(Reuters) - Health insurer Anthem Inc promised investors 2018 earnings above Wall Street estimates on Wednesday and said plans are on track to save at least $4 billion a year on drug costs by building its own pharmacy benefit management company.
Anthem shares gained 4 percent, recovering from a decline on Tuesday after three large and influential companies - Amazon Inc, JPMorgan Chase and Berkshire Hathaway - said they would band together to cut healthcare costs for employees.
Anthem's new Chief Executive Officer, Gail Boudreaux, confirmed plans during a call with Wall Street analysts for the company to end its contract with Express Scripts Holding Corp and to build its own company to manage drug contracting for its members starting Jan. 1, 2021.
Anthem plans to use CVS Health to help it do so, and said that deal is moving ahead despite CVS' recent $69 billion agreement to buy Anthem insurance rival Aetna Inc. Anthem plans to return 20 percent of those savings on a pretax basis to customers. The strategic move was announced by Anthem's previous CEO, who stepped down last fall.
Anthem reported fourth-quarter earnings that were ahead of expectations, helped by lower than expected medical costs among Obamacare individual customers that swung that business to profitability for the year.
Anthem halved the number of markets where it will offer Obamacare individual plans in 2018, citing an uncertain regulatory climate. It expects individual enrollment in both Obamacare compliant and non-Obamacare compliant plans to drop by 950,000 in 2018 from 1.6 million people at the end of 2017, it said Wednesday.
Republican President Donald Trump's administration is working to roll back as much as it can of former President Barack Obama's Affordable Care Act, often called Obamacare. It is working on rules to expand the use of association health plans, which would be able to offer health insurance that does not comply with Obamacare.
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Boudreaux said she sees opportunity there. "I think, quite frankly, there is a positive for expanding access for consumers across the space, so we're very supportive of that," she said during the call.
The company said that Trump's tax overhaul, passed late last year, would add a net benefit of about $2 per share in 2018.
"The individual business did well and for 2018 they are (forecasting) a tailwind on tax reform and a tailwind for 2019," Leerink research analyst Ana Gupte said.
BEATING EXPECTATIONS
Anthem reported earnings outside of items of $1.29 per share, ahead of analysts' expectation of $1.27.
Anthem, which also raised its quarterly dividend by 7.1 percent to 75 cents per share, said it expects 2018 adjusted earnings to be greater than $15 per share.
Analysts were expecting earnings of $14.07, according to Thomson Reuters I/B/E/S.
Anthem said net income rose to $1.23 billion, or $4.67 per share, in the fourth quarter ended Dec. 31, from $368.4 million, or $1.37 per share, a year earlier.
The company recorded a one-time benefit of $1.1 billion due to the new U.S. tax law.
(Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Martina D'Couto and Frances Kerry)
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