Dive Brief:
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Anthem beat Wall Street profit expectations in the third quarter, and the payer increased its yearly forecast from $11.70 per share to between $11.90 to $12 per share. After the announcement Wednesday, the company's shares skyrocketed past $200 for the first time.
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The insurer said it expects enrollment in its Affordable Care Act (ACA) exchange plans to drop by about 70% next year as it pulls out of nearly two-thirds of the marketplaces it had been participating in. Anthem expects its smaller footprint will lead to a profit from the ACA plans next year after break-even numbers for 2017.
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Anthem’s medical enrollment has grown by 347,000 members compared to a year ago and totaled 40.3 million at the end of September. However, the payer also said it lost 130,000 members in the third quarter compared to the previous quarter.
Dive Insight:
In its earnings report, Anthem, a major Blues plan in 14 states, said its net income was $746.9 million, or $2.80 per share, compared to $617.8 million, or $2.30 per share, a year ago.
Anthem said its Q3 enrollment drop was because of its national, Medicaid and individual businesses. Enrollment growth in employer-based insurance and Medicare businesses helped partially offset those losses from the previous quarter.
CEO Joseph Swedish said the payer could re-enter some ACA exchange markets in the future if those markets stabilize. He has pointed to the White House's decision to end the cost-sharing reduction payments as a major cause of shaky markets currently. Not all payers are backing out of the exchange markets, though. Centene's Q3 earnings showed success in the marketplaces as that company is expanding its ACA footprint.
Anthem’s operating cash flow reached $2.4 billion in the third quarter, which was 3.2 times net income. Operating cash flow for the first nine months was $5.5 billion or 2.1 times net income. Anthem expects to exceed $4 billion in operating cash flow for the full year.
Its operating revenue increased by $1 billion to $22.1 billion in the third quarter compared to a year ago. Anthem said the growth is connected to premium rate increases “to cover overall cost trends across our business,” as well as higher enrollment compared to a year ago.
Meanwhile, the company’s benefit expense ratio increased from 85.5% in 2016 to 87% in the third quarter of this year, which means more premium dollars are going to pay claims. “The increase, as expected, was largely driven by the impact of the one-year waiver of the health insurance tax in 2017. The increase was partially offset by the impact of a retroactive revenue adjustment in the Medicaid business and improved medical cost performance in the individual and large group businesses,” Anthem said.
Similar to other payers, Anthem is interested in expanding its Medicare Advantage offerings. This week, Anthem acquired 1st Choice, which is a privately held Medicare Advantage plan with about 130,000 members in Florida and South Carolina. 1st Choice offers HMO products, including Chronic Special Needs Plans and Dual-Eligible Special Needs Plan under its Freedom Health and Optimum brands in Florida. The CMS predicted Medicare enrollment will increase in 2018 and payers see potential in Medicare Advantage.
Anthem isn't just growing in Medicare enrollment. A recent American Medical Association report said that Anthem had the largest payer geographic footprint. The payer had the highest market share in 82 metropolitan areas.
Anthem has been at the forefront of the payer movement to create policies that bring down health costs by moving more services away from hospital inpatient settings. Anthem announced this year that it won’t reimburse for emergency department visits deemed unnecessary and will no longer pay for MRIs and CT scans at hospitals in 13 states unless the tests are an emergency.
Hospital officials are concerned about what Anthem’s policies could mean to their margins. Higher in-hospital reimbursement for MRIs and CT scans made them profitable, even though they’re not a major service for hospitals. One estimate said some health systems collect more than half of their profit from imaging services.