Tax law, higher premiums boost Anthem's fourth-quarter revenue
(Updated at 2 p.m. ET)
Recent corporate tax reform benefits, membership gains and higher premiums buoyed Anthem's revenue and net income in the fourth quarter of 2017, and helped the insurer see its profit soar compared to the previous year.
The quarter ended Dec. 31 was the first under new CEO Gail Boudreaux's leadership. Boudreaux, a UnitedHealthcare and Health Care Service Corp. alumna who replaced Joseph Swedish as head of the company in November, made her quarterly investor call debut on Wednesday morning and laid out her vision for Indianapolis-based Anthem moving forward.
"My primary focus is on optimizing execution across our business segments," Boudreaux said. "Anthem has been building a strong operating platform, but there is still more that we can do to better serve our customers and improve our financial performance."
She continued, "In order to meet the increasing expectations and needs of our members, we need to increase focus on developing innovative solutions that emphasize affordability and flexibility and increased speed to market in delivering these solutions."
Anthem in 2018 will be investing in modernizing its technology and developing consumer-facing digital and mobile technologies, including web applications and portals, to better customers' experience in interacting with Anthem, she said.
Those investments will be funded in part by Anthem's corporate tax reform benefit of $1.1 billion recorded in the fourth quarter.
That one-time benefit, along with membership gains and higher premiums to cover medical costs, helped drive Anthem's fourth-quarter revenue up 4.4% year over year to totaled $22.7 billion.
Premiums in the fourth quarter grew by 4.7% to $21.1 billion over the same period in 2016, while premiums grew 6.1% year over year to $83.6 billion for the full year.
Over the year, Anthem grew membership in Medicare and in its local group segment, but lost members in every other line of business, including national accounts, Medicaid and individual businesses.
Anthem's Medicare Advantage membership grew 7.4% year over year to 1.5 million members at the close of 2017. Its local group membership was 15.9 million, up 2.9% over 2016. Anthem's medical membership totaled 40.2 million members as of Dec. 31, an increase of 325,000 over the same time in 2016.
Anthem served about 1.3 million people through ACA-compliant individual plans in 2017. About 850,000 of those members were enrolled through the public exchanges, CFO John Gallina said during Wednesday's conference call.
That business ended up turning a profit in 2017, even though Anthem spent several months last spring pulling out of exchanges across the nation, citing regulatory uncertainty and financial losses.
Anthem said Wednesday that it expects its ACA-compliant and non-ACA compliant individual plan membership to drop by 950,000 in 2018 because of those exits. Anthem will keep one foot in the markets in some places so it can re-enter in 2019 "if appropriate," Boudreaux said.
She was more bullish on the opportunities to grow Anthem's Medicare and Medicaid businesses, which account for more than half of the insurer's consolidated operating revenue. Anthem's recent acquisitions of two Medicare Advantage plans in Florida, HealthSun and America's 1st Choice, will boost Advantage enrollment by 170,000 members.
Boudreaux also said she sees $80 billion worth of incremental business opportunity in Medicaid in the next four years, as budget-strapped states look to managed care plans to help them save costs.
Boudreaux reiterated Anthem's expectation that its new pharmacy benefit management company IngenioRx, to launch in 2021, will deliver at least $4 billion in drug cost savings. The company is in the midst of developing an implementation plan for the PBM.
Anthem's medical loss ratio, which represents the percentage of premium revenue spent on medical claims and quality improvement, was 88.6% in the fourth quarter of 2017, compared with 87.2% at the same time in 2016. Anthem said the increase was driven by the one-year waiver of the health insurance tax in 2017.
Anthem's revenue totaled $22.7 billion in the three months ended Dec. 31, up 4.4% over the same period in 2016. For the full year, Anthem grew revenue by 6.1% year over year to $90.0 billion.
The insurer's fourth-quarter net income more than tripled to $1.2 billion, compared with $368.4 million in the 2016. Its 2017 profit totaled $3.8 billion, up 55.6% over 2016.
Anthem executives on Wednesday did not address the brewing controversy over its emergency department or outpatient imaging payment policies in certain states. Anthem in some states will no longer pay for ER visits for conditions it determines were non-emergent after a review. It will also no longer pay for outpatient MRIs or CT scans at hospitals, and instead is directing members to free-standing imaging centers.
However, Boudreaux did say the company is extremely focused on managing the cost of care, and mentioned the success of its AIM Specialty Health subsidiary, a cost management firm being used to carry out Anthem's imaging site-of-care program. She said AIM Specialty has delivered savings between 10% to 40% depending on the clinical area, whether it be imaging, cardiology, oncology or others.
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