(This article was updated at 2:55 p.m. ET.)
Less than a week after finding out the U.S. Justice Department would seek to block its acquisition of Cigna Corp., Anthem said Wednesday its second-quarter profit fell more than 9% and it lowered its earnings projections for the rest of the year.
Justice Department officials said last week the Anthem-Cigna tie-up, as well as the merger between Aetna and Humana, would restrict competition and harm consumers through higher premiums. The rejection came after more than a year of intense scrutiny at the state and federal level.
Anthem reiterated its vow Wednesday to fight the government in court, although Cigna has been hardly enthusiastic about the chances of success, leading many to believe the transaction is close to being scrapped. Anthem, based in Indianapolis, incurred $79.2 million of costs tied to its Cigna transaction in the second quarter and $174.7 million in the first six months of this year, according to second-quarter results published Wednesday.
Anthem CEO Joseph Swedish said Wednesday the trial over the merger is expected to start in October and last four months, delaying a decision potentially past the presidential election. The insurer expects to push the case until the end and emphasize how the merger could benefit the Affordable Care Act's marketplaces, although the federal government has been skeptical of Anthem's arguments thus far.
“Our acquisition of Cigna will help stabilize pricing in this volatile market, enabling Anthem to continue its commitment to the public exchanges,” Swedish said on an earnings call. Anthem had 923,000 ACA exchange members in 14 states as of June 30.
The Cigna transaction costs negatively impacted Anthem's earnings, which fell from $859 million in the second quarter of 2015 to $781 million in the same three-month period this year. But higher medical expenses hit much harder, forcing Anthem to lower earnings per share to "at least" $9.34 this year. Last quarter, Anthem reduced that 2016 figure to $9.65 after initially projecting at least $10.35. Anthem maintained its adjusted earnings per share figure of "at least" $10.80, which leaves out one-time costs.
Anthem's medical-loss ratio, which indicates how much of the collected health insurance premiums are spent on medical expenses and other items that improve quality of care, was 84.2% in the second quarter compared with 82.1% in the same quarter a year ago. That was much higher than many financial analysts predicted.
Anthem attributed the higher second-quarter MLR to its individual-market and Medicaid members using more care than expected. Anthem has enrolled large numbers of people in the Affordable Care Act's individual marketplaces, where medical costs have run high. The company also started a new Medicaid contract in Iowa.
John Gallina, Anthem's new chief financial officer, said on the call that much of the increased medical costs stemmed from chronically ill ACA exchange members. Renal disease, chronic obstructive pulmonary disease, heart conditions and diabetes were the main drivers of those medical claims, he said.
Revenue in the quarter increased 7% to $21.5 billion. Anthem, a Blue Cross and Blue Shield affiliate, ended the quarter with 39.75 million covered lives, an increase of 3% from this year's first quarter. Nearly all of its membership gains came in Medicaid and national employer accounts.