increased primarily due to the net increase in reserves for uncertain tax positions.

Our shareholders’ net income as a percentage of total revenues decreased in the six months ended June 30, 2026 as compared to six months ended June 30, 2025 as a result of all factors discussed above.

Reportable Segments Results of Operations

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Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and operating expense.

It does not include net investment income, net losses on financial instruments, loss/gain on sale of business, interest expense, amortization of other intangible assets or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment

Operating margin is calculated as operating gain divided by operating revenue.

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For additional information, see Note 13, “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, 2026 and 2025:

The following table presents a summary of the reportable segment financial information for the three and six months ended June 30, 2026 and 2025:

Six Months Ended

Three Months Ended

March 31 Three Months Ended

June 30 Three Months Ended

June 30 Six Months Ended

2026 2025 2026 2025 $ % $ %

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Operating Margin

Health Benefits 5.1 % 5.4 % (30) bp

CarelonRx 5.5 % 6.0 % (50) bp

Carelon Services 6.4 % 7.5 % (110) bp

Total operating margin 4.2 % 6.5 % (230) bp

Health Benefits 2.1 % 3.8 % 3.6 % 4.5 % (170) bp (90) bp

CarelonRx 5.2 % 5.0 % 5.3 % 5.5 % 20 bp (20) bp

Carelon Services 4.6 % 5.4 % 5.4 % 6.4 % (80) bp (100) bp

Total operating margin 3.5 % 4.9 % 3.9 % 5.7 % (140) bp (180) bp

bp = basis point;

one hundred basis points = 1%.

The following table summarizes the operating revenues for our Commercial, Medicare, Medicaid and FEP ® lines of business within our Health Benefits segment for the three months ended March 31, 2026 and 2025:

Three Months Ended

The following table summarizes the operating revenues for our Commercial, Medicare, Medicaid and FEP ® lines of business within our Health Benefits segment for the three and six months ended June 30, 2026 and 2025:

Three Months Ended

June 30 Six Months Ended

June 30 Three Months Ended

June 30 Six Months Ended

2026 2025 2026 2025 $ % $ %

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$ 42,720 $ 41,582 $ 85,210 $ 83,013 $ 1,138 2.7 % $ 2,197 2.6 %

1 Operating revenue within our Commercial line of business related to our Individual ACA plans was $2,540 and $2,361 for the three months ended March 31, 2026 and 2025, respectively.

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

1 Operating revenue within our Commercial line of business related to our Individual ACA plans was $2,720 and $2,328 for the three months ended June 30, 2026 and 2025, respectively.

Operating revenue within our Commercial line of business related to our Individual ACA plans was $5,260 and $4,689 for the six months ended June 30, 2026 and 2025, respectively.

Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025

Health Benefits

Operating revenue increased primarily as a result of higher premium yields driven by premium increases in all of our lines of business, partially offset by deliberate repositioning in our Medicare Advantage business and Medicaid membership attrition.

Operating gain decreased primarily as a result of higher overall medical and operating costs, partially offset by higher operating revenue.

Operating gain decreased primarily as a result of higher overall medical costs and increases in targeted investments to support and strengthen our workforce and accelerate technology adoption, partially offset by higher operating revenue.

Operating revenue increased primarily due to higher average revenue per prescription, partially offset by a negative change in product mix and lower prescription volumes.

The decrease in operating gain was primarily driven by lower health plan membership and normal timing variations in the recognition of performance-related adjustments, partially offset by improved specialty pharmacy profitability and lower operating expenses.

Operating gain increased primarily due to improved specialty pharmacy profitability.

Carelon Services

Operating revenue increased primarily due to the continued expansion of risk-based capabilities in our specialty care solutions and behavioral health services, partially offset by fewer post-acute solutions services provided as a result of lower Medicare membership.

The decrease in operating gain was primarily driven by lower health plan membership and seasonality related to the launch of risk-based capabilities in our specialty care solutions business, partially offset by improved performance in our behavioral health business.

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

These increases were partially offset by decreases related to the partial termination and modification of a care delivery services contract with an unaffiliated customer and fewer post-acute solutions services provided as a result of lower Medicare membership.

The decrease in operating gain was primarily driven by less favorable results on certain contracts and lower health plan membership within our post-acute solutions services, partially offset by improved performance in Carelon Insights.

Corporate & Other

Operating revenue decreased primarily due to lower affiliate revenues.

Operating loss increased primarily due to increased unallocated corporate expenses, primarily associated with the loss contingency accrual for our best estimate of the identified potential exposure for the resubmission of certain historical Medicare Advantage risk adjustment data and Operating Model Transformation Program.

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

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

Health Benefits

Operating gain decreased primarily due to higher overall medical costs and increases in targeted investments to support and strengthen our workforce and accelerate technology adoption, partially offset by higher operating revenue.

Operating revenue increased primarily due to higher average revenue per prescription, partially offset by a negative change in product mix and lower prescription volumes.

The increase in operating gain was primarily driven by improved specialty pharmacy profitability and lower operating expenses, partially offset by normal timing variations in recognition of performance-related adjustments.

Carelon Services

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

The decrease in operating gain was primarily driven by less favorable results on certain contracts and lower health plan membership within our post acute solutions services, lower health plan membership and seasonality related to the launch of risk-based capabilities in our specialty care solutions business.

The decrease was partially offset by improved performance in our behavioral health business and the expansion of CareBridge.

Corporate & Other

Operating revenue decreased primarily due to lower affiliate revenues.

Critical Accounting Policies and Estimates

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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 2025 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, 2025, 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, 2026, our critical accounting policies and estimates have not changed from those described in our 2025 Annual Report on Form 10-K.

Our accounting policies related to these items are discussed in our 2025 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, 2025, 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, 2026, our critical accounting policies and estimates have not changed from those described in our 2025 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, 2026, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2025 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, 2026 and 2025, see Note 8, “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, 2026 and 2025, which are the trend and completion factors.

As of June 30, 2026, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2025 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, 2026 and 2025, see Note 8, “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, 2026 and 2025, 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 $ 636 $ 1,013

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Total $ 1,195 $ 1,065

The favorable development recognized in the three months ended March 31, 2026 resulted from trend factors in late 2025 developing more favorably than originally expected as well as from faster than expected development of completion factors from the latter part of 2025.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 64.5% and 66.2% for the three months ended March 31, 2026 and 2025, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly slower during the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.

The favorable development recognized in the six months ended June 30, 2026 resulted from trend factors in late 2025 developing more favorably than originally expected as well as from faster than expected development of completion factors from the latter part of 2025.

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 ratio of current year medical claims paid as a percent of current year net medical claims incurred was 78.9% and 80.3% for the six months ended June 30, 2026 and 2025, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly slower during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.

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, 2026, this metric was 7.2%, which was mainly driven by both favorable completion factor

development from 2025 and favorable trend factor development at the end of 2025.

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

For the six months ended June 30, 2026, this metric was 7.7%, which was mainly driven by both favorable trend factor development at the end of 2025 as well as favorable completion factor development from 2025.

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

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, 2026, this metric was 0.8%, which was calculated using the redundancy of $1,124.

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

For the six months ended June 30, 2026, this metric was 0.8%, which was calculated using the redundancy of $1,195.

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

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

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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 2025 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three months ended March 31, 2026, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “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.

A summary of our major sources and uses of cash and cash equivalents for the three months ended March 31, 2026 and 2025 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, 2026, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “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.

A summary of our major sources and uses of cash and cash equivalents for the six months ended June 30, 2026 and 2025 is as follows:

Six Months Ended

2026 2025 Change

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Net cash provided by operating activities $ 6,245 $ 3,071 $ 3,174

Purchases of subsidiaries, net of cash acquired

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

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$ 741 $ 272 $ 469

The increase in net cash provided by operating activities was primarily due favorable working capital impacts.

Other significant changes in cash year-over-year included (a) decreased usage of cash to repay short-and long-term debt, net of issuances, and (b) uses of cash related to increased cash outflow from changes in bank overdrafts, increased purchases of investments, net of proceeds from sales, maturities, calls and redemptions and increased repurchases and retirements 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 $38,187 at March 31, 2026.

Since December 31, 2025, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $951, primarily due to increased investments in equity securities, net of purchases and increased cash generated from operations.

This increase was partially offset by increased amounts for changes in bank overdrafts, decreased cash generated by issuances of short- and long-term debt, net of repayments, increased amounts for the repurchase and retirement of common stock and increased purchases of property and equipment.

Other significant changes in cash year-over-year included (a) decreased usage of cash to repay short-and long-term debt, net of issuances, and (b) increased cash outflow from changes in bank overdrafts, increased purchases of investments, net of proceeds from sales, maturities, calls and redemptions and increased repurchases and retirements 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 $38,773 at June 30, 2026.

Since December 31, 2025, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $1,537, primarily due to increased cash generated from operations and decreased cash used in repayment of short- and long-term debt, net of issuances.

This increase was partially offset by increased cash used for changes in bank overdrafts and increased amounts for the 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, 2026, we held $2,164 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, 2026, we held $2,062 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 r atio was 42.0% and 42.1% as of March 31, 2026 and December 31, 2025, respectively.

Our consolidated debt-to-capital r atio was 40.8% and 42.1% as of June 30, 2026 and December 31, 2025, 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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Our ability to borrow under the 5-Year Facility is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the credit agreement for the 5-Year Facility.

As of March 31, 2026, our debt-to-capital ratio, as defined and calculated under the 5-Year Facility, was 42.0%.

As of June 30, 2026, our debt-to-capital ratio, as defined and calculated under the 5-Year Facility, was 40.8%.

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

As of March 31, 2026, we were in compliance with all of our debt covenants under the 5-Year Facility.

As of June 30, 2026, we were in compliance with all of our debt covenants under the 5-Year Facility.

We have an authorized commercial paper program of up to $5,000, 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 $724 and $0 of outstanding commercial paper at March 31, 2026 and December 31, 2025, respectively.

We had $0 and $0 of outstanding commercial paper at June 30, 2026 and December 31, 2025, respectively.

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 $0 and $150 of outstanding short-term borrowings from the FHLBs as of March 31, 2026 and December 31, 2025, respectively.

We had $0 and $150 of outstanding short-term borrowings from the FHLBs as of June 30, 2026 and December 31, 2025, 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, 2026, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “Capital Stock – Use of Capital – Dividends and Stock

For additional information regarding our sources and uses of capital at June 30, 2026, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “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.

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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