(Reuters) - Anthem Inc (ANTM.N) on Wednesday signaled earnings for 2020 could be better than feared, allaying some concerns that rising medical costs are eating into profits and sending shares of the No. 2 health insurer up 4%.
Rising medical costs have been a cause for worry for health insurers. In the latest quarter, Anthem and rival Centene Corp (CNC.N) missed estimates for benefit expense ratio, an important metric used to measure costs.
On an investor call, Chief Executive Officer Gail Boudreaux when asked if the company would be able to earn around $22.50 to $22.60 per share next year, replied the numbers were “in the ballpark”.
Though the forecast was below analysts’ estimates of $22.86, Evercore ISI analyst Mike Newshel said the comments were “still better than the market feared.”
Anthem said on Wednesday medical costs in its Medicaid business, which manages health plans for low-income Americans, improved in the quarter even as overall costs rose and came in higher than Wall Street targets.
“We’re very positive about the overall Medicaid environment business going forward,” Boudreaux said.
The insurer reported third-quarter profit ahead of estimates and raised its full-year earnings forecast, riding on higher sales of its government-backed health plans.
The company said it is on track to migrate all its members to IngenioRx, the new pharmacy benefit management business it launched earlier this year, by the new year.
In the third quarter, Anthem said its benefit expense ratio, the amount it spent on medical claims compared to income from premiums, worsened to 87.2% from 84.8% a year earlier.
Analysts on average expected 86.59%, according to IBES data from Refinitiv. A lower benefit expense ratio is better for health insurers.
The health insurer forecast adjusted 2019 earnings of more than $19.40 per share, up from its prior view of more than $19.30.
Excluding items, the company earned $4.87 per share, ahead of the average analyst estimate of $4.82.
Shares of the Indianapolis, Indiana-based company were up 4% at $270.72 in early morning trading.
Reporting by Tamara Mathias and Trisha Roy in Bengaluru and Caroline Humer in New York; Editing by Anil D'Silva, Bernard Orr