Anthem profit soars on higher membership growth and premiums

(Updated at 11:20 a.m. ET)

National insurer Anthem's profit soared in the first quarter of 2017, thanks to membership growth and higher premiums.

The Indianapolis-based insurer, which is locked in a battle to acquire rival Cigna Corp., on Wednesday reported net income of $1 billion in the first quarter, an increase of 43.7% over the same time last year.

Anthem CEO Joseph Swedish told investors on a conference call Wednesday that the insurer remains committed to closing its $54 billion deal with Cigna. A federal court judge blocked the merger earlier this year for harming competition in the national employer market.

But Anthem appealed the decision and secured a temporary restraining order barring Cigna from terminating the agreement. Swedish said he expects to hear a decision from the appeals courts soon.

Anthem is one of the many health insurers that have been reluctant to sign on to selling plans on the Affordable Care Act's individual marketplace in 2018. Insurers say they can't design products or price plans without a clear regulatory framework, which the Trump administration has yet to lay out.

In particular, insurers say they need to know if the cost-sharing reduction, or CSR, subsidies that help low-income Americans afford insurance will be funded.

"Funding CSRs in 2018 and eliminating the health insurance tax going forward are only some of the steps necessary to ensure the individual ACA-compliant marketplace is not further destabilized," Swedish said. He added that funding for high-risk pools and reinsurance are also necessary.

Anthem is still determining its exchange footprint for 2018. Right now, it covers 1.1 million exchange members. Swedish said individual market claims are improving compared to prior years, but still came in higher than anticipated in the first quarter.

Anthem will submit 2018 rates assuming that the cost-sharing reduction subsidies will be funded, Swedish said. But the insurer told states that if funding for the subsidies is still uncertain by early June, it may make changes to its rate filing. Changes could include increasing rates, pulling products or even exiting the market entirely.

Without funding for subsidies, Swedish estimated that rates could increase 20% or more. Moreover, if the annual tax on health insurance companies isn't repealed, rates could increase an additional 3% to 5%, he said.

Earlier this week, Anthem's pharmacy benefit manager Express Scripts announced that Anthem would not renew its long-term contract after the end of 2019. The news sent Express Scripts' share price plummeting by as much as 10% on Monday.

On the conference call, Swedish said Anthem has sent out requests for proposals for a PBM partnership in hopes to secure the $3 billion in savings annually that it couldn't get from Express Scripts.

Anthem said it hasn't ruled any PBM out, suggesting that Express Scripts could still submit an request for proposals. The statement was at odds with Express Script's announcement. Both companies have sued each other over contract breaches.

Despite the many distractions in the first part of the year, Anthem's financial results were well above analysts' expectations.

Premium rate increases and higher enrollment in Medicaid, Medicare and local group businesses drove revenue growth.

Anthem's membership totaled 40.6 million members as of March 31, 2.6% more than the 39.6 million members it had at the same time last year. Medicaid membership grew the fastest, with 6.6 million members, up 8.4% over 2015.

Revenue grew 11% to $22.5 billion over the same period a year ago. Its operating revenue grew 9.9% to $22.3 billion.

Anthem also said its medical loss ratio was 83.7% in the first quarter, up from 81.8% at the same time last year. The uptick was driven by the one-year delay of the health insurance tax in 2017 and higher medical costs in the Medicaid business.

"It was a great quarter," Swedish said.