Managed Care—Reserve Analysis Easier in 1Q26 Lapping IRA Changes, Improving Metrics an Important Part of Bull Case

Research evidence excerpt

Managed Care—Reserve Analysis Easier in 1Q26 Lapping IRA Changes, Improving Metrics an Important Part of Bull Case

Equity Research

Industry Update — May 20, 2026

Managed Care

Managed Care—Reserve Analysis Easier in

1Q26 Lapping IRA Changes, Improving Metrics

an Important Part of Bull Case

Our Call Stephen Baxter, CFA

Updating analysis of normalized reserve metrics. As we lap IRA changes that distorted Equity Analyst | Wells Fargo Securities, LLC

Stephen.Baxter@wellsfargo.com | 212-214-8041

2025 comparisons, the impactful adjustments come from items such as PDRs / PYD.

Thomas MullerReserves screen best for CVS / ELV / UNH, a clear facet of bull case exiting 1Q26.

Associate Equity Analyst | Wells Fargo Securities, LLC

Thomas.Muller@wellsfargo.com | 332-214-6218

Overview. We track a number of MCO reserve metrics to help assess the adequacy of Mitchell Ostrovsky

incurred medical expenses. Key metrics tracked include DCP, reserve growth vs. premium Associate Equity Analyst | Wells Fargo Securities, LLC

growth, IBNR growth vs. premium growth, completion factors, etc. However, reserve Mitchell.Ostrovsky@wellsfargo.com | 212-214-7243

trends on a "reported" basis have become much more difficult to assess over the past year James Lemmis

in particular, for several reasons as we discuss more below. We are updating our analysis of Associate Equity Analyst | Wells Fargo Securities, LLC

adjusted reserve metrics to better judge the underlying trends. James.Lemmis@wellsfargo.com | 212-214-5336

Adjusting the Picture. Changes from the IRA have resulted in greater recognition of

Medicare pharmacy premium / cost, and these claims are received and paid faster than

medical claims. MLR seasonality for Medicare Part D also reversed in 2025 and now more