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Kevin O'Leary

Anthem's Q1 2022 Earnings Results

April 24, 2022
Company Research

Anthem (soon to be Elevance Health, a fact I had entirely forgotten until the earnings call) hosted its Q1 2022 earnings call on Wednesday, posting a very solid quarter of growth. As Anthem continues down the path of diversifying its business away from being just a health insurer to a “lifetime trusted health partner by focusing on whole health, addressing the physical, behavioral, and social drivers that we know are critical to achieving optimal health,” as Anthem’s CEO Gail Boudreaux describes it on the call.  

Here are a few of our key takeaways from the call:

The core commercial business grew nicely in Q1

Today, you can see in our results that commercial group fee-based enrollment grew by over 750,000 members in the first quarter alone, with a meaningful proportion of that growth driven by existing large employer clients consolidating their business with Anthem after working with us on a piece of their business in the past.

Anthem highlighted during the call that this was the best quarter it has ever had in terms of national account sales. This is particularly notable given UHG’s recent quarterly results, which saw a decline in the core commercial business driven by the loss of three large accounts. Given Anthem’s growth over a similar period, it’s not hard to imagine a scenario where Anthem and UHG were going head to head over those accounts and Anthem winning those accounts from UHG. They highlight the advancement in digital, specifically the Sydney Preferred app (its consumer engagement platform), as well as the high-performance provider networks they’ve been constructing as major drivers in membership.

Anthem is moving a substantial portion of its business to VBC, both with the Diversified Business Group and external partners

Anthem shared a couple of interesting data points on its VBC strategy, starting with this comment Boudreaux said in the prepared remarks:

In 2021, more than 60% of our consolidated medical expenses were paid under value-based care arrangements, with roughly a fifth of that or a low double-digit percentage of total spend in arrangements with downside risk. In the coming years, our primary focus will be to increase the penetration of downside risk-sharing, including via global capitation. We expect to make significant strides in the coming years, targeting more than a third of overall spend arrangements with downside risk in 2025, with significant increases in penetration in Medicaid, commercial, and Medicare.

So, around 10% of Anthem’s medical spend has some downside risk component to it (60% x 20%), meaning it plans to triple overall spend in downside risk agreements over the next three years. Boudreaux also mentioned that Medicare is already at 40% today, so it’d be interesting to understand specifically how they view the breakdown across Medicaid, commercial, and Medicare, and how much of the lift Medicare is doing in that number. Having 40% of Medicare spend with downside today is impressive already. Compare that to Humana, which noted in 2020 Value Based Care report that it has around 31% of its MA population managed with some downside risk (33% of Humana’s population is in FFS, 36% is in upside only VBC). 

Anthem has been very deliberate about its “partner-not-build” strategy in value-based care, focusing on supporting companies like Aledade, Privia, Vera, and CareMax in taking on risk to manage populations. This approach was again mentioned as one of Anthem’s key strategic priorities during the earnings call. 

But at the same time, Anthem has moved Beacon and MyNEXUS to value-based contracts with Anthem’s plans, which drove a significant bump in operating income for Diversified Business Group in Q1. It will be interesting to see how they balance the competing interests of growing DBG with supporting external providers moving forward. Anthem shared a bit about DBG’s strategy on the earnings call today, specifically its focus on managing complex chronic patients given the higher premium dollars (at around $12.5k versus $4.5k in the commercial space as cited during the call). Anthem also called out DME, post-acute care, and social determinants as specific opportunities to manage for those complex chronic patients.

And certainly, all of those populations make sense to look at, but it also seems to conflict directly with Anthem’s approach to partner and not build, as those also seem like the exact opportunities many partners would want to go after as well. Of course, it’s a big market with a lot of runway so it’s not surprising Anthem sees an opportunity to do some of both, but how its approach evolves over time will be something to watch. 

Anthem highlights its digital platform as a key growth driver

Anthem repeatedly highlighted the Sydney Health app, Anthem’s consumer engagement platform, as a key driver of success in the commercial market. Anthem cited 12 million members on Sydney today, with 1.2 million members on Sydney Preferred, a customizable version that employers use. Apparently it is working with employers given the success in Q1, but I’m not sure I could actually articulate for you what is better about it or why it’s driving success.  In the transcript, Boudreaux references how cost of care is paramount for employers along with enhanced experiences. Many employers look to advocacy and navigation companies to drive this. Bringing all of these capabilities and services under one roof is highly important to employers and if they can do this effectively (or as effectively as a navigator) it's one less vendor to integrate and manage with likely significantly less impact to PEPM spend. 

The other important phrase used was "allows employers to customize our engagement platform" - when employers say that they want simplicity, that is a key part of what they mean. Employers want a simple experience that is customized to their employee populations. If Anthem is doing this, leveraging the same strong provider networks, introducing an effective virtual care experience and replicating the navigation engagement at a lower PMPM, it's no surprise they are taking share in existing clients.

Anthem also highlighted that its live chat and AI messaging capabilities are growing quickly - consumer chat grew 40% YoY, representing 24% of member contacts, while provider chat grew 50% YoY, representing 20% of provider contacts. And then there’s the HealthOS platform, which is now doing something with clinical data for 20 million members. It’s a bit confusing how these various initiatives fit together though, and how efforts like Hydrogen Health, Anthem’s JV with K Health and Blackstone fit into all of this.

Anthem doesn’t seem concerned about redetermination questions

We’re seeing lots of questions about Medicaid redeterminations and the impact on coverage lately (see for instance this Georgetown piece highlighting how 6.7 million children may lose coverage), but Anthem doesn’t seem particularly concerned by the change. Anthem shared during the call that it expects redeterminations to play out over time, with different states moving forward at different times. Anthem expects 35% of membership to stay within government, 45% to move to commercial insurance, and 20% to move to individual exchanges.

Anthem is seeing strong growth in Duals in particular among its government businesses

Twice in the earnings call, Anthem highlighted that strong growth in the Duals market is leading the way for growth in its Medicare Advantage segment. Seems this market is hot for everyone right now.