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Anthem profit falls well short of analysts' expectations

January 27, 2016

Health insurer Anthem Inc. saw medical enrollment slip and overhead rise in the fourth quarter, pushing down profit by 64 percent.

The Indianapolis-based company on Wednesday reported profit of $180.9 million for the quarter, compared with $506.7 million in the same quarter a year ago.

Anthem shares fell more than 3 percent shortly after the announcement, to $133.41 each.

Earnings were 68 cents a share. On an adjusted basis, profit was $1.14 a share, below the average analyst estimate of $1.20 a share.

Medical enrollment in the quarter fell by 102,000 members, or 0.3 percent, although it grew by nearly 3 percent for the full year, or by about 1.1 million members.

Operating revenue grew 6.6 percent, to $20.02 billion for the quarter. That exceeded Wall Street expectations of $19.9 billion, according to Thomson Reuters.

Anthem booked $51.5 million in costs tied to its pending acquisition of rival insurer Cigna Corp. and another $42.3 million charge related to changes in tax calculations for California.

Anthem said it continued to expect its $54 billion acquisition of Cigna to close in the second half of this year.

In a conference call, Anthem CEO Joseph Swedish said he remained "unwavering" in his commitment to the deal, even as questions swirl over Cigna's future. Last week, the federal government suspended Cigna from marketing Medicare products to new customers, citing widespread failures  in how the company ran its plans. The Centers for Medicare and Medicaid Services said Cigna had a "longstanding history of non-compliance" with government requirement, threatening patient health.

"We do not have a clear line of sight" into Cigna's problems, Swedish said. "As time marches on, we will learn more."

Overhead expenses, as measured by the selling, general and administration expense ratio, edged up to 16.3 percent, from 16.2 percent a year ago. The company said the increase was driven primarily by higher costs “to support strong membership growth in 2015,” partially offset by the impact of higher enrollment in the Medicaid business, which carries a lower average expense ratio.

Anthem said it expects net income for 2016 to be greater than $10.35 a share, and medical membership to be in the range of 38.8 million to 39.0 million. It forecasted operating revenue of $80 billion to $81 billion for the year.

The company said it spent 87 cents of every premium dollar it took in on medical claims in the fourth quarter, up from 84.5 percent a year earlier. Medical costs were higher than expected in Anthem’s individual and local group business, which includes ACA plans, the insurer said.

Anthem said that underlying medical costs will probably increase by about 7 percent to 7.5 percent in the company’s local group business in 2016. The increase was more gradual in 2015, at about 6.5 percent.

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