(Reuters) - Health insurer Anthem Inc (ANTM.N) said on Wednesday that its Obamacare insurance business is being hampered by lower-than-anticipated enrollment due to fewer applicants than expected and cheaper premium rates at competitors.
Anthem has been one of the biggest and most profitable insurers in the new individual market, which was overhauled in 2014 with new government subsidized plans sold on exchanges created under Obamacare. Now Anthem says that business will drag on profit growth in 2016 and could even affect its long-term 2018 financial target.
The comments from the second-largest U.S. health insurer came in its third-quarter financial report, which showed that other government-based businesses had outperformed expectations.
Shares of Anthem were down 5.1 percent at $137.35 in morning trading. Cigna Corp (CI.N), which Anthem has announced plans to buy, was down 3.2 percent while shares of Aetna Inc AET.N, which reports on Thursday, were down 2.8 percent.
“We’re trending the wrong direction on enrollment,” Anthem Chief Financial Officer Wayne DeVeydt told investors on a conference call. The company lost 69,000 exchange customers during the quarter, ending with 824,000 customers. It has 1.75 million total individual customers.
Anthem, which operates Blue Cross Blue Shield plans in more than a dozen states, said it expects continued enrollment declines in the fourth quarter and that 2016 will be weak as competitors undercut prices. After that, it is counting on improvements in 2017 and 2018 when it expects to be able to compete better on prices.
Many of its individual customers buy their insurance on the exchanges created under President Barack Obama’s national healthcare reform law and receive subsidies from the government aimed at making it more affordable. The government expects about 9.1 million people to have this insurance at the end of 2015, a lower target than the 15 million it once aimed for, and for next year expects 10 million people to enroll.
Earlier this week, the U.S. government said that in the 37 states where it runs exchanges, the monthly premium rate of the benchmark health insurance plan will increase 7.5 percent on average.
DeVeydt said the company was not seeing what hospitals attested to this week: patients dropping coverage because of premium prices.
Two weeks ago, UnitedHealth Group Inc (UNH.N) disappointed investors when it told them the individual business was cutting into profit this year. Unlike Anthem, it said it expected 2016 to improve.
Leerink Partners analyst Ana Gupte described Anthem’s commentary on the call as being “very cautious” and noted the pressure from market share losses to other plans that had priced below them in 2016.
Anthem said its other businesses did well as more people enrolled for its government plans in Medicare for the elderly and disabled and Medicaid for lower-income families. Medicaid enrollment rose by 786,000 members in the third quarter.
Anthem said earnings rose to $654.8 million, or $2.43 per share, from $630.9 million, or $2.22 per share, a year earlier.
The company said spending on medical claims as a percentage of premiums rose to 83.6 percent from 82.5 percent a year ago, due to expenses in its individual business. The metric is keenly watched for signs of rising costs.
On an adjusted basis, Anthem earned $2.73 per share, well above analysts’ average estimate of $2.33 according to Thomson Reuters I/B/E/S.
Revenue rose to $19.77 billion from $18.37 billion. Analysts were expecting revenue of $19.64 billion.
The company also forecast full-year profit of $10.10-$10.20 per share, below analysts’ expectations of $10.22.
Reporting by Caroline Humer in New York and Amrutha Penumudi in Bengaluru; Editing by Savio D'Souza and Matthew Lewis