INDIANAPOLIS--(BUSINESS WIRE)--Anthem, Inc. (NYSE: ANTM) reported fourth quarter and full year 2018 financial results that reflected enhanced performance across the core businesses and increasing operating momentum.
"In 2018, we achieved our objectives of improving execution and strengthening our value proposition with innovative and affordable solutions designed to more effectively meet the unique needs of our customers," said Gail K. Boudreaux, President and CEO. "Our fourth quarter and full year performance provides a strong foundation for 2019. In addition, I am pleased to announce that we are accelerating the launch of IngenioRx and now expect to begin transitioning members in the second quarter of this year. Since announcing our intent to create IngenioRx, we have been carefully planning the transition, including the possibility of an early launch, and are confident in our ability to execute the transition under the accelerated schedule. This will allow us to go to market with better economics earlier, and also accelerate our whole person health strategy, which is proven to reduce total cost of care."
Anthem continues to expect gross annual savings through IngenioRx of greater than $4 billion, with more than 20% of that amount being returned to our shareholders. The Company, pursuant to the terms of its pharmacy benefits management services agreement with Express Scripts, Inc. (the "PBM Agreement"), has provided notice to Express Scripts that it will exercise its contractual rights to terminate the PBM Agreement earlier than the original expiration date of December 31, 2019 due to the recent acquisition of Express Scripts by Cigna Corporation. As a result of exercising our early termination rights, the PBM Agreement will now terminate on March 1, 2019 and the twelve month transition period to migrate the business will begin on March 2, 2019.
Anthem expects its full year 2019 adjusted net income to be greater than $19.00* per share, which reflects the benefit from the accelerated launch of IngenioRx, including expected expenses related to the revised transition schedule.
* Refer to the GAAP reconciliation tables.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled approximately 39.9 million members at December 31, 2018, an increase of 37 thousand members from September 30, 2018. Commercial & Specialty Business enrollment increased by 30 thousand members, as the Company experienced growth in the fully insured and fee-based Local Group businesses and growth in the National business. The increase was partially offset by a decline in Individual enrollment. Government Business enrollment increased by 7 thousand members, driven by growth in Medicare that was partially offset by a decrease in Medicaid membership.
Medical enrollment declined by 361 thousand members from 40.3 million members at December 31, 2017. The decrease reflected declines due to a reduced footprint in the Individual ACA-compliant marketplace and declines in Local Group enrollment. These declines were partially offset by growth in the Medicare, National, and Medicaid businesses.
Operating Revenue: Operating revenue was $23.3 billion in the fourth quarter of 2018, an increase of $857 million, or 3.8 percent, versus $22.4 billion in the prior year quarter. The growth in operating revenue reflected premium rate increases to cover overall cost trends and the return of the health insurance tax in 2018 as well as growth in Medicare. The increase was partially offset by a reduced footprint in the Individual ACA-compliant marketplace.
Benefit Expense Ratio: The benefit expense ratio was 86.8 percent in the fourth quarter of 2018, a decrease of 180 basis points from 88.6 percent in the prior year quarter. The decrease, as expected, was largely driven by the return of the health insurance tax in 2018 and improved medical cost performance in our Commercial & Specialty Business.
Medical claims reserves established at December 31, 2017 developed moderately better than the Company’s expectation during 2018.
Medical Cost Trend: For the full year 2018, Local Group medical cost trend was approximately 5.9%. The Company anticipates medical cost trend will be in the range of 6.0% +/- 50 bps in 2019.
Days in Claims Payable: Days in Claims Payable (“DCP”) was 36.2 days as of December 31, 2018, a decrease of 2.5 days from 38.7 days as of September 30, 2018.
SG&A Expense Ratio: The SG&A expense ratio was 15.5 percent in the fourth quarter of 2018, an increase of 40 basis points from 15.1 percent in the fourth quarter of 2017. The increase, as expected, was primarily driven by the return of the health insurance tax in 2018, partially offset by expense efficiency initiatives.
Operating Cash Flow: Operating cash flow was $463 million, or 1.1 times net income in the fourth quarter of 2018, bringing full year 2018 operating cash flow to $3.8 billion, or 1.0 times net income.
Share Repurchase Program: During the fourth quarter of 2018, the Company repurchased 1.8 million shares of its common stock for $493 million, or a weighted average price of $270.66. For the full year, the Company repurchased 6.8 million shares of its common stock for $1.7 billion, or a weighted average price of $248.34. As of December 31, 2018, the Company had approximately $5.5 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2018, the Company paid a quarterly dividend of $0.75 per share, representing a distribution of cash totaling $193 million.
On January 29, 2019, the Audit Committee declared a first quarter 2019 dividend to shareholders of $0.80 per share. On an annualized basis, this equates to a dividend of $3.20 per share. The first quarter dividend is payable on March 29, 2019 to shareholders of record at the close of business on March 18, 2019.
Investment Portfolio & Capital Position: During the fourth quarter of 2018, the Company recorded net realized losses on financial instruments totaling $185 million and other-than-temporary impairment losses totaling $8 million. During the fourth quarter of 2017, the Company recorded net realized gains of $7 million and other-than-temporary impairment losses totaling $12 million.
As of December 31, 2018, the Company’s net unrealized loss position in the investment portfolio was $201 million, consisting of fixed maturity securities. The adoption of a change in accounting standards has resulted in the Company accounting for unrealized changes in the value of equity securities in realized gains or losses. As of December 31, 2018 cash and investments at the parent company totaled approximately $1.9 billion.
REPORTABLE SEGMENTS
Anthem, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid and Medicare businesses, National Government Services, and the Federal Employee Program); and Other (comprised of certain eliminations and corporate expenses not allocated to either of our other reportable segments).
| Anthem, Inc. | ||||||||||||||||||
| Reportable Segment Highlights | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (In millions) | Three Months Ended December 31 | Twelve Months Ended December 31 | ||||||||||||||||
| 2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||
| Operating Revenue | ||||||||||||||||||
| Commercial & Specialty Business | $8,843 | $10,006 | (11.6 | )% | $35,782 | $40,363 | (11.3 | )% | ||||||||||
| Government Business | 14,462 | 12,444 | 16.2 | % | 55,567 | 48,702 | 14.1 | % | ||||||||||
| Other | (1 | ) | (3 | ) | NM2 | (8 | ) | (4 | ) | NM2 | ||||||||
| Total Operating Revenue1 | $23,304 | $22,447 | 3.8 | % | $91,341 | $89,061 | 2.6 | % | ||||||||||
| Operating Gain / (Loss) | ||||||||||||||||||
| Commercial & Specialty Business | $322 | $67 | 380.6 | % | $3,629 | $2,847 | 27.5 | % | ||||||||||
| Government Business | 444 | 360 | 23.3 | % | 1,895 | 1,445 | 31.1 | % | ||||||||||
| Other | (16 | ) | (46 | ) | NM2 | (98 | ) | (117 | ) | NM2 | ||||||||
| Total Operating Gain1 | $750 | $381 | 96.9 | % | $5,426 | $4,175 | 30.0 | % | ||||||||||
| Operating Margin | ||||||||||||||||||
| Commercial & Specialty Business | 3.6 | % | 0.7 | % | 290 bp | 10.1 | % | 7.1 | % | 300 bp | ||||||||
| Government Business | 3.1 | % | 2.9 | % | 20 bp | 3.4 | % | 3.0 | % | 40 bp | ||||||||
| Total Operating Margin1 | 3.2 | % | 1.7 | % | 150 bp | 5.9 | % | 4.7 | % | 120 bp | ||||||||
(1) See “Basis of Presentation.”
(2) "NM" = calculation not meaningful.
Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $322 million in the fourth quarter of 2018, an increase of $255 million, or 380.6 percent, from $67 million in the fourth quarter of 2017. The increase reflected improved medical cost performance and a decrease in certain general and administrative expenses compared to the prior year quarter.
Government Business: Operating gain in the Government Business segment was $444 million in the fourth quarter of 2018, an increase of $84 million, or 23.3 percent, from $360 million in the fourth quarter of 2017. The increase is a result of the acquisitions of HealthSun and America's 1st Choice and the return of the health insurer fee in 2018. The increase was partially offset by higher medical costs in the Medicaid business.
Other: The Company reported an operating loss of $16 million in the Other segment for the fourth quarter of 2018, compared with an operating loss of $46 million in the prior year quarter.
OUTLOOK
Full Year 2019:
- GAAP net income is expected to be greater than $18.00 per share, including approximately $1.00 per share of net unfavorable items. Excluding these items, adjusted net income is expected to be greater than $19.00* per share.
- Medical membership is expected to be in the range of 40,900,000 - 41,300,000. Fully-insured membership is expected to be in the range of 15,500,000 - 15,700,000 and self-funded membership is expected to be in the range of 25,400,000 - 25,600,000.
- Operating revenue is expected to be approximately $100.0 billion, including premium revenue of $90.5 billion - $92.5 billion.
- Benefit expense ratio is expected to be in the range of 86.2% plus or minus 30 basis points.
- Cost of products sold of $1.6 billion - $1.8 billion.
- SG&A ratio is expected to be in the range of 13.5% plus or minus 30 basis points.
- Operating cash flow is expected to be greater than $5.2 billion.
- Share count is expected to be between 261 - 263 million.
- Effective tax rate is expected to be between 19.5% - 21.5%.
- Investment income is expected to be $1.0 billion.
* Refer to the GAAP reconciliation tables.
Basis of Presentation
- Operating revenue and operating gain are the key measures used by management to evaluate performance in each of its reporting segments, allocate resources, set incentive compensation targets and to forecast future operating performance. Operating gain is calculated as total operating revenue less benefit expense and selling, general and administrative expense. It does not include net investment income, net realized gains/losses on financial instruments, other-than-temporary impairment losses recognized in income, interest expense, amortization of other intangible assets, gains/losses on extinguishment of debt or income taxes, as these items are managed in a corporate shared service environment and are not the responsibility of operating segment management. Refer to the GAAP reconciliation tables.
- Operating margin is defined as operating gain divided by operating revenue.
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time (“EST”) to discuss the company’s fourth quarter results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:
| 800-230-1059 (Domestic) | 800-475-6701 (Domestic Replay) | |||||||
| 612-234-9960 (International) | 320-365-3844 (International Replay) | |||||||
An access code is not required for today’s conference call. The access code for the replay is 432041. The replay will be available from 11:00 a.m. EST today, until the end of the day on February 13, 2019. The call will also be available through a live webcast at www.antheminc.com under the “Investors” link. A webcast replay will be available following the call.
About Anthem, Inc.
Anthem is a leading health benefits company dedicated to improving lives and communities, and making healthcare simpler. Through its affiliated companies, Anthem serves more than 74 million people, including nearly 40 million within its family of health plans. We aim to be the most innovative, valuable and inclusive partner. For more information, please visit www.antheminc.com or follow @AnthemInc on Twitter.
| Anthem, Inc. | |||||||||||||||
| Membership Summary | |||||||||||||||
| (Unaudited and in Thousands) | |||||||||||||||
| Change from | |||||||||||||||
| December 31, | December 31, | September 30, | December 31, | September 30, | |||||||||||
|
Medical Membership |
2018 | 2017 | 2018 | 2017 | 2018 | ||||||||||
| Customer Type | |||||||||||||||
| Local Group | 15,733 | 15,888 | 15,688 | (1.0 | )% | 0.3 | % | ||||||||
| Individual | 655 | 1,588 | 692 | (58.8 | )% | (5.3 | )% | ||||||||
| National: | |||||||||||||||
| National Accounts | 7,588 | 7,463 | 7,610 | 1.7 | % | (0.3 | )% | ||||||||
| BlueCard® | 5,838 | 5,733 | 5,794 | 1.8 | % | 0.8 | % | ||||||||
| Total National | 13,426 | 13,196 | 13,404 | 1.7 | % | 0.2 | % | ||||||||
| Medicare: | |||||||||||||||
| Medicare Advantage | 1,006 | 746 | 992 | 34.9 | % | 1.4 | % | ||||||||
| Medicare Supplement | 846 | 823 | 837 | 2.8 | % | 1.1 | % | ||||||||
| Total Medicare | 1,852 | 1,569 | 1,829 | 18.0 | % | 1.3 | % | ||||||||
| Medicaid | 6,716 | 6,496 | 6,731 | 3.4 | % | (0.2 | )% | ||||||||
| FEP® | 1,556 | 1,562 | 1,557 | (0.4 | )% | (0.1 | )% | ||||||||
| Total Medical Membership | 39,938 | 40,299 | 39,901 | (0.9 | )% | 0.1 | % | ||||||||
| Funding Arrangement | |||||||||||||||
| Self-Funded | 25,287 | 24,862 | 25,253 | 1.7 | % | 0.1 | % | ||||||||
| Fully-Insured | 14,651 | 15,437 | 14,648 | (5.1 | )% | — | % | ||||||||
| Total Medical Membership | 39,938 | 40,299 | 39,901 | (0.9 | )% | 0.1 | % | ||||||||
| Reportable Segment | |||||||||||||||
| Commercial & Specialty Business | 29,814 | 30,672 | 29,784 | (2.8 | )% | 0.1 | % | ||||||||
| Government Business | 10,124 | 9,627 | 10,117 | 5.2 | % | 0.1 | % | ||||||||
| Total Medical Membership | 39,938 | 40,299 | 39,901 | (0.9 | )% | 0.1 | % | ||||||||
|
Other Membership |
|||||||||||||||
| Life and Disability Members | 4,795 | 4,700 | 4,701 | 2.0 | % | 2.0 | % | ||||||||
| Dental Members | 5,807 | 5,864 | 5,804 | (1.0 | )% | 0.1 | % | ||||||||
| Dental Administration Members | 5,327 | 5,342 | 5,367 | (0.3 | )% | (0.7 | )% | ||||||||
| Vision Members | 6,946 | 6,867 | 6,906 | 1.2 | % | 0.6 | % | ||||||||
| Medicare Part D Standalone Members | 309 | 318 | 312 | (2.8 | )% | (1.0 | )% | ||||||||
| Anthem, Inc. | |||||||||||
| Consolidated Statements of Income | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| (In millions, except per share data) | December 31 | ||||||||||
| 2018 | 2017 | Change | |||||||||
| Revenues | |||||||||||
| Premiums | $ | 21,819 | $ | 21,087 | 3.5 | % | |||||
| Administrative fees and other revenue | 1,485 | 1,360 | 9.2 | % | |||||||
| Total operating revenue | 23,304 | 22,447 | 3.8 | % | |||||||
| Net investment income | 262 | 240 | 9.2 | % | |||||||
| Net realized (losses)/gains on financial instruments | (185 | ) | 7 | NM | |||||||
| Other-than-temporary impairment losses on investments: | |||||||||||
| Total other-than-temporary impairment losses on investments | (9 | ) | (12 | ) | (25.0 | )% | |||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 1 | — | NM | ||||||||
| Other-than-temporary impairment losses recognized in income | (8 | ) | (12 | ) | (33.3 | )% | |||||
| Total revenues | 23,373 | 22,682 | 3.0 | % | |||||||
| Expenses | |||||||||||
| Benefit expense | 18,936 | 18,672 | 1.4 | % | |||||||
| Selling, general and administrative expense | 3,618 | 3,394 | 6.6 | % | |||||||
| Interest expense | 189 | 164 | 15.2 | % | |||||||
| Amortization of other intangible assets | 94 | 44 | 113.6 | % | |||||||
| (Gain) loss on extinguishment of debt | (6 | ) | 282 | NM | |||||||
| Total expenses | 22,831 | 22,556 | 1.2 | % | |||||||
| Income before income tax expense | 542 | 126 | 330.2 | % | |||||||
| Income tax expense | 118 | (1,106 | ) | NM | |||||||
| Net income | $ | 424 | $ | 1,232 | (65.6 | )% | |||||
| Net income per diluted share | $ | 1.61 | $ | 4.67 | (65.5 | )% | |||||
| Diluted shares | 264.2 | 263.3 | 0.3 | % | |||||||
| Benefit expense as a percentage of premiums | 86.8 | % | 88.6 | % | (180 | )bp | |||||
| Selling, general and administrative expense as a percentage of total operating revenue | 15.5 | % | 15.1 | % | 40 | bp | |||||
| Income before income taxes as a percentage of total revenue | 2.3 | % | 0.6 | % | 170 | bp | |||||
(1) "NM" = calculation not meaningful
| Anthem, Inc. | |||||||||||
| Consolidated Statements of Income | |||||||||||
| (Unaudited) | |||||||||||
| Twelve Months Ended | |||||||||||
| (In millions, except per share data) | December 31 | ||||||||||
| 2018 | 2017 | Change | |||||||||
| Revenues | |||||||||||
| Premiums | $ | 85,421 | $ | 83,648 | 2.1 | % | |||||
| Administrative fees and other revenue | 5,920 | 5,413 | 9.4 | % | |||||||
| Total operating revenue | 91,341 | 89,061 | 2.6 | % | |||||||
| Net investment income | 970 | 867 | 11.9 | % | |||||||
| Net realized (losses)/gains on financial instruments | (180 | ) | 145 | (224.1 | )% | ||||||
| Other-than-temporary impairment losses on investments: | |||||||||||
| Total other-than-temporary impairment losses on investments | (29 | ) | (35 | ) | (17.1 | )% | |||||
| Portion of other-than-temporary impairment losses recognized in other comprehensive income | 3 | 2 | 50.0 | % | |||||||
| Other-than-temporary impairment losses recognized in income | (26 | ) | (33 | ) | (21.2 | )% | |||||
| Total revenues | 92,105 | 90,040 | 2.3 | % | |||||||
| Expenses | |||||||||||
| Benefit expense | 71,895 | 72,236 | (0.5 | )% | |||||||
| Selling, general and administrative expense | 14,020 | 12,650 | 10.8 | % | |||||||
| Interest expense | 753 | 739 | 1.9 | % | |||||||
| Amortization of other intangible assets | 358 | 169 | 111.8 | % | |||||||
| Loss on extinguishment of debt | 11 | 282 | (96.1 | )% | |||||||
| Total expenses | 87,037 | 86,076 | 1.1 | % | |||||||
| Income before income tax expense | 5,068 | 3,964 | 27.9 | % | |||||||
| Income tax expense | 1,318 | 121 | 989.3 | % | |||||||
| Net income | $ | 3,750 | $ | 3,843 | (2.4 | )% | |||||
| Net income per diluted share | $ | 14.19 | $ | 14.35 | (1.1 | )% | |||||
| Diluted shares | 264.2 | 267.8 | (1.3 | )% | |||||||
| Benefit expense as a percentage of premiums | 84.2 | % | 86.4 | % | (220 | )bp | |||||
| Selling, general and administrative expense as a percentage of total operating revenue | 15.3 | % | 14.2 | % | 110 | bp | |||||
| Income before income taxes as a percentage of total revenue | 5.5 | % | 4.4 | % | 110 | bp | |||||
(1) "NM" = calculation not meaningful
| Anthem, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| December 31, | December 31, | |||||||
| (In millions) | 2018 | 2017 | ||||||
| Assets | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,934 | $ | 3,609 | ||||
| Fixed maturity securities | 16,692 | 17,377 | ||||||
| Equity securities | 1,493 | 3,599 | ||||||
| Other invested assets, current | 21 | 17 | ||||||
| Accrued investment income | 162 | 163 | ||||||
| Premium receivables | 4,465 | 3,605 | ||||||
| Self-funded receivables | 2,278 | 2,580 | ||||||
| Other receivables | 2,558 | 2,267 | ||||||
| Income taxes receivable | 10 | 342 | ||||||
| Securities lending collateral | 604 | 455 | ||||||
| Other current assets | 2,104 | 2,249 | ||||||
| Total current assets | 34,321 | 36,263 | ||||||
| Long-term investments: | ||||||||
| Fixed maturity securities | 487 | 561 | ||||||
| Equity securities | 33 | 33 | ||||||
| Other invested assets | 3,726 | 3,344 | ||||||
| Property and equipment, net | 2,735 | 2,175 | ||||||
| Goodwill | 20,504 | 19,231 | ||||||
| Other intangible assets | 9,007 | 8,368 | ||||||
| Other noncurrent assets | 758 | 565 | ||||||
| Total assets | $ | 71,571 | $ | 70,540 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Policy liabilities: | ||||||||
| Medical claims payable | $ | 7,454 | $ | 7,992 | ||||
| Reserves for future policy benefits | 75 | 70 | ||||||
| Other policyholder liabilities | 2,590 | 2,950 | ||||||
| Total policy liabilities | 10,119 | 11,012 | ||||||
| Unearned income | 902 | 860 | ||||||
| Accounts payable and accrued expenses | 4,959 | 5,024 | ||||||
| Security trades pending payable | 197 | 113 | ||||||
| Securities lending payable | 604 | 454 | ||||||
| Short-term borrowings | 1,145 | 1,275 | ||||||
| Current portion of long-term debt | 849 | 1,275 | ||||||
| Other current liabilities | 3,190 | 3,343 | ||||||
| Total current liabilities | 21,965 | 23,356 | ||||||
| Long-term debt, less current portion | 17,217 | 17,382 | ||||||
| Reserves for future policy benefits, noncurrent | 706 | 647 | ||||||
| Deferred tax liabilities, net | 1,960 | 1,727 | ||||||
| Other noncurrent liabilities | 1,182 | 925 | ||||||
| Total liabilities | 43,030 | 44,037 | ||||||
| Shareholders’ equity | ||||||||
| Common stock | 3 | 3 | ||||||
| Additional paid-in capital | 9,536 | 8,547 | ||||||
| Retained earnings | 19,988 | 18,054 | ||||||
| Accumulated other comprehensive loss | (986 | ) | (101 | ) | ||||
| Total shareholders’ equity | 28,541 | 26,503 | ||||||
| Total liabilities and shareholders’ equity | $ | 71,571 | $ | 70,540 | ||||
| Anthem, Inc. | ||||||
| Consolidated Statements of Cash Flows | ||||||
| (Unaudited) | ||||||
| (In millions) | Twelve Months Ended December 31 | |||||
| 2018 | 2017 | |||||
| Operating activities | ||||||
| Net income | $3,750 | $3,843 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Net realized losses/(gains) on financial instruments | 180 | (145 | ) | |||
| Other-than-temporary impairment losses recognized in income | 26 | 33 | ||||
| Loss on extinguishment of debt | 11 | 282 | ||||
| Loss on disposal of assets | 13 | 13 | ||||
| Deferred income taxes | 91 | (1,272 | ) | |||
| Amortization, net of accretion | 1,008 | 780 | ||||
| Depreciation expense | 119 | 111 | ||||
| Impairment of property and equipment | 5 | 2 | ||||
| Share-based compensation | 226 | 170 | ||||
| Changes in operating assets and liabilities: | ||||||
| Receivables, net | (707 | ) | (22 | ) | ||
| Other invested assets | (1 | ) | (36 | ) | ||
| Other assets | (26 | ) | (629 | ) | ||
| Policy liabilities | (1,059 | ) | 732 | |||
| Unearned income | (36 | ) | (120 | ) | ||
| Accounts payable and accrued expenses | 134 | 922 | ||||
| Other liabilities | (25 | ) | (120 | ) | ||
| Income taxes | 323 | (194 | ) | |||
| Other, net | (205 | ) | (165 | ) | ||
| Net cash provided by operating activities | 3,827 | 4,185 | ||||
| Investing activities | ||||||
| Purchases of fixed maturity securities | (8,244 | ) | (9,795 | ) | ||
| Proceeds from sales and maturities of fixed maturity securities | 8,380 | 9,780 | ||||
| Purchases of equity securities | (896 | ) | (5,416 | ) | ||
| Proceeds from sales of equity securities | 2,809 | 3,463 | ||||
| Purchases of other invested assets | (531 | ) | (1,164 | ) | ||
| Proceeds from sales of other invested assets | 411 | 219 | ||||
| Change in collateral and settlements of non-hedging derivatives | — | 65 | ||||
| Changes in securities lending collateral | (150 | ) | 625 | |||
| Purchases of subsidiaries, net of cash acquired | (1,760 | ) | (2,080 | ) | ||
| Net purchases of property and equipment | (1,208 | ) | (791 | ) | ||
| Other, net | (70 | ) | 12 | |||
| Net cash used in investing activities | (1,259 | ) | (5,082 | ) | ||
| Financing activities | ||||||
| Net (repayments of)/proceeds from commercial paper borrowings | (106 | ) | 175 | |||
| Net (repayments of)/proceeds from short-term borrowings | (130 | ) | 835 | |||
| Net (repayments of)/proceeds from long-term borrowings | (849 | ) | 2,643 | |||
| Changes in securities lending payable | 150 | (625 | ) | |||
| Changes in bank overdrafts | (210 | ) | 71 | |||
| Proceeds from sale of put options | — | 1 | ||||
| Premiums paid on equity call options | (1 | ) | — | |||
| Proceeds from issuance of common stock under Equity Units stock purchase contracts | 1,250 | — | ||||
| Repurchase and retirement of common stock | (1,685 | ) | (1,998 | ) | ||
| Change in collateral and settlements of debt-related derivatives | 24 | (149 | ) | |||
| Cash dividends | (776 | ) | (705 | ) | ||
| Proceeds from issuance of common stock under employee stock plans | 173 | 225 | ||||
| Taxes paid through withholding of common stock under employee stock plans | (81 | ) | (46 | ) | ||
| Net cash (used in)/provided by financing activities | (2,241 | ) | 427 | |||
| Effect of foreign exchange rates on cash and cash equivalents | (2 | ) | 4 | |||
| Change in cash and cash equivalents | 325 | (466 | ) | |||
| Cash and cash equivalents at beginning of year | 3,609 | 4,075 | ||||
| Cash and cash equivalents at end of period | $3,934 | $3,609 | ||||
| Anthem, Inc. | ||||||||||||
| Reconciliation of Medical Claims Payable | ||||||||||||
| Years Ended December 31 | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| (In millions) | (Unaudited) | |||||||||||
| Gross medical claims payable, beginning of year | $ | 7,814 | $ | 7,656 | $ | 7,360 | ||||||
| Ceded medical claims payable, beginning of year | (105 | ) | (539 | ) | (646 | ) | ||||||
| Net medical claims payable, beginning of year | 7,709 | 7,117 | 6,714 | |||||||||
| Business combinations and purchase adjustments | 199 | 76 | — | |||||||||
| Net incurred medical claims: | ||||||||||||
| Current year | 69,581 | 70,377 | 64,868 | |||||||||
| Prior years redundancies(1) | (930 | ) | (1,133 | ) | (835 | ) | ||||||
| Total net incurred medical claims | 68,651 | 69,244 | 64,033 | |||||||||
| Net payments attributable to: | ||||||||||||
| Current year medical claims | 62,748 | 62,923 | 57,879 | |||||||||
| Prior years medical claims | 6,579 | 5,805 | 5,751 | |||||||||
| Total net payments | 69,327 | 68,728 | 63,630 | |||||||||
| Net medical claims payable, end of year | 7,232 | 7,709 | 7,117 | |||||||||
| Ceded medical claims payable, end of year | 34 | 105 | 539 | |||||||||
| Gross medical claims payable, end of year* | $ | 7,266 | $ | 7,814 | $ | 7,656 | ||||||
| Current year medical claims paid as a percentage of current year net incurred medical claims | 90.2 | % | 89.4 | % | 89.2 | % | ||||||
| Prior year redundancies in the current year as a percentage of prior year net medical claims payable less prior year redundancies in the current year | 13.7 | % | 18.9 | % | 14.2 | % | ||||||
| Prior year redundancies in the current year as a percentage of prior year net incurred medical claims | 1.3 | % | 1.8 | % | 1.4 | % | ||||||
|
(1) Negative amounts reported for net incurred medical
claims related to prior years result from claims being settled for amounts less than originally estimated. |
||||||||||||
| * Excludes insurance lines other than short duration. | ||||||||||||
| Anthem, Inc. | |||||||||||||||||||||||
|
GAAP Reconciliation |
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|
(Unaudited) |
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|
Anthem, Inc. has referenced “Adjusted Net Income” and “Adjusted Net Income Per Share,” which are non-GAAP measures, in this document. These non-GAAP measures are not intended to be alternatives to any measure calculated in accordance with GAAP. In addition to these non-GAAP measures, references are made to the measures “Operating Revenue” and “Operating Gain.” Each of these measures is provided to further aid investors in understanding and analyzing the company’s core operating results and comparing Anthem, Inc.’s financial results. A reconciliation of Operating Revenue to Total Revenue is set forth in the Consolidated Statements of Income herein. A reconciliation of the non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP, together with a reconciliation of reportable segments operating gain to income before income tax expense, is reported below. Prior amounts may be rounded differently to conform to current presentation. |
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| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| December 31 | December 31 | ||||||||||||||||||||||
| (In millions, except per share data) | 2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||
| Net income | $ | 424 | $ | 1,232 | (65.6 | )% | $ | 3,750 | $ | 3,843 | (2.4 | )% | |||||||||||
| Add / (Subtract): | |||||||||||||||||||||||
| Net realized losses/(gains) on financial instruments | 185 | (7 | ) | 180 | (145 | ) | |||||||||||||||||
| Amortization of other intangible assets | 94 | 44 | 358 | 169 | |||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 8 | 12 | 26 | 33 | |||||||||||||||||||
| (Gain)/Loss on extinguishment of debt | (6 | ) | 282 | 11 | 282 | ||||||||||||||||||
| Transaction related costs | — | 9 | 9 | 166 | |||||||||||||||||||
| 2015 cyber attack litigation | — | — | — | 115 | |||||||||||||||||||
| Penn Treaty assessment costs | — | — | — | — | 254 | ||||||||||||||||||
| Income tax true-up of prior transaction costs | — | — | — | (69 | ) | ||||||||||||||||||
| Deferred tax benefit from corporate tax reform | — | (1,108 | ) | — | (1,108 | ) | |||||||||||||||||
| Tax impact of non-GAAP adjustments | (61 | ) | (125 | ) | (135 | ) | (316 | ) | |||||||||||||||
| Net adjustment items | 220 | (893 | ) | 449 | (619 | ) | |||||||||||||||||
| Adjusted net income | $ | 644 | $ | 339 | 90.0 | % | $ | 4,199 | $ | 3,224 | 30.2 | % | |||||||||||
| Net income per diluted share | $ | 1.61 | $ | 4.67 | (65.5 | )% | $ | 14.19 | $ | 14.35 | (1.1 | )% | |||||||||||
| Add / (Subtract): | |||||||||||||||||||||||
| Net realized losses/(gains) on financial instruments | 0.70 | (0.03 | ) | 0.68 | (0.54 | ) | |||||||||||||||||
| Amortization of other intangible assets | 0.36 | 0.17 | 1.36 | 0.63 | |||||||||||||||||||
| Other-than-temporary impairment losses recognized in income | 0.03 | 0.05 | 0.10 | 0.12 | |||||||||||||||||||
| (Gain)/Loss on extinguishment of debt | (0.02 | ) | 1.07 | 0.04 | 1.05 | ||||||||||||||||||
| Transaction related costs | — | 0.03 | 0.03 | 0.62 | |||||||||||||||||||
| 2015 cyber attack litigation | — | — | — | 0.43 | |||||||||||||||||||
| Penn Treaty assessment costs | — | — | — | 0.95 | |||||||||||||||||||
| Income tax true-up of prior transaction costs | — | — | — | (0.26 | ) | ||||||||||||||||||
| Deferred tax benefit from corporate tax reform | — | (4.21 | ) | — | (4.14 | ) | |||||||||||||||||
| Tax impact of non-GAAP adjustments | (0.23 | ) | (0.47 | ) | (0.51 | ) | (1.18 | ) | |||||||||||||||
| Rounding Impact | (0.01 | ) | 0.01 | — | 0.01 | ||||||||||||||||||
| Net adjustment items | 0.83 | (3.38 | ) | 1.70 | (2.31 | ) | |||||||||||||||||
| Adjusted net income per diluted share | $ | 2.44 | $ | 1.29 | 89.1 | % | $ | 15.89 | $ | 12.04 | 32.0 | % | |||||||||||
| Full Year 2019 Outlook | |||||||||||||||||||||||
| Net income per diluted share | Greater than $18.00 | ||||||||||||||||||||||
| Add / (Subtract): | |||||||||||||||||||||||
| Amortization of other intangible assets | Approximately $1.30 | ||||||||||||||||||||||
| Tax impact of non-GAAP adjustments | Approximately ($0.30) | ||||||||||||||||||||||
| Net adjustment items | Approximately $1.00 | ||||||||||||||||||||||
| Adjusted net income per diluted share | Greater than $19.00 | ||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||
| December 31 | December 31 | ||||||||||||||||||||||
| (In millions) | 2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||
| Reportable segments operating gain | $ | 750 | $ | 381 | 96.9 | % | $ | 5,426 | $ | 4,175 | 30.0 | % | |||||||||||
| Net investment income | 262 | 240 | 970 | 867 | |||||||||||||||||||
| Net realized gains/(losses) on financial instruments | (185 | ) | 7 | (180 | ) | 145 | |||||||||||||||||
| Other-than-temporary impairment losses recognized in income | (8 | ) | (12 | ) | (26 | ) | (33 | ) | |||||||||||||||
| Interest expense | (189 | ) | (164 | ) | (753 | ) | (739 | ) | |||||||||||||||
| Amortization of other intangible assets | (94 | ) | (44 | ) | (358 | ) | (169 | ) | |||||||||||||||
| (Gain)/Loss on extinguishment of debt | 6 | (282 | ) | (11 | ) | (282 | ) | ||||||||||||||||
| Income before income tax expense | $ | 542 | $ | 126 | 330.2 | % | $ | 5,068 | $ | 3,964 | 27.9 | % | |||||||||||
| Anthem, Inc. | |||||||||||||
| Reclassified Membership Summary | |||||||||||||
| (Unaudited and in Thousands) | |||||||||||||
| Three Months Ended | |||||||||||||
|
Medical Membership |
March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 | |||||||||
| Customer Type | |||||||||||||
| Local Group | 15,714 | 15,720 | 15,875 | 15,888 | |||||||||
| Individual | 1,886 | 1,779 | 1,696 | 1,588 | |||||||||
| National: | |||||||||||||
| National Accounts | 7,570 | 7,538 | 7,497 | 7,463 | |||||||||
| BlueCard® | 5,868 | 5,775 | 5,704 | 5,733 | |||||||||
| Total National | 13,438 | 13,313 | 13,201 | 13,196 |
|
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| Medicare: |
|
||||||||||||
| Medicare Advantage | 672 | 683 | 697 | 746 | |||||||||
| Medicare Supplement | 826 | 824 | 825 | 823 | |||||||||
| Total Medicare | 1,498 | 1,507 | 1,522 | 1,569 | |||||||||
| Medicaid | 6,577 | 6,550 | 6,454 | 6,496 |
|
||||||||
| FEP® | 1,573 | 1,569 | 1,564 | 1,562 |
|
||||||||
| Total Medical Membership | 40,686 | 40,438 | 40,312 | 40,299 |
|
||||||||
| Funding Arrangement | |||||||||||||
| Self-Funded | 25,068 | 24,833 | 24,844 | 24,862 |
|
||||||||
| Fully-Insured | 15,618 | 15,605 | 15,468 | 15,437 |
|
||||||||
| Total Medical Membership | 40,686 | 40,438 | 40,312 | 40,299 |
|
||||||||
| Reportable Segment | |||||||||||||
| Commercial & Specialty Business | 31,038 | 30,812 | 30,772 | 30,672 |
|
||||||||
| Government Business | 9,648 | 9,626 | 9,540 | 9,627 |
|
||||||||
| Total Medical Membership | 40,686 | 40,438 | 40,312 | 40,299 |
|
||||||||
|
Other Membership |
|||||||||||||
| Life and Disability Members | 4,715 | 4,705 | 4,717 | 4,700 |
|
||||||||
| Dental Members | 5,859 | 5,818 | 5,803 | 5,864 |
|
||||||||
| Dental Administration Members | 5,395 | 5,335 | 5,351 | 5,342 |
|
||||||||
| Vision Members | 6,793 | 6,791 | 6,905 | 6,867 |
|
||||||||
| Medicare Part D Standalone Members | 324 | 322 | 320 | 318 | |||||||||
| Anthem, Inc. | |||||||||||||
| Reclassified Membership Summary | |||||||||||||
| (Unaudited and in Thousands) | |||||||||||||
| Three Months Ended | |||||||||||||
|
Medical Membership |
March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | |||||||||
| Customer Type | |||||||||||||
| Local Group | 15,670 | 15,634 | 15,688 | 15,733 | |||||||||
| Individual | 755 | 712 | 692 | 655 | |||||||||
| National: | |||||||||||||
| National Accounts | 7,684 | 7,658 | 7,610 | 7,588 | |||||||||
| BlueCard® | 5,820 | 5,819 | 5,794 | 5,838 | |||||||||
| Total National | 13,504 | 13,477 | 13,404 | 13,426 | |||||||||
| Medicare: |
|
||||||||||||
| Medicare Advantage | 916 | 937 | 992 | 1,006 | |||||||||
| Medicare Supplement | 823 | 827 | 837 | 846 | |||||||||
| Total Medicare | 1,739 | 1,764 | 1,829 | 1,852 | |||||||||
| Medicaid | 6,457 | 6,414 | 6,731 | 6,716 |
|
||||||||
| FEP® | 1,562 | 1,560 | 1,557 | 1,556 |
|
||||||||
| Total Medical Membership | 39,687 | 39,561 | 39,901 | 39,938 | |||||||||
| Funding Arrangement | |||||||||||||
| Self-Funded | 25,282 | 25,245 | 25,253 | 25,287 |
|
||||||||
| Fully-Insured | 14,405 | 14,316 | 14,648 | 14,651 |
|
||||||||
| Total Medical Membership | 39,687 | 39,561 | 39,901 | 39,938 | |||||||||
| Reportable Segment | |||||||||||||
| Commercial & Specialty Business | 29,929 | 29,823 | 29,784 | 29,814 |
|
||||||||
| Government Business | 9,758 | 9,738 | 10,117 | 10,124 |
|
||||||||
| Total Medical Membership | 39,687 | 39,561 | 39,901 | 39,938 | |||||||||
|
Other Membership |
|||||||||||||
| Life and Disability Members | 4,641 | 4,673 | 4,701 | 4,795 |
|
||||||||
| Dental Members | 5,786 | 5,788 | 5,804 | 5,807 |
|
||||||||
| Dental Administration Members | 5,357 | 5,384 | 5,367 | 5,327 |
|
||||||||
| Vision Members | 6,781 | 6,760 | 6,906 | 6,946 |
|
||||||||
| Medicare Part D Standalone Members | 316 | 312 | 312 | 309 | |||||||||
| Anthem, Inc. | ||||||||||||
| Reclassified Reportable Segment Highlights | ||||||||||||
| (unaudited) | ||||||||||||
| (In millions) | Three Months Ended | |||||||||||
| March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 | |||||||||
| Operating Revenue | ||||||||||||
| Commercial & Specialty Business | $10,192 | $10,211 | $9,954 | $10,006 | ||||||||
| Government Business | 12,128 | 11,987 | 12,143 | 12,444 | ||||||||
| Other | (1 | ) | — | — | (3 | ) | ||||||
| Total Operating Revenue1 | $22,319 | $22,198 | $22,097 | $22,447 | ||||||||
| Operating Gain / (Loss) | ||||||||||||
| Commercial & Specialty Business | $1,294 | $963 | $523 | $67 | ||||||||
| Government Business | 324 | 296 | 465 | 360 | ||||||||
| Other | (33 | ) | (32 | ) | (6 | ) | (46 | ) | ||||
| Total Operating Gain1 | $1,585 | $1,227 | $982 | $381 | ||||||||
| (In millions) | Three Months Ended | |||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | |||||||||
| Operating Revenue | ||||||||||||
| Commercial & Specialty Business | $8,951 | $9,055 | $8,933 | $8,843 | ||||||||
| Government Business | 13,390 | 13,665 | 14,050 | 14,462 | ||||||||
| Other | 1 | (5 | ) | (3 | ) | (1 | ) | |||||
| Total Operating Revenue1 | $22,342 | $22,715 | $22,980 | $23,304 | ||||||||
| Operating Gain / (Loss) | ||||||||||||
| Commercial & Specialty Business | $1,409 | $1,056 | $842 | $322 | ||||||||
| Government Business | 481 | 524 | 446 | 444 | ||||||||
| Other | (22 | ) | (21 | ) | (39 | ) | (16 | ) | ||||
| Total Operating Gain1 | $1,868 | $1,559 | $1,249 | $750 | ||||||||
(1) See “Basis of Presentation.
| Anthem, Inc. | ||||||
| Financial Guidance Summary | ||||||
| (Unaudited) | ||||||
| Full Year 2018 Actual | Full Year 2019 Outlook | Approximate Change | ||||
| Year-End Medical Enrollment | ||||||
| Self-funded | 25,287 | 25,400 - 25,600 | 113k - 313k | |||
| Fully-Insured | 14,651 | 15,500 - 15,700 | 849k - 1,049k | |||
| Total | 39,938 | 40,900 - 41,300 | 962k - 1,362k | |||
| Operating Revenue | $91.3 billion | Approximately $100.0 billion |
Approximately $8.7 billion
or 9.5% |
|||
| Premium Revenue | $85.4 billion | $90.5 billion - $92.5 billion | $5.1 billion - $7.1 billion or 6.0% - 8.3% | |||
| Benefit Expense Ratio | 84.2% | 86.2% +/- 30 basis points | (200 bps) +/- 30 bps | |||
| Cost of Products Sold | $— | $1.6 billion - $1.8 billion | $1.6 billion - $1.8 billion | |||
| SG&A Expense Ratio | 15.3% | 13.5% +/- 30 basis points | 180 bps +/- 30 bps | |||
| Operating Gain | $5.4 billion | Greater than $6.0 billion | Greater than $600 million or 11.1% | |||
| Other Pre-Tax Items: | ||||||
| Net Investment income | $970 million | $1.0 billion | $30 million | |||
| Interest Expense | ($753) million | ($800) million | ($47) million | |||
| Amortization of Intangible Assets | ($358) million | ($340 million) | $18 million | |||
| Net Pre-Tax Expense | ($141) million | ($140) million | $1 million | |||
| Effective Tax Rate | 26.0% | 19.5% - 21.5% | 4.5% - 6.5% | |||
|
GAAP EPS |
$14.19 | Greater than $18.00 | 26.8% or better | |||
|
Adjusted EPS |
$15.89 | Greater than $19.00 | 19.6% or better | |||
| Diluted Shares | 264.2 million | 261 - 263 million | 0.5% - 1.2% | |||
| Operating Cash Flow | $3.8 billion | Greater than $5.2 billion | Greater than $1.4 billion | |||
Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include, but are not limited to: the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA and the ultimate outcome of legal challenges to the ACA; trends in healthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquires, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon, our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our health care product mix; costs and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, or Cigna, and us related to the merger agreement between the parties, including our claim for damages against Cigna, Cigna’s claim for payment of a termination fee and other damages against us, and the potential for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and financial condition; non-compliance by any party with the pharmacy benefit management services agreement between Express Scripts, Inc., or Express Scripts and us, as well as any agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CaremarkPCS Health, L.L.C., a subsidiary of CVS Health Corporation, which could result in financial penalties, our inability to meet customer demands, and sanctions imposed by governmental entities, including CMS; medical malpractice or professional liability claims or other risks related to health care services and pharmacy benefit management services provided by our subsidiaries; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; large scale medical emergencies, such as future public health epidemics and catastrophes; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; changes in U.S. tax laws; intense competition to attract and retain employees; and, various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.