Anthem’s second quarter net income increased by 23% year-over-year to $1.1 billion and operating revenue rose 2.3% to $22.7 billion in 2Q of 2018. Anthem’s revenue increased 1.2% for the first six months.
The payer of Blues plans ended the quarter with 39.5 million members, which was a drop of 129,000 members during the quarter and a loss of 888,000 members from a year ago. Anthem blamed the decline on reducing its Affordable Care Act marketplace footprint and membership losses in Medicaid.
Anthem improved its benefit expense ratio from 86.1% to 83.4% for the quarter, which the company said was driven by “strong medical cost performance across all business segments.”
The Indianapolis-based payer said the 2Q increase in revenue came from premium increases to cover overall cost trends, the return of the health insurance tax in 2018 and acquisitions. Gains were partially offset by reducing its ACA plan offerings.
Looking ahead to the rest of the year, the payer expects operating revenue in the range of $91 billion to $92 billion with a benefit expense ratio of about 84.4%.
Gail Boudreaux, Anthem’s president and CEO, said on Wednesday that the payer isn’t “looking to rescale the (ACA exchanges) business, but we are pleased with the participation that we’ve had the results of that.”
Boudreaux said the payer is assessing minor county expansions in the ACA marketplace in 2019, while focusing on the areas Anthem currently has ACA plans.
Reducing its ACA marketplace footprint affected revenue. Commercial and specialty business revenue dropped by 11.1% for the quarter and by 11.5% for the first half of 2018. Despite the revenue cut in the commercial and specialty business, Anthem saw an 8.8% operating gain in that segment. Anthem credited “improved medical cost performance” for that gain.
Anthem views growth opportunities in Medicare
Anthem enjoyed a 14% operating revenue increase in its government business for the quarter and 12.1% increase for the first six months. The payer credited its purchase of Health Sun and America’s 1st Choice and organic Medicare membership growth for the 83.2% operating gain in the government business to $537.4 million in 2Q.
Medicare enrollment grew by 254,000 year-over-year and membership in Medicare Advantage Part D plans skyrocketed by 37%. Anthem finished the quarter with 933,000 Medicare Advantage Part D members.
Boudreaux said Anthem’s Medicare growth has come via acquisitions, but the company expects to build its membership by increasing its county footprint while finding organic growth in the areas where the payer operates.
She pointed to the group Medicare Advantage market as a possible growth opportunity, casting the payer as “very bullish” about group MA. The majority of Anthem’s group MA members transition from commercial plans to MA plans once they reach retirement age.
“We have a strong pipeline of commercial customers who want to stay Blue,” Boudreaux said.
Anthem saw a slight decline (0.6%) in its local group membership and a huge drop (60%) in the individual market. Anthem now has only 712,000 members in the individual market. That’s compared to 1.7 million members in Medicare and 6.3 million in Medicaid.
The Medicaid enrollment numbers could improve in the coming months. Boudreaux said Virginia’s upcoming Medicaid expansion brings 400,000 possible members up for grabs and Anthem is growing Medicaid offerings in Minnesota. Boudreaux also said the dual eligible market is another potential growth area for Anthem.
Overall, Anthem finished 2Q with 29.8 million members in its commercial and specialty plans, which was a 3.2% decrease, and nearly 9.7 million in its government plans, which was a 1.1% increase.
Looking ahead to the rest of the year, Anthem expects its membership will range between 39.9 million and 40.1 million. The company predicts fully-insured members will be between 14.6 and 14.7 million and self-funded membership between 25.3 and 25.4 million.