ANTM Anthem Inc

By Anna Wilde Mathews and Dave Sebastian 

Shares in Anthem Inc. tumbled on Wednesday after the health insurer reported a key spending metric came in higher than analysts had expected in the fourth quarter, and its financial forecast for this year also disappointed.

The stock was down 4.5% in early-afternoon trading on the New York Stock Exchange after the insurer reported its 2019 earnings, though the company posted higher fourth-quarter revenue and profit.

The health insurer recorded a profit of $934 million, or $3.62 a share, in the fourth quarter of 2019 compared with $424 million, or $1.61 a share, in the year-ago quarter. Adjusted earnings were $3.88 a share, matching analysts' expectations.

Revenue was $27.41 billion, up from $23.37 billion.

Anthem Chief Executive Gail Boudreaux said in a conference call that the company was delivering on its promised growth and was "poised for another year of success in 2020."

Investors focused on Anthem's medical-loss ratio, or MLR, which represents the share of premiums the insurer pays out in claims. They closely watch the MLR as a gauge of health spending and insurers' operational profitability, and get nervous when it ticks up unexpectedly.

Anthem said its MLR was 89% in the fourth quarter, higher than the 88.1% figure that a consensus of analysts had estimated. The insurer said the figure was pushed up compared with last year due to the suspension of a tax on health insurers, an industrywide effect analysts had expected. But Anthem flagged other factors as well, including higher-than-expected health costs tied to the flu.

Another Wall Street concern was Anthem's new 2020 guidance, which projected earnings of more than $21.44 a share, including about 86 cents a share of net unfavorable items.

The Indianapolis-based company estimated 2020 adjusted earnings of more than $22.30 a share. That figure, which excludes the effects of amortization and some other factors, was lower than many analysts had anticipated based on early projections Anthem offered last quarter.

Executives attributed the shortfall to the coming repeal of the health-insurance tax, passed late last year. Like other insurers, Anthem had passed through this tax to customers in the form of higher premiums.

The company expects the repeal of the tax will pull down earnings this year, even though the repeal doesn't take effect until 2021, because some clients renew their coverage midyear. Anthem said it hadn't factored that effect into the broad early guidance that it previously issued.

Chief Financial Officer John Gallina said the company's core assumptions for its 2020 performance hadn't changed, except for the impact of the 2021 health-tax repeal. He said that dynamic would affect 2020 earnings by around 30 cents per share.

Anthem is among the biggest health insurers in the U.S. One bright sign for the company was its projection for medical costs for fully insured employer plans, which Anthem estimates will increase around 4% in 2020, down from the current rate of around 6%.

The insurer attributed the expected drop to the effects of its newly launched pharmacy-benefit manager, IngenioRx, and other cost-reduction efforts.

In the conference call, Mr. Gallina attributed the company's higher MLR ratio partly to an early start to the flu season.

He also said Anthem now expects to receive a smaller payout than it originally projected from an Affordable Care Act program, which hurt its MLR result.

The biggest driver of the 2019 MLR performance, Mr. Gallina said, was last year's suspension of the health-insurance tax, an issue which affects all insurers. The tax, a pass-through, had effectively increased the revenue part of the MLR ratio in previous years because insurers added it to premiums charged.

The tax is set to return next year, but has been repealed effective in 2021. lt affects 2020 results because some clients renew their coverage plans partway through the calendar year, and their monthly premiums would reflect the coming change.

Given the tax's return, Mr. Gallina said Anthem expects the MLR for 2020 will be lower than last year.

Yet he said the drop will be smaller than it otherwise would have been, due to factors including the company's changing mix of business, which includes a higher proportion of enrollees in government plans such as Medicaid. The ratio tends to be higher in government plans.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

January 29, 2020 14:18 ET (19:18 GMT)

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