As Anthem Inc. has been jockeying for supremacy in the health insurance industry nationwide, its health plan in Indiana has been churning out profits for its corporate parent.
And the arrival of Obamacare, far from being the hit to Anthem’s business that investors feared, helped Anthem’s Indiana plan produce one of its best years ever.
Anthem Blue Cross and Blue Shield of Indiana, which is headquartered on Virginia Avenue immediately south of the Bankers Life Fieldhouse parking garage, generated an underwriting gain of $563.8 million last year, according to Anthem’s financial filings at the Indiana Department of Insurance.
That’s a 20 percent gap between premiums and medical expenses—bigger than any I’ve seen Anthem record since 2006, when I first started watching Anthem’s Indiana-specific financial results. It's also about as good as it gets nationally, according to this analysis by Citi Research.
After modest investment gains, taxes and some other minor items, Anthem enjoyed net income last year of $389.1 million. That means Anthem’s profit margin in Indiana was 8 percent.
Anthem Inc., which is headquartered on Monument Circle, enjoyed some of the spoils of the Hoosier market, pulling in a $570 million dividend payment from its Indiana plan. That helped its parent company boost its earnings before interest and taxes to nearly $5 billion last year.
Anthem’s revenue has actually been declining in Indiana recently, from a peak of $5.9 billion in 2011 to just $4.9 billion last year.
What has fattened Anthem’s profits is that consumers are spending a lot less on health care services. Whereas in 2011, Anthem’s customers racked up nearly $5.1 billion in medical bills, last year it was $3.9 billion.
That’s a 24 percent decrease over four years—even though the number of people in Anthem’s health plans has remained relatively steady.
A chunk of that—maybe $100 million—decrease came from recategorizing some medical expenses as administrative expenses, to conform with Obamacare's new rules. But the rest seems to be from consumers themselves using less care.
I suspect three factors are behind this dramatic swing.
First, since about 89 percent of Hoosiers insured by their employers now have health plans with deductibles of at least $1,500, according to a 2014 survey by United Benefit Advisors, they’ve gotten parsimonious with their health care spending.
Second, hospital systems—put under pressure by Obamacare and Congressional budget cuts and employer pushback—really started to cut out expenses, starting in about 2012.
Third, some of Anthem’s employer customers have switched to self-funding their health benefits. It’s more likely that the employers that did that had higher claims expenses anyway. Anthem gets less revenue from self-funded customers, but it doesn’t have to bear any of the medical bills. The employees pay those themselves.
Whatever the explanation, the clear conclusion is that Anthem has benefited handsomely from Obamacare.
Even though Anthem had to pay more than $22 million in taxes last year because of Obamacare, the law helped grow the company’s individual business by more than $180 million. Its business insuring small employers and handling government business shrank, but its revenue from large employers held steady.
Anthem’s success stems partly from the fact that Obamacare’s myriad new regulations chased a lot of competitors out of Indiana. According to the Indiana Department of Insurance, 17 insurers with small bits of business exited the Indiana market between 2010 and 2013.
And only three other insurers competed with Anthem in 2014 on the Obamacare exchanges. That allowed Anthem to scoop up a more than two-thirds of that market the first year.
But Anthem’s fat profits in 2014 have already attracted the attention of other companies. Anthem claimed less than half the share of the Obamacare exchange in 2015, according to data filed by the insurers with the Indiana Department of Insurance.
Ohio-based CareSource was aggressive with its marketing. And industry behemoth UnitedHealthcare also joined the fray.
Heading into 2016, at least one company is requesting rates that would be, on average, 19 percent below Anthem’s rates. In fact, if all the requested rates are approved (an big if), Anthem’s plans would be, on average, the sixth cheapest.
That’s an unusual place for Anthem to be, since the company has used its substantial negotiating leverage to squeeze the lowest prices from doctors and hospitals. And it could mean that Anthem’s golden year of 2014 doesn’t last long.
But for the moment, Obamacare looks like it’s made Anthem more profitable than ever in the Hoosier state.