Anthem vows to fight for Cigna deal; profit beats estimates

(Reuters) - Health insurer Anthem Inc on Wednesday said it was committed to its planned acquisition of Cigna Corp and again vowed to fight U.S. government efforts to block the deal, saying the merger will help lower costs for consumers.

“To be clear, our board and executive leadership team at Anthem is fully committed to challenging the DOJ’s decision in court,” Chief Executive Joseph Swedish told analysts on a conference call.

Anthem said it now serves 923,000 public exchange members across 14 states in what it called a high-risk market, and Swedish insisted the Cigna deal “will significantly lower costs for our self-funded consumers.”

U.S. antitrust officials last week filed lawsuits aimed at blocking that merger and Aetna’s planned acquisition of Humana, saying the multibillion-dollar deals would reduce competition, raise prices for consumers and stifle innovation if the number of large, national insurers fell from five to three..

Anthem said it expects the trial will likely begin in October and last about four months.

Industry analysts have expressed serious doubts that the Cigna deal will go through.

“I think it’s dead,” Leerink Partners analyst Ana Gupte said. “It’s going to be a hard one to challenge, especially because Cigna doesn’t look to be on board.”

Morningstar analyst Vishnu Lekraj said, “There’s a very small chance that it will actually get done in its current form.”

The $45 billion deal would create the largest U.S. health insurer by membership, with about 53 million members, and make it the leader in employer-based health insurance.

The company said it incurred higher-than-expected Medicaid claims, particularly from its new Iowa business, and higher costs from members with chronic conditions, such as diabetes and kidney disease, in the quarter.

It said it expects business from customers under the Affordable Care Act to incur mid-single digit operating losses for 2016, and Anthem shares fell 1.9 percent to $135.02.

Anthem said it was “focused on returning to profitability in 2017.”

Excluding items, the company earned $3.33 per share in the second quarter, topping analysts’ average expectations by 10 cents, according to Thomson Reuters I/B/E/S.

However, the earnings beat was largely driven by lower general and administrative costs.

“They’re growth-challenged,” Gupte said of Anthem as a standalone. “On the exchanges, if the risk pool doesn’t deteriorate further next year it’s possible they get to break even. If they at least reach break even, that’s a big improvement.”

Anthem reaffirmed its forecast for full-year adjusted earnings of greater than $10.80 per share, and raised its operating revenue outlook by $1.5 billion to $82.5 billion to $83.5 billion, reflecting strong enrollment trends.

It said it expects 2016 total membership to be 1 million to 1.2 million higher than at the end of 2015.

Anthem sees its medical loss ratio, the percent of premiums it spends on claims, to be about 84.9 percent.

Memberships in its government business, which includes Medicare and Medicaid plans, increased 6.5 percent.

Enrollment grew 572,000 in the Medicaid business, the company said.

However, Anthem’s benefit expense ratio, which measures expenditure on claims against premiums earned, rose to 84.2 percent from 82.1 percent a year earlier, due to the losses in the Obamacare individual insurance business.

Revenue increased about 7.2 percent to $21.46 billion, exceeding Wall Street estimates of $20.57 billion.