(This article was updated at 1:20 p.m. ET.)
Health insurer Anthem reported much lower profit in the final quarter of 2015 mostly because it had to pay out a lot more in claims for its individual market members.
Anthem, like other insurers, grappled with a tougher-than-expected second year in the Affordable Care Act's exchanges. People who signed up for coverage turned out to be sicker than originally thought. But the Indianapolis-based giant still posted hefty earnings on the year, indicating that government-sponsored business continues to buoy insurer profits.
Fourth-quarter earnings dropped 64% to $180.9 million, Anthem said Wednesday. Total revenue in the three-month period rose 6.3% to almost $20.2 billion, giving Anthem a slim fourth-quarter margin of 0.9%. The boost to revenue stemmed mostly from Anthem's growing Medicaid business and self-insured employers.
Anthem's net profit for all of 2015 stayed nearly flat at $2.56 billion, and revenue increased 7.4% to $78.4 billion. The insurer expects revenue this year to come in at $81 billion at the high end, while adjusted earnings per share will be $10.80. Those projections do not include Anthem's pending $54.2 billion acquisition of Cigna Corp., which the company expects will close in the latter half of this year.
The company lost 118,000 individual members in the fourth quarter, but the figure was not broken down between on- and off-exchange members. Anthem lost thousands of exchange members in the third quarter as well. CEO Joseph Swedish said at the time many consumers were moving to competitors' plans because of "unsustainable pricing."
Executives said low-ball premium pricing remains a problem and helped to keep Anthem's exchange enrollment 30% lower than expectations. Anthem closed the year with 791,000 individual ACA plan members, still making it one of the main for-profit players in the ACA exchanges.
“We aren't experiencing the overall growth on the public exchange side that we had expected,” Swedish said during an investor call Wednesday. The company called the ACA's third open enrollment, which ends Sunday, “encouraging” thus far, and it will have a better idea of where the market stands early next month after people start paying their first month's premiums.
Despite the lagging membership growth, Anthem is still turning a profit on the exchange plans, Chief financial officer Wayne DeVeydt said on the call. However, the exchange margins are running below Anthem's 3% to 5% goal.
Anthem and other insurers have called on the CMS to make changes to the marketplaces to make them more financially appealing. The agency made its first move to appease the industry last week when it whittled down the number of special enrollment-period categories.
Swedish called that change, as well as the one-year moratorium of the ACA's health insurance industry tax included in the budget deal, “important first steps toward improving affordability for our customers.” Anthem and other insurers are likely to keep the heat on the CMS.
“You can be sure we are contributing toward the dialogue,” Swedish said.
Anthem finished the year with 38.6 million members, and all of the net gains came from its Medicaid segment. Anthem is one of three private insurers that won Iowa's Medicaid managed-care bid, although the process has been mired in some political turmoil. The Blue Cross and Blue Shield insurer predicts up to 39 million people will be Anthem members by the end of this year.
Anthem did not immediately provide any update regarding its large data breach from last year, when nearly 80 million former and current members had their medical data hacked.