Elevance Health, Inc. (then Anthem, Inc.) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet figures are as of March 31, 2022. The filing was submitted under the name Anthem, Inc. Shareholders were scheduled to vote on a proposed name change to Elevance Health, Inc. in May 2022.
Business context
The company reported nearly 46.8 million medical members across Commercial & Specialty, Government, IngenioRx and Other businesses. It operates health plans and provides pharmacy benefit management and other healthcare services.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $37.886 billion | $32.098 billion | +18.0% |
| Total revenues | $38.095 billion | $32.385 billion | +17.6% |
| Net income | $1.795 billion | $1.667 billion | +7.7% |
| Shareholders’ net income | $1.805 billion | $1.665 billion | +8.4% |
| Diluted EPS | $7.39 | $6.71 | +10.1% |
| Operating cash flow | $2.541 billion | $2.505 billion | +$36 million |
Amounts are in U.S. dollars. The benefit expense ratio increased to 86.1% from 85.6%; the SG&A expense ratio declined to 11.5% from 12.2%. Income before tax as a percentage of total revenues fell to 6.1% from 6.7%. Net investment income was $360 million, up from $291 million; net losses on financial instruments were $151 million, versus $4 million in the prior-year quarter.
Balance sheet and liquidity: Cash and cash equivalents were $6.161 billion, versus $4.880 billion at year-end 2021. Total assets were $100.486 billion and total shareholders’ equity was $35.975 billion. The balance sheet reported $275 million of short-term borrowings, $3.097 billion of current long-term debt and $19.883 billion of long-term debt. The company reported a 39.2% debt-to-capital ratio and compliance with debt covenants. It had $525 million outstanding under its commercial paper program. Cash, cash equivalents and fixed-maturity and equity investments totaled $34.638 billion.
The company paid $309 million in dividends and repurchased $545 million of common stock during the quarter. It said available cash, operating receipts, investments and borrowing facilities were expected to be adequate for cash needs over the next 12 months.
Material changes and operating performance
- Medical membership rose 7.5% year over year to 46.775 million. Government membership increased 16.1%, including Medicaid growth linked to suspended eligibility recertification, acquisitions and contract additions.
- Government Business operating gain increased to $789 million from $478 million. Commercial & Specialty operating gain declined to $1.082 billion from $1.268 billion; IngenioRx operating gain was $398 million versus $407 million. Other operating gain rose to $178 million from $8 million.
- Revenue growth reflected Medicaid membership, the MMM acquisition, Ohio Medicaid membership, a reinstated Medicaid directed-payment program, Medicare and Commercial rate increases, and pharmacy membership growth. Benefit expense rose 19.1%, faster than operating revenue, with management citing membership growth and higher Commercial healthcare costs.
- Shareholders’ equity declined from $36.060 billion at year-end, with accumulated other comprehensive loss widening to $1.236 billion from $178 million, primarily reflecting unrealized investment losses.
Outlook, risks and contingencies
- COVID-19 and utilization: COVID-19 care, testing and vaccination costs increased in Q1. Management said non-COVID utilization recovered during the quarter and expected COVID-related testing, treatment and hospitalization costs to continue through 2022. The filing does not provide clear numerical full-year earnings or revenue guidance.
- Medicaid: Eligibility recertification was expected to remain suspended at least until Q3 2022; management anticipated Medicaid membership declines once recertification resumes, potentially in 2023 in some states. It expected growth in Commercial plans, including Public Exchange products.
- Claims estimates: Favorable prior-period claims development was $933 million, compared with $1.488 billion in Q1 2021. The company cautioned that COVID-related utilization and claims-submission patterns continued to increase estimation uncertainty.
- Investments: Rising interest rates and market conditions contributed to unrealized losses; the company reported $1.063 billion of other comprehensive loss for the quarter. It said Russia- and Ukraine-related investment losses were not material and remaining holdings there were not material.
- Legal and regulatory matters: The proposed Blue Cross Blue Shield subscriber antitrust settlement would require an estimated $594 million company payment; $507 million remained accrued at quarter-end, subject to court approval and appeals. Provider antitrust litigation remains unresolved. The company also described DOJ risk-adjustment matters involving Anthem and investigations concerning CareMore and HealthSun; outcomes were not determinable from the filing.
- Other commitments and events: The company disclosed approximately $971 million remaining under an IT services commitment. After quarter-end, it amended its five-year revolving facility, increasing capacity from $2.5 billion to $4.0 billion and extending maturity to April 2027.
Important facts for investors to verify
- Whether elevated Medicaid membership persists and the timing and financial effect of resumed eligibility recertifications.
- How medical utilization, COVID-related costs and claims-reserve development affect the benefit expense ratio and earnings.
- Final court action, appeals and payment timing for the subscriber antitrust settlement, plus developments in provider litigation and DOJ matters.
- Whether investment-market movements lead to further realized losses, impairments or changes in accumulated other comprehensive loss.
- The outcome of the proposed corporate name change and the expected closing of the Integra Managed Care acquisition.