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Anthem Profits Tumble On Higher Obamacare Costs

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Anthem surprised Wall Street this morning with news its fourth-quarter profits fell 64% as the company was hit with higher than-expected medical expenses in its individual health insurance business, which includes plans offered on public exchanges under the Affordable Care Act.

The large health insurer, which operates Blue Cross and Blue Shield plans in 14 states, said benefit expenses soared nearly 10% to $16.3 billion, according to its earnings report. That caused profits to fall to $180.9 million in the fourth quarter of 2015 compared to $506.7 million.

Anthem , which is working to finalize an acquisition of Cigna , has been all-in when it comes to offering an array of health plans under the Affordable Care Act. Like other insurers across the country, including UnitedHealth Group , which reported a$720 million loss on Obamacare patients earlier this month, it’s been a challenge to get a handle on medical expenses of newly insured Americans under the health law.

“There’s been a lot of volatility” related to the exchanges, Anthem chairman Joe Swedish said in an hour-long call with analysts this morning.

The “benefit expense ratio” was 87% in Anthem's fourth quarter, compared to 84.5% a year ago.

Looking ahead, Swedish said the company is working to get a better handle on medical costs, but it isn’t “experiencing the growth” company executives thought when it first got into the business of offering health plans on the public exchanges. It ended 2015 with nearly 800,000 exchange plan members, which company executives said was 30% below its original projections.

Still, a bigger part of business for Anthem that comes from the ACA is Medicaid and that more than offset the drag the company is seeing from individual plans offered on public exchanges to help the company turn a profit.

Its enrollment in Medicaid plans for poor Americans rose 14% to 5.9 million, driven by states that opted to expand such coverage under the health law. That helped overall operating revenue rise more than 6% in the fourth quarter to $20 billion from $18.8 billion in the prior year’s fourth quarter.

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