anthem october 2015. agenda confidential, unpublished property of cigna. do not duplicate or...

ANTHEM

October 2015

AGENDA

Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2015 Cigna 2

> Background

> History

> Core Strategies

> Financial performance

> Healthcare Environment

BACKGROUND

> Anthem, Inc. is one of the largest health benefits companies in the United States. Through its affiliated health plans, Anthem companies deliver a number of leading health benefit solutions through a broad portfolio of integrated health care plans and related services, along with a wide range of specialty products such as life and disability insurance benefits, dental, vision, behavioral health benefit services, as well as long term care insurance and flexible spending accounts.

> Headquartered in Indianapolis, Indiana, Anthem, Inc. is an independent licensee of the Blue Cross and Blue Shield Association serving members in California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia and Wisconsin; and specialty plan members in other states

3Confidential, unpublished property of Cigna. Do not duplicate or distribute. Use and distribution limited solely to authorized personnel. © 2013 Cigna

HISTORY

Anthem, Inc. grew out of two Indianapolis-based corporations formed in 1944 and 1946 as mutual insurance companies. Those two companies were created to provide health insurance to residents of Indiana as Blue Cross of Indiana and Blue Shield of Indiana. They eventually merged to form Blue Cross and Blue Shield of Indiana. In October 2001, Anthem demutualized and conducted an initial public offering of common stock. Anthem, Inc. merged with WellPoint Health Networks in 2004. At the time of the merger, the parent company assumed the name WellPoint, Inc. In December 2014, WellPoint changed its name to Anthem, Inc.


CEO

> Joseph R. Swedish is the president and chief executive officer of Anthem, Inc.

> Mr. Swedish’s more than 40 years of health care leadership includes 25 years as CEO for several major health systems

> Mr. Swedish joined Anthem in March 2013.

> With Mr. Swedish at the helm, Anthem has outperformed financial expectations for eight consecutive quarters with operating revenue growing 20% to more than $73 billion, and Anthem’s share price nearly tripling to an all-time high. Mr. Swedish has also mobilized Anthem's 52,000 associates around three strategic pillars—provider collaboration, managing total cost of care, and consumer centricity—to advance the company's ambitious 2018 goals: grow membership to 40 million members, and grow operating revenue to more than $100 billion. Mr. Swedish serves on the board of directors for the Blue Cross and Blue Shield Association, the National Institute for Health Care Management, America’s Health Insurance Plans, and the Board of Trustees of the AHA Health Research and Educational Trust, and Duke University’s Fuqua School of Business Board of Visitors.

> Mr. Swedish received his bachelor’s degree from the University of North Carolina at Charlotte and his master’s degree in health administration from Duke University.


BUSINESS SEGMENTS


1. Commercial & Specialty Business (comprised of the Local Group, National Accounts, Individual and Specialty businesses)

2. Government Business (comprised of the Medicaid and Medicare businesses, National Government Services, and the Federal Employee Program)

3. Other (comprised of unallocated corporate expenses and certain other businesses that do not meet the quantitative thresholds for separate reportable segment disclosure).

2014 CUSTOMER BASE


GEOGRAPHIC OPERATIONS


STRATEGY


Redefining, Reinventing, Reinsuring

Anthem strategy is driven by the focus on achieving the following objectives:• Create the best health care value in the industry• Excel at day-to-day execution• Capitalize on new opportunities to drive growth

Value Proposition: Provide quality care and focus on improving health while providing greater value

People

Strong Cash Flow

Slowly increasing profit

M&A: Cigna Acquisition

3 Core Strategic Pillars:1.Provider Collaboration2. Affordability thru cost of care3. Customer Centricity

Relationship with customers, physicians, hospitals and other health care clinicians as trusted partners

METRICS 2014


Calculation Cigna Anthem

Total Revenues 34914 73874.1

% Revenue Growth 7.80% 4%

Balance Sheet Cash & Equivalents 1420 2151.7

(operating) Cash Flow 1994 3369.1

Cash Flow Growth 177% 10.30%

Op Inc/Revenue as a % Operating Margin 9.50% 5.90%

Net Profit 2094 2569.7

Net Profit Growth 41.90% 3.20%

Diluted EPS $7.83 $8.99

Diluted EPS Growth 51.20% 9.60%

Net Income / Equity Return on Equity 19.40% 10.60%

ANTHEM COMPARED TO CIGNA

>Strengths– Double the Revenue $35B vs $74B– Higher Cash Balance $1.42M vs $2.15M– Operating Expense Ratio 13% compared to our 24%– Higher diluted EPS $7.83 to $8.99

>Weaknesses – Growth from 2013 to 2014 not nearly as strong as Cigna’s– Cash flow 10% vs 177%– Net Profit 3.2% vs 42%– Diluted EPS Growth 9.6% vs 51.2%– Asset utilization is not as strong as Cigna


The Top 5 (Fortune 500)

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Merger Timeline

10/2014Humana meets with Cigna

01/2015 – UHC offer to Aetna: $104 per share ~ $36.4B

032015Anthem meets with Humana

04/2015 – Cigna offers Humana $230 per share

05/2015 – Humana rejects Cigna

05/2015 WSJ reports merger possibilities

06/2015 Aetna offers Humana $225 per share then bumps up to $230; Aetna spurns $240 counteroffer

06/2015 Anthem calls out Cigna publically

06/2015 Cigna offers $225 to Humana, cannot match cash/stock combo offered by Aetna

07/2015 Aetna buys Humana

08/2015 Anthem buys Cigna

Notes• At multiple points, Aetna was

prepared to walk away from the deal

• Cigna was the first party to make a play for Humana

• The Wall Street Journal report caused a huge spike in Humana's stock price

• Humana temporarily suspended the bidding when it determined it was not sure if its reserves were adequate to cover spikes in Med Adv utilization

• Anthem’s Cigna offer took it out of the bidding for Anthem

• Aetna decided to quash any takeover from UnitedHealth during a June 26 board meeting.

• Analysts have suggested that UnitedHealth was preoccupied with its $13 billion acquisition of pharmacy benefit manager Catamaran Corp.

http://www.modernhealthcare.com/article/20150811/NEWS/150819988

Government Reactions• Aetna CEO Mark Bertolini and Anthem CEO Joseph Swedish told senators on

September 21 that local and national health insurance markets would remain competitive if the federal government approved their pending transactions.

• The combined Aetna and Anthem companies would cover roughly 90 million Americans, or almost 30% of the population. Including UnitedHealth Group, the largest insurer by revenue, the “big three” insurers would cover about 135 million lives.

• Sen. Al Franken (D-Minn.), a member of the subcommittee, asked whether the deals will ultimately help consumers. “Do you commit passing along savings to policyholders?”

• Bertolini and Swedish hedged a bit on their responses, and Franken asked the question multiple times. “Our savings will be passed along in the price of our product,” Bertolini said. Swedish added, “We are committed to driving affordability for all of our customers.”

• Paul Ginsburg, a health economist at the University of Southern California, said the Aetna-Humana and Anthem-Cigna marriages could spur the healthcare delivery system to move more quickly toward value-based payment models

• Hospitals have been the most vocal critics of the insurance mergers. The American Hospital Association sent letters to the U.S. Justice Department this summer, arguing that the Aetna and Anthem deals will reduce competition in a slew of metropolitan markets.

http://www.modernhealthcare.com/section/articles?tagID=5947

Pros and Cons• While many analysts say the mergers will create greater efficiencies, the

consolidation from five major publicly traded insurers to three is fueling worries among policymakers and healthcare providers.

• There are concerns that collaboration between health plans and providers on innovative payment and delivery models could suffer as the bigger, more powerful payers gain more bargaining muscle over providers. But other experts say more payer clout is needed to drive down excessive provider prices.

• Aetna and Humana become the leader in the market with 4.5 million Medicare enrollees. That surpasses UnitedHealth, which has 3.5 million members. Anthem will have 1.1 million Advantage beneficiaries after absorbing Cigna.

• More than 80% of Anthem's revenue will come from commercial contracts with employers across the country. Anthem and Cigna also will have a dominant position in many employer markets.

• Critics contend that even if the big insurers are forced to shed some assets, they still will wield enormous market power and will use it to cut payment rates to providers, raise premiums and create narrow provider networks, rather than using their economies of scale to lower costs to consumers and employers.

• The combined Anthem and Aetna companies each would have about $115 billion in annual revenue, putting them among the 20 largest corporations in the U.S.—larger than Microsoft, Google and many other household names.

http://www.modernhealthcare.com/article/20150725/MAGAZINE/307259961

Sound Bytes From YCL• “Policy makers should consider the potential benefits of industry consolidation. The

greater efficiency and market power of larger insurance plans could lower prices for consumers by offsetting the bargaining power of health-care providers.”

• “This grows the strength of the payer, and that’s very important when negotiating with the providers, said Peter Ubel, a former medical internist who now is a professor of business, public policy and medicine at Duke University. “This will probably help hold down the cost of medical care.”

• “It could make health care more affordable because it gives them more leverage to negotiate with providers of care, which enables them to drive a tougher bargain and that should be translated back into better premiums for consumers”

• “One of the underreported benefits of the recently announced mergers of health insurers Anthem and Cigna, and Aetna and Humana, is that it should speed up innovation in health care…

• From the employer side, the deal can be “good news,” if the much larger Anthem can “cut better deals with medical providers”

• “You have to remember, these companies, while they’re larger, still make up less than half of the U.S. market.”

• “The ability of the insurers to represent more significant market share may lead to more competitive financial arrangements over time.”

• “Consolidation obviously brings bigger scale to them, brings synergies, something they really have to do, I think given some of the pressures that they face based on some of the new regulation in the ACA.”

http://www.modernhealthcare.com/article/20150725/MAGAZINE/307259961

SYNERGIES

• Administrative structure • Operational efficiencies • Network efficiencies and medical management • Cross leverage best in class capabilities • Unique capabilities to serve growing Dual Eligible population


Offered by: Connecticut General Life Insurance Company or Cigna Health and Life Insurance Company.

“”Cigna” and the “Tree of Life“ logo are registered service marks of Cigna Intellectual Property, Inc., licensed for use by Cigna Corporation and its operating subsidiaries. All products and services are provided by or through such operating subsidiaries, including Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company, and not by Cigna Corporation. All models are used for illustrative purposes only.

000000 00/14 © 2014 Cigna. Some content provided under license.

anthem october 2015. agenda confidential, unpublished property of cigna. do not duplicate or...

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