Anthem Inc is seen cementing its evolution plans towards high-quality and value-based care, where it lays thrust on virtual care, geographic and membership expansion in Medicare and Medicaid businesses and the pharmacy vertical. Also, the management, after third quarter earnings performance, has allayed the concerns relating to the impact on earnings following the spread of Delta variant in parts of the US and escalating the costs for payers. While this turns out to be a relief for the company, it gives optimism to the investors, who made fresh buying into the stock, which has gained over 11% in just four trading sessions since the announcement of the earnings.
Fast FIVE TAKEAWAYS:
1. COVID and Anthem’s 3Q:
Despite the another COVID-19 surge, Anthem President and CEO, Gail Boudreaux confidently believes that the company’s response to “COVID brings a new level of agility and speed to the business, along with more opportunities to reach consumers and care providers than ever before.” In the government business, the operating gain was $967 million, up $721 million from $246 million in the same quarter last year. The increase was primarily attributable to the impact of negative rate adjustments in the Medicaid business in the third quarter of 2020 associated with COVID-19, besides other factors. The cost of care during 3Q was above the normalized/baseline levels and primarily driven by higher COVID cost in the months of August and September. But medical costs were better-than-expected with lower non-COVID utilization helping to absorb the higher-than-expected COVID related costs.
2. Innovations and new forays:
COVID has unlocked new prospects triggering the need for solutions for physical health, behavioral, mental health and social needs, besides pharmacy and access to nutritious food, and health disparities. The “whole-person healthcare” powered by digital technology is seen opening up new avenues for the company. Anthem has recently launched a new offering to test the full suite of a virtual primary care product. This would “demonstrate meaningful reduction in overall cost of care, and greater member satisfaction,” says Boudreaux. Anthem is already selling virtual-first risk-based commercial plans for the 2022 plan year. There are opportunities for virtual space even in pharmacy, as the company bets big on specialty pharmacy – IngenioRX, which is considered a critical component for the company’s growth strategy. Reason is its five-fold increase in the new sales currently as against a relatively depressed base a year ago.
3. Medicaid – Medicare business:
Company claimed its Medicaid business was performing well through the quarter, as membership started hitting above 10 million at quarter-end. Among new geographies for Medicaid managed care products include Ohio by Summer of 2022. Additionally, the resumption of Medicaid eligibility re-determinations and expected return to a more normal operating environment are some of the tailwinds the management expects to push forward the growth momentum. And for the Medicare Advantage membership company expects a double-digit growth next year driven by the company’s innovative Whole Health benefits. Anthem’s high-quality value-based care is being fueled by the investments in provider partnerships. Of the total Medicare Advantage spending, 60% is currently in risk-sharing arrangements, which will increase to 70% next year.
4. Financial fundamentals:
Driven by strong growth across all of its businesses, Anthem’s 3Q adjusted earnings grew 62% year-on-year to $6.79 per share. Operating revenues were up 16% versus the prior-year quarter to $ 35.5 billion, primarily driven by higher premium revenue associated with strong membership growth in Medicaid, Medicare, and commercial risk businesses. Also, rate increases to cover cost trends, and momentum in diversified service businesses, including in IngenioRx helped boost revenues. On the margins front, the company’s commercial and specialty care business margins turned positive (6.3%) from negative (-2.5%) in the corresponding quarter last year, indicating a phenomenal 880 basis points gain, followed by a robust 310 basis points growth in government business at 4.5% from 1.4%. The total overall operating margins for the quarter improved by 510 basis points to 5.8% against 0.7% in the same quarter last year. Anthem’s improved margins make it attractive for the company to cash in the quarter and the year to come.
5. Performance Outlook:
It is evident from the upward movement in the company’s share movement post 3Q earnings announcements, that the investors are putting their money on the promising future of the company. Anthem management expects the strong growth momentum in the business to continue into 2022. This optimism is further supported by the strong earnings guidance for the year to come. Anthem has raised its guidance for full-year adjusted earnings per share to >$25.85 from >$25.50. Besides the anticipated double-digit membership growth in the Medicare Advantage membership, the company also expects strong growth in Commercial membership. On COVID-front, though there are a lot of uncertainties, the impact is seen mostly in line with the expectations.
Conclusion:
The number-two healthcare insurer is standing on firm ground. The third quarter beat expectations, while the company has laid down a robust outlook for the fourth quarter and the coming fiscal. While the immediate future remains predictable with strong performance expected from virtual care, innovation in services and a diversified specialty pharmacy. COVID-19 uncertainties continue to linger over the next fiscal, but the management remains confident about a new level of agility and speed of business to drive growth.