Anthem Results Top Expectations

Health insurer Anthem Inc. on Wednesday reported a better-than-expected 8.4% increase in revenue in its second quarter and bumped up its full-year guidance for medical enrollment growth.

Shares, up 22.7% this year, added 1.2% to $156 in premarket trading.

The company said it now expects medical enrollment to grow by 750,000 to 950,000 this year, up 50,000 from its previous range. Anthem has benefited from enrollment growth and improved medical cost performance lately.

In the latest quarter, medical enrollment grew 3.4% from a year earlier to about 38.5 million as of June 30. Enrollment in its commercial and specialty business edged up 0.8% from a year earlier to 29.8 million members, while members in its government business grew 13.1% to 8.8 million.

Anthem said growth in the business of covering “dual eligibles,” people who qualify for both Medicare and Medicaid, has been slower than expected. Over time, these people had been seen as a large opportunity for the health-insurance industry, as their government coverage is transitioned to managed-care companies. But Anthem said one California county’s pilot program was withdrawn, and the insurer is seeing slow uptake from beneficiaries in Los Angeles County, Virginia and New York.

The company had projected around $2.5 billion in duals revenue by 2018, and at the current pace, the total might be closer to $1.4 billion, it said.

Anthem said the impact of two Affordable Care Act programs that are supposed to help insurers that enroll a large share of sicker, high-cost consumers was roughly what it expected.

Based on a federal release of 2014 results for the programs, Anthem is receiving more than it projected from the reinsurance initiative, but paying more than it thought under another program, risk adjustment. The insurer has reduced its expectation for the third program, risk corridors, and expects to be “net neutral” on it for last year and 2015.

Anthem last week agreed to buy Cigna Corp. for $48 billion, capping months of merger frenzy among top U.S. health insurers that could result in a dramatic reshaping of the industry.

The deal, combining the second- and fifth-largest health insurers by revenue, would create a company with a huge footprint in commercial insurance, the type of coverage provided to employers and consumers.

Overall for the second quarter, Anthem posted earnings of $859.1 million, or $3.13 a share, up from $731.1 million, or $2.56 a share, a year earlier.

Excluding net gains on investment and other special items, per-share earnings grew to $3.10 from $2.56 a year earlier. Anthem said last week that earnings would come in well above analysts’s expectations for $2.77 a share in the quarter.

Operating revenue grew 8.4% to $19.76 billion, topping analysts forecast for revenue of $19.63 billion.

Anthem attributed the growth to premium increases and higher enrollment in Medicaid and commercial self-funded businesses.

Medicaid membership jumped 19.5% from the prior-year period to 5.76 million in the quarter. Revenue from premiums grew 8.5% to $18.5 billion, while total revenue grew 8.3% to $20 billion.

Medical benefit ratio—the amount of premiums used to pay patient medical costs—was 82.1% in the second quarter, down from 82.7% a year earlier. Anthem said the decline was driven by improved medical cost performance in some of its Medicaid and Medicare markets and rate adjustments for the Medicaid business.

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