Health insurer Anthem nearly doubled its profit to $2.3 billion in the second quarter of 2020 as it reaped the benefits of the widespread shutdown of elective procedures and deferrals of routine care during the height the COVID-19 pandemic.
Indianapolis-based Anthem's operating income soared in the three months ended June 30 because healthcare providers postponed non-urgent procedures and plan members put off routine doctor's appointments to practice social distancing. Like other insurers, Anthem spent a lot less on medical claims.
That led to an operating gain of $3.4 billion in the quarter, an increase of 134.5% over second quarter 2019. Some of that gain was offset by Anthem's decision to give certain members premium credits to help them afford coverage during the pandemic, it said.
The reduction in Anthem's spending on medical care was drastic. Its medical loss ratio was 77.9%, meaning it spent less than 80 cents of every dollar in premiums on medical claims and quality improvement. In the same quarter a year ago, its ratio was 86.7%. Anthem's benefit expenses fell 4% year over year to $19.5 billion.
Health insurers are required under the Affordable Care Act to spend at least 80% of premiums on care in the individual and small group markets, and 85% on care in the large group markets. If they don't, they may have to rebate the difference to customers. Experts expect the COVID-19 pandemic to drive billions of dollars in medical-loss ratio rebates in 2021, which is one reason why health insurers are handing out premium discounts now.
Meanwhile, even as Anthem was spending less on claims, it was bringing in more in revenue. Operating revenue reached $29.2 billion in quarter, up 15.9% over the same quarter a year ago, driven by the launch of Anthem's in-house pharmacy benefit manager IngenioRx, the return of the health insurer fee in 2020, and growth in Medicaid and Medicare membership and revenue.
The changes in Anthem's customer base since the first quarter ended on March 31 are illustrative of how the pandemic and related economic downturn are affecting most health insurers' membership rolls. Anthem's Medicaid membership increased 7.4%, or by 565,000 members, since the first quarter and 15.2% since a year ago to 8.2 million.
Company officials said the jump since the first quarter was primarily from the freeze on Medicaid eligibility checks— not from newly unemployed people signing up for Medicaid coverage. As a condition of receiving additional Medicaid funding, states cannot disenroll Medicaid beneficiaries during the public health emergency.
At the same time, Anthem's commercial enrollment declined by about 1% or 290,000 members, since March, which was less than expected because employers have chosen to furlough workers during the downturn rather than lay them off, Anthem CEO Gail Boudreaux explained during a call with analysts on Wednesday. Most of those losses were in Anthem's local employer group membership, which includes companies with less than 5,000 workers.
But Anthem isn't worried about losing those members because it can recapture some or all of that lost revenue from its growing Medicaid roster. Since last quarter, Medicaid enrollment grew by almost 10 times the decrease in Anthem's risk-based employer enrollment, Boudreaux said.
"We feel we have a very resilient catcher's mitt across our book of business," she said.
Anthem's Medicare Advantage membership 16.8% year over year to 1.4 million members. Anthem said it saw a slowdown in Medicare Advantage sales when the pandemic first took shape, but sales have since recovered. In all, Anthem covered 42.5 million people at the end of June, an increase of 3.9% over the same quarter last year, and up 0.7% since March. It expects to experience more Medicaid growth and commercial losses throughout the rest of the year.
Anthem reaffirmed its earnings guidance for 2020.