UNH UnitedHealth Group Inc

By Anna Wilde Mathews and Anne Steele 

Anthem Inc. said its enrollment through the Affordable Care Act's exchanges grew more than expected in the first months of the year. The company said it is still targeting a slim positive margin on the business this year, striking a guardedly optimistic tone about the marketplaces amid questions about their sustainability.

The No. 2 U.S. health insurer said it had 975,000 exchange enrollees at the end of the first quarter, up by around 184,000 since the end of the year. The increase drew sharp questions from analysts after UnitedHealth Group Inc.'s recent announcement that it would withdraw from all but a handful of the exchanges after steepening losses.

During the company's call Wednesday to discuss first-quarter earnings -- which, on an adjusted basis, beat analysts' expectations -- Anthem Chief Executive Joseph R. Swedish noted that performance on the exchanges "has lagged expectations throughout the industry as some of our peers have recognized." He said Anthem was being cautious in its projections and its management of pricing and products.

Anthem believes it is "well-positioned for continued growth in the exchange marketplace if the market stabilizes to a more sustainable level," Mr. Swedish said, and he called for some changes by regulators to ensure the exchange business would work.

The company is still targeting a margin on the exchange business for this year that is lower than its ultimate goal of 3% to 5%, saying it likely won't achieve its 3%-to-5% aim in 2017 either, but sees it as more doable in 2018.

Anthem has said it roughly broke even in 2015 on individual plans -- putting it ahead of many insurers that, like UnitedHealth, saw losses on the exchanges. The individual business has traditionally been a more important segment for Anthem than for some of its big national competitors. Analysts have also suggested that as Anthem's proposed $48 billion acquisition of Cigna Corp. remains under federal review, it may have reason to support the exchanges, a central part of the Obama administration's signature health law. Anthem said it was still looking to close the deal in the second half of this year.

Much of the boosted exchange enrollment came in states where nonprofit cooperative insurers had folded, including New York, Colorado and Kentucky, the company said. Seeking to reassure investors that it hadn't drawn enrollees with aggressive pricing, the insurer emphasized that the growth came despite rates that it said were higher than some others in those markets.

Anthem said it now expects overall revenue for the 2016 year in the range of $81 billion to $82 billion, up from its previous forecast for $80 billion to $81 billion. It backed its view of adjusted earnings of greater than $10.80 a share, and Anthem executives emphasized that one reason it kept that number constant was the cautious stance it was taking on exchange-business projections.

Medical enrollment grew 2.8% from a year earlier to about 39.6 million as of March 31. Revenue in the government-business segment jumped 14% to $10.8 million.

Anthem said the growth was driven by enrollment increases in the Medicaid business, as well as national accounts and individual enrollment. Medicaid membership rose 7.6% from the prior-year period to 6.05 million in the quarter. But Anthem saw a dip in small-employer enrollment that it tied to the decision by some states to add larger employers to the "small group" category under the ACA.

The insurer posted a profit of $703 million, or $2.63 a share, down from $865.2 million, or $3.09 a share, a year earlier. On an adjusted basis, leaving out costs tied to transactions and investments, among others, earnings rose to $3.46 a share from $3.14. Revenue climbed 6.5% to $20.29 billion.

Analysts surveyed by Thomson Reuters had forecast per-share earnings of $3.32 on revenue of $19.86 billion.

Anthem's medical-loss ratio -- the share of premiums used to pay patient medical costs -- was 81.8% in the first quarter, up from 80.2% a year earlier. The climb was largely driven by the extra calendar day in the quarter, a higher ratio in the Medicaid and individual businesses and higher membership in the Medicaid business, which carries a higher benefit expense ratio than the company average.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

April 28, 2016 02:48 ET (06:48 GMT)

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