Anthem earns $1 billion, wins motion to keep Cigna from walking away from merger

The appeals court granted Anthem its motion to temporarily stop Cigna from exiting its merger agreement past the April 30 contract deadline, CEO Joe Swedish said during Wednesday's earnings call.

Anthem has also left the door open to renew its pharmacy benefit manager contract with Express Scripts, despite Express Scripts saying this week that Anthem is not interested in pursuing a relationship when their current agreement expires at the end of 2019.

Anthem has sent out requests for proposals for a pharmacy benefit manager and expects responses back by the first half of the year, with a decision made before the end of 2017, Swedish said.

The company will lower pharmaceutical costs by $3 billion annually in 2020 and beyond, Swedish said.

[Also: Anthem ends Express Scripts contract, turns down drug price concessions]

"It is important to note, we have not ruled anyone in or out as the best strategic option for the company going forward," Swedish said.

On its proposed $54 billion takeover of Cigna, Swedish said Anthem expects a decision soon in its appeal of a district court ruling in February barring the merger. Oral arguments in the case were held at the end of March.

"We remain committed to completing the acquisition as soon as possible," Swedish said.

By the terms of their merger contract from July 2015, Anthem must complete the deal by the end of April or face paying Cigna a $1.8 billion breakup fee.

Anthem this week filed a motion to stop Cigna from backing out of the agreement on April 30, as both await an appeals court decision.

[Also: Anthem files motion to block Cigna from terminating $54 billion merger]

"Concurrently," Swedish said, "we were also granted our motion for a temporary restraining order to enjoin Cigna from terminating the merger agreement."

The next hearing on the motion is May 8 in the Delaware court.

Meanwhile, Swedish said Anthem is assessing its Affordable Care Act footprint and premium increases. Insurers face a federal deadline of June to file rates. Many states require filings by May 1.

Financial expectations vary by market, Swedish said, and Anthem will participate only in markets that offer sustainability.

Anthem is moving forward under the assumption that the federal government will continue the cost-sharing reduction payments to insurers that allow them to offer consumers lower deductibles and out-of-pocket costs.

[Also: Former Anthem lobbyist Makan Delrahim tapped by Trump to lead Department of Justice antitrust division]

Insurers and state insurance commissioners have urged President Trump and Congress to continue the subsidies, or face an insurer exit from the ACA and double-digit premium increases from those that remain.

"At this point we plan to file preliminary 2018 rates with the assumption that the cost-sharing reduction subsidies will be funded," Swedish said. "However we are notifying our states if we do not have certainty by early June, we will need to evaluate appropriate adjustments to our filing."

This includes service area participation, rate increases, exiting ACA markets and/or reducing benefits, he said.

While the federal government has taken steps to stabilize the ACA market, more is needed, with CSRs and the reinstated health insurance tax at the top of the list.

Without CSRs, premiums could increase by an additional 20 percent or more, according to Swedish. The health insurance tax going into effect for 2018 could cause premiums to increase an additional 3-5 percent, he said.

Also, insurers need assurances of additional funding for high risk pools and the reinsurance subsidies that were part of the ACA, he said.

"We continue to work with the Administration and Congress on these issues," Swedish said.

The CEO said Anthem expects additional clarity on its ACA footprint by second quarter earnings, if not sooner.

Anthem reported profit of $1 billion during the first three months of the year, compared to $703 million a year earlier.

Enrollment increased by 715,000 members during first quarter.

Anthem ended the quarter with ACA enrollment of 1.6 million members.

"Our first quarter 2017 earnings represent a strong start to the year as membership and operating revenue came in above our expectations," Swedish said by statement.

"Our solid first quarter financial performance reflects continued momentum across our businesses that positions us well for future success, as reflected in our updated 2017 outlook," said John Gallina, executive vice president and chief financial officer.

Operating revenue was $22.3 billion in the first quarter of 2017, an increase of $2 billion, or 9.9 percent, versus the $20.3 billion in the prior year quarter.

The growth in revenue reflected premium rate increases to cover overall cost across Anthem's businesses. Additionally, the increase was driven by higher enrollment in the Medicaid, Medicare, and local group insured and self-funded businesses.

These increases were partially offset by the impact of the one-year waiver of the health insurance tax in 2017.

Twitter: @SusanJMorse