Anthem is not happy with the current state of the individual major medical market, or the Affordable Care Act exchange system, but it’s staying in the system, at least for now.

Anthem executives talked about their thoughts on individual market and other topics today during a conference call they held to go over earnings for the second quarter with securities analysts. The Indianapolis-based company streamed the call live over the Web.

Related: Anthem, Aetna lead health insurer rally on 2016 forecasts

Anthem, the holder of Blue Cross licenses, Blue Shield licenses or both in 14 states, is reporting $781 million in net income for the latest quarter on $21 billion in revenue, compared with $859 million in net income on $20 billion in revenue for the second quarter of 2015.

  • The company ended the quarter providing or administering major medical coverage for 40 million people, 3.2 percent more than it was covering a year earlier.

  • Individual health enrollment fell 1.7 percent, to 1.8 million.

  • Local group enrollment rose 0.3 percent, to 15 million.
  • Medicaid enrollment grew 9.9 percent, to 6.3 million, and national accounts group health enrollment grew 6.6 percent, to 7.8 million.

  • Medicare enrollment rose 3.1 percent, to 5.6 million.

A major competitor, Minnetonka, Minnesota-based UnitedHealth Group, recently said it would leave the ACA exchange system in all but three states because of concerns about much higher-than-expected claims costs.

Related: UnitedHealth’s earnings, dissected

For a look at some of what company executives said during the company’s earnings call, read on. 

HealthCare.gov on July 27, 2016 (CMS)

(Image: Centers for Medicare & Medicaid Services)

1. Individual claim costs were higher than expected.

Anthem executives say they have seen higher-than-expected costs for conditions such as heart disease, diabetes and kidney disease.

The company is in the process of reviewing higher-than-expected payments for kidney dialysis treatments, according to John Gallina, Anthem’s chief financial officer.

Anthem expects to suffer losses “in the mid single digits” on individual major medical insurance this year, but it believes it has already baked the higher care utilization figures into 2017 premiums, Gallina said.

“Obviously, we expect the market to continue to harden and pricing to be more reasonable,” Gallina said.

Gallina estimated its average 2017 exchange plan premium increase will be about 20 percent.

The exit of the new nonprofit, member-owned Consumer Operated and Oriented Plan program plans, and other plans that priced coverage in an irrational way, should start to stabilize the market next year, and especially in 2018, Gallina said.

Gallina noted that, in the Medicaid unit, the company also experienced higher-than-expected claims in Iowa. Anthem has just recently started serving the people covered by the Iowa contract.

Gallina said Anthem would like to see policymakers in Washington improve the state of the individual major medical market by eliminating the Affordable Care Act health insurer tax. Congress temporarily suspended payment of that tax for 2017. 

The federal government also needs to improve the ACA risk-adjustment program, which is supposed to shift cash from the plans in a market with low-risk enrollees to the plans with high-risk enrollees, to make the program more fair to plans with healthy enrollees and less generous to plans with moderately sick enrollees, Gallina said.

Further tightening the rules for consumers who apply for individual coverage outside the normal open enrollment period or fail to pay their premiums would also help, Gallina said.

Joseph Swedish did not talk about a broad flight from the exchanges, but he said Anthem will be “very mindful” of state efforts to old down its rates  

Related: Joe Ellis: Middle market benefits supply looks fine

A guaranty fund in Ohio is billing Anthem for the cost of dealing with the failure of a CO-OP there. (Photo: Thinkstock)

A guaranty fund in Colorado is billing Anthem for the cost of dealing with the failure of a CO-OP there. (Photo: Thinkstock)

2. The problems in the Affordable Care Act CO-OP health plan program are costing Anthem money.

Gallina, Anthem’s CFO, said the company will being paying about $5 million in guaranty fund assessments in connection with the failure of a nonprofit, member-owned Consumer Operated and Oriented Plan program carrier in Ohio, on top of about $7 million the connection paid in the first quarter in connection with the failure of a CO-OP in Ohio.

Anthem is supposed to get money from the ACA risk-adjustment program in some states. That program is supposed to shift money from plans in a market that attracted relatively low-risk enrollees to plans with high-risk enrollees. Anthem is going on the belief that risk-adjustment receivables might be difficult to collect in markets affected by CO-OP failures, Gallina said.

Related: Small health plans: ACA program may kill us

(Photo: Allison Bell/LHP)

(Photo: Allison Bell/LHP)

3. Anthem executives said little about mentioned commercial group health.

The overall medical trend, or underlying increase in costs, will be about 7 percent to 7.5 percent, as expected, Gallina said.

But claims in the second quarter were a little high because it includes an extra workday, as a result of when weekends fell, Gallina said. 

Related: S&P: Commercial health may enter rougher waters 

Anthem's Cigna ad

(Photo: Allison Bell/LHP)

4. Anthem executives say letting the company acquire Cigna would be especially good for the individual and small-group markets.

Swedish, Anthem’s chairman, said the individual and small-group markets are unstable, high-risk markets, and that becoming a bigger company would help Anthem do a better job of serving those volatile markets.

Size helped Anthem enter the Affordable Care Act exchange system at its inception, Swedish said.

Anthem now has 923,000 exchange plan enrollees in 14 states, and its size has helped it stay in the exchange system as competitors have exited, Swedish said. 

The U.S. Department of justice has sued to block the Anthem-Cigna deal. Swedish said Anthem has an option in the deal agreement to extend the acquisition period through the end of April.

Anthem expects the antitrust case trial to begin in October and for the case to be resolved in about four months, Swedish said.

“Obviously, it could run a little longer, but that’s our expectation,” Swedish said.

Related:

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