Anthem Earnings Rise on Higher Premiums -- Update

By Anna Wilde Mathews and Cara Lombardo Features Dow Jones Newswires

Anthem Inc. expects its enrollment in Affordable Care Act plans to drop by around 70% next year, highlighting the full extent of the company's pullback from the business amid what it said was too much uncertainty about the health-law marketplaces' future.

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The big insurer's retreat from the ACA exchanges had been known, but the company added more detail to its projections during a call Wednesday to discuss third-quarter earnings. Anthem will keep offering ACA coverage in just 56 of the 143 regions in states where it sells individual insurance, down from "virtually all" of them this year, and said it now expects the ACA plans to be profitable in 2018, albeit still short of its targeted 3% to 5% margins. The business will be "relatively break-even" in 2017, said Chief Executive Joseph R. Swedish.

Mr. Swedish highlighted questions around federal cost-sharing payments as an important factor in Anthem's decision to exit exchanges. The Trump administration has now halted those payments, which reimburse insurers for reducing health costs of low-income enrollees. Mr. Swedish said Anthem is currently projecting "no material impact" from the loss of the payments in its 2017 guidance, and assumed the payments would be gone in setting its 2018 premiums.

Anthem officials said the insurer might consider re-entering some ACA markets in 2019 if stability increases.

Anthem's current ACA membership is around 1.4 million, with about 900,000 of those enrollees getting their plans via the health law's exchanges. It also has around 300,000 customers enrolled in individual plans that don't meet ACA requirements.

Anthem was asked about sources of future growth, amid the shrinkage in the exchanges, and following the foundering earlier this year of its deal to acquire Cigna Corp. Mr. Swedish pointed to Medicare, including the insurer's two recent deals to acquire Medicare plans focused on the Florida market. The latest, for closely held America's 1st Choice, was announced late Tuesday. Anthem officials also highlighted hopes around the planned launch of its new pharmacy-benefit manager in 2020.

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Mr. Swedish said for next year Anthem is targeting earnings growth in the "high single to low double-digit range" excluding impact of the return of a health-insurance tax. The shrinking ACA enrollment will force the insurer to reallocate existing fixed costs, Mr. Swedish said. However, Anthem expects growing enrollment next year in Medicare, Medicaid, specialty products and self-insured employer business.

The Indianapolis insurer beat earnings estimates in its latest quarter and raised the low end of its full-year guidance as increased insurance premiums and stronger Medicaid and Medicare enrollment gave the company a boost.

Anthem increased its 2017 adjusted earnings per share guidance to a range of $11.90 to $12, up from more than $11.70.

It said 40.3 million people were enrolled in its plans at the end of the third quarter, up less than 1% from a year ago. Premium rate increases and stronger enrollment in Medicaid and Medicare plans helped increase third-quarter revenue 4.6% from a year ago to $22.1 billion.

Overall for the third quarter, Anthem reported a profit of $746.9 million, or $2.80 a share, compared with $617.8 million, or $2.30 a share, a year ago. Excluding one-time items, the company earned $2.65 per share, compared with $2.45 a year ago. Analysts polled by Thomson Reuters had expected $2.42 in adjusted earnings per share.

The Indianapolis company reiterated its full-year revenue outlook of between $88.5 billion and $89.5 billion.

Anthem's shares were up 5% in recent trading at $205.04. The shares are up 42% this year.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

October 25, 2017 12:02 ET (16:02 GMT)