Anthem cuts 2021 outlook, as Q4 profits fall 40% on care resurgence

Dive Brief:

  • Health insurer Anthem’s profits fell 41% in the fourth quarter of last year, due to a resurgence in care that patients put off earlier in 2020 amid the coronavirus pandemic.
  • Net income dropped to $551 million, compared to $934 million in the fourth quarter of 2019, though revenues were up 16% to $31.5 billion on higher premiums and investment income, beating Wall Street expectations.
  • Enrollment also strengthened in the fourth quarter, following quarter-over-quarter declines in the second and third quarters during the first surge of COVID-19 and subsequent economic recession.

Dive Insight:

Before the fourth quarter, major U.S. insurers were reporting massive profits as Americans put off non-essential care, such as elective surgeries and treatments, in the earlier months of the coronavirus pandemic. However, many companies warned it was an unsustainable boost, as utilization was likely to bounce back as previously deferred care came to a head.

That shift is beginning to be seen in the fourth quarter as payer earnings trickle out. UnitedHealth, which reported results last week, also reported a significant dip in profit, down 38% year over year.

Anthem’s financial performance in the quarter was driven by stronger revenue and a low medical loss ratio, but offset slightly by higher expenses, executives said on a Wednesday call with investors. Still, the payer, which operates Blue Cross Blue Shield plans in 14 states, said it saw strong potential for growth in 2021.

Driven by double-digit percentage increases in its Medicaid and Medicare Advantage business, Anthem ended 2020 with 42.9 million members, about 5% up from 2019.

Commercial enrollment trends stabilized in the fourth quarter, after declining in the second and third quarters this year due to COVID-19, while Anthem also saw a bump in its Medicaid and Medicare Advantage membership by 3.3% and 0.8%, respectively.

Anthem expanded into 15 new counties in the individual markets in 2021, and is positive on its commercial business with the administration of President Joe Biden, a longtime supporter of the Affordable Care Act. Biden has already pledged to take a series of steps propping up the decade-old law and bolstering the exchanges it created.

“With the new administration, I see there’s an opportunity for further growth there,” Pete Haytaian, president of Anthem’s commercial and specialty business, said on the Wednesday morning call.

In the quarter, Anthem reported a medical loss ratio, a marker of how much a payer spends on patient care as opposed to profits, administration and other expenses, of 88.9%. Though significantly higher than the 77.9% and 86.8% MLRs in the second and third quarters respectively, it was still lower than the company and analysts had expected.

The Indianapolis, Ind.-based payer had previously​ guided a medical loss ratio above 90%, due to higher COVID costs and higher government business mix that generally carries a higher loss ratio. The MLR was a “positive” for the business, Jefferies analyst David Windley wrote in a note on the earnings.

Anthem cut its 2021 earnings growth outlook to 9% from the previous 12% due to headwinds from COVID-19, including uncertainty on vaccine distribution, and the recently passed congressional spending bill, which includes a one-year increase in Medicare physician rates. That’s well short of original analyst expectations.

“2021 presents its own unique set of business challenges,” CFO John Gallina said. “While much has changed, it is clear we are still in the depths of a pandemic.”

The health insurer expects medical membership to reach up to 44.7 million people, driven mostly by its risk-based businesses, while operating revenue will be around $135.1 billion.

Anthem stock fell almost 6% in early Wednesday trading.