Anthem profit beats as medical costs stay at low end of estimates

Wed Jul 29, 2015 3:20pm EDT
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By Caroline Humer

(Reuters) - Health insurer Anthem Inc (ANTM.N: Quote), which plans to buy rival Cigna Corp (CI.N: Quote) for $47 billion, on Wednesday said medical costs, particularly in its Medicaid and Medicare businesses, were at the low end of expectations and helped boost second-quarter profit.

Anthem raised its profit outlook for 2015 and said it expects health spending to increase at the lower end of a range of 6.5 percent to 7.5 percent this year. It also said that a key financial measure of medical costs fell during the quarter.

Health insurers closely manage costs to contend with a constant rise in medical spending. Cost increases had been held back for many years by the weak economy, but began picking up in 2014 with the improved economy and as the national healthcare reform law extended insurance to millions more people.

A few months ago, the largest U.S. insurers began scrambling to line up merger partners that would give them leverage to contend with the trend and negotiate lower prices with medical providers.

Consolidation has heated up across the healthcare industry, including among hospitals, doctor groups, pharmacy benefit managers, pharmacies and drugmakers.

On July 3, No. 3 health insurer Aetna Inc (AET.N: Quote) said it would buy rival Humana Inc (HUM.N: Quote) and Anthem on Friday said it would acquire Cigna for $47 billion in cash and stock to create the No. 1 U.S. health insurer with 53 million members.

Anthem, which operates Blue Cross Blue Shield plans in more than a dozen states, said on Wednesday that spending on medical claims as a percentage of premiums fell to 82.1 percent from 82.7 percent a year ago. That is about 30 basis points better than Wall Street estimates, according to Leerink Partners analyst Ana Gupte.

Anthem is the first insurer to report earnings since UnitedHealth Group Inc (UNH.N: Quote) two weeks ago missed analyst expectations for that key ratio, a harbinger of cost increases.   Continued...

The office building of health insurer Anthem is seen in Los Angeles, California February 5, 2015.  REUTERS/Gus Ruelas