Anthem, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. The filing is by Anthem, Inc. (ticker ANTM). Financial amounts below are in millions of dollars except per-share data and percentages.
Business context
Anthem reported nearly 43.5 million medical members, up 3.3% year over year. It operates health plans across commercial, Medicare and Medicaid markets, and provides pharmacy benefit management through IngenioRx. Government Business membership growth—particularly Medicaid—more than offset declines in Commercial & Specialty membership.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total operating revenue | $32,098 | $29,448; up 9.0% |
| Total revenues, including investment income and realized losses | $32,385 | $29,621; up 9.3% |
| Net income attributable to shareholders | $1,665 | $1,523; up 9.3% |
| Diluted earnings per share | $6.71 | $5.94; up 13.0% |
| Benefit expense ratio | 85.6% | 84.2%; up 140 basis points |
| SG&A expense ratio | 12.2% | 12.8%; down 60 basis points |
| Operating cash flow | $2,505 | $2,515 |
| Cash and cash equivalents at quarter-end | $9,326 | $5,741 at December 31, 2020 |
| Total debt on balance sheet | $23,234 | $20,035 at December 31, 2020 |
Total assets were $95,683 and total shareholders’ equity was $33,853 at March 31, 2021. Anthem reported consolidated debt-to-capital of 41.6%, versus 38.7% at year-end; its separately defined credit-facility ratio was 40.7%, below the 60% covenant limit. It had no commercial paper or revolving-facility borrowings outstanding at quarter-end and reported $4,593 of cash, cash equivalents and investments at the parent company available for general corporate use. Operating cash flow was nearly unchanged year over year; the increase in cash was substantially supported by debt issuance.
Material changes and drivers
- Government Business operating revenue grew 10.4% to $19,283; IngenioRx grew 12.8% to $5,862. Commercial & Specialty revenue increased 1.4% to $9,491, while segment operating gain fell 10.7% to $1,268. Government and IngenioRx operating gains increased 16.3% and 16.6%, respectively.
- Medical membership rose 1.377 million year over year, including Medicaid growth of 1.557 million and Medicare Advantage growth of 197,000. Commercial & Specialty membership declined by 411,000.
- Benefit expense increased 10.3%, faster than premium revenue growth of 8.5%; the benefit expense ratio rose to 85.6%. COVID-19 testing, treatment and vaccine costs exceeded the benefit from lower non-COVID utilization in the quarter.
- Anthem recorded $1,488 of favorable prior-period medical-claims development, compared with $700 in Q1 2020. This reserve development reduced reported benefit expense and is an important factor in assessing current-period performance.
- Income tax expense decreased to $509 from $566 and the effective tax rate fell to 23.4% from 27.1%, primarily following repeal of the non-tax-deductible Health Insurance Provider Fee (HIP Fee), effective in 2021. The company recorded $417 of HIP Fee expense in Q1 2020.
- Other comprehensive loss was $347, largely from investment valuation changes; shareholders’ equity included accumulated other comprehensive loss of $195 at quarter-end.
Outlook, risks and unusual items
- No quantitative full-year earnings or revenue guidance is provided in the supplied filing text. Management cautions that Q1 results are not necessarily indicative of full-year results.
- Management expects non-COVID healthcare utilization to rebound and claims costs to normalize in 2021. Continued COVID-19 care, testing and vaccination, new variants and pent-up demand could increase future medical costs. Medicaid eligibility recertifications were expected to remain suspended at least through year-end 2021, supporting enrollment.
- Anthem issued $3,500 of notes in March 2021, with maturities from 2023 to 2051, for working capital and general corporate purposes, including potential acquisitions, debt repayment and share repurchases. It announced pending acquisitions of myNEXUS and Puerto Rico-based MMM Holdings, both expected to close by the end of Q2 2021 subject to approvals and customary conditions.
- The Blue Cross Blue Shield subscriber antitrust settlement remained subject to court approval. Anthem’s estimated share is $594, of which $507 remained accrued at March 31, 2021. The provider litigation is unresolved. Anthem estimated aggregate reasonably possible litigation losses in excess of established reserves of $0 to approximately $250, while noting that some exposures cannot be estimated.
- Other significant legal and regulatory exposures include the Medicare risk-adjustment lawsuit and government investigations involving CareMore and HealthSun. The filing says outcomes cannot presently be determined. Investment fair values and recoverability remain exposed to uncertain market conditions.
Important facts for investors to verify
- How much of the earnings result depended on the $1,488 favorable claims-reserve development, and whether current-period medical-cost trends support reserve assumptions.
- Whether COVID-19 costs and a rebound in non-COVID utilization raise the benefit expense ratio in subsequent quarters.
- Medicaid enrollment and revenue effects when eligibility recertifications resume, alongside any rate adjustments or experience-rated refunds.
- Debt use, leverage and acquisition funding, including the closing, purchase terms and integration effects of myNEXUS and MMM Holdings.
- Developments in the subscriber and provider antitrust matters, Medicare risk-adjustment proceedings, and CareMore and HealthSun investigations.