Anthem Tops 2Q Expectations, Shares Slide On Expense Worries

By TOM MURPHY AP Health Writer

INDIANAPOLIS (AP) — Anthem beat second quarter expectations and raised its 2019 forecast again, but shares of the health insurer slid Wednesday after it outlined challenges in its growing Medicaid business.

The Blue Cross-Blue Shield insurer said it has added nearly 700,000 Medicaid customers over the past year, but expenses were coming in higher than expected in a handful of states. Chief Financial Officer John Gallina told analysts the issue was "very manageable," and he expected the business's profitability to improve in the second half of the year.

He said the populations covered in these states, which he declined to name, had changed slightly since rates were set, and they were seeking rate adjustments.

Anthem shares slid 4% after markets opened Wednesday, while broader indexes climbed slightly.

Jefferies analyst David Windley said in a research note that higher Medicaid costs were a "pressure point" in a company performance that narrowly beat expectations.

Medicaid is the state and federally funded program that covers the poor. States pay insurers to manage their coverage, and that business is part of a growing government operation for Anthem that now brings in more than 60% of company revenue.

Indianapolis-based Anthem Inc. covers more than 40 million people mostly through private insurance plans in several states, including big markets like California and New York.

Overall, second-quarter net income climbed 8% to $1.14 billion, and adjusted earnings per share totaled $4.64.

Operating revenue, which excludes investment gains, climbed 11% to $25.18 billion.

Analysts there were expecting, on average, earnings of $4.61 per share on $24.7 billion in revenue, according to Zacks Investment Research.

The insurer's results were helped by nearly 8% growth in its fully insured business, which now covers 15.4 million people.

Fully insured coverage includes plans sold to small businesses. It is generally more profitable for insurers than the coverage that accounts for most of Anthem's enrollment: plans for large employers who pay their own claims and leave the insurer to administer the plan.

The health insurer also said Wednesday that the start of its new pharmacy benefit manager is going better than expected, and that contributed to its forecast increase.

Pharmacy benefit managers, or PBMs, run prescription coverage for employers, insurers and other big clients. Anthem decided to start one called IngenioRx, with help from CVS Health Corp., after splitting with Express Scripts.

The insurer began moving customers to the new company in May and has said it expects more of an earnings boost from that later this year.

Anthem now expects full-year earnings adjusted for one-time items to exceed $19.30 per share after raising its forecast to greater than $19.20 per share in April.

Analysts expect, on average, earnings of $19.29 per share, according to FactSet.

Company shares were down $12.20 to $290.39 in midmorning trading.

The stock had increased 15% since the beginning of 2019 and climbed past $300 to reach new all-time highs earlier in the year.