(Bloomberg Gadfly) — At a time of extreme uncertainty in the health insurance market, Anthem Inc. just posted its best quarterly earnings since 2013.
The company's first-quarter results, announced Wednesday morning, beat analyst expectations on just about every measure, driven by growth in its Medicare and Medicaid businesses and a lot of new and healthier-than-expected patients enrolled via the Affordable Care Act's individual exchanges. Anthem says it intends to stay in the exchanges in 2018 — something I (mea culpa) previously thought unlikely — though that is based on a risky assumptionsc Congress will fund payments to insurers that lower costs for people insured under the ACA.
— Read Stalled Health Bill Wins New Support From Conservative Holdouts on ThinkAdvisor.
The ACA was so rough for insurers last year that even Anthem still seems unwilling to fully believe that healthier ACA patients — meaning lower costs for insurers — are a trend. According to Bloomberg Intelligence, Anthem has the most ACA exposure of any large diversified insurer. It is also one of the last of the major insurers still willing to give Obamacare a chance; UnitedHealth Group Inc. has mostly pulled out of the exchanges due to large losses, and Aetna Inc.'s CEO said the exchanges were in a "death spiral" in February. But there are signs insurers' assumptions about Obamacare may have been too pessimistic.
Given this gangbuster quarter, Anthem's current earnings guidance looks very cautious. Anthem's forecast suggests earnings for the last three quarters of the year will decline relative to 2016. There are some quirks of the first quarter that could set up a drop-off in subsequent quarters. Anthem retroactively recognized some Medicaid revenue in the quarter. And though medical spending for ACA enrollees is trending substantially better than last year, Anthem still says it's slightly higher than expected. Nearly half of Anthem's individual enrollees are new, making their costs hard to predict. The company expects to have more information and to update its forecast next quarter.
