Full Press Release Details
ANTHEM REPORTS THIRD QUARTER RESULTS
REAFFIRMS COMMITMENT TO STAKEHOLDERS
DURING COVID-19 PANDEMIC
Indianapolis, Ind. - October 28, 2020 - Anthem, Inc. (NYSE: ANTM) reported third quarter 2020 results that reflect the impacts of ongoing COVID-19 costs and the continued recovery in healthcare utilization while upholding its commitment to addressing financial imbalances for its health plan members, customers, care providers, associates, and local communities.
Against the backdrop of the ongoing pandemic, Anthem and its dedicated associates have continued to respond quickly and with compassion to meet the evolving needs of our members, customers, partners and communities, said Gail K. Boudreaux, President and CEO, Anthem, Inc. I am proud of our performance this quarter to drive continued growth across our business, provide new and innovative solutions as a trusted health partner, and create positive and sustainable change for our communities. As we look ahead, I know we are well positioned to continue our strong momentum and continue to deliver greater value for all of our stakeholders.
As part of Anthem s efforts to combat the global pandemic, address health inequities, and adapt to the ever-changing healthcare environment, the Company has remained focused on fostering deeper relationships and developing innovative solutions to meet critical needs for its stakeholders. Actions taken to support our members, customers, care providers and local communities include:
Care for our Anthem associates
Care for our consumers, customers, and providers
Care for our communities
Managing a new study via our HealthCore subsidiary to help understand and combat Multisystem Inflammatory Syndrome in children, or MIS-C, arising from the COVID-19 pandemic.
Additional actions to support society
CONSOLIDATED HIGHLIGHTS
Earnings Per Share: GAAP net income was $0.87 per share in the third quarter, including net negative adjustment items of $3.33 per share. Adjusted net income was $4.20* per share.
*Please refer to the GAAP reconciliation tables on page 17.
Membership: Medical enrollment totaled approximately 42.6 million members at September 30, 2020, which represents growth of 172 thousand lives, or 0.4 percent, compared to June 30, 2020. The increase was driven by our Government Business, which grew by 453 thousand lives during the quarter, attributable to Medicaid, reflecting organic growth as a result of the temporary suspension of eligibility recertification efforts in our markets, and Medicare Advantage. The increase was partially offset by Commercial & Specialty Business enrollment, which declined by 281 thousand lives driven by higher in-group change as a result of the economic environment.
Medical enrollment increased by 1.6 million lives, or 4.0 percent compared to the prior year quarter, reflecting growth in the Medicaid, Medicare, and National businesses. Growth in Medicaid was driven by organic growth in our markets as a result of the temporary suspension of recertification efforts in our markets as well as our acquisition of the plans in Missouri and Nebraska. Growth in Medicare was the result of increased sales, and the increase in National enrollment reflects growth due to higher BlueCard activity.
Operating Revenue: Operating revenue was $30.6 billion in the third quarter of 2020, an increase of $4.2 billion, or 15.9 percent, versus the prior year quarter, driven by higher premium revenue due to growth in Medicaid and Medicare. The increase was further attributable to pharmacy product revenue related to the launch of IngenioRx and the return of the health insurance tax in 2020, partially offset by a decrease in premiums in our Commercial & Specialty business related to enrollment declines as a result of the economic environment.
Benefit Expense Ratio: The benefit expense ratio was 86.8 percent in the third quarter of 2020, a decrease of 40 basis points from 87.2 percent compared to the prior year quarter. The decrease was a result of deferred healthcare utilization due to the COVID-19 pandemic and the return of the health insurance tax in 2020. The decrease was partially offset by costs associated with actions taken to support our members in response to the pandemic and COVID-19 related care as well as retroactive rate adjustments in the Medicaid business.
Medical claims reserves established at December 31, 2019 developed in line with the Company s expectations during the third quarter of 2020.
Days in Claims Payable: Days in Claims Payable was 41.1 days as of September 30, 2020, a decrease of 4.9 days from June 30, 2020 and an increase of 1.3 days compared to the prior year quarter.
SG&A Expense Ratio: The SG&A expense ratio was 17.3 percent in the third quarter of 2020, an increase of 440 basis points from 12.9 percent in the third quarter of 2019, primarily driven by business optimization charges and the Blue Cross Blue Shield Association (BCBSA) litigation settlement accrual. The increase was further attributable to the return of the health insurance tax in 2020 and increased spend to support growth, partially offset by growth in operating revenue.
Operating Cash Flow: Operating cash flow was ($1.2) billion in the third quarter of 2020, a decrease of $2.8 billion compared to the prior year quarter, primarily due to the payment of the health insurance tax for the entire year as well as the payment of certain federal income taxes that were delayed from the second quarter as permitted by the IRS.
Share Repurchase Program : During the third quarter of 2020, the Company repurchased 2.9 million shares of its common stock for $759 million, or a weighted average price of $265.73. Year to date, the Company has repurchased 5.0 million shares for $1.3 billion, or a weighted average price of $269.15. As of September 30, 2020, the Company had approximately $2.4 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the third quarter of 2020, the Company paid a quarterly dividend of $0.95 per share, representing a distribution of cash totaling $238 million.
On October 27, 2020, the Audit Committee declared a fourth quarter 2020 dividend to shareholders of $0.95 per share. On an annualized basis, this equates to a dividend of $3.80 per share. The fourth quarter dividend is payable on December 22, 2020 to shareholders of record at the close of business on December 7, 2020.
Investment Portfolio & Capital Position: During the third quarter of 2020, the Company recorded net realized gains of $247 million and impairment losses totaling $18 million. During the third quarter of 2019, the Company recorded net realized gains of $1 million and impairment losses totaling $13 million.
As of September 30, 2020, the Company s net unrealized gain position in the investment portfolio was $880 million, consisting of fixed maturity securities. As of September 30, 2020 cash and investments at the parent company totaled approximately $2.6 billion.
REPORTABLE SEGMENTS
Effective January 1, 2020, Anthem, Inc. has four 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); IngenioRx, and Other (comprised of the Diversified Business Group and corporate expenses not allocated to our other reportable segments).
Reportable Segment Highlights
| (In millions) | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||
| Operating Revenue | ||||||||||||||||||||||||
| Commercial & Specialty Business | $ | 9,326 | $ | 9,284 | 0.5 | % | $ | 27,476 | $ | 28,093 | (2.2 | )% | ||||||||||||
| Government Business | 18,101 | 15,955 | 13.5 | % | 52,809 | 46,419 | 13.8 | % | ||||||||||||||||
| IngenioRx | 5,582 | 1,922 | 190.4 | % | 16,048 | 2,170 | 639.5 | % | ||||||||||||||||
| Other | 1,798 | 586 | 206.8 | % | 4,277 | 1,680 | 154.6 | % | ||||||||||||||||
| Eliminations | (4,158 | ) | (1,303 | ) | NM | 2 | (11,335 | ) | (2,353 | ) | NM | 2 | ||||||||||||
| Total Operating Revenue 1 | $ | 30,649 | $ | 26,444 | 15.9 | % | $ | 89,275 | $ | 76,009 | 17.5 | % | ||||||||||||
| Operating Gain / (Loss) 3 | ||||||||||||||||||||||||
| Commercial & Specialty Business | ($ | 234 | ) | $ | 924 | NM | 2 | $ | 2,558 | $ | 3,505 | (27.0 | )% | |||||||||||
| Government Business | 246 | 616 | (60.1 | )% | 2,275 | 1,470 | 54.8 | % | ||||||||||||||||
| IngenioRx | 345 | NM | 2 | 998 | NM | 2 | ||||||||||||||||||
| Other | (156 | ) | (12 | ) | NM | 2 | (76 | ) | (74 | ) | NM | 2 | ||||||||||||
| Total Operating Gain 1 | $ | 201 | $ | 1,528 | (86.8 | )% | $ | 5,755 | $ | 4,901 | 17.4 | % | ||||||||||||
| Operating Margin | ||||||||||||||||||||||||
| Commercial & Specialty Business | (2.5 | )% | 10.0 | % | (1250 | ) bp | 9.3 | % | 12.5 | % | (320) bp | |||||||||||||
| Government Business | 1.4 | % | 3.9 | % | (250 | ) bp | 4.3 | % | 3.2 | % | 110 bp | |||||||||||||
| IngenioRx | 6.2 | % | NM | 2 | 6.2 | % | % | NM | 2 | |||||||||||||||
| Total Operating Margin 1 | 0.7 | % | 5.8 | % | (510 | ) bp | 6.4 | % | 6.4 | % | bp |
Commercial & Specialty Business: Operating loss in the Commercial & Specialty Business segment totaled $234 million in the third quarter of 2020, a decrease of $1,158 million from an operating gain of $924 million in the third quarter of 2019. The decrease was primarily attributable to the BCBSA litigation settlement accrual and business optimization charges. The decrease was further attributable to costs associated with actions taken to support our members in response to the pandemic and COVID-19 related care as well as the shift of pharmacy earnings to the IngenioRx segment, partially offset by deferred healthcare utilization due to the COVID-19 pandemic.
Government Business: Operating gain in the Government Business segment was $246 million in the third quarter of 2020, a decrease of $370 million, or 60.1 percent, from $616 million in the third quarter of 2019. The decrease was primarily driven by costs associated with actions taken to support our members in response to the pandemic and COVID-19 related care and retroactive rate adjustments in Medicaid. The decrease was further attributable to business optimization charges as well as increased spend to support growth. The decrease was partially offset by deferred healthcare utilization as a result of the COVID-19 pandemic.
IngenioRx: IngenioRx commenced operations in the second quarter of 2019 and the transition of membership was completed on January 1, 2020. Operating gain was $345 million in the third quarter of 2020.
Other: The Company reported an operating loss of $156 million in the Other segment for the third quarter of 2020, compared with an operating loss of $12 million in the prior year quarter, primarily driven by business optimization charges and other unallocated corporate expenses.
Full Year 2020:
Due to unprecedented uncertainty around the COVID-19 pandemic and its impact, the Company is not providing other financial guidance metrics for 2020.
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 third 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:
| 888-947-9963 (Domestic) | 888-566-0406 (Domestic Replay) | |
| 312-470-0178 (International) | 402-998-0591 (International Replay) |
The access code for today s conference call is 2583196 . The replay will be available from 11:30 a.m. EDT today, until the end of the day on November 27, 2020. 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 107 million people, including approximately 43 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 | September 30, 2020 | September 30, 2019 | June 30, 2020 | September 30, 2019 | June 30, 2020 | |||||||||||||||
| Customer Type | ||||||||||||||||||||
| Local Group | 15,509 | 15,659 | 15,616 | (1.0)% | (0.7)% | |||||||||||||||
| Individual | 701 | 711 | 711 | (1.4)% | (1.4)% | |||||||||||||||
| National: | ||||||||||||||||||||
| National Accounts | 7,773 | 7,666 | 7,872 | 1.4% | (1.3)% | |||||||||||||||
| BlueCard | 6,106 | 5,967 | 6,171 | 2.3% | (1.1)% | |||||||||||||||
| Total National | 13,879 | 13,633 | 14,043 | 1.8% | (1.2)% | |||||||||||||||
| Medicare: | ||||||||||||||||||||
| Medicare Advantage | 1,416 | 1,203 | 1,366 | 17.7% | 3.7% | |||||||||||||||
| Medicare Supplement | 933 | 893 | 921 | 4.5% | 1.3% | |||||||||||||||
| Total Medicare | 2,349 | 2,096 | 2,287 | 12.1% | 2.7% | |||||||||||||||
| Medicaid | 8,569 | 7,293 | 8,180 | 17.5% | 4.8% | |||||||||||||||
| Federal Employees Health Benefits | 1,618 | 1,592 | 1,616 | 1.6% | 0.1% | |||||||||||||||
| Total Medical Membership | 42,625 | 40,984 | 42,453 | 4.0% | 0.4% | |||||||||||||||
| Funding Arrangement | ||||||||||||||||||||
| Self-Funded | 25,633 | 25,368 | 25,888 | 1.0% | (1.0)% | |||||||||||||||
| Fully-Insured | 16,992 | 15,616 | 16,565 | 8.8% | 2.6% | |||||||||||||||
| Total Medical Membership | 42,625 | 40,984 | 42,453 | 4.0% | 0.4% | |||||||||||||||
| Reportable Segment | ||||||||||||||||||||
| Commercial & Specialty Business | 30,089 | 30,003 | 30,370 | 0.3% | (0.9)% | |||||||||||||||
| Government Business | 12,536 | 10,981 | 12,083 | 14.2% | 3.7% | |||||||||||||||
| Total Medical Membership | 42,625 | 40,984 | 42,453 | 4.0% | 0.4% | |||||||||||||||
| Other Membership | ||||||||||||||||||||
| Life and Disability Members | 5,029 | 4,970 | 5,110 | 1.2% | (1.6)% | |||||||||||||||
| Dental Members | 6,051 | 5,942 | 6,096 | 1.8% | (0.7)% | |||||||||||||||
| Dental Administration Members | 1,315 | 5,526 | 1,318 | (76.2)% | (0.2)% | |||||||||||||||
| Vision Members | 7,487 | 7,232 | 7,457 | 3.5% | 0.4% | |||||||||||||||
| Medicare Part D Standalone Members | 405 | 285 | 392 | 42.1% | 3.3% |
Consolidated Statements of Income
| (In millions, except per share data) | Three Months Ended September 30 | |||||||||||
| 2020 | 2019 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 26,392 | $ | 23,793 | 10.9% | |||||||
| Product revenue | 2,598 | 1,116 | 132.8% | |||||||||
| Administrative fees and other revenue | 1,659 | 1,535 | 8.1% | |||||||||
| Total operating revenue | 30,649 | 26,444 | 15.9% | |||||||||
| Net investment income | 280 | 242 | 15.7% | |||||||||
| Net realized gains on financial instruments | 247 | 1 | NM | |||||||||
| Impairment losses on investments: | ||||||||||||
| Total impairment losses on investments | (24) | (14) | NM | |||||||||
| Portion of impairment losses recognized in other comprehensive income | 6 | 1 | 500.0% | |||||||||
| Impairment losses recognized in income | (18) | (13) | NM | |||||||||
| Total revenues | 31,158 | 26,674 | 16.8% | |||||||||
| Expenses | ||||||||||||
| Benefit expense | 22,921 | 20,753 | 10.4% | |||||||||
| Cost of products sold | 2,222 | 745 | 198.3% | |||||||||
| Selling, general and administrative expense | 5,305 | 3,418 | 55.2% | |||||||||
| Interest expense | 198 | 185 | 7.0% | |||||||||
| Amortization of other intangible assets | 93 | 84 | 10.7% | |||||||||
| Loss on extinguishment of debt | 30 | NM | ||||||||||
| Total expenses | 30,769 | 25,185 | 22.2% | |||||||||
| Income before income tax expense | 389 | 1,489 | (73.9)% | |||||||||
| Income tax expense | 167 | 306 | (45.4)% | |||||||||
| Net income | $ | 222 | $ | 1,183 | (81.2)% | |||||||
| Net income per diluted share | $ | 0.87 | $ | 4.55 | (80.9)% | |||||||
| Diluted shares | 254.2 | 260.0 | (2.2)% | |||||||||
| Benefit expense as a percentage of premiums | 86.8% | 87.2% | (40)bp | |||||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 17.3% | 12.9% | 440bp | |||||||||
| Income before income taxes as a percentage of total revenue | 1.2% | 5.6% | (440)bp |
NM = calculation not meaningful
Consolidated Statements of Income
| (In millions, except per share data) | Nine Months Ended September 30 | |||||||||||
| 2020 | 2019 | Change | ||||||||||
| Revenues | ||||||||||||
| Premiums | $ | 77,001 | $ | 70,137 | 9.8% | |||||||
| Product revenue | 7,485 | 1,260 | 494.0% | |||||||||
| Administrative fees and other revenue | 4,789 | 4,612 | 3.8% | |||||||||
| Total operating revenue | 89,275 | 76,009 | 17.5% | |||||||||
| Net investment income | 591 | 737 | (19.8)% | |||||||||
| Net realized gains on financial instruments | 241 | 90 | 167.8% | |||||||||
| Impairment losses on investments: | ||||||||||||
| Total impairment losses on investments | (119) | (36) | NM | |||||||||
| Portion of impairment losses recognized in other comprehensive income | 55 | 6 | 816.7% | |||||||||
| Impairment losses recognized in income | (64) | (30) | NM | |||||||||
| Total revenues | 90,043 | 76,806 | 17.2% | |||||||||
| Expenses | ||||||||||||
| Benefit expense | 63,957 | 60,403 | 5.9% | |||||||||
| Cost of products sold | 6,431 | 843 | 662.9% | |||||||||
| Selling, general and administrative expense | 13,132 | 9,862 | 33.2% | |||||||||
| Interest expense | 593 | 556 | 6.7% | |||||||||
| Amortization of other intangible assets | 269 | 256 | 5.1% | |||||||||
| Loss (gain) on extinguishment of debt | 34 | (1) | NM | |||||||||
| Total expenses | 84,416 | 71,919 | 17.4% | |||||||||
| Income before income tax expense | 5,627 | 4,887 | 15.1% | |||||||||
| Income tax expense | 1,606 | 1,014 | 58.4% | |||||||||
| Net income | $ | 4,021 | $ | 3,873 | 3.8% | |||||||
| Net income per diluted share | $ | 15.75 | $ | 14.83 | 6.2% | |||||||
| Diluted shares | 255.3 | 261.1 | (2.2)% | |||||||||
| Benefit expense as a percentage of premiums | 83.1% | 86.1% | (300)bp | |||||||||
| Selling, general and administrative expense as a percentage of total operating revenue | 14.7% | 13.0% | 170bp | |||||||||
| Income before income taxes as a percentage of total revenue | 6.2% | 6.4% | (20)bp |
NM = calculation not meaningful
Consolidated Balance Sheets
| (In millions) | September 30, 2020 | December 31, 2019 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,984 | $ | 4,937 | ||||
| Fixed maturity securities, current | 22,707 | 19,676 | ||||||
| Equity securities, current | 3,075 | 1,009 | ||||||
| Premium receivables | 5,343 | 5,014 | ||||||
| Self-funded receivables | 2,985 | 2,570 | ||||||
| Other receivables | 3,209 | 2,807 | ||||||
| Other current assets | 4,147 | 3,020 | ||||||
| Total current assets | 45,450 | 39,033 | ||||||
| Long-term investments: | ||||||||
| Fixed maturity securities | 558 | 505 | ||||||
| Other invested assets | 4,170 | 4,258 | ||||||
| Property and equipment, net | 3,363 | 3,133 | ||||||
| Goodwill | 21,687 | 20,500 | ||||||
| Other intangible assets | 9,497 | 8,674 | ||||||
| Other noncurrent assets | 1,849 | 1,350 | ||||||
| Total assets | $ | 86,574 | $ | 77,453 | ||||
| Liabilities and shareholders equity | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Medical claims payable | $ | 10,252 | $ | 8,842 | ||||
| Other policyholder liabilities | 3,804 | 3,050 | ||||||
| Unearned income | 961 | 1,017 | ||||||
| Accounts payable and accrued expenses | 5,550 | 4,198 | ||||||
| Short-term borrowings | 150 | 700 | ||||||
| Current portion of long-term debt | 1,599 | 1,598 | ||||||
| Other current liabilities | 6,245 | 4,127 | ||||||
| Total current liabilities | 28,561 | 23,532 | ||||||
| Long-term debt, less current portion | 19,094 | 17,787 | ||||||
| Reserves for future policy benefits | 784 | 759 | ||||||
| Deferred tax liabilities, net | 2,375 | 2,227 | ||||||
| Other noncurrent liabilities | 1,839 | 1,420 | ||||||
| Total liabilities | 52,653 | 45,725 | ||||||
| Shareholders equity | ||||||||
| Common stock | 3 | 3 | ||||||
| Additional paid-in capital | 9,352 | 9,448 | ||||||
| Retained earnings | 24,678 | 22,573 | ||||||
| Accumulated other comprehensive loss | (112 | ) | (296 | ) | ||||
| Total shareholders equity | 33,921 | 31,728 | ||||||
| Total liabilities and shareholders equity | $ | 86,574 | $ | 77,453 |
Consolidated Statements of Cash Flows
| (In millions) | Nine Months Ended September 30 | |||||||
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net income | $ | 4,021 | $ | 3,873 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Net realized gains on financial instruments | (241 | ) | (90 | ) | ||||
| Depreciation and amortization | 864 | 887 | ||||||
| Deferred income taxes | (102 | ) | (29 | ) | ||||
| Impairment of property and equipment | 195 | |||||||
| Share-based compensation | 214 | 226 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables, net | (845 | ) | (880 | ) | ||||
| Other invested assets | 6 | (30 | ) | |||||
| Other assets | (988 | ) | (280 | ) | ||||
| Policy liabilities | 1,624 | 1,394 | ||||||
| Unearned income | (95 | ) | 46 | |||||
| Accounts payable and other liabilities | 1,953 | (256 | ) | |||||
| Income taxes | 104 | (81 | ) | |||||
| Other, net | 165 | (46 | ) | |||||
| Net cash provided by operating activities | 6,875 | 4,734 | ||||||
| Investing activities | ||||||||
| Purchases of investments | (16,708 | ) | (17,310 | ) | ||||
| Proceeds from sale of investments | 8,739 | 12,832 | ||||||
| Maturities, calls and redemptions from investments | 3,763 | 1,583 | ||||||
| Changes in securities lending collateral | (668 | ) | 139 | |||||
| Purchases of subsidiaries, net of cash acquired | (1,973 | ) | ||||||
| Purchases of property and equipment | (743 | ) | (726 | ) | ||||
| Other, net | (39 | ) | (33 | ) | ||||
| Net cash used in investing activities | (7,629 | ) | (3,515 | ) | ||||
| Financing activities | ||||||||
| Net repayments of commercial paper borrowings | (400 | ) | (197 | ) | ||||
| Net repayments of short-term borrowings | (550 | ) | (435 | ) | ||||
| Net proceeds from long-term borrowings | 1,521 | 1,550 | ||||||
| Changes in securities lending payable | 668 | (139 | ) | |||||
| Repurchase and retirement of common stock | (1,342 | ) | (1,396 | ) | ||||
| Cash dividends | (720 | ) | (616 | ) | ||||
| Proceeds from issuance of common stock under employee stock plans | 112 | 137 | ||||||
| Taxes paid through withholding of common stock under employee stock plans | (112 | ) | (82 | ) | ||||
| Other, net | 623 | 216 | ||||||
| Net cash used in financing activities | (200 | ) | (962 | ) | ||||
| Effect of foreign exchange rates on cash and cash equivalents | 1 | (1 | ) | |||||
| Change in cash and cash equivalents | (953 | ) | 256 | |||||
| Cash and cash equivalents at beginning of period | 4,937 | 3,934 | ||||||
| Cash and cash equivalents at end of period | $ | 3,984 | $ | 4,190 |
Reconciliation of Medical Claims Payable
| Nine Months Ended September 30 | Years Ended December 31 | |||||||||||||||||||
| 2020 | 2019 | 2019 | 2018 | 2017 | ||||||||||||||||
| (In millions) | (Unaudited) | (Unaudited) | ||||||||||||||||||
| Gross medical claims payable, beginning of period | $ | 8,647 | $ | 7,266 | $ | 7,266 | $ | 7,814 | $ | 7,656 | ||||||||||
| Ceded medical claims payable, beginning of period | (33 | ) | (34 | ) | (34 | ) | (105 | ) | (539 | ) | ||||||||||
| Net medical claims payable, beginning of period | 8,614 | 7,232 | 7,232 | 7,709 | 7,117 | |||||||||||||||
| Business combinations and purchase adjustments | 339 | 199 | 76 | |||||||||||||||||
| Net incurred medical claims: | ||||||||||||||||||||
| Current year | 61,977 | 58,157 | 78,695 | 69,581 | 70,377 | |||||||||||||||
| Prior years redundancies (1) | (700 | ) | (437 | ) | (500 | ) | (930 | ) | (1,133 | ) | ||||||||||
| Total net incurred medical claims | 61,277 | 57,720 | 78,195 | 68,651 | 69,244 | |||||||||||||||
| Net payments attributable to: | ||||||||||||||||||||
| Current year medical claims | 52,879 | 49,751 | 70,294 | 62,748 | 62,923 | |||||||||||||||
| Prior years medical claims | 7,489 | 6,466 | 6,519 | 6,579 | 5,805 | |||||||||||||||
| Total net payments | 60,368 | 56,217 | 76,813 | 69,327 | 68,728 | |||||||||||||||
| Net medical claims payable, end of period | 9,862 | 8,735 | 8,614 | 7,232 | 7,709 | |||||||||||||||
| Ceded medical claims payable, end of period | 129 | 35 | 33 | 34 | 105 | |||||||||||||||
| Gross medical claims payable, end of period | $ | 9,991 | $ | 8,770 | $ | 8,647 | $ | 7,266 | $ | 7,814 | ||||||||||
| Current year medical claims paid as a percentage of current year net incurred medical claims | 85.3 | % | 85.5 | % | 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 | 8.8 | % | 6.4 | % | 7.4 | % | 13.7 | % | 18.9 | % | ||||||||||
| Prior year redundancies in the current year as a percentage of prior year net incurred medical claims | 0.9 | % | 0.6 | % | 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 September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (In millions, except per share data) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||||||||||||||
| Net income | $ | 222 | $ | 1,183 | (81.2 | )% | $ | 4,021 | $ | 3,873 | 3.8 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized gains on financial instruments | (247 | ) | (1 | ) | (241 | ) | (90 | ) | ||||||||||||||||
| Amortization of other intangible assets | 93 | 84 | 269 | 256 | ||||||||||||||||||||
| Impairment losses recognized in income | 18 | 13 | 64 | 30 | ||||||||||||||||||||
| Loss (gain) on extinguishment of debt | 30 | 34 | (1 | ) | ||||||||||||||||||||
| Business optimization charges | 607 | 607 | ||||||||||||||||||||||
| BCBSA litigation settlement | 594 | 594 | ||||||||||||||||||||||
| Transaction and integration related costs | 4 | 3 | 27 | 8 | ||||||||||||||||||||
| Litigation expenses | 5 | 9 | 34 | 44 | ||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (258 | ) | (24 | ) | (329 | ) | (61 | ) | ||||||||||||||||
| Net adjustment items | 846 | 84 | 1,059 | 186 | ||||||||||||||||||||
| Adjusted net income | $ | 1,068 | $ | 1,267 | (15.7 | )% | $ | 5,080 | $ | 4,059 | 25.2 | % | ||||||||||||
| Net income per diluted share | $ | 0.87 | $ | 4.55 | (80.9 | )% | $ | 15.75 | $ | 14.83 | 6.2 | % | ||||||||||||
| Add / (Subtract): | ||||||||||||||||||||||||
| Net realized gains on financial instruments | (0.97 | ) | (0.94 | ) | (0.34 | ) | ||||||||||||||||||
| Amortization of other intangible assets | 0.37 | 0.32 | 1.05 | 0.98 | ||||||||||||||||||||
| Impairment losses recognized in income | 0.07 | 0.05 | 0.25 | 0.11 | ||||||||||||||||||||
| Loss on extinguishment of debt | 0.12 | 0.13 | ||||||||||||||||||||||
| Business optimization charges | 2.39 | 2.38 | ||||||||||||||||||||||
| BCBSA litigation settlement | 2.34 | 2.33 | ||||||||||||||||||||||
| Transaction and integration related costs | 0.02 | 0.01 | 0.11 | 0.03 | ||||||||||||||||||||
| Litigation expenses | 0.02 | 0.03 | 0.13 | 0.17 | ||||||||||||||||||||
| Tax impact of non-GAAP adjustments | (1.01 | ) | (0.09 | ) | (1.29 | ) | (0.23 | ) | ||||||||||||||||
| Rounding impact | (0.02 | ) | ||||||||||||||||||||||
| Net adjustment items | 3.33 | 0.32 | 4.15 | 0.72 | ||||||||||||||||||||
| Adjusted net income per diluted share | $ | 4.20 | $ | 4.87 | (13.8 | )% | $ | 19.90 | $ | 15.55 | 28.0 | % |
| Full Year 2020 Outlook | ||||
| Net income per diluted share | Greater than $17.87 | |||
| Add / (Subtract): | ||||
| Net realized gains on financial instruments | (0.94) | |||
| Impairment losses recognized in income | 0.25 | |||
| Loss on extinguishment of debt | 0.13 | |||
| Business optimization charges | 2.38 | |||
| BCBSA litigation settlement | 2.33 | |||
| Transaction and integration related costs | 0.11 | |||
| Litigation expenses | 0.13 | |||
| Amortization of other intangible assets | Approximately $1.41 | |||
| Tax impact of non-GAAP adjustments | Approximately $(1.37) | |||
| Net adjustment items | Approximately $4.43 | |||
| Adjusted net income per diluted share | Greater than $22.30 |
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (In millions) | 2020 | 2019 | Change | 2020 | 2019 | Change | ||||||||||||||||||
| Reportable segments operating gain | $ | 201 | $ | 1,528 | (86.8 | )% | $ | 5,755 | $ | 4,901 | 17.4 | % | ||||||||||||
| Net investment income | 280 | 242 | 591 | 737 | ||||||||||||||||||||
| Net realized gains on financial instruments | 247 | 1 | 241 | 90 | ||||||||||||||||||||
| Impairment losses recognized in income | (18 | ) | (13 | ) | (64 | ) | (30 | ) | ||||||||||||||||
| Interest expense | (198 | ) | (185 | ) | (593 | ) | (556 | ) | ||||||||||||||||
| Amortization of other intangible assets | (93 | ) | (84 | ) | (269 | ) | (256 | ) | ||||||||||||||||
| (Loss) gain on extinguishment of debt | (30 | ) | (34 | ) | 1 | |||||||||||||||||||
| Income before income tax expense | $ | 389 | $ | 1,489 | (73.9 | )% | $ | 5,627 | $ | 4,887 | 15.1 | % |
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 large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19, and catastrophes; 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; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; 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 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 agreement between us and CaremarkPCS Health, L.L.C.; medical malpractice or professional liability claims or other risks related to healthcare and PBM services 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; the impact of international laws and regulations; 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.