Anthem Shows Health Care Costs Eating Into Profits

Being a health insurer is no easy task these days. Investors think of the companies as health care providers, but the reality is that these should actually in many ways to be evaluated as highly regulated financial institutions. Anthem Inc. (NYSE: ANTM) is the latest health insurance provider to have some concerns around its earnings report.

Anthem is the company that the public knows as Blue Cross Blue Shield for their insurance. It said that more of the premiums are being used to pay claims due to higher costs and increased health care usage. That is even after revenue exceeded expectations.

The company showed that its medical loss ratio (or benefit expense ratio), the percentage of premiums used to pay actual medical claims, was 87%. This is higher than health insurance providers want it to be, and it was 84.5% a year earlier. Expenses inside the company were up slightly as its SG&A expense ratio was 16.3%, up 10 basis points from 16.2% a year earlier.

Anthem now is targeting revenue to be in the $80 billion to $81 billion range in 2016. Thomson/First Call had its consensus analyst estimate on revenues at almost $83 billion.
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Investors and the public have grown used to hearing about pressure coming from the exchanges under the Affordable Care Act. Anthem said that its enrollment of 791,000 at the end of 2015 was over 30% short of what it had expected. The company’s individual insurance business broke even in 2015 but was projected to be profitable in 2016. That being said, the projection for 2016 is that it will come with less than the 3% to 5% targeted margins.

The company confirmed that it did not repurchase any shares of its common stock during the fourth quarter of 2015 due to its pending acquisition of Cigna.

Anthem shares were down 2.8% at $133.77 on Wednesday afternoon. The consensus analyst price target from Thomson/First Call was listed at over $175, and the 52-week trading range is $126.25 to $173.59.