Anthem Falls As Medicaid, Obamacare Results Pressure Margins

  • Membership climbs by 1 million to 39.6 million people
  • Medical loss ratio increases to 81.8 cents per premium dollar

Anthem Inc., the No. 2 U.S. health insurer, fell in New York trading as costs tied to its Medicaid and Affordable Care Act businesses pressured margins.

The shares fell 2.8 percent to $142.91 at 11:24 a.m. Wednesday. Anthem spent 81.8 cents of every premium dollar on medical claims in the first quarter, up from a medical-loss ratio of 80.2 percent a year earlier, according to a statement.

While the Affordable Care Act has helped companies like Anthem add paying customers, those new members have often had higher-than-expected medical costs. Anthem said it’s taking a cautious posture on booking profits from plans sold in the ACA’s exchanges and probably won’t reach its margin target of 3 percent to 5 percent until 2018. Medical spending is also typically higher in Medicaid, another growth area for Anthem.

“They seemed pretty cautious on the exchanges,” said Jason McGorman, an analyst at Bloomberg Intelligence. “It was a slightly mixed message.”

Anthem had about 975,000 members in its Obamacare plans as of March 31 out of a total medical membership of 39.6 million, according to the statement. The insurer’s Medicaid membership climbed to 6 million from 5.9 million three months earlier.

Medicaid is the U.S. health program for the poor, and about two-thirds of its beneficiaries get their health coverage through private insurers. WellCare Health Plans Inc. and Molina Healthcare Inc. led declines among health insurers with big Medicaid operations. WellCare lost 4.3 percent to $93, while Molina fell 3.6 percent to $65.27.

Joseph Swedish, the chief executive officer, said the company was careful in pricing its plans for 2016, and he expects margins to expand.

“We are well positioned for continued growth in exchange lives as this market stabilizes,” he said on a call with analysts.

At the same time, the company doesn’t plan to enter new markets outside of the 14 states where it sells Blue Cross and Blue Shield branded plans.

Other health insurers have struggled to profit from those customers. UnitedHealth Group Inc. is retreating from sales of ACA plans amid losses. Aetna Inc., which had more Obamacare customers than UnitedHealth or Anthem, is scheduled to report first-quarter results Thursday.

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