Business context and reporting period
This is Anthem, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021. Anthem is a large U.S. health benefits company, with approximately 44.3 million medical members, and reports four segments: Commercial & Specialty, Government, IngenioRx and Other. The filing identifies the registrant as Anthem, Inc.; it does not use the name Elevance Health.
Financial performance and position
Amounts are in millions, except per-share data and ratios.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $33,279 | $29,178 | $65,377 | $58,626 |
| Total revenues | $33,851 | $29,264 | $66,236 | $58,885 |
| Shareholders’ net income | $1,793 | $2,276 | $3,458 | $3,799 |
| Diluted EPS | $7.25 | $8.91 | $13.95 | $14.85 |
| Benefit expense ratio | 86.8% | 77.9% | 86.2% | 81.1% |
| SG&A ratio | 11.5% | 13.9% | 11.8% | 13.4% |
- Q2 operating revenue increased 14.1%; six-month operating revenue increased 11.5%. Premium growth, Government membership, rate increases and IngenioRx contributed.
- Shareholders’ net income fell 21.2% in Q2 and 9.0% for the first half. Management attributed lower segment operating gains principally to recovering non-COVID utilization and COVID-related costs compared with depressed utilization in 2020. Higher investment income and gains, lower taxes and improved IngenioRx results partly offset the declines.
- Q2 total-revenue net margin was 5.3%, versus 7.8% a year earlier; first-half margin was 5.2%, versus 6.5%. Net investment income was $400 million in Q2 versus $57 million; realized gains on financial instruments were $172 million versus $29 million.
- Six-month operating cash flow was $4,188 million, down from $8,025 million. Management cited working-capital movements, lower premium receipts following repeal of the Health Insurance Provider Fee, deferred 2020 tax payments made in 2021 and lower net income.
- At June 30, cash and cash equivalents were $5,258 million; total assets were $96,097 million and equity was $35,046 million. Cash, cash equivalents, fixed-maturity and equity securities totaled $33,433 million. These securities are not all unrestricted cash.
- Debt components reported on the balance sheet totaled approximately $23.2 billion, including short-term borrowings; the company’s consolidated debt-to-capital ratio was 40.9%, up from 38.7% at year-end 2020. The ratio under credit-facility covenants was 39.9%, against a 60% limit; Anthem reported covenant compliance and no revolver borrowings.
Material changes versus the prior comparable period
- Medical membership rose 4.4% year over year to 44.341 million, led by Medicaid and Medicare Advantage growth. Medicaid enrollment benefited from suspended eligibility recertifications; Commercial fee-based membership declined 1.0%.
- Benefit expense rose 26.7% in Q2 and 18.1% for the first half, faster than operating revenue, contributing to higher benefit ratios and lower earnings.
- Operating gain declined in Commercial & Specialty and Government, while IngenioRx operating gain increased. First-half segment operating gains were $2,059 million, $1,346 million and $812 million, respectively.
- Anthem completed the myNEXUS acquisition in April and MMM Holdings in June 2021. Preliminary goodwill recorded was $520 million and $2,171 million, respectively; MMM’s post-acquisition results were not material in this quarter.
- Long-term debt increased following a March notes issuance totaling $3.5 billion; Anthem redeemed $700 million of notes in May. It repurchased $927 million of common stock and paid $555 million in dividends during the first half.
Outlook, commentary, risks and contingencies
- The filing provides no specific full-year earnings or revenue guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- Management expected healthcare utilization to continue at or above normalized levels in the second half of 2021. Deferred care, higher acuity, ongoing COVID-19 treatment, testing and vaccination, and new variants could increase future claims costs. The pandemic had not materially adversely affected reported results through June 30, but its future impact remained uncertain.
- Medicaid eligibility recertification suspension was expected to continue at least through year-end 2021. The company also cited regulatory, pricing, membership, provider-cost, investment-market and government-program risks.
- Medical claims estimates remain uncertain amid pandemic-related changes in utilization and claims submissions. Anthem recorded $1,772 million of favorable prior-period claims development in the first half, versus $700 million in 2020; this reduced reported benefit expense and is an important estimate-sensitive item.
- The Blue Cross Blue Shield subscriber antitrust settlement remained subject to court approval. Anthem estimated its payment share at $594 million and had accrued a remaining liability of $507 million. The separate provider litigation continued.
- For identified legal proceedings where losses were estimable, the aggregate reasonably possible losses in excess of established reserves were estimated at $0–$250 million. Anthem also disclosed DOJ Medicare risk-adjustment litigation and government investigations involving CareMore and HealthSun; outcomes were not determinable.
- Anthem’s Express Scripts lawsuit seeks more than $14.8 billion for alleged pharmacy pricing issues, among other relief; Express Scripts disputes the claims. The filing does not establish that this amount will be recovered.
Most important facts for investors to verify
- Whether medical utilization and claims costs remain elevated, and how COVID-19 developments affect benefit ratios and earnings.
- The durability of favorable prior-year claims development and the assumptions underlying unpaid-claims reserves.
- Government membership and revenue after eligibility recertifications resume, and the effect of the MMM and myNEXUS acquisitions.
- Cash-flow normalization, acquisition spending, debt levels, interest costs and capital returns.
- Final court approval and payment terms for the subscriber settlement, and developments in provider, Medicare risk-adjustment and other legal matters.