Full Press Release Details
ANTHEM REPORTS SECOND QUARTER 2019 RESULTS,
RAISES FULL YEAR OUTLOOK
Indianapolis, Ind. July 24, 2019 Anthem, Inc. (NYSE: ANTM) reported second quarter financial results driven by strong revenue growth and steady progress on the implementation of IngenioRx.
Our second quarter results reflect solid top line growth across our businesses and reinforce our commitment to innovation and performance execution, said Gail K. Boudreaux, President and CEO. We began successfully migrating members to IngenioRx on May 1 and have received transition approvals from all of our 14 Blue states and the majority of our Medicaid states. We are tracking ahead of expectations, and as a result, we now expect IngenioRx to achieve the upper end of our $0.70 - $0.90 guidance.
Contributing to the momentum of IngenioRx, we are pleased to announce our first external pharmacy contract win with Blue Cross of Idaho beginning January 1, 2020, further demonstrating the strength of our pharmacy offering and our ability to deliver more affordable care with a simplified consumer experience. I am excited about our future growth opportunities as we continue to leverage our growing suite of integrated solutions, including our recently announced acquisition of Beacon Health Options, to create greater value for the customers, members and care providers that we are privileged to serve.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled approximately 40.9 million members at June 30, 2019, an increase of 1.3 million, or 3.3 percent, from June 30, 2018. Total fully insured enrollment grew by 1.1 million, or 7.7 percent, and self-funded enrollment increased by 188 thousand, or 0.7 percent. Government Business enrollment increased by 1.0 million, driven by growth in Medicaid and Medicare. Commercial & Specialty Business enrollment increased by 290 thousand, driven by growth in all lines of business.
Medical enrollment increased 9 thousand sequentially, reflecting growth in Medicaid and Medicare, partially offset by declines in Commercial & Specialty Business enrollment.
Operating Revenue: Operating revenue was $25.2 billion in the second quarter of 2019, an increase of $2.5 billion, or 10.8 percent, versus $22.7 billion in the prior year quarter. The increase in operating revenue reflected membership growth across our businesses and premium rate increases to cover overall cost trends. The increase was partially offset by the one year waiver of the health insurance tax in 2019.
Benefit Expense Ratio: The benefit expense ratio was 86.7 percent in the second quarter of 2019, an increase of 330 basis points from 83.4 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 and medical cost experience in the Medicaid business.
Medical claims reserves established at December 31, 2018 developed moderately better than the Company s expectation during the first six months of 2019.
Medical Cost Trend: For the full year 2019, the Company continues to expect underlying Local Group medical cost trend will be in the range of 6.0% +/- 50 basis points.
Days in Claims Payable: Days in Claims Payable was 39.1 days as of June 30, 2019, an increase of 0.6 days from 38.5 days as of March 31, 2019.
SG&A Expense Ratio: The SG&A expense ratio was 13.0 percent in the second quarter of 2019, a decrease of 210 basis points from 15.1 percent in the second quarter of 2018. The decrease, as expected, was primarily driven by the one year waiver of the health insurance tax in 2019 and growth in operating revenue.
Operating Cash Flow: Operating cash flow was $1.4 billion, or 1.3 times net income, and an increase of $895 million compared to the second quarter of 2018. Operating cash flow was $3.1 billion, or 1.1 times net income for the six months ending June 30, 2019.
Share Repurchase Program: During the second quarter of 2019, the Company repurchased 1.7 million shares of its common stock for $458 million, or a weighted average price of $272.95. As of June 30, 2019, the Company had approximately $4.7 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the second quarter of 2019, the Company paid a quarterly dividend of $0.80 per share, representing a distribution of cash totaling $206 million.
On July 23, 2019, the Audit Committee declared a third quarter 2019 dividend to shareholders of $0.80 per share. On an annualized basis, this equates to a dividend of $3.20 per share. The third quarter dividend is payable on September 25, 2019 to shareholders of record at the close of business on September 10, 2019.
Investment Portfolio & Capital Position: During the second quarter of 2019, the Company recorded net realized gains on financial instruments totaling $11 million and other-than-temporary impairment losses totaling $7 million. During the second quarter of 2018, the Company recorded net realized gains of $4 million and other-than-temporary impairment losses totaling $4 million.
As of June 30, 2019, the Company s net unrealized gain position in the investment portfolio was $561 million, consisting of fixed maturity securities. As of June 30, 2019 cash and investments at the parent company totaled approximately $1.4 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 June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
| 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
| Operating Revenue | ||||||||||||||||||||||||
| Commercial & Specialty Business | $ | 9,417 | $ | 9,055 | 4.0 | % | $ | 18,809 | $ | 18,006 | 4.5 | % | ||||||||||||
| Government Business | 15,538 | 13,619 | 14.1 | % | 30,464 | 26,972 | 12.9 | % | ||||||||||||||||
| Other | 794 | 350 | 126.9 | % | 1,342 | 710 | 89.0 | % | ||||||||||||||||
| Eliminations | (572 | ) | (309 | ) | NM | 2 | (1,050 | ) | (631 | ) | NM | 2 | ||||||||||||
| Total Operating Revenue 1 | $ | 25,177 | $ | 22,715 | 10.8 | % | $ | 49,565 | $ | 45,057 | 10.0 | % | ||||||||||||
| Operating Gain / (Loss) | ||||||||||||||||||||||||
| Commercial & Specialty Business | $ | 983 | $ | 1,048 | (6.2 | )% | $ | 2,581 | $ | 2,450 | 5.3 | % | ||||||||||||
| Government Business | 478 | 532 | (10.2 | )% | 855 | 1,021 | (16.3 | )% | ||||||||||||||||
| Other | (28 | ) | (21 | ) | NM | 2 | (63 | ) | (44 | ) | NM | 2 | ||||||||||||
| Total Operating Gain 1 | $ | 1,433 | $ | 1,559 | (8.1 | )% | $ | 3,373 | $ | 3,427 | (1.6 | )% | ||||||||||||
| Operating Margin | ||||||||||||||||||||||||
| Commercial & Specialty Business | 10.4 | % | 11.6 | % | (120 | ) bp | 13.7 | % | 13.6 | % | 10 | bp | ||||||||||||
| Government Business | 3.1 | % | 3.9 | % | (80 | ) bp | 2.8 | % | 3.8 | % | (100 | ) bp | ||||||||||||
| Total Operating Margin 1 | 5.7 | % | 6.9 | % | (120 | ) bp | 6.8 | % | 7.6 | % | (80 | ) bp |
Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $983 million in the second quarter of 2019, a decrease of $65 million, or 6.2 percent, from $1,048 million in the second quarter of 2018. The decrease is primarily driven by the impact of higher favorable risk adjustor adjustments recognized in 2018. The decline is partially offset by higher administrative fee revenue in our self-funded businesses, driven by greater penetration of value-added services.
Government Business: Operating gain in the Government Business segment was $478 million in the second quarter of 2019, a decrease of $54 million, or 10.2 percent, from $532 million in the second quarter of 2018. The decrease is driven by continued elevated medical cost experience in Medicaid in select states and the one year waiver of the health insurance tax in 2019, partially offset by out of period revenue adjustments and Medicare membership growth.
Other: The Company reported an operating loss of $28 million in the Other segment for the second quarter of 2019, compared with an operating loss of $21 million in the prior year quarter.
Full Year 2019:
Basis of Presentation
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time ( EDT ) to discuss the company s second 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:
| 800-553-0358 (Domestic) | 800-475-6701 (Domestic Replay) | |
| 612-332-0632 (International) | 320-365-3844 (International Replay) |
An access code is not required for today s conference call. The access code for the replay is 432045. The replay will be available from 11:00 a.m. EDT today, until the end of the day on August 7, 2019. The call will also be available through a live webcast at www.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 78 million people, including over 40 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 | ||||||||||||||||||||
| Medical Membership | June 30, 2019 | June 30, 2018 | March 31, 2019 | June 30, 2018 | March 31, 2019 | |||||||||||||||
| Customer Type | ||||||||||||||||||||
| Local Group | 15,670 | 15,634 | 15,697 | 0.2 | % | (0.2 | )% | |||||||||||||
| Individual | 741 | 712 | 773 | 4.1 | % | (4.1 | )% | |||||||||||||
| National: | ||||||||||||||||||||
| National Accounts | 7,693 | 7,658 | 7,757 | 0.5 | % | (0.8 | )% | |||||||||||||
| BlueCard | 6,009 | 5,819 | 5,981 | 3.3 | % | 0.5 | % | |||||||||||||
| Total National | 13,702 | 13,477 | 13,738 | 1.7 | % | (0.3 | )% | |||||||||||||
| Medicare: | ||||||||||||||||||||
| Medicare Advantage | 1,170 | 937 | 1,144 | 24.9 | % | 2.3 | % | |||||||||||||
| Medicare Supplement | 877 | 827 | 867 | 6.0 | % | 1.2 | % | |||||||||||||
| Total Medicare | 2,047 | 1,764 | 2,011 | 16.0 | % | 1.8 | % | |||||||||||||
| Medicaid | 7,099 | 6,414 | 7,033 | 10.7 | % | 0.9 | % | |||||||||||||
| Federal Health Products & Services | 1,593 | 1,560 | 1,591 | 2.1 | % | 0.1 | % | |||||||||||||
| Total Medical Membership | 40,852 | 39,561 | 40,843 | 3.3 | % | % | ||||||||||||||
| Funding Arrangement | ||||||||||||||||||||
| Self-Funded | 25,433 | 25,245 | 25,495 | 0.7 | % | (0.2 | )% | |||||||||||||
| Fully-Insured | 15,419 | 14,316 | 15,348 | 7.7 | % | 0.5 | % | |||||||||||||
| Total Medical Membership | 40,852 | 39,561 | 40,843 | 3.3 | % | % | ||||||||||||||
| Reportable Segment | ||||||||||||||||||||
| Commercial & Specialty Business | 30,113 | 29,823 | 30,208 | 1.0 | % | (0.3 | )% | |||||||||||||
| Government Business | 10,739 | 9,738 | 10,635 | 10.3 | % | 1.0 | % | |||||||||||||
| Total Medical Membership | 40,852 | 39,561 | 40,843 | 3.3 | % | % | ||||||||||||||
| Other Membership | ||||||||||||||||||||
| Life and Disability Members | 4,906 | 4,673 | 4,849 | 5.0 | % | 1.2 | % | |||||||||||||
| Dental Members | 5,931 | 5,788 | 5,955 | 2.5 | % | (0.4 | )% | |||||||||||||
| Dental Administration Members | 5,523 | 5,384 | 5,491 | 2.6 | % | 0.6 | % | |||||||||||||
| Vision Members | 7,161 | 6,760 | 7,169 | 5.9 | % | (0.1 | )% | |||||||||||||
| Medicare Part D Standalone Members | 287 | 312 | 289 | (8.0 | )% | (0.7 | )% |
Consolidated Statements of Income
| (In millions, except per share data) | Three Months Ended June 30 | |||||||||||
| 2019 | 2018 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 23,501 | $ | 21,248 | 10.6 | % | ||||||
| Administrative fees and other revenue | 1,676 | 1,467 | 14.2 | % | ||||||||
| Total operating revenue | 25,177 | 22,715 | 10.8 | % | ||||||||
| Net investment income | 285 | 229 | 24.5 | % | ||||||||
| Net realized gains on financial instruments | 11 | 4 | 175.0 | % | ||||||||
| Other-than-temporary impairment losses on investments: | ||||||||||||
| Total other-than-temporary impairment losses on investments | (9 | ) | (4 | ) | NM | |||||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 2 | NM | ||||||||||
| Other-than-temporary impairment losses recognized in income | (7 | ) | (4 | ) | NM | |||||||
| Total revenues | 25,466 | 22,944 | 11.0 | % | ||||||||
| Expenses | ||||||||||||
| Benefit expense | 20,368 | 17,728 | 14.9 | % | ||||||||
| Cost of products sold | 98 | NM | ||||||||||
| Selling, general and administrative expense | 3,278 | 3,428 | (4.4 | )% | ||||||||
| Interest expense | 184 | 192 | (4.2 | )% | ||||||||
| Amortization of other intangible assets | 85 | 93 | (8.6 | )% | ||||||||
| Gain on extinguishment of debt | (1 | ) | NM | |||||||||
| Total expenses | 24,013 | 21,440 | 12.0 | % | ||||||||
| Income before income tax expense | 1,453 | 1,504 | (3.4 | )% | ||||||||
| Income tax expense | 314 | 450 | (30.2 | )% | ||||||||
| Net income | $ | 1,139 | $ | 1,054 | 8.1 | % | ||||||
| Net income per diluted share | $ | 4.36 | $ | 3.98 | 9.5 | % | ||||||
| Diluted shares | 261.0 | 264.5 | (1.3 | )% | ||||||||
| Benefit expense as a percentage of premiums | 86.7 | % | 83.4 | % | 330 | bp | ||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 13.0 | % | 15.1 | % | (210 | ) bp | ||||||
| Income before income taxes as a percentage of total revenue | 5.7 | % | 6.6 | % | (90 | ) bp |
NM = calculation not meaningful
Consolidated Statements of Income
| (In millions, except per share data) | Six Months Ended June 30 | |||||||||||
| 2019 | 2018 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 46,344 | $ | 42,151 | 9.9 | % | ||||||
| Administrative fees and other revenue | 3,221 | 2,906 | 10.8 | % | ||||||||
| Total operating revenue | 49,565 | 45,057 | 10.0 | % | ||||||||
| Net investment income | 495 | 458 | 8.1 | % | ||||||||
| Net realized gains (losses) on financial instruments | 89 | (22 | ) | NM | ||||||||
| Other-than-temporary impairment losses on investments: | ||||||||||||
| Total other-than-temporary impairment losses on investments | (22 | ) | (12 | ) | NM | |||||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 5 | NM | ||||||||||
| Other-than-temporary impairment losses recognized in income | (17 | ) | (12 | ) | NM | |||||||
| Total revenues | 50,132 | 45,481 | 10.2 | % | ||||||||
| Expenses | ||||||||||||
| Benefit expense | 39,650 | 34,774 | 14.0 | % | ||||||||
| Cost of products sold | 98 | NM | ||||||||||
| Selling, general and administrative expense | 6,444 | 6,856 | (6.0 | )% | ||||||||
| Interest expense | 371 | 376 | (1.3 | )% | ||||||||
| Amortization of other intangible assets | 172 | 173 | (0.6 | )% | ||||||||
| (Gain) loss on extinguishment of debt | (1 | ) | 18 | (105.6 | )% | |||||||
| Total expenses | 46,734 | 42,197 | 10.8 | % | ||||||||
| Income before income tax expense | 3,398 | 3,284 | 3.5 | % | ||||||||
| Income tax expense | 708 | 918 | (22.9 | )% | ||||||||
| Net income | $ | 2,690 | $ | 2,366 | 13.7 | % | ||||||
| Net income per diluted share | $ | 10.28 | $ | 8.97 | 14.6 | % | ||||||
| Diluted shares | 261.6 | 263.7 | (0.8 | )% | ||||||||
| Benefit expense as a percentage of premiums | 85.6 | % | 82.5 | % | 310 | bp | ||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 13.0 | % | 15.2 | % | (220 | ) bp | ||||||
| Income before income taxes as a percentage of total revenue | 6.8 | % | 7.2 | % | (40 | ) bp |
NM = calculation not meaningful
Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| (In millions) | 2019 | 2018 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,078 | $ | 3,934 | ||||
| Fixed maturity securities, current | 19,123 | 16,692 | ||||||
| Equity securities, current | 1,492 | 1,493 | ||||||
| Other invested assets, current | 14 | 21 | ||||||
| Accrued investment income | 168 | 162 | ||||||
| Premium receivables | 4,751 | 4,465 | ||||||
| Self-funded receivables | 2,534 | 2,278 | ||||||
| Other receivables | 2,633 | 2,558 | ||||||
| Income taxes receivable | 296 | 10 | ||||||
| Securities lending collateral | 565 | 604 | ||||||
| Other current assets | 2,151 | 2,104 | ||||||
| Total current assets | 37,805 | 34,321 | ||||||
| Long-term investments: | ||||||||
| Fixed maturity securities | 509 | 487 | ||||||
| Equity securities | 33 | 33 | ||||||
| Other invested assets | 3,719 | 3,726 | ||||||
| Property and equipment, net | 2,837 | 2,735 | ||||||
| Goodwill | 20,500 | 20,504 | ||||||
| Other intangible assets | 8,840 | 9,007 | ||||||
| Other noncurrent assets | 1,608 | 758 | ||||||
| Total assets | $ | 75,851 | $ | 71,571 | ||||
| Liabilities and shareholders equity | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Policy liabilities: | ||||||||
| Medical claims payable | $ | 8,758 | $ | 7,454 | ||||
| Reserves for future policy benefits | 77 | 75 | ||||||
| Other policyholder liabilities | 2,586 | 2,590 | ||||||
| Total policy liabilities | 11,421 | 10,119 | ||||||
| Unearned income | 900 | 902 | ||||||
| Accounts payable and accrued expenses | 4,028 | 4,959 | ||||||
| Security trades pending payable | 382 | 197 | ||||||
| Securities lending payable | 564 | 604 | ||||||
| Short-term borrowings | 1,010 | 1,145 | ||||||
| Current portion of long-term debt | 850 | 849 | ||||||
| Other current liabilities | 3,935 | 3,190 | ||||||
| Total current liabilities | 23,090 | 21,965 | ||||||
| Long-term debt, less current portion | 17,436 | 17,217 | ||||||
| Reserves for future policy benefits, noncurrent | 655 | 706 | ||||||
| Deferred tax liabilities, net | 2,211 | 1,960 | ||||||
| Other noncurrent liabilities | 1,666 | 1,182 | ||||||
| Total liabilities | 45,058 | 43,030 | ||||||
| Shareholders equity | ||||||||
| Common stock | 3 | 3 | ||||||
| Additional paid-in capital | 9,494 | 9,536 | ||||||
| Retained earnings | 21,679 | 19,988 | ||||||
| Accumulated other comprehensive loss | (383 | ) | (986 | ) | ||||
| Total shareholders equity | 30,793 | 28,541 | ||||||
| Total liabilities and shareholders equity | $ | 75,851 | $ | 71,571 |
Consolidated Statements of Cash Flows
| (In millions) | Six Months Ended June 30 | |||||||
| 2019 | 2018 | |||||||
| Operating activities | ||||||||
| Net income | $ | 2,690 | $ | 2,366 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Net realized (gains) losses on financial instruments | (89 | ) | 22 | |||||
| Other-than-temporary impairment losses recognized in income | 17 | 12 | ||||||
| (Gain) loss on extinguishment of debt | (1 | ) | 18 | |||||
| Deferred income taxes | 79 | 2 | ||||||
| Amortization, net of accretion | 515 | 495 | ||||||
| Depreciation expense | 71 | 61 | ||||||
| Share-based compensation | 140 | 78 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables, net | (589 | ) | (570 | ) | ||||
| Other invested assets | (28 | ) | (11 | ) | ||||
| Other assets | (258 | ) | (445 | ) | ||||
| Policy liabilities | 1,251 | (610 | ) | |||||
| Unearned income | (2 | ) | 1,158 | |||||
| Accounts payable and accrued expenses | (1,015 | ) | 29 | |||||
| Other liabilities | 632 | 70 | ||||||
| Income taxes | (286 | ) | 187 | |||||
| Other, net | (60 | ) | (105 | ) | ||||
| Net cash provided by operating activities | 3,067 | 2,757 | ||||||
| Investing activities | ||||||||
| Purchases of fixed maturity securities | (5,023 | ) | (4,886 | ) | ||||
| Proceeds from sales and maturities of fixed maturity securities | 3,454 | 4,882 | ||||||
| Purchases of equity securities | (5,974 | ) | (658 | ) | ||||
| Proceeds from sales of equity securities | 6,059 | 1,777 | ||||||
| Purchases of other invested assets | (116 | ) | (247 | ) | ||||
| Proceeds from sales of other invested assets | 216 | 198 | ||||||
| Changes in securities lending collateral | 40 | (170 | ) | |||||
| Purchases of subsidiaries, net of cash acquired | (1,722 | ) | ||||||
| Net purchases of property and equipment | (455 | ) | (533 | ) | ||||
| Other, net | (18 | ) | 15 | |||||
| Net cash used in investing activities | (1,817 | ) | (1,344 | ) | ||||
| Financing activities | ||||||||
| Net proceeds from (repayments of) commercial paper borrowings | 203 | (704 | ) | |||||
| Net repayments of short-term borrowings | (135 | ) | (155 | ) | ||||
| Net (repayments of) proceeds from long-term borrowings | (73 | ) | 172 | |||||
| Changes in securities lending payable | (40 | ) | 170 | |||||
| Changes in bank overdrafts | 84 | 69 | ||||||
| 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 | (752 | ) | (795 | ) | ||||
| Change in collateral and settlements of debt-related derivatives | 22 | |||||||
| Cash dividends | (412 | ) | (388 | ) | ||||
| Proceeds from issuance of common stock under employee stock plans | 100 | 95 | ||||||
| Taxes paid through withholding of common stock under employee stock plans | (80 | ) | (76 | ) | ||||
| Net cash used in financing activities | (1,106 | ) | (340 | ) | ||||
| Change in cash and cash equivalents | 144 | 1,073 | ||||||
| Cash and cash equivalents at beginning of year | 3,934 | 3,609 | ||||||
| Cash and cash equivalents at end of period | $ | 4,078 | $ | 4,682 |
Reconciliation of Medical Claims Payable
| Six Months Ended | ||||||||||||||||||||
| June 30 | Years Ended December 31 | |||||||||||||||||||
| 2019 | 2018 | 2018 | 2017 | 2016 | ||||||||||||||||
| (In millions) | (Unaudited) | (Unaudited) | ||||||||||||||||||
| Gross medical claims payable, beginning of period | $ | 7,266 | $ | 7,814 | $ | 7,814 | $ | 7,656 | $ | 7,360 | ||||||||||
| Ceded medical claims payable, beginning of period | (34 | ) | (105 | ) | (105 | ) | (539 | ) | (646 | ) | ||||||||||
| Net medical claims payable, beginning of period | 7,232 | 7,709 | 7,709 | 7,117 | 6,714 | |||||||||||||||
| Business combinations and purchase adjustments | 199 | 199 | 76 | |||||||||||||||||
| Net incurred medical claims: | ||||||||||||||||||||
| Current year | 38,237 | 33,922 | 69,581 | 70,377 | 64,868 | |||||||||||||||
| Prior years redundancies (1) | (414 | ) | (795 | ) | (930 | ) | (1,133 | ) | (835 | ) | ||||||||||
| Total net incurred medical claims | 37,823 | 33,127 | 68,651 | 69,244 | 64,033 | |||||||||||||||
| Net payments attributable to: | ||||||||||||||||||||
| Current year medical claims | 30,367 | 27,502 | 62,748 | 62,923 | 57,879 | |||||||||||||||
| Prior years medical claims | 6,182 | 6,208 | 6,579 | 5,805 | 5,751 | |||||||||||||||
| Total net payments | 36,549 | 33,710 | 69,327 | 68,728 | 63,630 | |||||||||||||||
| Net medical claims payable, end of period | 8,506 | 7,325 | 7,232 | 7,709 | 7,117 | |||||||||||||||
| Ceded medical claims payable, end of period | 43 | 35 | 34 | 105 | 539 | |||||||||||||||
| Gross medical claims payable, end of period | $ | 8,549 | $ | 7,360 | $ | 7,266 | $ | 7,814 | $ | 7,656 | ||||||||||
| Current year medical claims paid as a percentage of current year net incurred medical claims | 79.4 | % | 81.1 | % | 90.2 | % | 89.4 | % | 89.2 | % | ||||||||||
| 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 | 6.1 | % | 11.5 | % | 13.7 | % | 18.9 | % | 14.2 | % | ||||||||||
| Prior year redundancies in the current year as a percentage of prior year net incurred medical claims | 0.6 | % | 1.2 | % | 1.3 | % | 1.8 | % | 1.4 | % |
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. Prior amounts may be rounded differently to conform to current presentation.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30 | June 30 | |||||||||||||||||||||||
| (In millions, except per share data) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
| Net income | $ | 1,139 | $ | 1,054 | 8.1 | % | $ | 2,690 | $ | 2,366 | 13.7 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized (gains) losses on financial instruments | (11 | ) | (4 | ) | (89 | ) | 22 | |||||||||||||||||
| Amortization of other intangible assets | 85 | 93 | 172 | 173 | ||||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 7 | 4 | 17 | 12 | ||||||||||||||||||||
| (Gain) loss on extinguishment of debt | (1 | ) | (1 | ) | 18 | |||||||||||||||||||
| Litigation expenses for CI and ESI | 9 | 35 | ||||||||||||||||||||||
| Transaction related costs | 5 | 5 | 9 | |||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (23 | ) | (21 | ) | (37 | ) | (55 | ) | ||||||||||||||||
| Net adjustment items | 72 | 71 | 102 | 179 | ||||||||||||||||||||
| Adjusted net income | $ | 1,211 | $ | 1,125 | 7.6 | % | $ | 2,792 | $ | 2,545 | 9.7 | % | ||||||||||||
| Net income per diluted share | $ | 4.36 | $ | 3.98 | 9.5 | % | $ | 10.28 | $ | 8.97 | 14.6 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized (gains) losses on financial instruments | (0.04 | ) | (0.02 | ) | (0.34 | ) | 0.08 | |||||||||||||||||
| Amortization of other intangible assets | 0.33 | 0.35 | 0.66 | 0.66 | ||||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 0.03 | 0.02 | 0.06 | 0.05 | ||||||||||||||||||||
| (Gain) loss on extinguishment of debt | 0.07 | |||||||||||||||||||||||
| Litigation expenses for CI and ESI | 0.03 | 0.13 | ||||||||||||||||||||||
| Transaction related costs | 0.02 | 0.02 | 0.03 | |||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (0.09 | ) | (0.09 | ) | (0.14 | ) | (0.21 | ) | ||||||||||||||||
| Rounding Impact | 0.01 | |||||||||||||||||||||||
| Net adjustment items | 0.28 | 0.27 | 0.39 | 0.68 | ||||||||||||||||||||
| Adjusted net income per diluted share | $ | 4.64 | $ | 4.25 | 9.2 | % | $ | 10.67 | $ | 9.65 | 10.6 | % |
| Full Year 2019 Outlook | ||||
| Net income per diluted share | Greater than $18.34 | |||
| Add / (Subtract): | ||||
| Net realized gains on financial instruments | (0.34 | ) | ||
| Other-than-temporary impairment losses recognized in income | 0.06 | |||
| Litigation expenses for CI and ESI | 0.13 | |||
| Transaction related costs | 0.02 | |||
| Amortization of other intangible assets | Approximately $1.37 | |||
| Tax impact of non-GAAP adjustments | Approximately ($0.28 | ) | ||
| Net adjustment items | Approximately $0.96 | |||
| Adjusted net income per diluted share | Greater than $19.30 |
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30 | June 30 | |||||||||||||||||||||||
| (In millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
| Reportable segments operating gain | $ | 1,433 | $ | 1,559 | (8.1 | )% | $ | 3,373 | $ | 3,427 | (1.6 | )% | ||||||||||||
| Net investment income | 285 | 229 | 495 | 458 | ||||||||||||||||||||
| Net realized gains (losses) on financial instruments | 11 | 4 | 89 | (22 | ) | |||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | (7 | ) | (4 | ) | (17 | ) | (12 | ) | ||||||||||||||||
| Interest expense | (184 | ) | (192 | ) | (371 | ) | (376 | ) | ||||||||||||||||
| Amortization of other intangible assets | (85 | ) | (93 | ) | (172 | ) | (173 | ) | ||||||||||||||||
| Gain (loss) on extinguishment of debt | 1 | 1 | (18 | ) | ||||||||||||||||||||
| Income before income tax expense | $ | 1,453 | $ | 1,504 | (3.4 | )% | $ | 3,398 | $ | 3,284 | 3.5 | % |
Reclassified Reportable Segment Highlights
| (In millions) | Three Months Ended | |||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | |||||||||||||
| Operating Revenue | ||||||||||||||||
| Commercial & Specialty Business | $ | 8,951 | $ | 9,055 | $ | 8,933 | $ | 8,843 | ||||||||
| Government Business | 13,353 | 13,619 | 13,979 | 14,397 | ||||||||||||
| Other | 360 | 350 | 398 | 411 | ||||||||||||
| Eliminations | (322 | ) | (309 | ) | (330 | ) | (347 | ) | ||||||||
| Total Operating Revenue 1 | $ | 22,342 | $ | 22,715 | $ | 22,980 | $ | 23,304 | ||||||||
| Operating Gain / (Loss) | ||||||||||||||||
| Commercial & Specialty Business | $ | 1,402 | $ | 1,048 | $ | 834 | $ | 316 | ||||||||
| Government Business | 489 | 532 | 456 | 451 | ||||||||||||
| Other | (23 | ) | (21 | ) | (41 | ) | (17 | ) | ||||||||
| Total Operating Gain 1 | $ | 1,868 | $ | 1,559 | $ | 1,249 | $ | 750 |
| (In millions) | Three Months Ended | |||||||
| March 31, 2019 | June 30, 2019 | |||||||
| Operating Revenue | ||||||||
| Commercial & Specialty Business | $ | 9,392 | $ | 9,417 | ||||
| Government Business | 14,926 | 15,538 | ||||||
| Other | 548 | 794 | ||||||
| Eliminations | (478 | ) | (572 | ) | ||||
| Total Operating Revenue 1 | $ | 24,388 | $ | 25,177 | ||||
| Operating Gain / (Loss) | ||||||||
| Commercial & Specialty Business | $ | 1,598 | $ | 983 | ||||
| Government Business | 377 | 478 | ||||||
| Other | (35 | ) | (28 | ) | ||||
| Total Operating Gain 1 | $ | 1,940 | $ | 1,433 |
Forward-Looking Statements
This document contains certain 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: 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; trends in healthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability to secure sufficient premium rates, including regulatory approval for and implementation of such rates; 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, including our claim for damages against Cigna, Cigna s claim for payment of a termination fee and other damages against us, and the potential for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and financial condition; non-compliance by any party with the pharmacy benefit management 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 any agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CVS Health, which could result in financial penalties, our inability to meet customer demands, and sanctions imposed by governmental entities, including CMS; medical malpractice or professional liability claims or other risks related to healthcare services and pharmacy benefit management services provided by our subsidiaries; 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; 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; 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.