Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Does Anthem Make Money?

The question does Anthem (NYSE: ANTM) make money has come up because the health insurer is taking a major risk by considering a pullout from Obamacare exchanges in Colorado and New York State. That move might lead to a political show down with governors in those states that might cost Anthem business.

Governors John Hickenlooper (D-Colorado) and Andrew M. Cuomo (D-New York) are threatening to block Anthem’s ability to bid on lucrative Medicaid contracts in their states if it leaves exchanges. The Blue Cross/Blue Shield operator is considering that move because like UnitedHealth (NYSE: UHC) it has been losing money on the exchanges.

Anthem has also threated to leave exchanges in a number of other states including Ohio. That might cause the exchanges to collapse and leave hundreds or thousands of mostly rural residents without access to health insurance.

Anthem is making a lot of Money

These moves are sure to enrage many people because Anthem is making a lot of money. The financial data posted at ycharts indicates that Anthem is a profitable and cash rich company.

Some indications of Anthem’s success include:

  • A net income of $2.777 billion reported on March 31, 2017. That marked a nice increase over the $2.398 billion reported a year earlier.

  • Significant revenue growth. Anthem reported revenues of $87.10 billion on March 31, 2017. Those revenues were $6.71 billion more than the $80.39 billion reported for first quarter 2016.


  • A profit margin of 4.48% for first quarter 2017.


  • A free cash flow of $2.560 billion at the end of first quarter 2017.


  • An earnings per share number of 10.31 on March 31, 2017.

  • Assets of $68.94 billion on March 31, 2017.


  • $25.56 billion in cash and short-term investments on March 31, 2017.


  • $910 million in cash from financing at the end of first quarter.


  • $4.533 billion in cash from operations at the end of first quarter 2017.


These numbers show that Anthem can be considered a value investment because it has a lot of float. Yet there is some indication that it is overvalued in the form of a $50.03 billion market capitalization and an enterprise value of $40.18 billion on June 14, 2017.

Anthem’s share price of $188.79 on June 14, 2017 lends credence to this argument but investors are making money in the form of a 65¢ dividend paid on June 7, 2014. Those investors also received a 11.22% return on equity on March 31, 2017.

Does Obamacare Work?

Anthem might be a good investment but its exit from Obamacare raises serious doubts about that program. If a cash-rich company like Anthem cannot afford to participate in those exchanges – who can?

Insurers are losing money on the exchanges because many of the people who participate in them are older and have preexisting conditions. There are also the added costs of treating patients in rural areas where there might be little or no competition in healthcare.

To make matters worse Republicans have refused to fund the so-called risk corridors a mechanism designed to underwrite coverage for those who cannot afford insurance elsewhere. That means insurers have to absorb the full costs of treating very unhealthy patients.

Insurer pullouts are likely to be unpopular because of the collateral damage in small towns and rural areas. Local clinics, hospitals and drugstores might close because of lack of funds. Many people will have to move to simply to get health insurance, while others will quit their jobs and go on Medicaid.

The Danger from Single Payer

This will lead to a political reaction and more calls for single payer healthcare which is a potential threat to Anthem’s future.

Senate Bill (SB) 562 or the Healthy California Act a single-payer law would ban private health insurance in the Golden State. SB 562 was backed by all the Democrats in the California State Senate. If it is passed as written SB 652 would effectively wipe out Anthem’s business in the nation’s most populous state.

A slightly different single payer bill A04738; or the New York Health Act, passed that state’s lower house or Assembly in mid-May. That law would finance basic health, vision and dental care for all citizens and replace employer health insurance with a state run program.

Indianapolis – Circa April 2016: Anthem World Headquarters. Anthem is a Trusted Health Insurance Plan Provider V

Neither measure is expected to become law but observers think the bills are the beginning of a nationwide push for Single Payer healthcare or Medicare for all. Most of the Democratic members of the U.S. House of Representatives; 112 of 193, are cosponsoring the Expanded and Improved Medicare for Act sponsored by Representative John Conyers Jr. (D-Michigan), The New York Times reported.

Those members are going against their majority leader; Nancy Pelosi (D-California) who thinks the nation is not ready for single-payer, but they have the support of a lot of their party’s leaders. Potential Presidential candidates U.S. Senator Corey Booker (D-New Jersey), U.S. Senator Liz Warren (D-Massachusetts) U.S. Senator Kamala Harris (D-California), US Senator Bernie Sanders (I-Vermont), and Governor Andrew M. Cuomo are all on record as supporting the idea.

Political Leaders led by Trump want Single Payer Healthcare

So are two potential replacements for Pelosi as majority leader; Representatives Joseph Crowley (D-New York) and Keith Ellison (D-Minnesota). A dark horse single payer backer is President Donald J. Trump (R-New York), The Washington Post reported.

“We have a failing health care — I shouldn’t say this to our great gentleman and my friend from Australia, because you have better health care than we do,” Trump supposedly said to The Washington Post’s Abby Phillip. Australia has a single-payer health insurance system called Medicare.

“We must have universal health care,” Trump wrote in his 2000 book The America we Deserve. “Just imagine the improved quality of life for our society as a whole. The Canadian-style, single-payer system in which all payments for medical care are made to a single agency (as opposed to the large number of HMOs and insurance companies with their diverse rules, claim forms and deductibles) … helps Canadians live longer and healthier than Americans.”

“As far as single-payer, it works in Canada,” Trump said at a Republican debate. “It works incredibly well in Scotland. It could have worked in a different age, which is the age you’re talking about here.”

Trump even praised Britain’s National Health Service (NHS) in an appearance on The David Letterman Show just before he launched his presidential run. So it sure sounds as if Trump would sign a single payer law if one reached the Oval Office. Particularly if he has an eye on reelection in 2020.

Therefore single-payer is a far greater possibility than many people think. Anthem is a good investment right now but its business might be destroyed or changed beyond recognition by a changing political climate. Investors had better be ready to sell insurers like Anthem because their product might soon become redundant.