Business context and reporting period
This is Anthem, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. Although the request identifies Elevance Health, the filing names Anthem, Inc. as the registrant (ticker ANTM). Anthem reported approximately 45.1 million medical members and operates health plans, government healthcare businesses, pharmacy benefit management through IngenioRx, and other health services.
Key financial metrics
Amounts are in millions of dollars, except per-share data, ratios, and membership.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $35,548 | $30,649 | $100,925 | $89,275 |
| Total revenue | $35,822 | $31,158 | $102,058 | $90,043 |
| Net income | $1,502 | $222 | $4,970 | $4,021 |
| Shareholders’ diluted EPS | $6.13 | $0.87 | $20.09 | $15.75 |
| Benefit expense ratio | 87.7% | 86.8% | 86.7% | 83.1% |
| SG&A expense ratio | 11.1% | 17.3% | 11.6% | 14.7% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $6,692 | $6,875 |
For the nine months, total expenses were $95,533, income before tax was $6,525, and the effective tax rate was 23.8%. Benefit expense was $75,107. The filing does not present a consolidated operating margin; it reports segment operating gains and margins.
At September 30, cash and cash equivalents were $5,490; cash, fixed-maturity securities, and equity securities totaled $34,582. Total debt was approximately $22,785, including short-term borrowings, current long-term debt, and long-term debt. The reported debt-to-capital ratio was 38.9%, versus 37.6% at year-end 2020. The company reported $1,360 of cash, cash equivalents, and investments at the parent company, and no borrowings under its revolving credit facilities. Nine-month investing cash outflow was $8,672, including $3,442 for acquisitions; financing cash inflow was $1,738. Cash and cash equivalents declined $251 from year-end to $5,490.
Material changes versus the prior comparable period
- Q3 operating revenue rose 16.0%, and nine-month operating revenue rose 13.0%, driven principally by Government Business membership growth, MMM acquisition revenue, and IngenioRx growth.
- Q3 net income increased $1,280 from the prior year; nine-month net income increased $949. The comparison benefited substantially from the absence of 2020 business-optimization and Blue Cross Blue Shield Association (BCBSA) litigation charges. Q3 2020 included $566 of BCBSA litigation expense and $299 of business-optimization expense across segments.
- Despite revenue growth, the nine-month benefit expense ratio rose 360 basis points, reflecting higher COVID-19 and non-COVID-19 medical costs and the repeal of the Health Insurance Provider Fee (HIP Fee). The SG&A ratio fell 310 basis points, primarily reflecting the absence of 2020 charges and higher revenue.
- Medical membership increased 5.7% year over year to 45.1 million. Government Business membership grew 18.2%, including Medicaid growth and the June 2021 MMM acquisition; Commercial & Specialty membership grew 0.5%.
- Operating cash flow decreased $183 year over year, which management attributed mainly to working-capital timing, partly offset by higher net income.
Outlook, management commentary, risks, and unusual items
- Management expected Q4 2021 COVID-19 healthcare costs to decline from the Delta-variant surge in Q3, while non-COVID utilization recovered toward pre-surge 2021 levels. It also expected additional vaccination costs. The filing provides no specific full-year earnings or revenue guidance.
- COVID-19 continued to create uncertainty in utilization, claims submission patterns, medical costs, and medical-claims reserve estimates. Management cautioned that deferred care, pent-up demand, acuity changes, and future variants could affect costs.
- Favorable prior-period medical-claims development was $1,822 for the first nine months of 2021, versus $700 in 2020. The filing says COVID-related utilization and claims-submission patterns increase uncertainty in incurred-but-not-reported claims estimates.
- The BCBSA subscriber settlement, subject to court approval, had an estimated Anthem payment share of $594; $507 remained accrued after payments. Provider litigation was unresolved. Separately, management disclosed Medicare risk-adjustment litigation and investigations involving CareMore and HealthSun; outcomes could not be determined.
- The filing estimated aggregate reasonably possible losses in other proceedings, above established reserves, of $0 to approximately $250. It also disclosed a remaining commitment of approximately $1,104 under an IT services agreement through June 2025.
- Acquisitions of MMM and myNEXUS were completed in 2021. Preliminary goodwill was $1,956 for MMM and $520 for myNEXUS; purchase accounting had not been finalized as of quarter-end.
- Other notable items include $3.462 billion of long-term debt issuance during the first nine months and $1.378 billion of share repurchases. The 2021 HIP Fee repeal reduced premium revenue but contributed to a lower effective tax rate.
Important facts for investors to verify
- Confirm the registrant and ticker: the supplied filing is for Anthem, Inc. (ANTM), not a document headed Elevance Health.
- Assess how much reported earnings growth reflects the absence of 2020 litigation and optimization charges versus underlying operating performance.
- Track medical-cost trends, reserve development, COVID-related utilization, and the elevated benefit expense ratio.
- Monitor final approval and payment terms of the BCBSA subscriber settlement, provider litigation, and Medicare risk-adjustment matters and investigations.
- Review acquisition integration and final purchase accounting, debt levels, cash deployment, and the effect of membership growth on margins and cash flow.