Anthem Seeks Clarity from Health Law Debate

Anthem Inc. boosted its full-year outlook as rising enrollment in its health-care plans provided a lift to its second-quarter revenue and earnings.

The Indianapolis-based insurance company said enrollment grew 1.6% from last year. The company now expects net sales of $88.5 billion to $89.5 billion this year, an increase from the previous guidance of $88 billion to $89 billion.

Shares in Anthem, up 33% so far this year, were unchanged in premarket trading.

Anthem has endorsed Republican efforts to repeal and replace the Affordable Care Act, which the company says has led to price volatility in insurance exchanges. Anthem has announced plans to leave ACA exchanges in Ohio, Wisconsin, Indiana and most of Nevada, citing concerns about price increases and the health law's uncertain fate.

Premium rate increases and growing enrollment also drove operating revenues up 4.3% from last year to $22.2 billion.

Earlier this month, Anthem filed a civil lawsuit against Insys Therapeutics Inc. Anthem alleges that the pharmaceutical company bribed doctors and lied to Anthem about patients' diagnoses to get reimbursements for Insys's fentanyl painkiller, Subsys. Anthem alleges it paid more than $19 million in prescription costs that shouldn't have been covered.

Also during the quarter, Anthem settled its own legal challenge proposing to pay $115 million after a 2015 data breach exposed the personal details -- including birth dates and social security numbers -- of more than 78 million people. The proposed settlement still requires court approval.

Anthem Inc. said that if it doesn't quickly get more certainty about the future of the Affordable Care Act exchanges, it will likely further pull back its planned participation for next year, a threat that adds to the pressure on Senate Republicans as they struggle to pass health-care legislation.

The big insurer, speaking during its second-quarter earnings call, strongly emphasized that it needed answers about the future of federal payments that help reduce out-of-pocket costs for low-income ACA exchange-plan enrollees. Chief Executive Joseph R. Swedish said that without greater clarity, particularly around the cost-sharing payments, "we will need to revise our rate filings to further narrow our level of participation." He added that the insurer may make decisions "in a relatively short period of time" and in September at the latest.

Overall for the second quarter, Anthem reported a profit of $855.3 million, or $3.16 a share, compared with $780.6 million, or $2.91 a share a year ago. Excluding one-time items, the company earned $3.37 per share, compared with $3.33 a year ago. Analysts polled by Thomson Reuters had expected $3.23 in earnings per share. Premium rate increases and growing enrollment also drove up operating revenue 4.3% from last year to $22.2 billion. Anthem also boosted its full-year outlook.

On plans for its pharmacy-benefit business -- another closely watched topic -- Mr. Swedish said that the insurer's bidding process for a new contract "has further validated our expectation to be able to lower our pharmacy costs by more than $3 billion annually." He said Anthem is still looking at a "hybrid" model that would have it work with an outside vendor while controlling aspects of the process, but he emphasized that the insurer was still looking at all options. Anthem is dueling in court with its current pharmacy-benefit manager, Express Scripts Holdings Inc., which has said it doesn't expect Anthem to reup their existing deal.

Anthem has already announced it will exit the exchanges next year in three of the 14 states where it currently sells those plans -- Ohio, Indiana and Wisconsin -- which it said represents a little less than 10% of its enrollment in ACA plans, which is around 1.5 million. Anthem has also said it would sharply reduce its exchange presence in Nevada. Anthem is a particularly important player in the exchanges because of both its large overall enrollment and the fact that in the states where it offers the plans, it often has the largest geographical footprint as well as the biggest market share.

Anthem said Wednesday that the health level of its ACA members has been consistent, meaning that claims aren't proving more expensive than the insurer expected, and it still projects that it will have "a slight loss" on the business for 2017. Overall, the insurer has around 1.8 million people enrolled in individual plans, with about 300,000 of them in grandfathered coverage that predates the ACA. Of its 1.5 million enrollees in ACA plans, about 1 million got their insurance through a health-law exchange.

More broadly, Mr. Swedish laid out priorities for health-care legislation that included "appropriate funding for all whom we serve;" a "balanced risk pool," meaning a mix of healthy and less-healthy enrollees in marketplaces; rules that "limit expensive abuses prevalent in today's marketplace;" and the elimination of the ACA's health-insurance tax. Mr. Swedish said the company is watching the health-care debate "by the hour" and expects the outcome to affect its Medicaid and exchange businesses.

Mr. Swedish said the company, which aims for 3% to 5% margins on its ACA plans, believes that steadying of the marketplaces is "a distinct possibility," but "so much depends on how the legislative process plays out and what stabilization rules are put into place." He said, "We just don't know yet" what will happen on the cost-sharing payments. Anthem will "only participate in rating regions where we have an appropriate level of confidence that these markets are on a path towards marketplace stability," he said.

Mr. Swedish reiterated that if the cost-sharing payments are killed, Anthem will need to seek rate increases of around 18% to 20% on exchange plans. The insurer said those increases would come on top of significant hikes it is already seeking, which it said were 20% or more. Anthem's filings have included increase requests of 37.7% in Virginia, 33.8% in Connecticut and 30.2% on health-maintenance organization plans in Colorado. Anthem also said that the ACA's health-insurance tax adds about 4% to 5% to its premiums.

The question is whether markets can handle such large increases, or whether they would cause so many healthy enrollees to drop their coverage that the business wouldn't be sustainable, Anthem executives said. Mr. Swedish said there can be a "cascading effect."

Cara Lombardo contributed to this article.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

July 26, 2017 12:01 ET (16:01 GMT)