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Anthem shares fall as Obamacare slump weighs on outlook

October 28, 2015

Shares in Anthem Inc., the nation's third-largest health insurer by market value, dropped Wednesday after the company’s 2015 profit outlook fell short of estimates.

Anthem stock slid 4.7 percent, to $137.95 per share, in late-morning trading. The company said 2015 adjusted earnings will probably be in the range of $10.10 to $10.20 a share, short of the average analyst estimate of $10.22.

Indianapolis-based Anthem said that while most of it units are performing well, its business selling coverage to people through Obamacare’s new markets will continue to face challenges. Anthem said some of its rivals in the individual market are setting premiums below levels it considers sustainable.

During a conference call with investors Wednesday, “the commentary and Q&A seemed to focus primarily on headwinds, particularly related to membership growth in individual,” Frank Morgan, an analyst at RBC Capital Markets, said in a research note. The remarks are “likely to cause some volatility” in the stock, he said.

Individual membership fell to 1.7 million people from 1.9 million a year earlier. That figure includes Affordable Care Act policies and some other coverage purchased directly by consumers.

Quarterly results

Third-quarter profit, totaled $654.8 million, or $2.43 a share, up from $630.9 million, or $2.22, a year earlier, Anthem said Wednesday morning in a report. Profit excluding one-time costs, was $2.73 a share, beating the $2.33 average estimate of analysts surveyed by Bloomberg.

Anthem said it had 38.7 million members as of Sept. 30, up from about 37.5 million a year earlier. Third-quarter operating revenue rose 7.6 percent, to $19.8 billion.

Medical costs rose: the insurer spent 83.6 cents of every premium dollar on care, compared with 82.5 cents of every dollar a year ago.

Insurer consolidation

Anthem agreed in July to buy Cigna Corp. for $48 billion, one of two pending deals that would reshape the U.S. health- insurance industry. Anthem’s offer, along with Aetna Inc.’s proposed acquisition of Humana Inc., was fueled in part by the 2010 Patient Protection and Affordable Care Act.

UnitedHealth Group Inc., the biggest U.S. health insurer, on Oct. 15 reported a decline in third-quarter profit amid climbing medical-care costs. The company also had reported higher-than-expected medical spending in the second quarter. Insurers often see similar trends from quarter-to-quarter.

Aetna shares fell 2.8 percent, to $107.59. UnitedHealth shares fell 1.3 percent, to $117.84.

The Affordable Care Act, also known as Obamacare, has helped about 17.6 million people gain insurance coverage, mainly through health-insurance marketplaces and an expansion of Medicaid, the U.S.’s program with states to cover low-income people. The law also imposed new costs and regulations on the industry.

Anthem runs Blue Cross and Blue Shield plans in states including New York, Colorado, Georgia and Wisconsin. The company, formerly known as Wellpoint, also sells plans under brands like Amerigroup.

In February, Anthem said it was the target of a cyberattack that exposed the personal information of about 80 million people. The insurer hasn’t disclosed how much it’s spending to shore up its system or respond to the breach.

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