- Anthem reported net income of $1.1 billion in the fourth quarter, more than double the payer's profit from the same time last year, as consumers continued delaying non-essential care at the close of the pandemic's second year.
- That was off total revenues of $36.6 billion, up 15%. The topline was driven by growth in premium revenue, especially in Anthem's Medicaid and Medicare businesses, along with growth in pharmacy product revenue in its pharmacy benefit management arm IngenioRx. Higher-than-expected investment income also helped overall revenue, though that was partially offset by lower premiums than analysts estimated, along with lower commercial margins.
- Anthem's membership grew by 2.4 million people over 2021 to cover 45.4 million members by year's end, though the payer guided for lighter 2022 membership growth than some analysts expected. The company's stock dipped almost 2% in morning trading following the results.
The fourth quarter results for Indianapolis-based Anthem were mixed, analysts said. The financial results released premarket Wednesday beat Wall Street expectations on earnings, but missed on operating revenue.
Higher-than-expected coronavirus-related costs driven by the omicron variant — most notably in December — were "more than offset" by lower utilization of non-COVID-19 care, CFO John Gallina told investors on a Wednesday morning call.
Anthem's commercial business had the highest costs relative to baseline, driven by factors like children becoming eligible for COVID-19 vaccines and the omicron surge. Medicare was next in line, followed by Medicaid, which actually ended the quarter slightly below baseline, Gallina said. The CFO noted he expects that theme to continue in 2022.
The payer's medical loss ratio, the percentage of premiums invested back into patient care, was 89.5% in the quarter, in line with analyst forecasts and up sequentially from the third quarter's 87.7%, which was much lower than analysts had expected. The fourth quarter of the year typically has a higher MLR, even notwithstanding pandemic pressures.
When it comes to enrollment, Anthem has done a "solid job maintaining its commercial membership and growing its risk book throughout the pandemic," SVB Leerink analyst Whit Mayo said in a note.
Payers' commercial membership has struggled due to the pandemic, with many reporting flagging rolls amid broader labor market dynamics shifting more people off job-sponsored insurance and onto government products.
Anthem's commercial & specialty business enrollment increased by 249,000 year over year, mostly in risk-based products even as its group fee-based business saw attrition.
But the payer has seen skyrocketing growth in its government business, which added 2.2 million lives over 2021. That was thanks to organic growth in Medicare and Medicaid products, along with targeted plan acquisitions like that of MMM in Puerto Rico, management said.
That growth spurred government products' gain from operations to $748 million — more than four times the gain notched the same time last year in the business. That more than offset a small year-over-year decrease in commercial's operating profit, which Anthem chalked up partially to higher business expenses.
Recently, dismal Medicare Advantage membership projections from a handful of health insurers (notably Humana) have sparked concerns that a hypercompetitive MA market could soon edge out lower performing players.
Competition for MA share has ramped up as beneficiary interest in the privately run Medicare plans continues to increase. MA has grown to cover about 44% of all Medicare beneficiaries, and both established payers and insurtech startups are increasingly jockeying for new markets as a result.
Anthem, which notched 30% year-over-year growth in its MA business to cover 1.9 million members, is on track for another year of double-digit growth in individual MA plans, and forecasts a substantial increase in group MA partially due to a new contract with the city of New York to serve its retirees, Felicia Norwood, who runs Anthem's government business, said.
Management said they haven't seen enough acceleration in competition to cause overt concern.
"It's been a competitive market. It remains a competitive market," CEO Gail Boudreaux said.
Anthem's Medicaid business grew 20% year over year to cover 10.6 million members by year's end. Medicaid rolls have swelled over the pandemic due to factors like widespread job losses spurred by the COVID-19 recession and a pause on state redeterminations of beneficiaries' eligibility.
But currently, the public health emergency is slated to expire in April, which would allow states to resume their eligibility checks. Though the processes face distinct administrative hurdles, they'll likely result in a sizable number of Americans being booted from the safety-net coverage.
Anthem expects the redeterminations to begin in the middle of 2022 and continue for about 12 months, Gallina said. But management believes it will be able to pick up those lost members on other forms of coverage.
"We are not expecting a cliff event associated with membership dropping off," Gallina said. "We do expect to capture our fair share of those commercial members."
Along with its fourth-quarter results, Anthem released expectations for the 2022 fiscal year.
The payer projects medical membership will reach between 45.6 million and 46.2 million members. Risk-based membership is expected to be in the range of 19.5 million and 19.9 million, while fee-based should be between 26.1 million and 26.3 million.
Jefferies analyst David Windley said those targets "look a shade light" due to management previously describing a very successful selling season.
Anthem is guiding toward an MLR of 88%, give or take 50 basis points. That's a bit higher than analysts' consensus of 87.6%, and in "our sense is underwritten (like 2021) with an element of conservatism," Mayo said.
It would be the highest midpoint MLR in recent history, Windley said, "which we assume is being negatively impacted by both COVID costs and the impact from redeterminations."
However, Gallina noted — though COVID-19 remains a concern, as does the potential for a new variant — Anthem's net headwind from the virus should be lower in 2022, due to factors like better risk scores, for example.
Additionally, the payer isn't too worried about the effects of delayed care boomeranging in the form of worse outcomes and higher costs.
"While there may have been some puts and takes and pent-up demand in the past, we think the vast vast majority of that is all past," Gallina said.