Anthem, Inc. announced that fourth quarter 2015 net income was $180.9 million, or $0.68 per share. These results included net negative adjustment items of $0.46per share. Net income in the fourth quarter of 2014 was $506.7 million, or $1.80 per share, which included net negative adjustment items of $0.06 per share.
Excluding the items noted in each period, adjusted net income was $1.14 per share in the fourth quarter of 2015, a decrease of 38.7 percent compared with adjusted net income of $1.86 per share in the prior year quarter (refer to the GAAP reconciliation table for a reconciliation to the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles, or “GAAP”).
Full year 2015 net income totaled approximately $2.6 billion, or $9.38 per share, including net negative adjustment items of $0.78 per share. Full year 2014 net income was approximately $2.6 billion, or $8.99 per share, including net negative adjustment items of $0.36 per share. Excluding the items noted in each period, adjusted net income was $10.16 per share for the full year of 2015, an increase of 8.7 percent from $9.35 per share in 2014 (refer to the GAAP reconciliation table).
“Our solid fourth quarter results reflected a continuation of our positive operating momentum as we ended the year serving 38.6 million members across our Commercial and Government markets. As we look ahead to 2016, we remain well-positioned to continue advancing affordability, quality and choice for our members. We believe our strategy will be enhanced with the pending acquisition of Cigna, which we continue to expect should close in the second half of 2016," said Joseph Swedish, chairman, president and chief executive officer.
“We are pleased with our performance in the fourth quarter and our full-year 2015 results of $10.16 in adjusted EPS. Our 2015 performance and favorable medical cost trends set a strong starting point for 2016,” said Wayne DeVeydt, executive vice president and chief financial officer.
Membership: Medical enrollment totaled approximately 38.6 million members at December 31, 2015, an increase of approximately 1.1 million members, or 2.9 percent, from 37.5 million at December 31, 2014. Medicaid enrollment increased by 721,000 members and the Commercial & Specialty Business enrollment increased by 314,000 medical members as the Company experienced growth of 328,000 and 104,000 in the National and Local Group markets, respectively, partially offset by a decrease of 118,000 members in the Individual business. Enrollment also grew in theMedicare business and Federal Employee Program by 35,000 and 30,000, respectively.
Medical enrollment decreased by 102,000 members, or 0.3%, sequentially during the fourth quarter of 2015. The decrease reflected enrollment losses in the National and Individual businesses, partially offset by gains in the Medicaidbusiness.
Operating Revenue: Operating revenue was $20.0 billion in the fourth quarter of 2015, an increase of approximately $1.2 billion, or 6.6 percent, versus the nearly $18.8 billion in the prior year quarter. The growth in revenue reflected premium increases to cover overall cost trends and higher enrollment in the Medicaid and Commercial self-funded businesses. These increases were partially offset by a decline in Local Group fully insured and Individual enrollment.
Benefit Expense Ratio: The benefit expense ratio was 87.0 percent in the fourth quarter of 2015, an increase of 250 basis points from 84.5 percent in the prior year quarter. The increase was largely driven by an increase in the Individual and Local Group businesses, which included higher favorable prior period reserve development in the 4th quarter of 2014 than in the 4th quarter of 2015 and the timing of medical cost experience. The increase was partially offset by improved medical cost performance in certain markets in the Medicare business.
Medical claims reserves established at December 31, 2014, developed moderately better than the Company’s expectation during 2015, which resulted in offsetting adjustments for the risk stabilization programs from Health Care Reform.
Medical Cost Trend: For the full year 2015, underlying Local Group medical cost trend was at the lower half of our previously guided range of 6.5% - 7.5%. The Company anticipates that medical cost trends will be in the range of 7.0% - 7.5% in 2016.
Days in Claims Payable: Days in Claims Payable (“DCP”) was 42.7 days as of December 31, 2015, an increase of 0.4 days from 42.3 days as of September 30, 2015. The increase was primarily due to changes in the timing of claims payments between periods.
SG&A Expense Ratio: The SG&A expense ratio was 16.3 percent in the fourth quarter of 2015, an increase of 10 basis points from 16.2 percent in the fourth quarter of 2014. The increase was primarily driven by higher costs to support strong membership growth in 2015, partially offset by the impact of higher enrollment in the Medicaid business, which carries a lower average SG&A expense ratio than the consolidated company average.
Operating Cash Flow: Operating cash flow was $949.1 million, or 5.2 times net income in the fourth quarter of 2015, and approximately $4.1 billion, or 1.6 times net income for full year 2015. The Company’s 2015 results include the impact of approximately $500 million in timing items related to government and vendor payments. For 2016, the company expects operating cash flow to be greater than $3.0 billion, which includes the impact of the timing items referenced above.
Share Repurchase Program: The Company did not repurchase any shares of its common stock during the fourth quarter of 2015 due to the pending acquisition of Cigna. During 2015, the Company repurchased approximately 10.4 million shares of its common stock, or 3.9 percent of the shares outstanding as of December 31, 2014, for $1.5 billion, or a weighted-average price of $145.50. As of December 31, 2015, the Company had nearly $4.2 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2015, the Company paid a quarterly dividend of $0.625 per share, representing a distribution of cash totaling $163.1 million.
Investment Portfolio & Capital Position: During the fourth quarter of 2015, the Company recorded net realized gains on investments totaling $30.6 million and other-than-temporary impairment losses totaling $28.5 million. During the fourth quarter of 2014, the Company recorded net realized gains of $43.8 million, partially offset by other-than-temporary impairment losses totaling $13.5 million.
As of December 31, 2015, the Company’s net unrealized gain position in the investment portfolio was $367.5 million, consisting of net unrealized gains on equity securities totaling $389.7 million and net unrealized losses on fixed maturity securities totaling $22.2 million. As of December 31, 2015, cash and investments at the parent company totaled approximately $1.4 billion.
Discontinued Operations: In late December 2013, the Company entered into agreements to divest its 1-800 CONTACTSsubsidiary and related assets. The sales were completed on January 31, 2014. As a result, the current and prior period operating results of 1-800 CONTACTS have been classified as discontinued operations, net of the related tax effects.