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Understanding Anthem’s Surprise in Public Exchange Individual Enrollments in 1Q16

Analysts Like Anthem after 1Q16, and Here's Why

(Continued from Prior Part)

Individual enrollment

In 1Q16, Anthem’s (ANTM) public exchange enrollment witnessed a sequential increase of about 184,000 members and reached 975,000 lives. The company’s Individual business, which consists of both on-exchange and off-exchange membership, has also benefitted from the conservative pricing policy adopted by the company in 1Q16.

In 1Q16, Anthem’s Individual enrollments rose by about 0.2% from and reached about 1.9 million. Unlike peer companies UnitedHealth Group (UNH), Aetna (AET), and Cigna (CI), who witnessed losses in the pubic exchange business, Anthem managed to break even in the segment in 2015.

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Public exchange

Anthem views its exchange business as an opportunity and has been working with government partners to develop a sustainable business model in this high-risk segment. Despite its higher priced plans, in 1Q16, the company witnessed a rise in exchange enrollments in New York, California, Colorado, and Kentucky, where co-operatives have gone bankrupt.

Anthem plans to continue to operate on public exchanges in its existing 14 states, however, though it has not planned to enter any more new states. The company has targeted a margin in the range of 3%–5% in its public exchange business by 2018.

If Anthem proves successful in reaching its public exchange margin targets, it may boost the company’s share prices as well as those of the iShares Russell 1000 Value ETF (IWD). Anthem makes up about 0.3% of IWD’s total portfolio holdings.

ACA’s HIP fee

Starting in 2014, the ACA (Affordable Care Act) imposed an annual HIP (health insurance provider) fee on health insurers. According to Anthem’s 10K, “The annual HIP Fee is allocated to health insurers based on the ratio of the amount of an insurer’s net premium revenues written during the preceding calendar year to an adjusted amount of health insurance for all US health risk for those certain lines of business written during the preceding calendar year.”

The HIP fee for all health insurers together was $11.3 billion in 2016. But we should note that this fee has been eliminated for 2017. Still, health insurance companies will have to bear increased fee of about $14.3 billion in 2018. Since companies generally pass such fees on to customers, the break in HIP fee provided for 2017 is expected to prove advantageous for improving pricing in the public exchange business.

Anthem has also been keen on constantly updating its risk-adjustment models to capture the risk profile of its public exchange enrollees. The company also believes that special enrollment criteria should be well-controlled so that risk profile of members can be better managed. Anthem expects to be better able to judge the risk profile of public exchange enrollments by 2Q16.

In the next part, we’ll analyze Anthem’s medical expenses in 1Q16.

Continue to Next Part

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