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Anthem threatens Obamacare retreat if results don’t improve

November 2, 2016
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Anthem Inc. said it may join other major U.S. health insurers in largely pulling out of Obamacare’s markets in 2018 if its financial results under the program don’t improve next year.

If Indianapolis-based Anthem retreats from the Affordable Care Act, it  would mean that almost all of the major American for-profit health insurers have substantially pulled back from the law. The other big insurersUnitedHealth Group Inc., Aetna Inc. and Humana Inc.have already scaled back, after posting massive losses. The retreats threaten to further destabilize coverage in the markets for individual coverage, known as exchanges, that provide insurance to millions of Americans.

“If we do not see clear evidence of an improving environment and a path towards sustainability in the marketplace, we will likely modify our strategy in 2018,” Anthem CEO Joseph Swedish said on a call Wednesday discussing third-quarter results. “Clearly, 2017 is a critical year as we continue to assess the long-term viability of our exchange footprint.”

Anthem sells health coverage under the Blue Cross Blue Shield brand in 14 states. The company will continue offering plans for next year in the new markets created by the Affordable Care Act. If it pulls back in 2018, it will leave mostly regional and not-for-profit firms on the markets.

Swedish said that the U.S. needed to help insurers get better prices under the law, as well as improve the regulations that govern the sale and administration of plans. He also said that too few people were signing up. The company said Wednesday that it had 889,000 people signed up under individual Obamacare plans at the end of the third quarter.

“The financial performance in individual ACA compliant products has been disappointing as membership has been short of our original expectations,” Swedish said. The company could also pull back from some states and not others, executives said on the call.

Third-quarter results

Earlier Wednesday, Anthem reported third-quarter earnings that fell short of estimates as medical spending increased, driven in part by costs in the company’s business serving poor people through Medicaid.

Profit excluding some items was $2.45 a share, Anthem said Wednesday in a statement, compared with the $2.47 average of analysts’ estimates compiled by Bloomberg. Full-year adjusted profit will be about $10.80 a share, Anthem said, compared with the company’s forecast earlier this year that it would report more than $10.80.

Anthem, which agreed more than a year ago to buy Cigna Corp. for about $48 billion, is now facing a court battle to win U.S. approval of the deal. The Justice Department sued to block the takeover on antitrust grounds in July, saying the combined firm would control too much of the market for health insurance sold to big employers.

While the company added more customers in its Medicaid business, costs there rose as well, which hurt profitability in the quarter. Anthem said expenses also rose in its individual business, which includes plans sold under Obamacare.

Anthem’s stock has declined 16 percent this year, the second-worst performance among the six biggest U.S. health insurers.

Other details from third-quarter earnings:

— Profit fell to $617.8 million, or $2.30 a share, from $654.8 million, or $2.43, a year earlier.

— Revenue increased 7.5 percent, to $21.4 billion.

— Anthem spent 85.5 cents of every premium dollar on medical costs, compared with a medical loss ratio of 83.6 cents per dollar a year earlier.

— Medical membership rose to 39.9 million people as of Sept. 30 from 39.8 million three months earlier.

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