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COVID-19 Hit Harder Than Expected: Anthem CEO

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The COVID-19 pandemic and changes in federal laws bit into Anthem Inc.’s earnings in the fourth quarter of 2020.

The Indianapolis-based health insurer is reporting $551 million in net income for the quarter on $32 billion in revenue, down from $934 million in net income on $27 billion in revenue for the fourth quarter of 2019.

Earlier in the year, COVID-19 led to a sharp reduction in use of ordinary health care, and that helped increase U.S. health insurers’ net income, in spite of the costs associated with having many employees work from home, and aside from what insurers like Anthem spent on COVID-19 testing and expanding telehealth coverage.

In the fourth quarter, higher COVID-19 claims and a one-year Medicare physician reimbursement boost embedded in the Consolidated Appropriations Act 2021 (CAA 2021) cut net income, according to Gail Boudreaux, Anthem’s chief executive officer.

Resources

“Importantly, these factors are transient and should diminish as we move into 2022,” Boudreaux said Wednesday, during a conference call Anthem held to go over company earnings with securities analysts.

But Anthem executives indicated that COVID-19 care costs are significant.

John Gallina, the company’s chief financial officer, noted that, overall, the company’s ratio of medical claims to revenue, or medical cost ratio, actually fell to 88.9% during the fourth quarter, from 89% in the year-earlier quarter.

Use of care not related to COVID-19 was somewhat lower than expected, Gallina said.

But “COVID–related costs accelerated during the quarter above expectations,” Gallina said.

Later during the call, Gallina said all expected 2021 COVID-19-related expenses combined, including the temporary CAA 2021 Medicare physician reimbursement rate increase, will add up to “several billions of dollars.”

After subtracting various types of revenue increases and cost reductions related to the pandemic, the net effect of the pandemic could reduce Anthem’s 2021 net earnings by about $600 million, Gallina predicted.

Boudreaux and Gallina said that, overall, Anthem’s business has been performing well.

Medicare Plans

Boudreaux said Medicare Advantage enrollment was 18% higher at the end of 2020 than at the end of 2019.

For 2021, “our [annual election period] performance is in line with expectations, and we expect another year of double-digit growth,” Boudreaux said.

Anthem’s 2021 Medicare Advantage enrollment growth is higher than the industry average, Boudreaux said.

Employer Plans

The firm’s local employer group enrollment ended up growing, year-over-year, in spite of all of the furloughs and other pandemic-related economic disruption, said Pete Haytaian, president of Anthem’s commercial and specialty business division.

Overall employer plan sales were strong, even though many employers made decisions about 2021 coverage later than usual, company executives said.

Boudreau noted that sales of dental and vision plans to large employers have been higher this year than they were last year.

Affordable Care Act Public Exchange Plans

Haytaian also talked some about how Anthem sees HealthCare.gov and other parts of the ACA public exchange program.

(Related: ACA Definitions: Enrollment Period Basics)

The ACA exchange program started up in late 2013. It’s supposed to provide a web-based supermarket for commercial health insurance.

Anthem increased the number of counties in its ACA exchange plan service area this year. It is happy with its exchange plan sales, but “there does appear to be less overall new sales,” Haytaian said.

The drop may be due to a combination of “less overall government engagement” and state moves to extend individual health coverage enrollment deadlines, Haytaian said.

The drop in government engagement “could change with the Biden administration, just in terms of overall marketing,” Haytaian said. “We do remain optimistic regarding this business. The new administration, certainly, looks like they’re going to promote the ACA business.”

The Biden administration hopes to add special enrollment periods throughout the year and may spend more money on exchange plan marketing and enrollment efforts, Haytaian said.

Numbers

Anthem ended the year providing or administering health coverage for 43 million people, up from 41 million people a year earlier.

Here’s what happened to the number of people covered by specific types of Anthem health coverage products between the fourth quarter of 2019 and the latest quarter:

  • Individual Commercial: 680,000 (down from 684,000)
  • Medicare Advantage: 1.4 million (up from 1.2 million)
  • Medicare Supplement: 933,000 (up from 905,000)
  • Self-Funded Employer Plans: 25.6 million (up from 25.4 million)
  • Dental: 6.4 million (up from 6.3 million)
  • Vision: 7.5 million (up from 7.3 million)

— Read UnitedHealth Kicks Off Insurer Earnings Seasonon ThinkAdvisor.

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