Full Press Release Details
ANTHEM REPORTS FOURTH QUARTER AND FULL YEAR 2019 RESULTS
REFLECTING SOLID PERFORMANCE
Indianapolis, Ind. January 29, 2020 Anthem, Inc. (NYSE: ANTM) reported fourth quarter and full year financial 2019 results that reflect double-digit top and bottom line growth and the successful launch of IngenioRx.
Anthem delivered strong results to close out 2019 featuring the successful launch of IngenioRx, as well as our largest organic risk-based growth in more than a decade, said Gail K. Boudreaux, President and CEO. We have strong momentum moving into 2020 and we will continue to deliver on our commitments to all those we serve.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled 41.0 million members at December 31, 2019, an increase of 1.1 million, or 2.7 percent, from December 31, 2018. Total risk enrollment grew by 931 thousand lives, or 6.4 percent, and fee-based enrollment grew by 131 thousand lives, or 0.5 percent. Government Business enrollment increased by 854 thousand lives as the Company experienced growth in Medicaid and Medicare. Commercial & Specialty Business enrollment increased by 208 thousand lives driven by growth in the National and Individual businesses.
During the fourth quarter of 2019, medical enrollment increased sequentially by 16 thousand lives, reflecting growth in the Local Group, National, and Medicare businesses.
Operating Revenue: Operating revenue was $27.1 billion in the fourth quarter of 2019, an increase of $3.8 billion, or 16.4 percent, versus the prior year quarter. The increase in operating revenue reflected higher premium revenue from membership growth across our businesses and rate increases to cover overall cost trends. The increase in operating revenue was further driven by growth in our value-added services, including our pharmacy and integrated health offerings, partially offset by the one year waiver of the health insurance tax in 2019.
Benefit Expense Ratio: The benefit expense ratio was 89.0 percent in the fourth quarter of 2019, an increase of 220 basis points from 86.8 percent in the prior year quarter. The increase, as expected, was primarily driven by the one year waiver of the health insurance tax in 2019.
Medical claims reserves established at December 31, 2018 developed in line with the Company s expectations during 2019.
Medical Cost Trend: For the full year 2019, Local Group medical cost trend was approximately 6.0%. The Company anticipates Local Group medical cost trend will be in the range of 4.0% +/- 50 basis points in 2020, including the benefit of improved pharmacy cost from the launch of IngenioRx and other medical cost management initiatives.
Days in Claims Payable: Days in Claims Payable was 38.0 days as of December 31, 2019, a decrease of 1.8 days from September 30, 2019, but an increase of 1.8 days as compared to December 31, 2018.
SG&A Expense Ratio: The SG&A expense ratio was 12.9 percent in the fourth quarter of 2019, a decrease of 260 basis points from 15.5 percent in the fourth quarter of 2018. The decrease, as expected, was primarily driven by growth in operating revenue and the one year waiver of the health insurance tax in 2019.
Operating Cash Flow: Operating cash flow in the fourth quarter of 2019 was $1.3 billion, or 1.4 times net income, which represents an increase of $864 million compared to the fourth quarter of 2018. Operating cash flow was $6.1 billion, or 1.3 times net income for the year ending December 31, 2019.
Share Repurchase Program : During the fourth quarter of 2019, the Company repurchased 1.2 million shares of its common stock for $306 million, or a weighted average price of $260.87. For the full year, the Company repurchased 6.3 million shares of its stock for $1.7 billion, or a weighted average price of $268.65. As of December 31, 2019, the Company had approximately $3.8 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2019, the Company paid a quarterly dividend of $0.80 per share, representing a distribution of cash totaling $202 million.
On January 28, 2020, the Audit Committee declared a first quarter 2020 dividend to shareholders of $0.95 per share, reflecting an increase of 18.8 percent from the previous quarterly dividend. On an annualized basis, this equates to a dividend of $3.80 per share. The first quarter dividend is payable on March 27, 2020 to shareholders of record at the close of business on March 16, 2020.
Investment Portfolio & Capital Position: During the fourth quarter of 2019, the Company recorded net realized gains of $24 million and other-than-temporary impairment losses totaling $17 million. During the fourth quarter of 2018, the Company recorded net realized losses of $185 million and other- than-temporary impairment losses totaling $8 million.
As of December 31, 2019, the Company s net unrealized gain position in the investment portfolio was $673 million, consisting of fixed maturity securities. As of December 31, 2019 cash and investments at the parent company totaled approximately $2.7 billion.
REPORTABLE SEGMENTS
Anthem, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid, Medicare, and Federal Health Products & Services businesses); and Other (comprised of IngenioRx, the Diversified Business Group, and corporate expenses not allocated to our other reportable segments).
Reportable Segment Highlights
| (In millions) | Three Months Ended December 31 | Twelve Months Ended December 31 | ||||||||||||||||||||||
| 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
| Operating Revenue | ||||||||||||||||||||||||
| Commercial & Specialty Business | $ | 9,328 | $ | 8,843 | 5.5 | % | $ | 37,421 | $ | 35,782 | 4.6 | % | ||||||||||||
| Government Business | 16,213 | 14,397 | 12.6 | % | 62,632 | 55,348 | 13.2 | % | ||||||||||||||||
| Other | 3,845 | 411 | 835.5 | % | 7,695 | 1,519 | 406.6 | % | ||||||||||||||||
| Eliminations | (2,254 | ) | (347 | ) | NM | 2 | (4,607 | ) | (1,308 | ) | NM | 2 | ||||||||||||
| Total Operating Revenue 1 | $ | 27,132 | $ | 23,304 | 16.4 | % | $ | 103,141 | $ | 91,341 | 12.9 | % | ||||||||||||
| Operating Gain / (Loss) | ||||||||||||||||||||||||
| Commercial & Specialty Business | $ | 535 | $ | 316 | 69.3 | % | $ | 4,046 | $ | 3,600 | 12.4 | % | ||||||||||||
| Government Business | 583 | 451 | 29.3 | % | 2,054 | 1,928 | 6.5 | % | ||||||||||||||||
| Other | (20 | ) | (17 | ) | NM | 2 | (101 | ) | (102 | ) | NM | 2 | ||||||||||||
| Total Operating Gain 1 | $ | 1,098 | $ | 750 | 46.4 | % | $ | 5,999 | $ | 5,426 | 10.6 | % | ||||||||||||
| Operating Margin | ||||||||||||||||||||||||
| Commercial & Specialty Business | 5.7 | % | 3.6 | % | 210 | bp | 10.8 | % | 10.1 | % | 70 | bp | ||||||||||||
| Government Business | 3.6 | % | 3.1 | % | 50 | bp | 3.3 | % | 3.5 | % | (20 | ) bp | ||||||||||||
| Total Operating Margin 1 | 4.0 | % | 3.2 | % | 80 | bp | 5.8 | % | 5.9 | % | (10 | ) bp |
Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $535 million in the fourth quarter of 2019, an increase of $219 million, or 69.3 percent, from $316 million in the fourth quarter of 2018. The increase is primarily driven by the launch of IngenioRx and greater penetration of value-added services, partially offset by margin normalization in the Individual business.
Government Business: Operating gain in the Government Business segment was $583 million in the fourth quarter of 2019, an increase of $132 million, or 29.3 percent, from $451 million in the fourth quarter of 2018. The increase is due to higher premiums from rate adjustments and membership growth in the Medicaid business, partially offset by higher selling, general, and administrative spend to support growth.
Other: The Company reported an operating loss of $20 million in the Other segment for the fourth quarter of 2019, compared with an operating loss of $17 million in the prior year quarter.
Full Year 2020:
Basis of Presentation
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time ( EST ) to discuss the company s fourth quarter results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:
| 844-721-7239 (Domestic) | 866-207-1041 (Domestic Replay) | |
| 409-207-6953 (International) | 402-970-0847 (International Replay) |
The access code for today s conference call is 6293698 . The access code for the replay is 9477514 . The replay will be available from 1:00 p.m. EST today, until the end of the day on February 13, 2020. The call will also be available through a live webcast at ww w .antheminc.com under the Investors link. A webcast replay will be available following the call.
| Anthem Contacts: | ||||
| Investor Relations | Media | |||
| Chris Rigg | Jill Becher, 414-234-1573 | |||
| Chris.Rigg@anthem.com | Jill.Becher@anthem.com |
About Anthem, Inc.
Anthem is a leading health benefits company dedicated to improving lives and communities, and making healthcare simpler. Through its affiliated companies, Anthem serves more than 79 million people, including 41 million within its family of health plans. We aim to be the most innovative, valuable and inclusive partner. For more information, please visit www.antheminc.com or follow @AnthemInc on Twitter.
Membership Summary
(Unaudited and in Thousands)
| Change from | ||||||||||||||||||||
| December 31, | December 31, | September 30, | December 31, | September 30, | ||||||||||||||||
| Medical Membership | 2019 | 2018 | 2019 | 2018 | 2019 | |||||||||||||||
| Customer Type | ||||||||||||||||||||
| Local Group | 15,682 | 15,733 | 15,659 | (0.3 | )% | 0.1 | % | |||||||||||||
| Individual | 684 | 655 | 711 | 4.4 | % | (3.8 | )% | |||||||||||||
| National: | ||||||||||||||||||||
| National Accounts | 7,596 | 7,588 | 7,666 | 0.1 | % | (0.9 | )% | |||||||||||||
| BlueCard | 6,060 | 5,838 | 5,967 | 3.8 | % | 1.6 | % | |||||||||||||
| Total National | 13,656 | 13,426 | 13,633 | 1.7 | % | 0.2 | % | |||||||||||||
| Medicare: | ||||||||||||||||||||
| Medicare Advantage | 1,214 | 1,006 | 1,203 | 20.7 | % | 0.9 | % | |||||||||||||
| Medicare Supplement | 905 | 846 | 893 | 7.0 | % | 1.3 | % | |||||||||||||
| Total Medicare | 2,119 | 1,852 | 2,096 | 14.4 | % | 1.1 | % | |||||||||||||
| Medicaid | 7,265 | 6,716 | 7,293 | 8.2 | % | (0.4 | )% | |||||||||||||
| Federal Employee Health Benefits | 1,594 | 1,556 | 1,592 | 2.4 | % | 0.1 | % | |||||||||||||
| Total Medical Membership | 41,000 | 39,938 | 40,984 | 2.7 | % | % | ||||||||||||||
| Funding Arrangement | ||||||||||||||||||||
| Self-Funded | 25,418 | 25,287 | 25,368 | 0.5 | % | 0.2 | % | |||||||||||||
| Fully-Insured | 15,582 | 14,651 | 15,616 | 6.4 | % | (0.2 | )% | |||||||||||||
| Total Medical Membership | 41,000 | 39,938 | 40,984 | 2.7 | % | % | ||||||||||||||
| Reportable Segment | ||||||||||||||||||||
| Commercial & Specialty Business | 30,022 | 29,814 | 30,003 | 0.7 | % | 0.1 | % | |||||||||||||
| Government Business | 10,978 | 10,124 | 10,981 | 8.4 | % | % | ||||||||||||||
| Total Medical Membership | 41,000 | 39,938 | 40,984 | 2.7 | % | % | ||||||||||||||
| Other Membership | ||||||||||||||||||||
| Life and Disability Members | 5,259 | 4,795 | 4,970 | 9.7 | % | 5.8 | % | |||||||||||||
| Dental Members | 5,962 | 5,807 | 5,942 | 2.7 | % | 0.3 | % | |||||||||||||
| Dental Administration Members | 5,516 | 5,327 | 5,526 | 3.5 | % | (0.2 | )% | |||||||||||||
| Vision Members | 7,261 | 6,946 | 7,232 | 4.5 | % | 0.4 | % | |||||||||||||
| Medicare Part D Standalone Members | 283 | 309 | 285 | (8.4 | )% | (0.7 | )% |
Consolidated Statements of Income
| Three Months Ended | ||||||||||||
| (In millions, except per share data) | December 31 | |||||||||||
| 2019 | 2018 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 24,036 | $ | 21,819 | 10.2 | % | ||||||
| Administrative fees and other revenue | 3,096 | 1,485 | 108.5 | % | ||||||||
| Total operating revenue | 27,132 | 23,304 | 16.4 | % | ||||||||
| Net investment income | 268 | 262 | 2.3 | % | ||||||||
| Net realized gains/(losses) on financial instruments | 24 | (185 | ) | NM | ||||||||
| Other-than-temporary impairment losses on investments: | ||||||||||||
| Total other-than-temporary impairment losses on investments | (17 | ) | (9 | ) | NM | |||||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 1 | NM | ||||||||||
| Other-than-temporary impairment losses recognized in income | (17 | ) | (8 | ) | NM | |||||||
| Total revenues | 27,407 | 23,373 | 17.3 | % | ||||||||
| Expenses | ||||||||||||
| Benefit expense | 21,383 | 18,936 | 12.9 | % | ||||||||
| Cost of products sold | 1,149 | NM | ||||||||||
| Selling, general and administrative expense | 3,502 | 3,618 | (3.2 | )% | ||||||||
| Interest expense | 190 | 189 | 0.5 | % | ||||||||
| Amortization of other intangible assets | 82 | 94 | (12.8 | )% | ||||||||
| Loss/(gain) on extinguishment of debt | 3 | (6 | ) | NM | ||||||||
| Total expenses | 26,309 | 22,831 | 15.2 | % | ||||||||
| Income before income tax expense | 1,098 | 542 | 102.6 | % | ||||||||
| Income tax expense | 164 | 118 | 39.0 | % | ||||||||
| Net income | $ | 934 | $ | 424 | 120.3 | % | ||||||
| Net income per diluted share | $ | 3.62 | $ | 1.61 | 124.8 | % | ||||||
| Diluted shares | 258.0 | 264.2 | (2.3 | )% | ||||||||
| Benefit expense as a percentage of premiums | 89.0 | % | 86.8 | % | 220 | bp | ||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 12.9 | % | 15.5 | % | (260 | )bp | ||||||
| Income before income taxes as a percentage of total revenue | 4.0 | % | 2.3 | % | 170 | bp |
NM = calculation not meaningful
Consolidated Statements of Income
| Twelve Months Ended | ||||||||||||
| (In millions, except per share data) | December 31 | |||||||||||
| 2019 | 2018 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 94,173 | $ | 85,421 | 10.2 | % | ||||||
| Administrative fees and other revenue | 8,968 | 5,920 | 51.5 | % | ||||||||
| Total operating revenue | 103,141 | 91,341 | 12.9 | % | ||||||||
| Net investment income | 1,005 | 970 | 3.6 | % | ||||||||
| Net realized gains/(losses) on financial instruments | 114 | (180 | ) | NM | ||||||||
| Other-than-temporary impairment losses on investments: | ||||||||||||
| Total other-than-temporary impairment losses on investments | (53 | ) | (29 | ) | NM | |||||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 6 | 3 | 100.0 | % | ||||||||
| Other-than-temporary impairment losses recognized in income | (47 | ) | (26 | ) | NM | |||||||
| Total revenues | 104,213 | 92,105 | 13.1 | % | ||||||||
| Expenses | ||||||||||||
| Benefit expense | 81,786 | 71,895 | 13.8 | % | ||||||||
| Cost of products sold | 1,992 | NM | ||||||||||
| Selling, general and administrative expense | 13,364 | 14,020 | (4.7 | )% | ||||||||
| Interest expense | 746 | 753 | (0.9 | )% | ||||||||
| Amortization of other intangible assets | 338 | 358 | (5.6 | )% | ||||||||
| Loss on extinguishment of debt | 2 | 11 | (81.8 | )% | ||||||||
| Total expenses | 98,228 | 87,037 | 12.9 | % | ||||||||
| Income before income tax expense | 5,985 | 5,068 | 18.1 | % | ||||||||
| Income tax expense | 1,178 | 1,318 | (10.6 | )% | ||||||||
| Net income | $ | 4,807 | $ | 3,750 | 28.2 | % | ||||||
| Net income per diluted share | $ | 18.47 | $ | 14.19 | 30.2 | % | ||||||
| Diluted shares | 260.3 | 264.2 | (1.5 | )% | ||||||||
| Benefit expense as a percentage of premiums | 86.8 | % | 84.2 | % | 260 | bp | ||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 13.0 | % | 15.3 | % | (230 | )bp | ||||||
| Income before income taxes as a percentage of total revenue | 5.7 | % | 5.5 | % | 20 | bp |
NM = calculation not meaningful
Consolidated Balance Sheets
| December 31, | December 31, | |||||||
| (In millions) | 2019 | 2018 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,937 | $ | 3,934 | ||||
| Fixed maturity securities, current | 19,676 | 16,692 | ||||||
| Equity securities, current | 1,009 | 1,493 | ||||||
| Other invested assets, current | 13 | 21 | ||||||
| Accrued investment income | 173 | 162 | ||||||
| Premium receivables | 5,173 | 4,465 | ||||||
| Self-funded receivables | 2,411 | 2,278 | ||||||
| Other receivables | 2,634 | 2,558 | ||||||
| Income taxes receivable | 335 | 10 | ||||||
| Securities lending collateral | 353 | 604 | ||||||
| Other current assets | 2,319 | 2,104 | ||||||
| Total current assets | 39,033 | 34,321 | ||||||
| Long-term investments: | ||||||||
| Fixed maturity securities | 505 | 487 | ||||||
| Equity securities | 30 | 33 | ||||||
| Other invested assets | 4,228 | 3,726 | ||||||
| Property and equipment, net | 3,133 | 2,735 | ||||||
| Goodwill | 20,500 | 20,504 | ||||||
| Other intangible assets | 8,674 | 9,007 | ||||||
| Other noncurrent assets | 1,350 | 758 | ||||||
| Total assets | $ | 77,453 | $ | 71,571 | ||||
| Liabilities and shareholders equity | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Policy liabilities: | ||||||||
| Medical claims payable | $ | 8,842 | $ | 7,454 | ||||
| Reserves for future policy benefits | 85 | 75 | ||||||
| Other policyholder liabilities | 3,050 | 2,590 | ||||||
| Total policy liabilities | 11,977 | 10,119 | ||||||
| Unearned income | 1,017 | 902 | ||||||
| Accounts payable and accrued expenses | 4,198 | 4,959 | ||||||
| Security trades pending payable | 84 | 197 | ||||||
| Securities lending payable | 351 | 604 | ||||||
| Short-term borrowings | 700 | 1,145 | ||||||
| Current portion of long-term debt | 1,598 | 849 | ||||||
| Other current liabilities | 3,692 | 3,190 | ||||||
| Total current liabilities | 23,617 | 21,965 | ||||||
| Long-term debt, less current portion | 17,787 | 17,217 | ||||||
| Reserves for future policy benefits, noncurrent | 674 | 706 | ||||||
| Deferred tax liabilities, net | 2,227 | 1,960 | ||||||
| Other noncurrent liabilities | 1,420 | 1,182 | ||||||
| Total liabilities | 45,725 | 43,030 | ||||||
| Shareholders equity | ||||||||
| Common stock | 3 | 3 | ||||||
| Additional paid-in capital | 9,448 | 9,536 | ||||||
| Retained earnings | 22,573 | 19,988 | ||||||
| Accumulated other comprehensive loss | (296 | ) | (986 | ) | ||||
| Total shareholders equity | 31,728 | 28,541 | ||||||
| Total liabilities and shareholders equity | $ | 77,453 | $ | 71,571 |
Consolidated Statements of Cash Flows
| (In millions) | Twelve Months Ended December 31 | |||||||
| 2019 | 2018 | |||||||
| Operating activities | ||||||||
| Net income | $ | 4,807 | $ | 3,750 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Net realized gains on financial instruments | (114 | ) | 180 | |||||
| Other-than-temporary impairment losses recognized in income | 47 | 26 | ||||||
| Loss on extinguishment of debt | 2 | 11 | ||||||
| Loss on disposal of assets | 3 | 13 | ||||||
| Deferred income taxes | 81 | 91 | ||||||
| Amortization, net of accretion | 986 | 1,008 | ||||||
| Depreciation expense | 147 | 124 | ||||||
| Share-based compensation | 294 | 226 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables, net | (1,053 | ) | (695 | ) | ||||
| Other invested assets | (48 | ) | (1 | ) | ||||
| Other assets | (170 | ) | (26 | ) | ||||
| Policy liabilities | 1,826 | (1,059 | ) | |||||
| Unearned income | 116 | (36 | ) | |||||
| Accounts payable and accrued expenses | (593 | ) | 122 | |||||
| Other liabilities | 148 | (25 | ) | |||||
| Income taxes | (325 | ) | 323 | |||||
| Other, net | (93 | ) | (205 | ) | ||||
| Net cash provided by operating activities | 6,061 | 3,827 | ||||||
| Investing activities | ||||||||
| Purchases of fixed maturity securities | (10,487 | ) | (8,244 | ) | ||||
| Proceeds from sales and maturities of fixed maturity securities | 8,351 | 8,380 | ||||||
| Purchases of equity securities | (11,825 | ) | (896 | ) | ||||
| Proceeds from sales of equity securities | 12,364 | 2,809 | ||||||
| Purchases of other invested assets | (642 | ) | (531 | ) | ||||
| Proceeds from sales of other invested assets | 320 | 411 | ||||||
| Changes in securities lending collateral | 254 | (149 | ) | |||||
| Purchases of subsidiaries, net of cash acquired | (1,760 | ) | ||||||
| Net purchases of property and equipment | (1,077 | ) | (1,208 | ) | ||||
| Other, net | (50 | ) | (71 | ) | ||||
| Net cash used in investing activities | (2,792 | ) | (1,259 | ) | ||||
| Financing activities | ||||||||
| Net repayments of commercial paper borrowings | (297 | ) | (107 | ) | ||||
| Net repayments of short-term borrowings | (445 | ) | (130 | ) | ||||
| Net proceeds from (repayments of) long-term borrowings | 1,350 | (849 | ) | |||||
| Changes in securities lending payable | (254 | ) | 150 | |||||
| Changes in bank overdrafts | (169 | ) | (210 | ) | ||||
| Proceeds from sale of put options | 1 | |||||||
| Premiums paid on equity call options | (1 | ) | ||||||
| Proceeds from issuance of common stock under Equity Units stock purchase contracts | 1,250 | |||||||
| Repurchase and retirement of common stock | (1,701 | ) | (1,685 | ) | ||||
| Change in collateral and settlements of debt-related derivatives | (34 | ) | 23 | |||||
| Cash dividends | (818 | ) | (776 | ) | ||||
| Proceeds from issuance of common stock under employee stock plans | 187 | 173 | ||||||
| Taxes paid through withholding of common stock under employee stock plans | (84 | ) | (81 | ) | ||||
| Net cash used in financing activities | (2,266 | ) | (2,241 | ) | ||||
| Effect of foreign exchange rates on cash and cash equivalents | (2 | ) | ||||||
| Change in cash and cash equivalents | 1,003 | 325 | ||||||
| Cash and cash equivalents at beginning of year | 3,934 | 3,609 | ||||||
| Cash and cash equivalents at end of period | $ | 4,937 | $ | 3,934 |
Reconciliation of Medical Claims Payable
| Years Ended December 31 | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (In millions) | (Unaudited) | |||||||||||
| Gross medical claims payable, beginning of year | $ | 7,266 | $ | 7,814 | $ | 7,656 | ||||||
| Ceded medical claims payable, beginning of year | (34 | ) | (105 | ) | (539 | ) | ||||||
| Net medical claims payable, beginning of year | 7,232 | 7,709 | 7,117 | |||||||||
| Business combinations and purchase adjustments | 199 | 76 | ||||||||||
| Net incurred medical claims: | ||||||||||||
| Current year | 78,695 | 69,581 | 70,377 | |||||||||
| Prior years redundancies (1) | (500 | ) | (930 | ) | (1,133 | ) | ||||||
| Total net incurred medical claims | 78,195 | 68,651 | 69,244 | |||||||||
| Net payments attributable to: | ||||||||||||
| Current year medical claims | 70,294 | 62,748 | 62,923 | |||||||||
| Prior years medical claims | 6,518 | 6,579 | 5,805 | |||||||||
| Total net payments | 76,812 | 69,327 | 68,728 | |||||||||
| Net medical claims payable, end of year | 8,615 | 7,232 | 7,709 | |||||||||
| Ceded medical claims payable, end of year | 33 | 34 | 105 | |||||||||
| Gross medical claims payable, end of year* | $ | 8,648 | $ | 7,266 | $ | 7,814 | ||||||
| Current year medical claims paid as a percentage of current year net incurred medical claims | 89.3 | % | 90.2 | % | 89.4 | % | ||||||
| Prior year redundancies in the current year as a percentage of prior year net medical claims payable less prior year redundancies in the current year | 7.4 | % | 13.7 | % | 18.9 | % | ||||||
| Prior year redundancies in the current year as a percentage of prior year net incurred medical claims | 0.7 | % | 1.3 | % | 1.8 | % |
GAAP Reconciliation
Anthem, Inc. has referenced Adjusted Net Income and Adjusted Net Income Per Share, which are non-GAAP measures, in this document. These non-GAAP measures are not intended to be alternatives to any measure calculated in accordance with GAAP. In addition to these non-GAAP measures, references are made to the measures Operating Revenue and Operating Gain. Each of these measures is provided to further aid investors in understanding and analyzing the company s core operating results and comparing Anthem, Inc. s financial results. A reconciliation of Operating Revenue to Total Revenue is set forth in the Consolidated Statements of Income herein. A reconciliation of the non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP, together with a reconciliation of reportable segments operating gain to income before income tax expense, is reported below.
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||||||||
| (In millions, except per share data) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
| Net income | $ | 934 | $ | 424 | 120.3 | % | $ | 4,807 | $ | 3,750 | 28.2 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized (gains) losses on financial instruments | (24 | ) | 185 | (114 | ) | 180 | ||||||||||||||||||
| Amortization of other intangible assets | 82 | 94 | 338 | 358 | ||||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 17 | 8 | 47 | 26 | ||||||||||||||||||||
| Loss (gain) on extinguishment of debt | 3 | (6 | ) | 2 | 11 | |||||||||||||||||||
| Transaction and integration related costs | 3 | 11 | 9 | |||||||||||||||||||||
| Litigation expenses | 8 | 52 | ||||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (23 | ) | (61 | ) | (84 | ) | (135 | ) | ||||||||||||||||
| Net adjustment items | 66 | 220 | 252 | 449 | ||||||||||||||||||||
| Adjusted net income | $ | 1,000 | $ | 644 | 55.3 | % | $ | 5,059 | $ | 4,199 | 20.5 | % | ||||||||||||
| Net income per diluted share | $ | 3.62 | $ | 1.61 | 124.8 | % | $ | 18.47 | $ | 14.19 | 30.2 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized (gains) losses on financial instruments | (0.09 | ) | 0.70 | (0.44 | ) | 0.68 | ||||||||||||||||||
| Amortization of other intangible assets | 0.32 | 0.36 | 1.30 | 1.36 | ||||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 0.07 | 0.03 | 0.18 | 0.10 | ||||||||||||||||||||
| Loss (gain) on extinguishment of debt | 0.01 | (0.02 | ) | 0.01 | 0.04 | |||||||||||||||||||
| Transaction and integration related costs | 0.01 | 0.04 | 0.03 | |||||||||||||||||||||
| Litigation expenses | 0.03 | 0.20 | ||||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (0.09 | ) | (0.23 | ) | (0.32 | ) | (0.51 | ) | ||||||||||||||||
| Rounding impact | (0.01 | ) | ||||||||||||||||||||||
| Net adjustment items | 0.26 | 0.83 | 0.97 | 1.70 | ||||||||||||||||||||
| Adjusted net income per diluted share | $ | 3.88 | $ | 2.44 | 59.0 | % | $ | 19.44 | $ | 15.89 | 22.3 | % |
| Full Year 2020 Outlook | ||||
| Net income per diluted share | Greater than $21.44 | |||
| Add / (Subtract): | ||||
| Amortization of other intangible assets | Approximately $1.13 | |||
| Tax impact of non-GAAP adjustments | Approximately ($0.27 | ) | ||
| Net adjustment items | Approximately $0.86 | |||
| Adjusted net income per diluted share | Greater than $22.30 |
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||||||||
| (In millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
| Reportable segments operating gain | $ | 1,098 | $ | 750 | 46.4 | % | $ | 5,999 | $ | 5,426 | 10.6 | % | ||||||||||||
| Net investment income | 268 | 262 | 1,005 | 970 | ||||||||||||||||||||
| Net realized gains/(losses) on financial instruments | 24 | (185 | ) | 114 | (180 | ) | ||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | (17 | ) | (8 | ) | (47 | ) | (26 | ) | ||||||||||||||||
| Interest expense | (190 | ) | (189 | ) | (746 | ) | (753 | ) | ||||||||||||||||
| Amortization of other intangible assets | (82 | ) | (94 | ) | (338 | ) | (358 | ) | ||||||||||||||||
| Gain/(loss) on extinguishment of debt | (3 | ) | 6 | (2 | ) | (11 | ) | |||||||||||||||||
| Income before income tax expense | $ | 1,098 | $ | 542 | 102.6 | % | $ | 5,985 | $ | 5,068 | 18.1 | % |
Financial Guidance Summary
| Full Year 2019 Actual | Full Year 2020 Outlook | Approximate Change | ||||||
| Year-End Medical Enrollment | ||||||||
| Self-funded | 25,418 | 25,900 - 26,000 | 482k - 582k | |||||
| Fully-Insured | 15,582 | 16,000 - 16,300 | 418k - 718k | |||||
| Total | 41,000 | 41,900 - 42,300 | 900k - 1,300k | |||||
| Operating Revenue | $103.1 billion | Approximately $117 billion | Approximately $13.9 billion or 13.4% | |||||
| Premium Revenue | $94.2 billion | $101 billion - $103 billion | $6.8 billion - $8.8 billion or 7.2% - 9.3% | |||||
| Benefit Expense Ratio | 86.8% | 85.8% +/- 50 bps | (100 bps) +/- 50 bps | |||||
| Cost of Products Sold | $2.0 billion | $6.9 billion - $7.3 billion | $4.9 billion - $5.3 billion | |||||
| SG&A Expense Ratio | 13.0% | 12.8% +/- 30 bps | (20) bps +/- 30 bps | |||||
| Operating Gain | $6.0 billion | Greater than $7.4 billion | Greater than $1.4 billion or 23.3% | |||||
| Other Pre-Tax Items: | ||||||||
| Net Investment income | $1.0 billion | $970 million | ($30) million | |||||
| Interest Expense | ($746) million | ($815) million | ($69) million | |||||
| Amortization of Intangible Assets | ($338) million | ($290) million | $48 million | |||||
| Net Pre-Tax Expense | ($84) million | ($135) million | ($51) million | |||||
| Effective Tax Rate | 19.7% | 24.0% - 26.0% | 4.3% - 6.3% | |||||
| GAAP EPS | $18.47 | Greater than $21.44 | 16.1% or better | |||||
| Adjusted EPS | $19.44 | Greater than $22.30 | 14.7% or better | |||||
| Diluted Shares | 260.3 million | 255 - 257 million | (2.0%) - (1.3%) | |||||
| Operating Cash Flow | $6.1 billion | Greater than $6.4 billion | Greater than $0.3 billion |
Forward-Looking Statements
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as expect, feel, believe, will, may, should, anticipate, intend, estimate, project, forecast, plan and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include, but are not limited to: trends in healthcare costs and utilization rates; our ability to secure sufficient premium rates, including regulatory approval for and implementation of such rates; the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA, and the ultimate outcome of legal challenges to the ACA; our ability to contract with providers on cost-effective and competitive terms; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquiries, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non- compliance with the complex regulations imposed thereon; our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our healthcare product mix; costs and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, or Cigna, and us related to the merger agreement between the parties and the potential for such litigation to cause us to incur substantial additional costs, including potential settlement and judgment costs; risks and uncertainties related to our pharmacy benefit management, or PBM, business, including non-compliance by any party with the PBM services agreements between us and each of Express Scripts, Inc., or Express Scripts, and CaremarkPCS Health, L.L.C., or CVS Health, as well as agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CVS Health Corporation; medical malpractice or professional liability claims or other risks related to healthcare services and PBM provided by our subsidiaries; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; our ability to repurchase shares of our common stock and pay dividends on our common stock due to the adequacy of our cash flow and earnings and other considerations; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; large scale medical emergencies, such as future public health epidemics and catastrophes; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; changes in U.S. tax laws; intense competition to attract and retain employees; and, various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.