Health insurer Anthem says Obamacare costs drag down fourth-quarter profit

(Reuters) - Health insurer Anthem Inc ANTM.N, which is in the process of buying smaller rival Cigna Corp CI.N, said on Wednesday its individual Obamacare exchange health plans weighed on fourth-quarter profit, causing it to miss analysts' expectations.

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

Anthem said that it had nearly 800,000 people enrolled in plans through the exchanges, which were created under President Barack Obama’s national healthcare reform law, about 30 percent below its expectations. Without the membership it had planned for, costs of running the business were too high, Anthem said.

Anthem said net profit fell to $180.9 million, or 68 cents per share, in the fourth quarter, from $506.7 million, or $1.80 per share, a year earlier. It earned $1.14 per share on an adjusted basis, below the average analyst estimate of $1.20 per share.

Revenue rose to $20.02 billion from $18.78 billion.

Shares fell 3.7 percent in morning trading, and also pulled down shares in competitor Aetna Inc AET.N, which fell 2.3 percent.

Many insurers have reported losing money on the exchanges, in part because total enrollment has been sharply lower than initially anticipated and because some patients costs have been higher than expected. In November, UnitedHealth Group Inc UNH.N said it may completely exit the business.

Anthem Chief Executive Officer Joseph Swedish said during a conference call with investors that for 2016 so far, the early enrollment data is looking “slightly better” than its own “muted expectations.”

The company, which operates Blue Cross Blue Shield plans in more than a dozen states, said it expects the exchange business to be profitable this year, but not as much as the 3 percent to 5 percent profit margin that it had expected. Anthem lowered its expectations for 2016 revenue to reflect the weaker sector sales.

“Until these issues with the exchange as far as growth goes, expected growth, costs, getting the right membership to enter the exchanges; until those issues get ironed out, there is going to be volatility,” said Vishnu Lekraj, a senior analyst at Morningstar Research.

The percentage of premiums paid out for medical services increased due to greater expenses in the company’s individual and certain employer plans. This closely watched expense ratio was 87 percent in the fourth quarter, up from 84.5 percent a year ago, it said.

Anthem said its other businesses did well as more people enrolled for its government plans, especially in Medicaid for lower-income families. Medicaid enrollment rose by 721,000 members in the fourth quarter.

Additional reporting by Amrutha Penumudi in Bengaluru; Editing by Shounak Dasgupta and Marguerita Choy