Temporary Medicare Rate Increase Dings Anthem's 2021 Outlook

by Leslie Small

Anthem, Inc.'s stock value dropped roughly 7% in early trading on Jan. 27 after the insurer reported its fourth-quarter and full-year 2020 financial results, but it wasn’t the company's performance last year that triggered investor concern. Instead, the catalyst was Anthem's 2021 earnings per share (EPS) guidance of "greater than $24.50," which dipped below the Wall Street consensus of $25.37.

Citi analyst Ralph Giacobbe told investors in a Jan. 28 research note that "we fielded a number of calls/emails on [Anthem] as well as read-through for the group," suggesting investors became skittish not only about the Blue Cross Blue Shield carrier but also publicly traded insurers in general. Jefferies analysts David Windley and David Styblo shared a similar experience, writing that "Inbound callers had expressed concern" about Anthem's results.

However, both firms' analysts advised investors that they believe the selloff was overly reactionary, reasoning that the factors contributing to Anthem's underwhelming 2021 earnings guidance would be temporary.

In its earnings press release, Anthem said its updated 2021 outlook "includes new items that were unknown prior to December 2020, including the passage of the Consolidated Appropriations Act, which includes a one-year increase in Medicare physician rates as well as other COVID-19 related impacts on the Medicare business." Taken together, those factors resulted in a net negative earnings headwind of 50-70 cents, the company said.

"The lower '21 EPS growth guidance (by 3%) was new, but transient and should unwind in 2022," Windley and Styblo assured investors in a Jan. 27 research note. They also pointed to the fact that Anthem's commercial enrollment is stabilizing and that its government-sponsored plan enrollment "should grow low double-digits this year."

Anthem's fourth-quarter adjusted EPS of $2.54, meanwhile, "came in a penny ahead of consensus," as Evercore ISI analyst Michael Newshel put it. The insurer's medical loss ratio of 88.9% was lower than the 90.0% consensus estimate and represented a 10 basis-point decrease compared to the prior-year quarter.

For the fourth quarter, Anthem's revenue "came in 2% higher than expectations, with 3% sequential enrollment growth in Medicaid, compared to 5% in Q3 and over 7% in Q2 (due to suspension of eligibility redetermination and unemployment spike)," Newshel observed. Commercial employer enrollment also "ticked up slightly sequentially and is down less than 2% since Q1 despite higher unemployment."

From Health Plan Weekly