Featured in Health Business Daily, June 20, 2017

Anthem, Others Report Strong 1Q Results Amid ‘Disruption on Multiple Fronts’

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry. Subscribe today!

By Judy Packer Tursman, Senior Reporter
May 1, 2017Volume 27Issue 15

Amid a flurry of strong first-quarter earnings results for several managed care companies, Anthem Inc. also beat Wall Street’s expectations. But, along with glowing reports of growing membership for its commercial and government-sponsored lines of business, Anthem’s CEO stressed in an April 26 earnings call that the industry “continues to face disruption on multiple fronts” that requires “corporate agility.” Apart from worries over market-stability issues related to the Affordable Care Act (ACA), he didn’t shy away from controversies over Anthem’s ongoing efforts to improve its pharmacy management (see box, p. 7) and acquire Cigna Corp.

Anthem reported quarterly net income of $1,009.9 million, or $3.73 per share, on operating revenue of $22.3 billion, all figures up year-over-year. Its medical enrollment increased by 715,000 over the quarter, to total about 40.6 million members as of March 31.

Health Plan Week

CEO Joseph Swedish led off Anthem’s recent earnings call by discussing the company’s growth in Medicare Advantage and Medicaid, even touching on its dental and vision lines of business before addressing the Affordable Care Act (ACA)’s individual-market exchanges.

Anthem is pleased with exchange membership growth, he said, but its claims experience was “slightly higher than anticipated.” He said nearly 50% of the population is new to Anthem, so full-year implications of this should become clearer in the second quarter ending June 30.

Anthem Assesses ‘Footprint’

Swedish said the insurer is assessing its ACA exchange market footprint for 2018 and looking for more signs of marketplace stability, he said, adding that the company will “give more clarity” on next year’s exchange footprint by its second-quarter earnings call, “if not sooner.”

Anthem “only will participate in markets with a visible path toward sustainability,” Swedish said the morning of April 26. Despite the recent release of the Trump administration’s final market stabilization rule, he said “significant uncertainty” remains. Anthem expected to file preliminary rates for 2018 assuming that cost-sharing reduction (CSR) payments to plans for their low-income exchange enrollees will continue and make adjustments as needed, perhaps “exiting certain ACA markets altogether,” if there’s no CSR certainty by early June.

Anthem is assessing the need for rate increases, Swedish said, explaining that rates could increase by an additional 20% or more if cost-sharing subsidies are not funded, and climb by another 3% to 5% if the ACA’s health insurer fee (HIF) returns as expected for 2018.

Later in the day April 26, the White House said it intends to continue the ACA’s CSR funding in the short term. But it remains unclear whether CSR payments will continue over the long term.

After discussing exchange participation, Swedish said Anthem is working through an expedited appeals process on its ongoing effort to acquire Cigna Corp. He noted a hearing will be held May 8 in a Delaware court on Anthem’s motion to stop Cigna from terminating their agreement. Earlier this year, Cigna sued Anthem in an effort to exit the acquisition agreement and collect damages.

“We remain committed to completing the [Cigna] acquisition as soon as possible,” Swedish said. Anthem is trying to evaluate its options under various potential appeals court outcomes that might allow the deal to move forward, categorically deny it, or accept it in part. Anthem’s board and management are resolved to see it through and “make the best choice for us,” he said.

A day prior to Anthem’s release of earnings, Centene Corp. said its exchange enrollment has climbed by more than 70% since 2016 and it intends to stay in exchanges — even as Aetna Inc., Humana Inc. and others are backing away.

In a note to investors, Credit Suisse analyst Scott Fidel described the ACA’s exchanges as “the primary driver of organic growth” for Centene in first-quarter 2017. The insurer ended the quarter with 1.189 million exchange members, slightly ahead of management’s expectations and more than double its 537,000 exchange members at the end of 2016. Fidel said the exchanges represented about 13% of Centene’s risk-based members in the first quarter, up from 8% in first-quarter 2016.

Humana, during its annual investor day held April 24, was bullish on its growth prospects in Medicare Advantage (MA) and for smaller commercial employer-group accounts of up to 1,000 lives. Humana said its integrated care delivery model is key to its strategy and is a competitive differentiator in the marketplace.

During the week of May 1, Aetna Inc., WellCare, Molina Healthcare and Cigna Corp. are scheduled to report their first-quarter figures.

View Anthem’s earnings release at http://tinyurl.com/n2g2659.


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