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Anthem Reports Fourth Quarter and Full Year 2018 Results Reflecting Strong Core Performance
  • Fourth quarter net income was $1.61 per share, including net negative adjustment items of $0.83 per share. Adjusted net income was $2.44 per share.
  • Full year net income was $14.19 per share, including net negative adjustment items of $1.70 per share. Adjusted net income was $15.89 per share.
  • Medical enrollment increased by 37 thousand members sequentially to 39.9 million members.
  • Operating gain grew by 30% year-over-year to $5.4 billion in 2018.
  • IngenioRx now scheduled to launch in 2Q 2019.
  • Full year 2019 net income is expected to be greater than $18.00 per share, an increase of 27% versus 2018 net income per share. Adjusted net income is expected to be greater than $19.00* per share, an increase of 20% versus 2018 adjusted net income per share.
  • Quarterly dividend increased by 6.7% to $0.80 per share.

INDIANAPOLIS--(BUSINESS WIRE)--Jan. 30, 2019-- Anthem, Inc. (NYSE: ANTM) reported fourth quarter and full year 2018 financial results that reflected enhanced performance across the core businesses and increasing operating momentum.

"In 2018, we achieved our objectives of improving execution and strengthening our value proposition with innovative and affordable solutions designed to more effectively meet the unique needs of our customers," said Gail K. Boudreaux, President and CEO. "Our fourth quarter and full year performance provides a strong foundation for 2019. In addition, I am pleased to announce that we are accelerating the launch of IngenioRx and now expect to begin transitioning members in the second quarter of this year. Since announcing our intent to create IngenioRx, we have been carefully planning the transition, including the possibility of an early launch, and are confident in our ability to execute the transition under the accelerated schedule. This will allow us to go to market with better economics earlier, and also accelerate our whole person health strategy, which is proven to reduce total cost of care."

Anthem continues to expect gross annual savings through IngenioRx of greater than $4 billion, with more than 20% of that amount being returned to our shareholders. The Company, pursuant to the terms of its pharmacy benefits management services agreement with Express Scripts, Inc. (the "PBM Agreement"), has provided notice to Express Scripts that it will exercise its contractual rights to terminate the PBM Agreement earlier than the original expiration date of December 31, 2019 due to the recent acquisition of Express Scripts by Cigna Corporation. As a result of exercising our early termination rights, the PBM Agreement will now terminate on March 1, 2019 and the twelve month transition period to migrate the business will begin on March 2, 2019.

Anthem expects its full year 2019 adjusted net income to be greater than $19.00* per share, which reflects the benefit from the accelerated launch of IngenioRx, including expected expenses related to the revised transition schedule.

* Refer to the GAAP reconciliation tables.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment totaled approximately 39.9 million members at December 31, 2018, an increase of 37 thousand members from September 30, 2018. Commercial & Specialty Business enrollment increased by 30 thousand members, as the Company experienced growth in the fully insured and fee-based Local Group businesses and growth in the National business. The increase was partially offset by a decline in Individual enrollment. Government Business enrollment increased by 7 thousand members, driven by growth in Medicare that was partially offset by a decrease in Medicaid membership.

Medical enrollment declined by 361 thousand members from 40.3 million members at December 31, 2017. The decrease reflected declines due to a reduced footprint in the Individual ACA-compliant marketplace and declines in Local Group enrollment. These declines were partially offset by growth in the Medicare, National, and Medicaid businesses.

Operating Revenue: Operating revenue was $23.3 billion in the fourth quarter of 2018, an increase of $857 million, or 3.8 percent, versus $22.4 billion in the prior year quarter. The growth in operating revenue reflected premium rate increases to cover overall cost trends and the return of the health insurance tax in 2018 as well as growth in Medicare. The increase was partially offset by a reduced footprint in the Individual ACA-compliant marketplace.

Benefit Expense Ratio:The benefit expense ratio was 86.8 percent in the fourth quarter of 2018, a decrease of 180 basis points from 88.6 percent in the prior year quarter. The decrease, as expected, was largely driven by the return of the health insurance tax in 2018 and improved medical cost performance in our Commercial & Specialty Business.

Medical claims reserves established at December 31, 2017 developed moderately better than the Company’s expectation during 2018.

Medical Cost Trend:For the full year 2018, Local Group medical cost trend was approximately 5.9%. The Company anticipates medical cost trend will be in the range of 6.0% +/- 50 bps in 2019.

Days in Claims Payable:Days in Claims Payable (“DCP”) was 36.2 days as of December 31, 2018, a decrease of 2.5 days from 38.7 days as of September 30, 2018.

SG&A Expense Ratio: The SG&A expense ratio was 15.5 percent in the fourth quarter of 2018, an increase of 40 basis points from 15.1 percent in the fourth quarter of 2017. The increase, as expected, was primarily driven by the return of the health insurance tax in 2018, partially offset by expense efficiency initiatives.

Operating Cash Flow: Operating cash flow was $463 million, or 1.1 times net income in the fourth quarter of 2018, bringing full year 2018 operating cash flow to $3.8 billion, or 1.0 times net income.

Share Repurchase Program: During the fourth quarter of 2018, the Company repurchased 1.8 million shares of its common stock for $493 million, or a weighted average price of $270.66. For the full year, the Company repurchased 6.8 million shares of its common stock for $1.7 billion, or a weighted average price of $248.34. As of December 31, 2018, the Company had approximately $5.5 billion of Board-approved share repurchase authorization remaining.

Cash Dividend: During the fourth quarter of 2018, the Company paid a quarterly dividend of $0.75 per share, representing a distribution of cash totaling $193 million.

On January 29, 2019, the Audit Committee declared a first quarter 2019 dividend to shareholders of $0.80 per share. On an annualized basis, this equates to a dividend of $3.20 per share. The first quarter dividend is payable on March 29, 2019 to shareholders of record at the close of business on March 18, 2019.

Investment Portfolio & Capital Position: During the fourth quarter of 2018, the Company recorded net realized losses on financial instruments totaling $185 million and other-than-temporary impairment losses totaling $8 million. During the fourth quarter of 2017, the Company recorded net realized gains of $7 million and other-than-temporary impairment losses totaling $12 million.

As of December 31, 2018, the Company’s net unrealized loss position in the investment portfolio was $201 million, consisting of fixed maturity securities. The adoption of a change in accounting standards has resulted in the Company accounting for unrealized changes in the value of equity securities in realized gains or losses. As of December 31, 2018 cash and investments at the parent company totaled approximately $1.9 billion.

REPORTABLE SEGMENTS

Anthem, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid and Medicare businesses, National Government Services, and the Federal Employee Program); and Other (comprised of certain eliminations and corporate expenses not allocated to either of our other reportable segments).

                         
Anthem, Inc.
Reportable Segment Highlights
(Unaudited)
                         
(In millions)   Three Months Ended December 31   Twelve Months Ended December 31
    2018   2017   Change   2018   2017   Change
Operating Revenue                        
Commercial & Specialty Business   $8,843     $10,006     (11.6 )%   $35,782     $40,363     (11.3 )%
Government Business   14,462     12,444     16.2 %   55,567     48,702     14.1 %
Other   (1 )   (3 )   NM2   (8 )   (4 )   NM2
Total Operating Revenue1   $23,304   $22,447   3.8 %   $91,341     $89,061     2.6 %
                         
Operating Gain / (Loss)                        
Commercial & Specialty Business   $322     $67     380.6 %   $3,629     $2,847     27.5 %
Government Business   444     360     23.3 %   1,895     1,445     31.1 %
Other   (16 )   (46 )   NM2   (98 )   (117 )   NM2
Total Operating Gain1   $750   $381   96.9 %   $5,426     $4,175     30.0 %
                         
Operating Margin                        
Commercial & Specialty Business   3.6 %   0.7 %   290 bp   10.1 %   7.1 %   300 bp
Government Business   3.1 %   2.9 %   20 bp   3.4 %   3.0 %   40 bp
Total Operating Margin1   3.2 %   1.7 %   150 bp   5.9 %   4.7 %   120 bp
                                 

(1) See “Basis of Presentation.”

(2) "NM" = calculation not meaningful.

Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $322 million in the fourth quarter of 2018, an increase of $255 million, or 380.6 percent, from $67 million in the fourth quarter of 2017. The increase reflected improved medical cost performance and a decrease in certain general and administrative expenses compared to the prior year quarter.

Government Business: Operating gain in the Government Business segment was $444 million in the fourth quarter of 2018, an increase of $84 million, or 23.3 percent, from $360 million in the fourth quarter of 2017. The increase is a result of the acquisitions of HealthSun and America's 1st Choice and the return of the health insurer fee in 2018. The increase was partially offset by higher medical costs in the Medicaid business.

Other: The Company reported an operating loss of $16 million in the Other segment for the fourth quarter of 2018, compared with an operating loss of $46 million in the prior year quarter.

OUTLOOK

Full Year 2019:

  • GAAP net income is expected to be greater than $18.00 per share, including approximately $1.00 per share of net unfavorable items. Excluding these items, adjusted net income is expected to be greater than $19.00* per share.
  • Medical membership is expected to be in the range of 40,900,000 - 41,300,000. Fully-insured membership is expected to be in the range of 15,500,000 - 15,700,000 and self-funded membership is expected to be in the range of 25,400,000 - 25,600,000.
  • Operating revenue is expected to be approximately $100.0 billion, including premium revenue of $90.5 billion - $92.5 billion.
  • Benefit expense ratio is expected to be in the range of 86.2% plus or minus 30 basis points.
  • Cost of products sold of $1.6 billion - $1.8 billion.
  • SG&A ratio is expected to be in the range of 13.5% plus or minus 30 basis points.
  • Operating cash flow is expected to be greater than $5.2 billion.
  • Share count is expected to be between 261 - 263 million.
  • Effective tax rate is expected to be between 19.5% - 21.5%.
  • Investment income is expected to be $1.0 billion.

* Refer to the GAAP reconciliation tables.

Basis of Presentation

  1. Operating revenue and operating gain are the key measures used by management to evaluate performance in each of its reporting segments, allocate resources, set incentive compensation targets and to forecast future operating performance. Operating gain is calculated as total operating revenue less benefit expense and selling, general and administrative expense. It does not include net investment income, net realized gains/losses on financial instruments, other-than-temporary impairment losses recognized in income, interest expense, amortization of other intangible assets, gains/losses on extinguishment of debt or income taxes, as these items are managed in a corporate shared service environment and are not the responsibility of operating segment management. Refer to the GAAP reconciliation tables.
  2. Operating margin is defined as operating gain divided by operating revenue.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Standard Time (“EST”) to discuss the company’s fourth quarter results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:

          800-230-1059 (Domestic)     800-475-6701 (Domestic Replay)
          612-234-9960 (International)     320-365-3844 (International Replay)
                 

An access code is not required for today’s conference call. The access code for the replay is 432041. The replay will be available from 11:00 a.m. EST today, until the end of the day on February 13, 2019. The call will also be available through a live webcast at www.antheminc.com under the “Investors” link. A webcast replay will be available following the call.

About Anthem, Inc.

Anthem is a leading health benefits company dedicated to improving lives and communities, and making healthcare simpler. Through its affiliated companies, Anthem serves more than 74 million people, including nearly 40 million within its family of health plans. We aim to be the most innovative, valuable and inclusive partner. For more information, please visit www.antheminc.com or follow @AnthemInc on Twitter.

 
Anthem, Inc.
Membership Summary
(Unaudited and in Thousands)
                     
                Change from
    December 31,   December 31,   September 30,   December 31,   September 30,

Medical Membership

  2018   2017   2018   2017   2018
Customer Type                    
Local Group   15,733     15,888     15,688     (1.0 )%   0.3 %
Individual   655     1,588     692     (58.8 )%   (5.3 )%
                     
National:                    
National Accounts   7,588     7,463     7,610     1.7 %   (0.3 )%
BlueCard®   5,838     5,733     5,794     1.8 %   0.8 %
Total National   13,426     13,196     13,404     1.7 %   0.2 %
                     
Medicare:                    
Medicare Advantage   1,006     746     992     34.9 %   1.4 %
Medicare Supplement   846     823     837     2.8 %   1.1 %
Total Medicare   1,852     1,569     1,829     18.0 %   1.3 %
                     
Medicaid   6,716     6,496     6,731     3.4 %   (0.2 )%
FEP®   1,556     1,562     1,557     (0.4 )%   (0.1 )%
Total Medical Membership   39,938     40,299     39,901     (0.9 )%   0.1 %
Funding Arrangement                    
Self-Funded   25,287     24,862     25,253     1.7 %   0.1 %
Fully-Insured   14,651     15,437     14,648     (5.1 )%   %
Total Medical Membership   39,938     40,299     39,901     (0.9 )%   0.1 %
Reportable Segment                    
Commercial & Specialty Business   29,814     30,672     29,784     (2.8 )%   0.1 %
Government Business   10,124     9,627     10,117     5.2 %   0.1 %
Total Medical Membership   39,938     40,299     39,901     (0.9 )%   0.1 %

Other Membership

                   
Life and Disability Members   4,795     4,700     4,701     2.0 %   2.0 %
Dental Members   5,807     5,864     5,804     (1.0 )%   0.1 %
Dental Administration Members   5,327     5,342     5,367     (0.3 )%   (0.7 )%
Vision Members   6,946     6,867     6,906     1.2 %   0.6 %
Medicare Part D Standalone Members   309     318     312     (2.8 )%   (1.0 )%
 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
             
    Three Months Ended    
(In millions, except per share data)   December 31    
    2018   2017   Change
Revenues            
Premiums   $ 21,819     $ 21,087     3.5 %
Administrative fees and other revenue   1,485     1,360     9.2 %
Total operating revenue   23,304     22,447     3.8 %
Net investment income   262     240     9.2 %
Net realized (losses)/gains on financial instruments   (185 )   7     NM
Other-than-temporary impairment losses on investments:            
Total other-than-temporary impairment losses on investments   (9 )   (12 )   (25.0 )%
Portion of other-than-temporary impairment losses recognized in other comprehensive income   1         NM
Other-than-temporary impairment losses recognized in income   (8 )   (12 )   (33.3 )%
             
Total revenues   23,373     22,682     3.0 %
             
Expenses            
Benefit expense   18,936     18,672     1.4 %
Selling, general and administrative expense   3,618     3,394     6.6 %
Interest expense   189     164     15.2 %
Amortization of other intangible assets   94     44     113.6 %
(Gain) loss on extinguishment of debt   (6 )   282     NM
             
Total expenses   22,831     22,556     1.2 %
             
Income before income tax expense   542     126     330.2 %
             
Income tax expense   118     (1,106 )   NM
             
Net income   $ 424     $ 1,232     (65.6 )%
             
Net income per diluted share   $ 1.61     $ 4.67     (65.5 )%
             
Diluted shares   264.2     263.3     0.3 %
             
Benefit expense as a percentage of premiums   86.8 %   88.6 %   (180 )bp
Selling, general and administrative expense as a percentage of total operating revenue   15.5 %   15.1 %   40 bp
Income before income taxes as a percentage of total revenue   2.3 %   0.6 %   170 bp

(1) "NM" = calculation not meaningful

 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
             
    Twelve Months Ended    
(In millions, except per share data)   December 31    
    2018   2017   Change
Revenues            
Premiums   $ 85,421     $ 83,648     2.1 %
Administrative fees and other revenue   5,920     5,413     9.4 %
Total operating revenue   91,341     89,061     2.6 %
Net investment income   970     867     11.9 %
Net realized (losses)/gains on financial instruments   (180 )   145     (224.1 )%
Other-than-temporary impairment losses on investments:            
Total other-than-temporary impairment losses on investments   (29 )   (35 )   (17.1 )%
Portion of other-than-temporary impairment losses recognized in other comprehensive income   3     2     50.0 %
Other-than-temporary impairment losses recognized in income   (26 )   (33 )   (21.2 )%
             
Total revenues   92,105     90,040     2.3 %
             
Expenses            
Benefit expense   71,895     72,236     (0.5 )%
Selling, general and administrative expense   14,020     12,650     10.8 %
Interest expense   753     739     1.9 %
Amortization of other intangible assets   358     169     111.8 %
Loss on extinguishment of debt   11     282     (96.1 )%
             
Total expenses   87,037     86,076     1.1 %
             
Income before income tax expense   5,068     3,964     27.9 %
             
Income tax expense   1,318     121     989.3 %
             
Net income   $ 3,750     $ 3,843     (2.4 )%
             
Net income per diluted share   $ 14.19     $ 14.35     (1.1 )%
             
Diluted shares   264.2     267.8     (1.3 )%
             
Benefit expense as a percentage of premiums   84.2 %   86.4 %   (220 )bp
Selling, general and administrative expense as a percentage of total operating revenue   15.3 %   14.2 %   110 bp
Income before income taxes as a percentage of total revenue   5.5 %   4.4 %   110 bp

(1) "NM" = calculation not meaningful

 
Anthem, Inc.
Consolidated Balance Sheets
 
    December 31,   December 31,
(In millions)   2018   2017
Assets   (Unaudited)    
Current assets:        
Cash and cash equivalents   $ 3,934     $ 3,609  
Fixed maturity securities   16,692     17,377  
Equity securities   1,493     3,599  
Other invested assets, current   21     17  
Accrued investment income   162     163  
Premium receivables   4,465     3,605  
Self-funded receivables   2,278     2,580  
Other receivables   2,558     2,267  
Income taxes receivable   10     342  
Securities lending collateral   604     455  
Other current assets   2,104     2,249  
Total current assets   34,321     36,263  
         
Long-term investments:        
Fixed maturity securities   487     561  
Equity securities   33     33  
Other invested assets   3,726     3,344  
Property and equipment, net   2,735     2,175  
Goodwill   20,504     19,231  
Other intangible assets   9,007     8,368  
Other noncurrent assets   758     565  
Total assets   $ 71,571     $ 70,540  
         
Liabilities and shareholders’ equity        
Liabilities        
Current liabilities:        
Policy liabilities:        
Medical claims payable   $ 7,454     $ 7,992  
Reserves for future policy benefits   75     70  
Other policyholder liabilities   2,590     2,950  
Total policy liabilities   10,119     11,012  
Unearned income   902     860  
Accounts payable and accrued expenses   4,959     5,024  
Security trades pending payable   197     113  
Securities lending payable   604     454  
Short-term borrowings   1,145     1,275  
Current portion of long-term debt   849     1,275  
Other current liabilities   3,190     3,343  
Total current liabilities   21,965     23,356  
         
Long-term debt, less current portion   17,217     17,382  
Reserves for future policy benefits, noncurrent   706     647  
Deferred tax liabilities, net   1,960     1,727  
Other noncurrent liabilities   1,182     925  
Total liabilities   43,030     44,037  
         
Shareholders’ equity        
Common stock   3     3  
Additional paid-in capital   9,536     8,547  
Retained earnings   19,988     18,054  
Accumulated other comprehensive loss   (986 )   (101 )
Total shareholders’ equity   28,541     26,503  
Total liabilities and shareholders’ equity   $ 71,571     $ 70,540  
     
Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
             
(In millions)   Twelve Months Ended December 31
    2018   2017
Operating activities            
Net income   $3,750     $3,843  
Adjustments to reconcile net income to net cash provided by operating activities:            
Net realized losses/(gains) on financial instruments   180     (145 )
Other-than-temporary impairment losses recognized in income   26     33  
Loss on extinguishment of debt   11     282  
Loss on disposal of assets   13     13  
Deferred income taxes   91     (1,272 )
Amortization, net of accretion   1,008     780  
Depreciation expense   119     111  
Impairment of property and equipment   5     2  
Share-based compensation   226     170  
Changes in operating assets and liabilities:            
Receivables, net   (707 )   (22 )
Other invested assets   (1 )   (36 )
Other assets   (26 )   (629 )
Policy liabilities   (1,059 )   732  
Unearned income   (36 )   (120 )
Accounts payable and accrued expenses   134     922  
Other liabilities   (25 )   (120 )
Income taxes   323     (194 )
Other, net   (205 )   (165 )
Net cash provided by operating activities   3,827     4,185  
             
Investing activities            
Purchases of fixed maturity securities   (8,244 )   (9,795 )
Proceeds from sales and maturities of fixed maturity securities   8,380     9,780  
Purchases of equity securities   (896 )   (5,416 )
Proceeds from sales of equity securities   2,809     3,463  
Purchases of other invested assets   (531 )   (1,164 )
Proceeds from sales of other invested assets   411     219  
Change in collateral and settlements of non-hedging derivatives       65  
Changes in securities lending collateral   (150 )   625  
Purchases of subsidiaries, net of cash acquired   (1,760 )   (2,080 )
Net purchases of property and equipment   (1,208 )   (791 )
Other, net   (70 )   12  
Net cash used in investing activities   (1,259 )   (5,082 )
             
Financing activities            
Net (repayments of)/proceeds from commercial paper borrowings   (106 )   175  
Net (repayments of)/proceeds from short-term borrowings   (130 )   835  
Net (repayments of)/proceeds from long-term borrowings   (849 )   2,643  
Changes in securities lending payable   150     (625 )
Changes in bank overdrafts   (210 )   71  
Proceeds from sale of put options       1  
Premiums paid on equity call options   (1 )    
Proceeds from issuance of common stock under Equity Units stock purchase contracts   1,250      
Repurchase and retirement of common stock   (1,685 )   (1,998 )
Change in collateral and settlements of debt-related derivatives   24     (149 )
Cash dividends   (776 )   (705 )
Proceeds from issuance of common stock under employee stock plans   173     225  
Taxes paid through withholding of common stock under employee stock plans   (81 )   (46 )
Net cash (used in)/provided by financing activities   (2,241 )   427  
             
Effect of foreign exchange rates on cash and cash equivalents   (2 )   4  
             
Change in cash and cash equivalents   325     (466 )
Cash and cash equivalents at beginning of year   3,609     4,075  
             
Cash and cash equivalents at end of period   $3,934     $3,609  
 
Anthem, Inc.
Reconciliation of Medical Claims Payable
 
    Years Ended December 31
    2018   2017   2016
(In millions)   (Unaudited)        
             
Gross medical claims payable, beginning of year   $ 7,814     $ 7,656     $ 7,360  
Ceded medical claims payable, beginning of year   (105 )   (539 )   (646 )
Net medical claims payable, beginning of year   7,709     7,117     6,714  
             
Business combinations and purchase adjustments   199     76      
             
Net incurred medical claims:            
Current year   69,581     70,377     64,868  
Prior years redundancies(1)   (930 )   (1,133 )   (835 )
Total net incurred medical claims   68,651     69,244     64,033  
             
Net payments attributable to:            
Current year medical claims   62,748     62,923     57,879  
Prior years medical claims   6,579     5,805     5,751  
Total net payments   69,327     68,728     63,630  
             
Net medical claims payable, end of year   7,232     7,709     7,117  
Ceded medical claims payable, end of year   34     105     539  
Gross medical claims payable, end of year*   $ 7,266     $ 7,814     $ 7,656  
             
Current year medical claims paid as a percentage of current year net incurred medical claims   90.2 %   89.4 %   89.2 %
             
Prior year redundancies in the current year as a percentage of prior year net medical claims payable less prior year redundancies in the current year   13.7 %   18.9 %   14.2 %
             
Prior year redundancies in the current year as a percentage of prior year net incurred medical claims   1.3 %   1.8 %   1.4 %
             
(1) Negative amounts reported for net incurred medical claims related to prior years result from claims being settled for
amounts less than originally estimated.
* Excludes insurance lines other than short duration.            

 

                 
Anthem, Inc.

GAAP Reconciliation

(Unaudited)

 

Anthem, Inc. has referenced “Adjusted Net Income” and “Adjusted Net Income Per Share,” which are non-GAAP measures, in this document. These non-GAAP measures are not intended to be alternatives to any measure calculated in accordance with GAAP. In addition to these non-GAAP measures, references are made to the measures “Operating Revenue” and “Operating Gain.” Each of these measures is provided to further aid investors in understanding and analyzing the company’s core operating results and comparing Anthem, Inc.’s financial results. A reconciliation of Operating Revenue to Total Revenue is set forth in the Consolidated Statements of Income herein. A reconciliation of the non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP, together with a reconciliation of reportable segments operating gain to income before income tax expense, is reported below. Prior amounts may be rounded differently to conform to current presentation.

 
                 
    Three Months Ended       Twelve Months Ended    
    December 31       December 31    
(In millions, except per share data)   2018   2017   Change   2018   2017   Change
Net income   $ 424     $ 1,232     (65.6 )%   $ 3,750     $ 3,843     (2.4 )%
Add / (Subtract):                        
Net realized losses/(gains) on financial instruments   185     (7 )       180     (145 )    
Amortization of other intangible assets   94     44         358     169      
Other-than-temporary impairment losses recognized in income   8     12         26     33      
(Gain)/Loss on extinguishment of debt   (6 )   282         11     282      
Transaction related costs       9         9     166      
2015 cyber attack litigation                   115      
Penn Treaty assessment costs                   254      
Income tax true-up of prior transaction costs                   (69 )    
Deferred tax benefit from corporate tax reform       (1,108 )           (1,108 )    
Tax impact of non-GAAP adjustments   (61 )   (125 )       (135 )   (316 )    
Net adjustment items   220     (893 )       449     (619 )    
Adjusted net income   $ 644     $ 339     90.0 %   $ 4,199     $ 3,224     30.2 %
                         
Net income per diluted share   $ 1.61     $ 4.67     (65.5 )%   $ 14.19     $ 14.35     (1.1 )%
Add / (Subtract):                        
Net realized losses/(gains) on financial instruments   0.70     (0.03 )       0.68     (0.54 )    
Amortization of other intangible assets   0.36     0.17         1.36     0.63      
Other-than-temporary impairment losses recognized in income   0.03     0.05         0.10     0.12      
(Gain)/Loss on extinguishment of debt   (0.02 )   1.07         0.04     1.05      
Transaction related costs       0.03         0.03     0.62      
2015 cyber attack litigation                   0.43      
Penn Treaty assessment costs                   0.95      
Income tax true-up of prior transaction costs                   (0.26 )    
Deferred tax benefit from corporate tax reform       (4.21 )           (4.14 )    
Tax impact of non-GAAP adjustments   (0.23 )   (0.47 )       (0.51 )   (1.18 )    
Rounding Impact   (0.01 )   0.01             0.01      
Net adjustment items   0.83     (3.38 )       1.70     (2.31 )    
Adjusted net income per diluted share   $ 2.44     $ 1.29     89.1 %   $ 15.89     $ 12.04     32.0 %
                         
    Full Year 2019 Outlook                
Net income per diluted share   Greater than $18.00                
Add / (Subtract):                    
Amortization of other intangible assets   Approximately $1.30                
Tax impact of non-GAAP adjustments   Approximately ($0.30)                
Net adjustment items   Approximately $1.00                
Adjusted net income per diluted share   Greater than $19.00                
                         
    Three Months Ended       Twelve Months Ended    
    December 31       December 31    
(In millions)   2018   2017   Change   2018   2017   Change
Reportable segments operating gain   $ 750     $ 381     96.9 %   $ 5,426     $ 4,175     30.0 %
Net investment income   262     240         970     867      
Net realized gains/(losses) on financial instruments   (185 )   7         (180 )   145      
Other-than-temporary impairment losses recognized in income   (8 )   (12 )       (26 )   (33 )    
Interest expense   (189 )   (164 )       (753 )   (739 )    
Amortization of other intangible assets   (94 )   (44 )       (358 )   (169 )    
(Gain)/Loss on extinguishment of debt   6     (282 )       (11 )   (282 )    
Income before income tax expense   $ 542     $ 126     330.2 %   $ 5,068     $ 3,964     27.9 %
 
Anthem, Inc.
Reclassified Membership Summary
(Unaudited and in Thousands)
                   
    Three Months Ended  

Medical Membership

  March 31, 2017   June 30, 2017   September 30, 2017   December 31, 2017  
Customer Type                  
Local Group   15,714     15,720     15,875     15,888    
Individual   1,886     1,779     1,696     1,588    
                   
National:                  
National Accounts   7,570     7,538     7,497     7,463    
BlueCard®   5,868     5,775     5,704     5,733    
Total National   13,438     13,313     13,201     13,196  

 

                   
Medicare:                

 

Medicare Advantage   672     683     697     746    
Medicare Supplement   826     824     825     823    
Total Medicare   1,498     1,507     1,522     1,569    
                   
Medicaid   6,577     6,550     6,454     6,496  

 

FEP®   1,573     1,569     1,564     1,562  

 

Total Medical Membership   40,686     40,438     40,312     40,299  

 

Funding Arrangement                  
Self-Funded   25,068     24,833     24,844     24,862  

 

Fully-Insured   15,618     15,605     15,468     15,437  

 

Total Medical Membership   40,686     40,438     40,312     40,299  

 

Reportable Segment                  
Commercial & Specialty Business   31,038     30,812     30,772     30,672  

 

Government Business   9,648     9,626     9,540     9,627  

 

Total Medical Membership   40,686     40,438     40,312     40,299  

 

Other Membership

                 
Life and Disability Members   4,715     4,705     4,717     4,700  

 

Dental Members   5,859     5,818     5,803     5,864  

 

Dental Administration Members   5,395     5,335     5,351     5,342  

 

Vision Members   6,793     6,791     6,905     6,867  

 

Medicare Part D Standalone Members   324     322     320     318    
 
Anthem, Inc.
Reclassified Membership Summary
(Unaudited and in Thousands)
                   
    Three Months Ended  

Medical Membership

  March 31, 2018   June 30, 2018   September 30, 2018   December 31, 2018  
Customer Type                  
Local Group   15,670     15,634     15,688     15,733    
Individual   755     712     692     655    
                   
National:                  
National Accounts   7,684     7,658     7,610     7,588    
BlueCard®   5,820     5,819     5,794     5,838    
Total National   13,504     13,477     13,404     13,426    
                   
Medicare:                

 

Medicare Advantage   916     937     992     1,006    
Medicare Supplement   823     827     837     846    
Total Medicare   1,739     1,764     1,829     1,852    
                   
Medicaid   6,457     6,414     6,731     6,716  

 

FEP®   1,562     1,560     1,557     1,556  

 

Total Medical Membership   39,687     39,561     39,901     39,938    
Funding Arrangement                  
Self-Funded   25,282     25,245     25,253     25,287  

 

Fully-Insured   14,405     14,316     14,648     14,651  

 

Total Medical Membership   39,687     39,561     39,901     39,938    
Reportable Segment                  
Commercial & Specialty Business   29,929     29,823     29,784     29,814  

 

Government Business   9,758     9,738     10,117     10,124  

 

Total Medical Membership   39,687     39,561     39,901     39,938    

Other Membership

                 
Life and Disability Members   4,641     4,673     4,701     4,795  

 

Dental Members   5,786     5,788     5,804     5,807  

 

Dental Administration Members   5,357     5,384     5,367     5,327  

 

Vision Members   6,781     6,760     6,906     6,946  

 

Medicare Part D Standalone Members   316     312     312     309    
                         
Anthem, Inc.
Reclassified Reportable Segment Highlights
(unaudited)
                         
(In millions)   Three Months Ended
    March 31, 2017   June 30, 2017   September 30, 2017   December 31, 2017
Operating Revenue                        
Commercial & Specialty Business   $10,192     $10,211     $9,954     $10,006  
Government Business   12,128     11,987     12,143     12,444  
Other   (1 )           (3 )
Total Operating Revenue1   $22,319     $22,198     $22,097     $22,447  
                         
Operating Gain / (Loss)                        
Commercial & Specialty Business   $1,294     $963     $523     $67  
Government Business   324     296     465     360  
Other   (33 )   (32 )   (6 )   (46 )
Total Operating Gain1   $1,585     $1,227     $982     $381  
                         
(In millions)   Three Months Ended
    March 31, 2018   June 30, 2018   September 30, 2018   December 31, 2018
Operating Revenue                        
Commercial & Specialty Business   $8,951     $9,055     $8,933     $8,843  
Government Business   13,390     13,665     14,050     14,462  
Other   1     (5 )   (3 )   (1 )
Total Operating Revenue1   $22,342     $22,715     $22,980     $23,304  
                         
Operating Gain / (Loss)                        
Commercial & Specialty Business   $1,409     $1,056     $842     $322  
Government Business   481     524     446     444  
Other   (22 )   (21 )   (39 )   (16 )
Total Operating Gain1   $1,868     $1,559     $1,249     $750  

(1) See “Basis of Presentation.

 
Anthem, Inc.
Financial Guidance Summary
(Unaudited)
             
    Full Year 2018 Actual   Full Year 2019 Outlook   Approximate Change
Year-End Medical Enrollment            
Self-funded   25,287   25,400 - 25,600   113k - 313k
Fully-Insured   14,651   15,500 - 15,700   849k - 1,049k
Total   39,938   40,900 - 41,300   962k - 1,362k
             
Operating Revenue   $91.3 billion   Approximately $100.0 billion   Approximately $8.7 billion

or 9.5%

             
Premium Revenue   $85.4 billion   $90.5 billion - $92.5 billion   $5.1 billion - $7.1 billion or 6.0% - 8.3%
             
Benefit Expense Ratio   84.2%   86.2% +/- 30 basis points   (200 bps) +/- 30 bps
             
Cost of Products Sold   $—   $1.6 billion - $1.8 billion   $1.6 billion - $1.8 billion
             
SG&A Expense Ratio   15.3%   13.5% +/- 30 basis points   180 bps +/- 30 bps
             
Operating Gain   $5.4 billion   Greater than $6.0 billion   Greater than $600 million or 11.1%
             
Other Pre-Tax Items:            
Net Investment income   $970 million   $1.0 billion   $30 million
Interest Expense   ($753) million   ($800) million   ($47) million
Amortization of Intangible Assets   ($358) million   ($340 million)   $18 million
Net Pre-Tax Expense   ($141) million   ($140) million   $1 million
             
Effective Tax Rate   26.0%   19.5% - 21.5%   4.5% - 6.5%
             

GAAP EPS

  $14.19   Greater than $18.00   26.8% or better
             

Adjusted EPS

  $15.89   Greater than $19.00   19.6% or better
             
Diluted Shares   264.2 million   261 - 263 million   0.5% - 1.2%
             
Operating Cash Flow   $3.8 billion   Greater than $5.2 billion   Greater than $1.4 billion
             

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include, but are not limited to: the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA and the ultimate outcome of legal challenges to the ACA; trends in healthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability to secure sufficient premium rates including regulatory approval for and implementation of such rates; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquires, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon, our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our health care product mix; costs and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, or Cigna, and us related to the merger agreement between the parties, including our claim for damages against Cigna, Cigna’s claim for payment of a termination fee and other damages against us, and the potential for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and financial condition; non-compliance by any party with the pharmacy benefit management services agreement between Express Scripts, Inc., or Express Scripts and us, as well as any agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CaremarkPCS Health, L.L.C., a subsidiary of CVS Health Corporation, which could result in financial penalties, our inability to meet customer demands, and sanctions imposed by governmental entities, including CMS; medical malpractice or professional liability claims or other risks related to health care services and pharmacy benefit management services provided by our subsidiaries; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; large scale medical emergencies, such as future public health epidemics and catastrophes; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; changes in U.S. tax laws; intense competition to attract and retain employees; and, various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.

 

Source: Anthem, Inc.

Anthem Contacts:
Investor Relations
Chris Rigg
Chris.rigg@anthem.com

Media
Jill Becher, 414-234-1573
Jill.becher@anthem.com