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What you have to know about Anthem’s earnings

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Executives at Anthem Inc. (NYSE:ANTM) — the health insurer that recently changed its name from WellPoint — say they are happy with how the company performed in the fourth quarter.

Executives had only good things to say about the company’s Patient Protection and Affordable Care Act (PPACA) public exchange plan program.

See also: The PPACA watcher’s earnings release calendar

The executives talked about the PPACA exchange program and other PPACA programs today during a conference call with securities analysts.

The company is reporting $507 million in net income for the quarter on $19 billion in revenue, compared with $148 million in net income on $18 billion in revenue for the fourth quarter of 2014.

See also: WellPoint earnings: 5 PPACA takeaways

The company ended the year providing or administering health coverage for 37 million people, or 5.2 percent more than it was covering earlier. That total includes 707,000 PPACA exchange qualified health plan (QHP) enrollees.

Enrollment in Medicare plans fell 2.6 percent, to 1.4 million, and increased 19 percent at Medicare plans, to 5.2 million. Group enrollment increased 5.1 percent, and overall individual enrollment rose 2.2 percent.

Executives spent much of their time during the call talking about Medicaid program bidding efforts and efforts to get health care providers to share some of the financial risk involved with providing care.

Executives also talked about medical cost trends, or changes in the underlying cost of care. The company found that the medical cost trend at local groups increased 6.5 percent in 2014. The company is expecting a return to more normal levels of use of care and the expense of new hepatitis C treatments could increase the medical cost trend to 7 percent this year.

For more about what the executives said, read on.

Workers

1. Anthem has not seen any dramatic moves by small employers to send workers to the public exchange system.

Small group enrollment fell in the fourth quarter, but retention levels were high, according to Wayne DeVeydt, the chief financial officer.

“Declines were less than expected,” DeVeydt said.

DeVeydt attributed the strength in small group enrollment to grandmothering, or moves by federal and state regulators to let employers keep pre-PPACA coverage in place longer than expected, and a stronger competitive position.

See also: 10 top health insurers report Q2 enrollment

Murky water

2. Anthem is not sure how well the PPACA “three R’s” risk-management programs will meet its expectations.

Executives said the company is expecting to get money from the PPACA reinsurance program, which is supposed to cover part of the cost of covering high-cost patients with individual coverage and is funded with a fee to be imposed on all commercial health plans.

The executives said the company is not expecting to get anything from the PPACA risk corridors program, which is supposed to help exchange plan issuers with weak underwriting margins, and might owe money on the PPACA risk-adjustment program, which is supposed to use money from insurers with low-risk enrollees to compensate insurers with high-risk enrollees.

Securities analysts noted that the executives sounded somewhat more pessimistic about the programs than they did three months ago.

DeVeydt noted that, at this point, Anthem has concerns about whether insurers will be able to collect from that program, which has faced opposition from Republicans in Congress.

But that’s not much of a financial issue for Anthem, DeVeydt said.

“It’s not moving the needle for us,” he said. 

See also: Connecticut pushes WellPoint unit to cut individual rates

Tape measure

3. Anthem likes exchange plan margins.

DeVeydt said the operating profit margin target for its exchange plan business was 3 percent to 5 percent, and that margins are coming in at the higher end of that range.

Meanwhile, although there may be some outliers, prices seem to be stabilizing and becoming more rational, DeVeydt said.

See also: PPACA pays off for insurers