Anthem Earnings Beat Expectations, Operating Revenues up 5.8%

The company reported benefits from the recent corporate tax reform bill. Anthem also increased medical enrollment over the previous year.

Anthem beat Wall Street expectations with a quarterly profit report showing 2017 fourth-quarter net income was $4.67 per share, including a net positive adjustment items of $3.38 per share related to a one-time, non-cash deferred tax benefit from the recent tax reform passed by Congress.

Operating revenues grew 5.8% year-over-year to $89.1 billion, and adjusted net income was $1.29 per share. Medical enrollment was up overall for the year, despite a decline in the fourth quarter.

Related: Higher Admissions Drive HCA's Q4 Earnings, Stock Price

Anthem raised its quarterly dividend by 7.1% to 75 cents per share and said it expects 2018 adjusted earnings to exceed $15 per share. Wall Street analysts had predicted earnings just over $14.

About $2 per share in the forecast is attributable to the benefits of corporate tax reform, noted Gail K. Boudreaux, president and CEO of Anthem. The company presented its fourth quarter earnings in a recent webcast.

“We are pleased with our 2017 performance, which is the result of improved execution in all areas of our business and an increased focus on aligning strategic investments and capabilities to more effectively meet the changing needs of the more than forty million consumers we are privileged to serve,” Boudreaux said. “Moving forward, we will continue to leverage our broad business portfolio and extensive care provider, consumer and analytics capabilities to deliver high quality healthcare solutions as we work to create a healthcare system that is more affordable and simpler to navigate for all Americans.”

Medical enrollment totaled approximately 40.2 million members at December 31, 2017, an increase of 325,000 members, or 0.8%, from 39.9 million at December 31, 2016. That overall increase came even though Medical enrollment declined by 13,000 lives sequentially during the fourth quarter of 2017. The enrollment declines in the Individual business line were partially offset by growth in the Medicare, Medicaid, and Local Group self-funded businesses.

Commercial & Specialty Business enrollment increased by 278,000 medical members as the Company experienced growth in both self-funded and fully-insured Local Group businesses, partially offset by a decline in membership in the National and Individual businesses. Enrollment also grew by 47,000 in the Government business as growth in Medicare was partially offset by a decline in Medicaid enrollment.

Operating revenue was $22.4 billion in the fourth quarter of 2017, an increase of $1.0 billion, or 4.5%, versus the $21.5 billion in the prior year quarter. The growth in revenue reflected premium rate increases to cover overall cost trends, Anthem reported.

“Additionally, the increase was driven by higher enrollment in Medicare and both Local Group insured and self-funded businesses. These increases were partially offset by the impact of the one-year waiver of the health insurance tax in 2017,” the company reported.

The benefit expense ratio was 88.6% in the fourth quarter of 2017, an increase of 140 basis points from 87.2% in the prior year quarter.

“The increase, as expected, was largely driven by the impact of the one year waiver of the health insurance tax in 2017,” the company said. “The increase was partially offset by improved medical cost performance in the Individual and Local Group businesses.”

For the full year 2017, underlying Local Group medical cost trend was approximately 6.5%. The company is updating the reporting of its underlying Local Group medical cost trend in 2018 to reflect the "allowed amount", or contractual rate, paid to care providers. The previous methodology was based on the "paid amount", which is the "allowed amount" less copays and deductibles.

As a result, the company anticipates Local Group medical cost trend will be in the range of 6.0% +/- 50 basis points in 2018. If 2017 was calculated on a consistent basis with the updated methodology in 2018, Local Group medical cost trends would have been approximately 5.5%.

These are some other results in the quarterly report:

• Days in Claims Payable was 39.4 days as of December 31, 2017, a decrease of 1.1 days from 40.5 days as of September 30, 2017.
   
• The SG&A expense ratio was 15.1% in the fourth quarter of 2017, a decrease of 10 basis points from 15.2% in the fourth quarter of 2016. The decrease, as expected, was primarily driven by the impact of the one year waiver of the health insurance tax in 2017 and the impact of fixed cost leverage on operating revenue growth. These items were partially offset by the impact of increased investment spend to support growth initiatives and an increase in incentive compensation expense.
   
• Operating cash outflow was $1.3 billion in the fourth quarter of 2017, bringing full year 2017 operating cash flow to $4.2 billion, or 1.1 times net income.
   
• During the fourth quarter of 2017, the Company repurchased 1.8 million shares of its common stock for $362 million, or a weighted-average price of $205.41. During the full year 2017, the Company repurchased 10.5 million shares of its common stock for $2.0 billion, or a weighted average price of $189.93.