Anthem, Inc. (now Elevance Health, Inc.) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparative figures are for 2020. The filing reports annual results, not standalone fourth-quarter results. Unless otherwise stated, dollar amounts are in millions.
Business context
Anthem was a large U.S. health benefits company, serving 45.4 million medical members at year-end, up 5.7%. Its four reportable segments were Commercial & Specialty Business, Government Business, IngenioRx (pharmacy benefit management) and Other. The filing was issued under the Anthem name and ticker ANTM.
Financial results and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $136,943 | $120,808 | +13.4% |
| Total revenue, including investment income and gains | $138,639 | $121,867 | +13.8% |
| Net income | $6,095 | $4,572 | +33.3% |
| Shareholders’ net income | $6,104 | $4,572 | +33.5% |
| Diluted EPS | $24.73 | $17.98 | +37.5% |
| Operating cash flow | $8,364 | $10,688 | −21.7% |
- Benefit expense was $102,645, up 16.6%; the benefit expense ratio rose to 87.5% from 84.6%. The SG&A expense ratio declined to 11.6% from 14.4%. Net income was 4.4% of total revenue versus 3.8%.
- Segment operating gain: Commercial & Specialty $2,753 (up 2.7%; 7.1% margin), Government $3,061 (up 25.2%; 3.7% margin), IngenioRx $1,684 (up 23.7%; 6.6% margin), and Other a $9 loss. Segment measures are company-defined, non-GAAP measures.
- Operating cash flow was approximately 1.4 times net income, versus 2.3 times in 2020; the company attributed the decline mainly to working-capital changes, including higher receivables and lower accounts payable and accrued expenses.
- At year-end, cash and cash equivalents were $4,880; cash, cash equivalents and investments in fixed-maturity and equity securities totaled $33,660. Long-term debt carrying value was $22,756, with $275 of short-term borrowings; debt-to-capital was 38.9%, up from 37.6%. The company reported compliance with debt covenants and no borrowings under its revolving credit facilities.
- Total assets were $97,460 and shareholders’ equity was $36,060. Medical claims payable was $13,518. Goodwill and other intangible assets totaled $34,843, about 35.8% of assets.
Material changes versus 2020
- Revenue growth reflected Government membership and the June 2021 acquisition of MMM, as well as higher IngenioRx product revenue. Total medical membership increased by 2.449 million; Medicaid membership rose 19.7% and Medicare Advantage membership rose 30.2%.
- Benefit expense increased faster than operating revenue, reflecting membership growth and higher COVID-19 and non-COVID-19 medical costs. COVID-related spending included testing, treatment, vaccination and Delta-variant hospitalizations.
- Net income benefited from higher segment operating gains and investment income, absence of the 2020 BCBSA litigation accrual, lower business-optimization charges, and elimination of the Health Insurance Provider Fee (HIP Fee). The 2020 HIP Fee expense was $1,570; there was no corresponding 2021 expense.
- Diluted shares declined 2.9%, contributing to EPS growth. Anthem repurchased $1,900 of shares in 2021 versus $2,700 in 2020 and paid $1,104 in cash dividends versus $954.
- Cash used for acquisitions, net of cash acquired, was $3,476, up from $1,976. The 2021 acquisitions included MMM and myNEXUS; their combined contribution to revenue and net earnings was reported as not material through year-end.
Outlook, risks and unusual items
- No formal companywide numerical earnings or revenue guidance is provided in the supplied filing text. Management expected Medicaid eligibility recertification suspensions to remain in place at least through the second quarter of 2022, with subsequent Medicaid membership declines a risk.
- Management expected COVID-19 claims—including testing, treatment and hospitalization costs—to continue during 2022, alongside possible offsets from reduced non-COVID utilization. The pandemic’s duration, variants and financial effects remained uncertain.
- Management planned to offer Individual ACA-compliant products in 122 of 143 rating regions in 2022, versus 103 in 2021, while limiting participation to markets it viewed as potentially sustainable.
- Liquidity outlook: management believed cash, operating receipts, investments and available commercial-paper and credit-facility capacity would fund expected disbursements over the next 12 months. It estimated approximately $3,000 of subsidiary dividends to the parent in 2022, subject to regulatory limits.
- Unusual items included a $202 business-optimization charge in 2021, principally related to office-space reductions and asset impairments, versus $653 in 2020. The subscriber class settlement in the BCBSA antitrust litigation was estimated to cost Anthem $594, with $507 accrued net of payments at year-end; court approval remained pending. The separate provider litigation continued.
- Other material legal exposures include the DOJ Medicare risk-adjustment lawsuit and investigations of risk-adjustment practices at CareMore and HealthSun. Anthem said outcomes could not be determined. For proceedings where losses were estimable, the aggregate reasonably possible losses in excess of reserves were estimated at $0 to approximately $250.
- Key operating risks include medical-cost and utilization estimation, government reimbursement and contract compliance, Medicare Star ratings, regulation and premium approvals, cybersecurity and vendor dependence, competition, debt and subsidiary-dividend restrictions. The auditors issued unqualified opinions on the financial statements and internal controls; the claims reserve valuation was a critical audit matter. Management’s control assessment excluded acquired myNEXUS and MMM operations.
Most important facts for investors to verify
- Whether medical-cost trends and COVID-related utilization remain consistent with pricing and reserve assumptions; the year-end claims liability depended on actuarial estimates, and the filing quantified material sensitivity to completion and trend factors.
- How Medicaid membership changes as eligibility recertifications resume, and whether acquired MMM membership and Government segment growth translate into sustainable margins.
- The trajectory of cash conversion: operating cash flow declined despite higher net income, while acquisitions, capital spending, dividends and repurchases were significant cash uses.
- Debt maturities, borrowing costs, subsidiary dividend capacity and the effect of regulatory capital requirements on parent-company liquidity.
- The final court outcome and financial effect of the BCBSA subscriber settlement, provider litigation, DOJ risk-adjustment case and CareMore/HealthSun investigations.
- Whether the $34.8 billion of goodwill and intangible assets remains supported by business performance, and whether acquired businesses deliver expected strategic benefits.