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Fourth quarter COVID-19 costs catch up to insurers

Insurers posted profits, but are wary of the continuing effects of the COVID-19 pandemic, especially in Q1 of this year.

Jeff Lagasse, Associate Editor

Fourth quarter financial results for 2020 are now in for the nation's largest healthcare insurers, and the numbers reflect the impact the COVID-19 pandemic has had on payers. Insurers are largely reporting declining gains, or even losses, at the end of a topsy-turvy year.

Most still posted substantial profits, and some performed better than expectations. But while the early days of the pandemic saw insurers posting strong numbers due to Americans' initial avoidance of medical care, patients are now seeking to make up lost ground when it comes to their healthcare journeys. That, and COVID-19 care, is catching up to payers in a tangible way.

Take CVS Health, for example, which owns Aetna and was the last to release its Q4 financials in a press call Tuesday morning. On the surface, CVS posted a strong fourth quarter, beating its own expectations by bringing in $69.9 billion in revenue – a $2.7 billion increase from the fourth quarter of 2019, good for a 4% jump.

Yet its posted profit of $975 million represented a 44% decline from Q4 2019.

For the full year, CVS brought in $268.7 billion in revenue and $7.2 billion in profit – the former up 4.6% and the latter up 8.5% from the year before. For this year, the company projects earnings per share between $7.39 and $7.55, and cash flow from operations somewhere north of $12 billion.

"Our goal is to make healthcare more accessible, more affordable and simpler," said CVS Health president and CEO Karen Lynch, who recently took over from former CEO and president Larry Merlo. "In order to do this, we will accelerate the pace of our progress through targeted investments in key areas that will drive our consumer-focused strategy. We believe that solving consumer health needs will deliver better health outcomes and lower costs, while creating future economic benefit for CVS Health and its shareholders."

Similar results were found among the nation's top insurers, with many anticipating 2021 to be an up-and-down year – with some of the potential coronavirus headwinds being felt already.


Anthem president and CEO Gail Boudreaux was explicit about the effects of the pandemic during the insurer's recent Q4 financial results. During the first half of 2020 – when the pandemic was in its nascency – COVID-19 treatment costs were the main narrative. In the second half of the year, a return to more normal utilization patterns caused strain as Anthem began paying out more claims.

"Consistent with our expectations, fourth quarter utilization was above baseline, reflecting higher costs attributable to the recent surge of COVID-19 cases, coupled with the return of non-COVID-19 care utilization," Boudreaux said.

According to John Gallina, Anthem CFO and executive vice president, total operating revenue jumped 16% to $31.5 billion, reflecting growth in Medicare and Medicaid. In fact, Medicaid membership made up more than 11 times the decline in the company's commercial risk-based business.

Full-year operating revenue, meanwhile, grew more than 17%, and the medical loss ratio was 88.9%, a decrease of 10 basis points over Q4 2019. During the quarter, coronavirus-related costs accelerated more than analysts had predicted, but this was offset by non-COVID-19 utilization coming in lower than expected.

"Our operating cash flow in the fourth quarter benefitted by a number of payments that were originally expected to be received in 2021," said Gallina. "These early receipts … benefited 2020 cash flow, including payment deferrals allowed under the CARES Act. We will reverse in 2021 and negatively impact our 2021 operating cash flow metrics."

Boudreaux said that membership trends exceeded expectations. Medical enrollment finished the year at 42.9 million members, representing growth of 1.9 million members over the prior year.


Cigna CFO and executive vice president Brian Evanko said that during the fourth quarter, the insurer experienced an increase in direct COVID-19 costs for testing and treatment as incidence rates spiked across the country.

While Cigna also saw increased levels of care deferral for non-coronavirus costs during the latter part of the quarter, the direct COVID-19 costs outweighed the impact of lower, non-COVID-19 costs.

For the full year, Cigna posted adjusted annual revenue of $160 billion, adjusted earnings of $6.8 billion after tax, adjusted earnings per share of $18.45 and operating cash flows of $10.4 billion.

For full-year 2021, the company expects consolidated adjusted revenues of at least $165 billion, representing growth of around $10 billion after adjusting for 2020 group revenues. Full-year 2021 consolidated adjusted income from operations is expected to be at least $6.95 billion, or at least $20 per share – inclusive of an expected COVID-19-related headwind of about $1.25 per share.

In 2021, Cigna expects elevated medical costs, including the impact of direct COVID-19 related costs and more normalized non-COVID-19 utilization. It also anticipates the gradual economic recovery of its customer base.

"Given these COVID-19 dynamics, we expect the primary impact to be in our U.S. medical business," said Evanko. "Further, we expect the COVID-19 headwind to be more concentrated in the first quarter of the year, and so we would expect the cadence of earnings per share in 2021 to be more weighted to the final three quarters of the year. Specifically, we expect approximately 20% to 22% of 2021 earnings per share to emerge in the first quarter of the year."

Evanko projects Medicare Advantage customer growth in the target average annual growth range of 10% to 15%, as well as growth in the individual ACA business, which he said will be largely offset by the exit of legacy non-ACA individual market offerings.


According to UnitedHealth Group CFO and executive vice president John Rex, UnitedHealthcare's fourth quarter operating results reflected comparatively lower levels of care deferrals and higher COVID-19 care costs versus the third quarter. 

The results were further impacted by additional reserves or rebates and related activity, as plans with such arrangements moved into these positions as a result of the cumulative care-deferral impacts throughout 2020.

During the fourth quarter, UnitedHealthcare saw overall average care activities return to seasonal baselines compared to the just over 95% logged in the third quarter. The pacing over the course of the quarter moved from just below baseline as the outfit began to modestly exceed baseline in the latter half. This measure includes increased direct COVID-19-related care, which in total comprised about 11% of all care activity during the fourth quarter compared to about 6% in the third quarter.

Outpatient activity began the quarter at baseline, but by the latter part of the quarter, some outpatient activity moderated as the incidence of COVID-19 climbed. Total inpatient activity increased modestly over the course of the quarter as the direct COVID-19-related care components rose as a percentage of the total in the latter half. For example, of the 65,000 COVID-19-related inpatient admissions during the quarter, about 20% occurred in October and about 50% in December.

Full-year 2020 cash flows from operations were $22.2 billion, almost one-and-a-half times net income, also exceeding expectations. Commercial membership was about 100,000 people ahead of the initial outlook, and early January results appear to be continuing this trend.

"Our full year 2021 outlook remains consistent with the early December commentary, with total revenue approaching $280 billion and adjusted earnings per share in the range of $17.75 to $18.25, inclusive of the negative COVID-19 related effects we described," said Rex. "Given the still highly dynamic circumstances, we will likely hold this broader than typical range of expectations as we much like everyone else, continue to learn more about the environment."


In 2020, after adding 10 million members, Centene saw full-year revenue of $111 billion, representing 49% growth and adjusted diluted earnings per share of $5, up 13% over the prior year.

Centene President, Chairman and CEO Michael Neidorff attributed this growth to the extension of the Medicaid redetermination suspension. The Centers for Medicare and Medicaid Services has indicated they will likely extend the public health emergency through the end of the year.

"One month into the first quarter, our view of 2021 remains largely consistent with what we shared at our December Investor Day, and we are reiterating our adjusted EPS guidance of $5 to $5.30," said Neidorff. "We are not changing our EPS guidance at this time, but in the spirit of our continued commitment to transparency, we want to provide the head and tailwinds impacting our operational landscape. 

"Among the key potential headwinds, additional state rate actions due to COVID-related reductions in utilization, beyond the $400 million we've already incorporated. We will remind you that CMS has not approved the previously submitted rate actions. However, as we have said, we have built them into our guidance and cash flows. And CMS maintains that rate actions must be actuarially sound. The potential for higher than anticipated overall COVID-related costs is the second headwind. And third, a Medicare physician fee schedule update."

Centene's fourth quarter revenues were $28.3 billion, an increase of 50% over the fourth quarter of 2019 and adjusted diluted earnings per share was $0.46 compared to $0.73 last year. 

Centene CFO, treasurer and executive vice president Jeff Schwaneke said total revenues grew by $9.4 billion over the fourth quarter of 2019 due to the acquisition of WellCare and growth in the Medicaid and Health Insurance Marketplace business. This growth also includes the impact from the suspension of Medicaid eligibility redeterminations and the reinstatement of the health insurer fee in 2020 – partially offset by the divestiture of Centene's Illinois health plan and retroactive state premium-rate adjustments and risk-sharing mechanisms.

"Through year-end 2020, we paid approximately $3.6 billion associated with COVID claims," said Schwaneke. "This compares to the $2 billion we discussed on our third quarter call. Our full year figure applies consistent methodology and includes all of the COVID-related claims codes consistent with CDC guidelines."

For the full year, Centene expects revenue to be between $116 and $118 billion. 

"Additionally, we continue to expect typical utilization to remain below the historical baseline during the first half of 2021," said Schwaneke. "We're turning to normalized levels in the second half of the year. [COVID-19] utilization is expected to be elevated during the early part of the year, particularly offsetting the impact of lower traditional utilization. The duration and intensity of higher COVID costs will be impacted by the trajectory of the pandemic and vaccination rates."


Humana ended 2020 on a down note, posting a record net loss of $274 million in the fourth quarter.

A sharp increase in COVID-19 admissions occurred across its markets during the last couple of months of the year, though most of those expenses were balanced out by a decline in non-coronavirus care, the insurer said during its earnings call. 

The loss was a stark contrast to the $512 million profit Humana posted in Q4 2019. Despite the sizable net loss, however, the organization still managed a $3.1 billion profit for the year, a significant 25% increase from 2019. Its pre-tax income was $4.6 billion for the year, a 33% year-over-year increase.

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