Anthem likely to give PPACA exchanges more time to stabilize

Anthem Inc. (NYSE: ANTM) seems inclined to help the Patient Protection and Affordable Care Act (PPACA) public exchange system keep its doors open and products on its shelves in 2017.

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Executives at the giant insurer said this morning, during a conference call with securities analysts streamed live over the Web, that exchange program managers should do a better job of handling public exchange program provisions that give consumers a chance to game the system, by waiting until they get sick to pay for coverage and using grace periods to get 90 days of coverage without paying for it.

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Executives expressed little immediate interest in starting to sell exchange qualified health plans (QHPs) through PPACA exchange programs in additional states. Wayne DeVeydt, Anthem’s chief financial officer, said the company wants to focus on increasing margins to 3 percent to 5 percent in the 14 states in which it already sells exchange plans.

But executives also said that the company ended the first quarter with 975,000 exchange QHP enrollees, which was up from 707,000 QHP enrollees a year ago, and more than the company expected. The company’s exchange plans are starting to benefit from a growing exchange user interest in choosing higher-cost plans from better-known issuers over cheaper plans from new, little-known issuers, executives reported.

See also: What you have to know about Anthem’s earnings

Anthem holds a Blue Cross license, a Blue Shield license or both a Blue Cross and a Blue Shield license in 14 states. A year ago, in many states, Anthem’s QHPs were competing with bargain-rate QHPs from nonprofit, member-owned Consumer Operated and Oriented Plan (CO-OP) carriers. Since then, 11 CO-OPs have failed.

This year, a majority of the new Anthem QHPs are coming to Anthem plans from the failed CO-OPs, and, in many cases, the new members are passing over cheaper plans to sign up for Anthem plans, according to Anthem Chairman Joseph Swedish. 

“We do believe this flight to safety is real,” Swedish said.

Anthem is in the process of trying to acquire Cigna Corp. (NYSE:CI). Once Anthem completes that deal, it could use Cigna to expand into public exchange programs in additional states, Swedish said.

“That’s a story that’s yet to be told relative to the public exchanges,” Swedish said.

Anthem executives held the conference call to go over first-quarter earnings with securities analysts. Here are additional insights from the call:

• The company as a whole is reporting $703 million net income for the first quarter on $20 billion in revenue, compared with $865 million in net income on $19 billion in revenue for the first quarter of 2015.

• The company ended the quarter providing or administering major medical coverage for 40 million people, up from 39 million people a year earlier.

• Enrollment in Medicaid plans was up 7.6 percent, to 6 million, and enrollment in large-group plans increased 5.1 percent, to 13 million.

• Enrollment in local group plans fell 0.1 percent, to 15 million, in part because of the disruption caused by implementation of a PPACA provision that increased the small-group definition cut-off in same states to 100 employees, from 50 employees, executives said.

• Enrollment in Medicare plans fell 0.2 percent, to 1.4 million.

• The company did not breakout financial results for its exchange plan business or its individual commercial business. The operating gain at the unit that sells commercial health insurance products and specialty products, such as dental insurance, increased 2.1 percent, to $1.3 billion.

DeVeydt said the existing exchange operations have an operating margin of about 1 percent to 2 percent. He said Anthem considers a more sustainable margin to be 3 percent to 5 percent.

DeVeydt and Swedish said they would like to see exchange plans get to margins of 3 percent to 5 percent in 2018.