ANTHEM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

(In Millions, Except Per Share Data or As Otherwise Stated Herein)

 This Management's Discussion and Analysis of Financial Condition and Results of
Operations, or MD&A, should be read in conjunction with our audited consolidated
financial statements included in Part II, Item 8 of this Annual Report on Form
10-K. References to the terms "we," "our," "us," "Anthem" or the "Company" used
throughout this MD&A refer to Anthem, Inc., an Indiana corporation, and, unless
the context otherwise requires, its direct and indirect subsidiaries. References
to the "states" include the District of Columbia, unless the context otherwise
requires.
This section of this Annual Report on Form 10-K generally discusses 2019 and
2018 items and year-over-year comparisons between 2019 and 2018. A detailed
discussion of 2017 items and year-over-year comparisons between 2018 and 2017
that are not included in this Annual Report on Form 10-K can be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2018.
Overview
We are one of the largest health benefits companies in the United States in
terms of medical membership, serving approximately 41 medical members through
our affiliated health plans as of December 31, 2019. We are an independent
licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association
of independent health benefit plans. We serve our members as the Blue Cross
licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee
for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri
(excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York
(in the New York City metropolitan area and upstate New York), Ohio, Virginia
(excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In
a majority of these service areas, we do business as Anthem Blue Cross, Anthem
Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue
Cross. We also conduct business through arrangements with other BCBS licensees
as well as other strategic partners. Through our subsidiaries, we also serve
customers in numerous states across the country as Aim Specialty Health,
Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, HealthSun,
Optimum HealthCare, Simply Healthcare, and/or UniCare. Also, in the second
quarter of 2019, we began providing pharmacy benefits management, or PBM,
services through our IngenioRx subsidiary. We are licensed to conduct insurance
operations in all 50 states and the District of Columbia through our
subsidiaries.
We manage our operations through three reportable segments: Commercial &
Specialty Business, Government Business and Other. Prior to the second quarter
of 2019, our Other segment included certain eliminations and corporate expenses
not allocated to either of our other reportable segments. Beginning with the
second quarter of 2019, our Other segment also includes IngenioRx, our pharmacy
benefits manager, which began operations during the second quarter of 2019. In
addition, during the second quarter of 2019, we reclassified our Diversified
Business Group, or DBG, our integrated health services business, from our
Government Business segment to the Other segment to reflect changes in how our
segments are being managed. Amounts for prior years have been reclassified
through this MD&A to conform to the current year presentation for comparability.
Based on the Financial Accounting Standards Board, or FASB, guidance, as of
December 31, 2019, IngenioRx and DBG did not collectively meet the quantitative
thresholds for a reportable segment.
Our operating revenue consists of premiums and administrative fees and other
revenue. Premium revenue comes from fully-insured contracts where we indemnify
our policyholders against costs for covered health and life benefits.
Administrative fees and other revenue come from contracts where our customers
are self-insured, or where the fee is based on either the processing of
transactions or a percent of network discount savings realized, revenues from
our Medicare processing business and from other health-related businesses,
including disease management programs and miscellaneous other income.
Administrative fees and other revenue also include product revenue for PBM
services performed by IngenioRx to unaffiliated PBM customers, including our
self-funded groups that have contracted with IngenioRx for PBM services, and
beginning in 2020, to third-party health plans.
Our benefit expense primarily includes costs of care for health services
consumed by our fully-insured members, such as outpatient care, inpatient
hospital care, professional services (primarily physician care) and pharmacy
benefit costs. All four components are affected both by unit costs and
utilization rates. Unit costs include the cost of outpatient medical procedures

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per visit, inpatient hospital care per admission, physician fees per office
visit and prescription drug prices. Utilization rates represent the volume of
consumption of health services and typically vary with the age and health status
of our members and their social and lifestyle choices, along with clinical
protocols and medical practice patterns in each of our markets. A portion of
benefit expense recognized in each reporting period consists of actuarial
estimates of claims incurred but not yet paid by us. Any changes in these
estimates are recorded in the period the need for such an adjustment arises.
While we offer a diversified mix of managed care products and services through
our managed care plans, our aggregate cost of care can fluctuate based on a
change in the overall mix of these products and services. Our managed care plans
include: Preferred Provider Organizations; Health Maintenance Organizations, or
HMOs; Point-of-Service plans; traditional indemnity plans and other hybrid
plans, including Consumer-Driven Health Plans; and hospital only and limited
benefit products.
We classify certain claims-related costs as benefit expense to reflect costs
incurred for our members' traditional medical care, as well as those expenses
which improve our members' health and medical outcomes. These claims-related
costs may be comprised of expenses incurred for: (i) medical management,
including case and prospective utilization management; (ii) health and wellness,
including disease management services for such conditions as diabetes, high-risk
pregnancies, congestive heart failure and asthma management and wellness
initiatives like weight-loss programs and smoking cessation treatments; and
(iii) clinical health policy, such as identification and use of best clinical
practices to avoid harm, identifying clinical errors and safety concerns, and
identifying potential adverse drug interactions. These types of claims-related
costs are designed to ultimately lower our members' cost of care.
Our cost of products sold represents the cost of prescription drugs dispensed by
IngenioRx to unaffiliated PBM customers (net of rebates or discounts), including
any co-payments made by or on behalf of the customer, per-claim administrative
fees for prescription fulfillment and certain direct costs related to sales and
administration of customer contracts.
Our selling, general and administrative expenses consist of fixed and variable
costs. Examples of fixed costs are depreciation, amortization and certain
facilities expenses. Certain variable costs, such as premium taxes, vary
directly with premium volume. Commission expense generally varies with premium
or membership volume. Other variable costs, such as salaries and benefits, do
not vary directly with changes in premium but are more aligned with changes in
membership. The acquisition or loss of a significant block of business would
likely impact staffing levels and thus, associated compensation expense. Other
variable costs include professional and consulting expenses and advertising.
Other factors can impact our administrative cost structure, including systems
efficiencies, inflation and changes in productivity.
Our results of operations depend in large part on our ability to accurately
predict and effectively manage healthcare costs through effective contracting
with providers of care to our members and our medical management and health and
wellness programs. Several economic factors related to healthcare costs, such as
regulatory mandates of coverage as well as direct-to-consumer advertising by
providers and pharmaceutical companies, have a direct impact on the volume of
care consumed by our members. The potential effect of escalating healthcare
costs, any changes in our ability to negotiate competitive rates with our
providers and any regulatory or market-driven restrictions on our ability to
obtain adequate premium rates to offset overall inflation in healthcare costs,
including increases in unit costs and utilization resulting from the aging of
the population and other demographics, as well as advances in medical
technology, may impose further risks to our ability to profitably underwrite our
business, and may have a material adverse impact on our results of operations.
For additional information about our business and reportable segments, see Part
I, Item 1, "Business" and Note 19, "Segment Information" of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
Business Trends
The Patient Protection and Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010, as amended, or collectively, the ACA, has changed
and may continue to make broad-based changes to the U.S. healthcare system. We
expect the ACA will continue to impact our business model and strategy. Also,
the legal challenges regarding the ACA, including a federal district court
decision invalidating the ACA, or the "2018 ACA Decision", which judgment has
been stayed pending appeal, could significantly disrupt our business. During
2019, we modestly expanded our participation in the Individual ACA-compliant
market. Our strategy has been, and will continue to be, to only participate in
rating regions where we have an appropriate level of confidence that these
markets are on a path toward sustainability, including, but not limited to,
factors such as expected financial performance, regulatory environment, and
underlying market characteristics. We

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currently offer Individual ACA-compliant products in 91 of the 143 rating
regions in which we operate. In addition, the continuing growth in our
government-sponsored business exposes us to increased regulatory oversight.
In the second quarter of 2019, we began using our new pharmacy benefits manager
called IngenioRx to market and sell a PBM product to fully-insured and
self-funded Anthem health plan customers throughout the country, as well as to
customers outside of the health plans we own. This comprehensive product
portfolio includes features such as drug formularies, a pharmacy network,
prescription drug database, member services and mail order capabilities. In July
2019, we announced our first contract win with a third-party health insurer,
Blue Cross of Idaho, and we began providing PBM services under that contract
beginning on January 1, 2020. Also beginning in the second quarter of 2019, we
began delegating certain PBM administrative functions, such as claims processing
and prescription fulfillment, to CaremarkPCS Health, L.L.C., or CVS Health,
which is a subsidiary of CVS Health Corporation, pursuant to a five-year
agreement with CVS Health, or the CVS PBM Agreement. We intend to retain the
responsibilities for IngenioRx's clinical and formulary strategy and
development, member and employer experiences, operations, sales, marketing,
account management and retail network strategy. From December 2009 through
December 2019, we delegated certain PBM functions and administrative services to
Express Scripts, Inc., or Express Scripts, pursuant to our PBM agreement with
Express Scripts, or the ESI PBM Agreement. In January 2019, we exercised our
contractual right to terminate the ESI PBM Agreement earlier than the original
expiration date of December 31, 2019 due to the acquisition of Express Scripts
by Cigna Corporation, or Cigna. We began transitioning existing members from
Express Scripts to IngenioRx in the second quarter of 2019, and completed the
transition of all of our members on January 1, 2020. Prior to the termination of
the ESI PBM Agreement, Express Scripts managed the network of pharmacy
providers, operated mail order pharmacies and processed prescription drug claims
on our behalf, while we sold and supported the product for our members, made
formulary decisions, sold drug benefit design strategy and provided front line
members support. We expect IngenioRx to provide our members with more
cost-effective solutions and improve our ability to integrate pharmacy benefits
within our medical and specialty platform.
Pricing Trends: We strive to price our healthcare benefit products consistent
with anticipated underlying medical trends. We frequently make adjustments to
respond to legislative and regulatory changes as well as pricing and other
actions taken by existing competitors and new market entrants. Product pricing
in our Commercial & Specialty Business segment, including our Individual and
Small Group lines of business, remains competitive. Revenues from the Medicare
and Medicaid programs are dependent, in whole or in part, upon annual funding
from the federal government and/or applicable state governments. The ACA imposed
an annual Health Insurance Provider Fee, or HIP Fee, on health insurers that
write certain types of health insurance on U.S. risks. We price our affected
products to cover the impact of the HIP Fee when applicable. The HIP Fee was
suspended for 2019, has resumed for 2020 and has been permanently repealed
beginning in 2021.
Medical Cost Trends: Our medical cost trends are primarily driven by increases
in the utilization of services across all provider types and the unit cost
increases of these services. We work to mitigate these trends through various
medical management programs such as utilization management, condition
management, program integrity and specialty pharmacy management, as well as
benefit design changes. There are many drivers of medical cost trends that can
cause variance from our estimates, such as changes in the level and mix of
services utilized, regulatory changes, aging of the population, health status
and other demographic characteristics of our members, epidemics, advances in
medical technology, new high cost prescription drugs, and healthcare provider or
member fraud. Our underlying Local Group medical cost trends reflect the
"allowed amount," or contractual rate, paid to providers. We estimate that our
aggregate cost of care trend for the full year of 2019 was approximately 6.0%,
at the midpoint of our 5.5% to 6.5% estimated range for the year. We anticipate
the Local Group medical cost trend in 2020 will be in the range of 3.5% to 4.5%,
including the benefit of lower pharmacy cost from the launch of IngenioRx and
other medical cost management initiatives.
For additional discussion regarding business trends, see Part I, Item 1
"Business" of this Annual Report on Form 10-K.
Regulatory Trends and Uncertainties
The ACA presented us with new growth opportunities, but also introduced new
risks, regulatory challenges and uncertainties, and required changes in the way
products are designed, underwritten, priced, distributed and administered.
Changes to our business environment are likely to continue as elected officials
at the national and state levels continue to enact, and both elected officials
and candidates for election continue to propose, significant modifications to
existing laws and regulations, including changes to taxes and fees. In addition,
the legal challenges regarding the ACA, including the 2018

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ACA Decision, which judgment has been stayed pending appeal, continue to
contribute to this uncertainty. We will continue to evaluate the impact of the
ACA as any further developments or judicial rulings occur.
The annual HIP Fee is allocated to health insurers based on the ratio of the
amount of an insurer's net premium revenues written during the preceding
calendar year to the amount of health insurance premium for all U.S. health risk
for those certain lines of business written during the preceding calendar year.
We record our estimated liability for the HIP Fee in full at the beginning of
the year with a corresponding deferred asset that is amortized on a
straight-line basis to selling, general and administrative expense. The final
calculation and payment of the annual HIP Fee is due by September 30th of each
fee year. The HIP Fee is non-deductible for federal income tax purposes. Our
affected products are priced to cover the increased selling, general and
administrative and income tax expenses associated with the HIP Fee. The total
amount due from allocations to health insurers was $14,300 for 2018, and we
recognized $1,544 as selling, general and administrative expense related to the
HIP Fee. There was no corresponding expense for 2019 due to the suspension of
the HIP Fee for 2019. The HIP Fee has resumed and increased to $15,523 for 2020
and has been permanently eliminated beginning in 2021.

As a result of the ACA, the U.S. Department of Health and Human Services, or
HHS, issued Medical Loss Ratio, or MLR, regulations that require us to meet
minimum MLR thresholds of 85% for Large Group and 80% for Small Group and
Individual lines of business. Plans that do not meet the minimum thresholds have
to pay a MLR rebate. For purposes of determining MLR rebates, HHS has defined
the types of costs that should be included in the MLR rebate calculation.
However, certain components of the MLR calculation as defined by HHS cannot be
classified consistently under U.S. generally accepted accounting principles, or
GAAP. While considered benefit expense or a reduction of premium revenue by HHS,
certain of these costs are classified as other types of expense, such as
selling, general and administrative expense or income tax expense, in our GAAP
basis financial statements. Accordingly, the benefit expense ratio determined
using our consolidated GAAP operating results is not comparable to the MLR
calculated under HHS regulations.
The ACA also imposed a separate minimum MLR threshold of 85% for Medicare
Advantage and Medicare Part D prescription drug plans, or Medicare Part D.
Medicare Advantage or Medicare Part D plans that do not meet this threshold have
to pay an MLR rebate. If a plan's MLR is below 85% for three consecutive years
beginning with 2014, enrollment is restricted. A Medicare Advantage or Medicare
Part D plan contract will be terminated if the plan's MLR is below 85% for five
consecutive years.
For additional discussion regarding regulatory trends and uncertainties, and
risk factors that could cause actual results to differ materially from those
contained in forward-looking statements made in this Annual Report on Form 10-K,
see Part I, Item 1 "Business - Regulation" and Part I, Item 1A "Risk Factors."
Other Significant Items or Transactions
In January 2019, we exercised our contractual right to terminate the ESI PBM
Agreement, and we completed the transition of our members from Express Scripts
to IngenioRx on January 1, 2020. Notwithstanding our termination of the ESI PBM
Agreement, the litigation between us and Express Scripts regarding the ESI PBM
Agreement continues. In March 2016, we filed a lawsuit against Express Scripts
seeking to recover damages for pharmacy pricing that is higher than competitive
benchmark pricing and damages related to operational breaches. Express Scripts
filed an answer to the lawsuit disputing our contractual claims and alleging
various defenses and counterclaims. For additional information regarding this
lawsuit, see Note 13, "Commitments and Contingencies - Litigation and Regulatory
Proceedings - Express Scripts, Inc. Pharmacy Benefit Management Litigation," of
the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.
In February 2018, we completed our acquisition of Freedom Health, Inc., Optimum
HealthCare, Inc., America's 1st Choice of South Carolina, Inc. and related
entities, or collectively, America's 1st Choice, a Medicare Advantage
organization that offers HMO products, including Chronic Special Needs Plans and
Dual-Eligible Special Needs Plans under its Freedom Health and Optimum
HealthCare brands in Florida and its America's 1st Choice of South Carolina
brand in South Carolina. At the time of acquisition, through its Medicare
Advantage Plans, America's 1st Choice served approximately one hundred and
thirty-five thousand members in 25 Florida and 3 South Carolina counties. This
acquisition aligned with our plans for continued growth in the Medicare
Advantage and Special Needs populations.
In December 2017, we acquired HealthSun Health Plans, Inc., or HealthSun, which
at the time of acquisition served approximately forty thousand members in the
state of Florida through its Medicare Advantage plans, and which received a

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five-star rating from the Centers for Medicare & Medicaid Services. This
acquisition aligned with our plans for continued growth in the Medicare
Advantage and dual-eligible populations.
For additional information related to the acquisitions of America's 1st Choice
and HealthSun, see Note 3, "Business Acquisitions," of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form
10-K.
In May 2017, we announced that we were terminating the Agreement and Plan of
Merger, or Cigna Merger Agreement, between us and Cigna. Both we and Cigna have
commenced litigation against the other seeking various actions and damages,
including Cigna's damage claim for a $1,850 termination fee pursuant to the
terms of the Cigna Merger Agreement. For additional information about the
ongoing litigation related to the Cigna Merger Agreement, see Note 13,
"Commitments and Contingencies - Litigation and Regulatory Proceedings - Cigna
Corporation Merger Litigation," of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Other significant transactions in recent years that have impacted or will impact
our capital structure or that have influenced or will influence how we conduct
our business operations include our Board of Directors' declarations of
dividends on our common stock, repurchases of our common stock, and debt
repurchases and new debt issuances (2019 and prior). For additional information
regarding these transactions, see Note 12, "Debt" and Note 14, "Capital Stock,"
of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.
Selected Operating Performance
During the year ended December 31, 2019, total medical membership increased by
1.1, or 2.7%, and this increase was driven primarily by growth in our
fully-insured businesses.
Operating revenue for the year ended December 31, 2019 was $103,141, an increase
of $11,800, or 12.9%, from the year ended December 31, 2018. The increase in
operating revenue was primarily from higher premiums, and, to a lesser extent,
increased administrative fees and other revenue.
Net income for the year ended December 31, 2019 was $4,807, an increase of
$1,057, or 28.2%, from the year ended December 31, 2018. The increase in net
income was due to higher operating results in both our Commercial & Specialty
Business and Government Business segments, in part due to the benefits realized
from the launch of IngenioRx in 2019, net realized gains on financial
instruments and lower income tax expense.
Our fully-diluted earnings per share, or EPS, for the year ended December 31,
2019 were $18.47, an increase of $4.28, or 30.2%, from the year ended
December 31, 2018. Our diluted shares for the year ended December 31, 2019 were
260.3, a decrease of 3.9, or 1.5%, compared to the year ended December 31, 2018.
The increase in EPS resulted primarily from the increase in net income in 2019.
Operating cash flow for the year ended December 31, 2019 was $6,061, or
approximately 1.3 times net income. Operating cash flow for the year ended
December 31, 2018 was $3,827, or approximately 1.0 times net income. The
increase in operating cash flow was primarily due to the impact of membership
growth in our Government Business segment as well as higher net income in 2019.
These increases were partially offset by the impact of the timing of working
capital changes.
Our results of operations discussed throughout this MD&A are determined in
accordance with GAAP. We also calculate operating gain to further aid investors
in understanding and analyzing our core operating results. We define operating
revenue as premium income and administrative fees and other revenue. Operating
gain is calculated as total operating revenue less benefit expense, cost of
products sold and selling, general and administrative expense. We use these
measures as a basis for evaluating segment performance, allocating resources,
forecasting future operating periods and setting incentive compensation targets.
This information is not intended to be considered in isolation or as a
substitute for income before income tax expense, net income or EPS prepared in
accordance with GAAP, and may not be comparable to similarly titled measures
reported by other companies. For additional details on operating gain, see our
"Reportable Segments Results of Operations" discussion included in this MD&A.
For a reconciliation of reportable segment operating revenue to the amounts of
total revenue included in the consolidated statements of income and a
reconciliation of reportable segment operating gain to income before income tax
expense, see Note 19, "Segment Information," of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form
10-K.

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We intend to expand through a combination of organic growth, strategic
acquisitions and efficient use of capital in both existing and new markets. Our
growth strategy is designed to enable us to take advantage of additional
economies of scale, as well as providing us access to new and evolving
technologies and products. In addition, we believe geographic and product
diversity reduces our exposure to local or regional regulatory, economic and
competitive pressures and provides us with increased opportunities for growth.
In 2019, we continued growing our government-sponsored business and modestly
increased our participation in the Individual ACA-compliant market. In all other
markets, we intend to maintain our position by delivering excellent service,
offering competitively priced products, providing access to high-quality
provider networks and effectively capitalizing on the brand strength of the Blue
Cross and Blue Shield names and marks.
Membership
Our medical membership includes seven different customer types: Local Group,
Individual, National Accounts, BlueCard®, Medicare, Medicaid and our Federal
Employees Health Benefits, or FEHB, Program. BCBS-branded business generally
refers to members in our service areas licensed by the BCBSA. Non-BCBS-branded
business refers to members in our non-BCBS-branded Amerigroup, Freedom Health,
HealthSun, Optimum HealthCare and Simply Healthcare plans, as well as HealthLink
and UniCare members. In addition to the above medical membership, we also serve
customers who purchase one or more of our other products or services that are
often ancillary to our health business.
•      Local Group consists of those employer customers with less than 5% of
       eligible employees located outside of the headquarter state, as well as
       customers with more than 5% of eligible employees located outside of the

headquarter state with up to 5,000 eligible employees. In addition, Local

Group includes UniCare members. Local Group accounts are generally sold

through brokers or consultants who work with industry specialists from our

in-house sales force and are offered both on and off the public exchanges.

Local Group insurance premiums may be based on claims incurred by the

group or sold on a self-insured basis. The customer's buying decision is

typically based upon the size and breadth of our networks, customer

service, the quality of our medical management services, the

administrative cost included in our quoted price, our financial stability,

our reputation and our ability to effectively service large complex

accounts. Local Group accounted for 38.2%, 39.4% and 39.4% of our medical

members at December 31, 2019, 2018 and 2017, respectively.

• Individual consists of individual customers under age 65 and their covered

dependents. Individual policies are generally sold through independent

       agents and brokers, retail partnerships, our in-house sales force or via
       the exchanges. Individual business is sold on a fully-insured basis. We
       offer on-exchange products through public exchanges and off-exchange

products. Federal premium subsidies are available only for certain public

       exchange Individual products. Unsubsidized Individual customers are
       generally more sensitive to product pricing and, to a lesser extent, the
       configuration of the network and the efficiency of administration.

Customer turnover is generally higher with Individual as compared to Local

       Group. Individual business accounted for 1.7%, 1.6% and 3.9% of our
       medical members at December 31, 2019, 2018 and 2017, respectively.


•      National Accounts generally consist of multi-state employer groups

primarily headquartered in an Anthem service area with at least 5% of the

eligible employees located outside of the headquarter state and with more

than 5,000 eligible employees. Some exceptions are allowed based on broker

and consultant relationships. Service area is defined as the geographic

area in which we are licensed to sell BCBS products. National Accounts are

generally sold through independent brokers or consultants retained by the

       customer working with our in-house sales force. We believe we have an
       advantage when competing for very large National Accounts due to the size
       and breadth of our networks and our ability to access the national

provider networks of BCBS companies at their competitive local market

rates. National Accounts represented 18.5%, 19.0% and 18.5% of our medical

       members at December 31, 2019, 2018 and 2017, respectively.


•      BlueCard® host customers represent enrollees of Blue Cross and/or Blue
       Shield plans not owned by Anthem who receive healthcare services in our
       BCBSA licensed markets. BlueCard® membership consists of estimated host

members using the national BlueCard® program. Host members are generally

members who reside in or travel to a state in which an Anthem subsidiary

is the Blue Cross and/or Blue Shield licensee and who are covered under an

employer-sponsored health plan issued by a non-Anthem controlled BCBSA

licensee (i.e., the "home plan"). We perform certain administrative

functions for BlueCard® members, for which we receive administrative fees

from the BlueCard® members' home plans. Other administrative functions,

including maintenance of enrollment information and customer service, are

       performed by the home plan. Host members are computed using, among other
       things, the



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average number of BlueCard® claims received per month. BlueCard® host membership
accounted for 14.8%, 14.6% and 14.2% of our medical members at December 31,
2019, 2018 and 2017, respectively.
•      Medicare customers are Medicare-eligible individual members age 65 and

over who have enrolled in Medicare Supplement plans; Medicare Advantage,

including Special Needs Plans or SNPs, also known as Medicare Advantage

SNPs; Medicare Part D; and dual-eligible programs through

Medicare-Medicaid Plans, or MMPs. Medicare Supplement plans typically pay

the difference between healthcare costs incurred by a beneficiary and

amounts paid by Medicare. Medicare Advantage plans provide Medicare

beneficiaries with a managed care alternative to traditional Medicare and

often include a Medicare Part D benefit. In addition, our Medicare

Advantage SNPs provide tailored benefits to special needs individuals who

       are institutionalized or have severe or disabling chronic conditions and
       to dual-eligible customers, who are low-income seniors and persons under
       age 65 with disabilities. Medicare Advantage SNPs are coordinated care
       plans specifically designed to provide targeted care, covering all the
       health care services considered medically necessary for members and often

providing professional care coordination services, with personal guidance

and programs that help members maintain their health. Medicare Advantage

membership also includes Employer Group Medicare Advantage members who are

related to National Accounts or retired members of Local Group accounts

who have selected a Medicare Advantage product. Medicare Part D offers a

prescription drug plan to Medicare and MMP beneficiaries. MMP, which was

established as a result of the passage of the ACA, is a demonstration

program focused on serving members who are dually eligible for Medicaid

       and Medicare. Medicare Supplement and Medicare Advantage products are
       marketed in the same manner, primarily through independent agents and
       brokers. Medicare business accounted for 5.2%, 4.6% and 3.9% of our
       medical members at December 31, 2019, 2018 and 2017, respectively.

• Medicaid membership represents eligible members who receive healthcare

benefits through publicly funded healthcare programs, including Medicaid,

ACA-related Medicaid expansion programs, Temporary Assistance for Needy

Families, programs for seniors and people with disabilities, Children's

Health Insurance Programs, and specialty programs such as those focused on

long-term services and support, HIV/AIDS, foster care, behavioral health

and/or substance abuse disorders, and intellectual disabilities or

developmental disabilities, among others. Total Medicaid program business

       accounted for 17.7%, 16.8% and 16.1% of our medical members at
       December 31, 2019, 2018 and 2017, respectively.

• FEHB members consist of United States government employees and their

dependents within our geographic markets through our participation in the

       national contract between the BCBSA and the U.S. Office of Personnel
       Management. FEHB business accounted for 3.9% of our medical members at
       each of December 31, 2019, 2018 and 2017.


In addition to reporting our medical membership by customer type, we report by
funding arrangement according to the level of risk that we assume in the product
contract. Our two principal funding arrangement categories are fully-insured and
self-funded. Fully-insured products are products in which we indemnify our
policyholders against costs for health benefits. Self-funded products are
offered to customers, generally larger employers, who elect to retain most or
all of the financial risk associated with their employees' healthcare costs.
Some self-funded customers choose to purchase stop loss coverage to limit their
retained risk.

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The following table presents our medical membership by customer type, funding
arrangement and reportable segment as of December 31, 2019, 2018 and 2017. Also
included below is other membership by product. The medical membership and other
membership presented are unaudited and in certain instances include estimates of
the number of members represented by each contract at the end of the period.
                                            December 31                2019 vs. 2018         2018 vs. 2017
(In thousands)                       2019       2018       2017     Change    % Change    Change    % Change
Medical Membership
Customer Type
Local Group                        15,682     15,733     15,888       (51 )     (0.3 )%    (155 )     (1.0 )%
Individual                            684        655      1,588        29        4.4  %    (933 )    (58.8 )%
National:
National Accounts                   7,596      7,588      7,463         8        0.1  %     125        1.7  %
BlueCard®                           6,060      5,838      5,733       222        3.8  %     105        1.8  %
Total National                     13,656     13,426     13,196       230        1.7  %     230        1.7  %
Medicare:
Medicare Advantage                  1,214      1,006        746       208       20.7  %     260       34.9  %
Medicare Supplement                   905        846        823        59        7.0  %      23        2.8  %
Total Medicare                      2,119      1,852      1,569       267       14.4  %     283       18.0  %
Medicaid                            7,265      6,716      6,496       549        8.2  %     220        3.4  %
FEHB                                1,594      1,556      1,562        38        2.4  %      (6 )     (0.4 )%
Total Medical Membership by
Customer Type                      41,000     39,938     40,299     1,062        2.7  %    (361 )     (0.9 )%
Funding Arrangement
Self-Funded                        25,418     25,287     24,862       131        0.5  %     425        1.7  %
Fully-Insured                      15,582     14,651     15,437       931        6.4  %    (786 )     (5.1 )%
Total Medical Membership by
Funding Arrangement                41,000     39,938     40,299     1,062        2.7  %    (361 )     (0.9 )%
Reportable Segment
Commercial & Specialty Business    30,022     29,814     30,672       208        0.7  %    (858 )     (2.8 )%
Government Business                10,978     10,124      9,627       854        8.4  %     497        5.2  %
Total Medical Membership by
Reportable Segment                 41,000     39,938     40,299     1,062        2.7  %    (361 )     (0.9 )%
Other Membership
Life and Disability Members         5,259      4,795      4,700       464        9.7  %      95        2.0  %
Dental Members                      5,962      5,807      5,864       155        2.7  %     (57 )     (1.0 )%
Dental Administration Members       5,516      5,327      5,342       189        3.5  %     (15 )     (0.3 )%
Vision Members                      7,261      6,946      6,867       315        4.5  %      79        1.2  %
Medicare Part D Standalone Members    283        309        318       (26 ) 

(8.4 )% (9 ) (2.8 )%

December 31, 2019 Compared to December 31, 2018
Medical Membership
Total medical membership increased across our reportable business segments, and
the increase was driven primarily by growth in our fully-insured businesses.
Fully-insured membership increased primarily due to growth in our Medicaid and
Medicare businesses. Self-funded medical membership increased primarily due to
higher activity from BlueCard® membership, partially offset by the decrease in
our Large Group self-funded membership, which declined as a result of
competitive pressures. Medicaid membership increased primarily due to expansions
in new and existing markets, partially offset by the membership decrease
resulting from the loss of a contract. Medicare membership increased primarily
due to

                                      -51-
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higher sales during open enrollment exceeding lapses. BlueCard® membership
increased due to higher activity by members of other BCBSA plans who reside in
or travel to our licensed areas.
Other Membership
Growth in our other membership can be impacted by changes in our medical
membership, as our medical members often purchase our other products that are
ancillary to our health business. We have experienced growth in our life and
disability and dental memberships primarily due to higher sales in our Large
Group business. Vision membership increased primarily due to higher sales in our
Medicare Advantage plans and Large Group business. Dental administration
membership increased primarily due to growth in our FEHB program.

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Consolidated Results of Operations
Our consolidated summarized results of operations and other information for the
years ended December 31, 2019, 2018 and 2017 are as follows:
                                                                                               Change
                                        Years Ended December 31               2019 vs. 2018              2018 vs. 2017
                                    2019          2018         2017          $             %            $            %
Total operating revenue          $ 103,141     $ 91,341     $ 89,061     $ 11,800         12.9  %   $ 2,280          2.6  %
Net investment income                1,005          970          867           35          3.6  %       103         11.9  %
Net realized gains (losses) on
financial instruments                  114         (180 )        145          294        163.3  %      (325 )     (224.1 )%
Other-than-temporary impairment
losses recognized in income            (47 )        (26 )        (33 )        (21 )      (80.8 )%         7         21.2  %
Total revenues                     104,213       92,105       90,040       12,108         13.1  %     2,065          2.3  %
Benefit expense                     81,786       71,895       72,236        9,891         13.8  %      (341 )       (0.5 )%
Cost of products sold                1,992            -            -        1,992           NM            -            -
Selling, general and
administrative expense              13,364       14,020       12,650         (656 )       (4.7 )%     1,370         10.8  %
Other expense1                       1,086        1,122        1,190          (36 )       (3.2 )%       (68 )       (5.7 )%
Total expenses                      98,228       87,037       86,076       11,191         12.9  %       961          1.1  %
Income before income tax expense     5,985        5,068        3,964          917         18.1  %     1,104         27.9  %
Income tax expense                   1,178        1,318          121         (140 )      (10.6 )%     1,197        989.3  %
Net income                       $   4,807     $  3,750     $  3,843     $  

1,057 28.2 % $ (93 ) (2.4 )%

Average diluted shares
outstanding                          260.3        264.2        267.8         (3.9 )       (1.5 )%      (3.6 )       (1.3 )%
Diluted net income per share     $   18.47     $  14.19     $  14.35     $   4.28         30.2  %   $ (0.16 )       (1.1 )%
Effective tax rate                    19.7 %       26.0 %        3.1 %                (630)bp3                  2,290bp3
Benefit expense ratio2                86.8 %       84.2 %       86.4 %                  260bp3                  (220)bp3
Selling, general and
administrative expense ratio4         13.0 %       15.3 %       14.2 %                (230)bp3                    110bp3
Income before income tax expense
as a percentage of total
revenues                               5.7 %        5.5 %        4.4 %                   20bp3                    110bp3
Net income as a percentage of
total revenues                         4.6 %        4.1 %        4.3 %                   50bp3                   (20)bp3



Certain of the following definitions are also applicable to all other results of
operations tables in this discussion:
NM Not meaningful.
1   Includes interest expense, amortization of other intangible assets and loss

on extinguishment of debt.

2 Benefit expense ratio represents benefit expense as a percentage of premium

revenue. Premiums for the years ended December 31, 2019, 2018 and 2017 were

$94,173, $85,421 and $83,648, respectively. Premiums are included in total

operating revenue presented above.

3 bp = basis point; one hundred basis points = 1%.

4 Selling, general and administrative expense ratio represents selling, general

and administrative expense as a percentage of total operating revenue.

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
The increase in total operating revenue was primarily from higher premiums, and,
to a lesser extent, increased administrative fees and other revenue. The higher
premiums were largely due to Medicaid expansions in new and existing markets and
membership growth in our Medicare business. The increase in premiums was further
attributable to rate increases across our businesses designed to cover overall
cost trends. These increases in premiums were partially offset by the impact of
the HIP Fee suspension for 2019. The increase in administrative fees and other
revenue was primarily driven by IngenioRx, our PBM, which began its operations
during the second quarter of 2019.

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We recognized net realized gains on financial instruments in 2019 compared to
net realized losses on financial instruments in 2018. This change was primarily
due to a decrease in the net losses recognized for changes in the fair values of
our equity securities.
Benefit expense increased primarily due to membership growth across our
reportable business segments and higher medical cost experience in our Medicaid
business.
Our benefit expense ratio increased largely due to the loss of revenue
associated with the HIP Fee suspension for 2019, and, to a lesser extent, less
favorable prior year reserve development in our Commercial & Specialty business
segment during 2019 and margin normalization in our Individual business.
Cost of products sold reflects the cost of pharmaceuticals dispensed by
IngenioRx for our self-funded customers. IngenioRx began operations during the
second quarter of 2019, so there was no cost of products sold recognized in
2018.
Selling, general and administrative expense decreased primarily due to the
suspension of the HIP Fee for 2019. This decrease was partially offset by a net
increase in spend to support growth in our businesses.
Our selling, general and administrative expense ratio decreased due to the
growth in total operating revenue and the suspension of the HIP Fee for 2019.
Our effective tax rate decreased primarily due to the suspension of the non-tax
deductible HIP Fee for 2019.
Our net income as a percentage of total revenue increased as a result of all
factors discussed above.
Reportable Segments Results of Operations
We use operating gain to evaluate the performance of our reportable segments,
which are Commercial & Specialty Business, Government Business, and Other.
Operating gain is calculated as total operating revenue less benefit expense,
cost of products sold and selling, general and administrative expense. It does
not include net investment income, net realized gains (losses) on financial
instruments, other-than-temporary impairment losses recognized in income,
interest expense, amortization of other intangible assets, loss (gain) on
extinguishment of debt or income taxes, as these items are managed in a
corporate shared service environment and are not the responsibility of operating
segment management.
The discussion of segment results presented below are based on operating gain,
as described above, and operating margin, which is calculated as operating gain
divided by operating revenue. Our definitions of operating gain and operating
margin may not be comparable to similarly titled measures reported by other
companies. For additional information, see Note 19, "Segment Information," of
the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.

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The following table presents a summary of our reportable segment financial information for the years ended December 31, 2019, 2018 and 2017:

                                                                                           Change
                                      Years Ended December 31               2019 vs. 2018            2018 vs. 2017
                                  2019          2018         2017          $            %            $           %
Operating Revenue
Commercial & Specialty
Business                       $  37,421     $ 35,782     $ 40,363        1,639         4.6  %    (4,581 )    (11.3 )%
Government Business               62,632       55,348       48,587        7,284        13.2  %     6,761       13.9  %
Other                              7,695        1,519          127        6,176       406.6  %     1,392         NM
Eliminations                      (4,607 )     (1,308 )        (16 )    

(3,299 ) NM (1,292 ) NM Total operating revenue $ 103,141 $ 91,341 $ 89,061 $ 11,800 12.9 % $ 2,280 2.6 %

Operating Gain (Loss)
Commercial & Specialty
Business                       $   4,046     $  3,600     $  2,847          446        12.4  %       753       26.4  %
Government Business                2,054        1,928        1,442          126         6.5  %       486       33.7  %
Other                               (101 )       (102 )       (114 )          1        (1.0 )%        12      (10.5 )%

Operating Margin
Commercial & Specialty
Business                            10.8 %       10.1 %        7.1 %                  70bp1                  300bp1
Government Business                  3.3 %        3.5 %        3.0 %                (20)bp1                   50bp1



NM  Not meaningful.
1 bp = basis point; one hundred basis points = 1%.


Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Commercial & Specialty Business
Operating revenue increased primarily due to higher premium revenue and, to a
lesser extent, increased administrative fees and other revenue. Premium revenue
was higher as a result of rate increases in our Local Group business designed to
cover overall cost trends and membership increases in our fully-insured
businesses. These increases in premium revenue were partially offset by the
impact of the HIP Fee suspension for 2019. The increase in administrative fees
and other revenue was due to higher penetration of value-added services for
self-funded members in our Large Group and National Accounts businesses.
The increase in operating gain was primarily driven by the benefits realized in
pharmacy cost as a result of the launch of IngenioRx in 2019 and greater
penetration of value-added services and integrated health offerings. These
increases were partially offset by less favorable prior year reserve development
during 2019 and margin normalization in our Individual business.
Government Business
Operating revenue increased primarily due to higher premium revenue as a result
of Medicaid expansions in new and existing markets, including specialized
service populations, and membership growth in our Medicare business. The
increase in premium revenue was further attributable to rate increases designed
to cover overall cost trends in our Medicare and Medicaid businesses as well as
increased reimbursed benefit utilization in our Federal Health Products &
Services business. These increases were partially offset by the impact of the
HIP Fee suspension for 2019.
The increase in operating gain was primarily driven by the impact of premium
increases due to rate adjustments and membership growth in our Medicaid
business. This increase was partially offset by the impact of the HIP Fee
suspension for 2019 and an increase in selling, general and administrative spend
to support growth in our businesses.

                                      -55-
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Other

Operating revenue increased due to higher administrative fees and other revenue
from IngenioRx and DBG. The increase was primarily driven by growth in our
pharmacy services provided by IngenioRx, which commenced operations and began
transitioning existing clients from Express Scripts to IngenioRx in the second
quarter of 2019.
Operating loss remained steady, as there were no substantial changes in
unallocated corporate expenses. For our segment reporting, operating gains
(losses) generated from IngenioRx and DBG affiliated activity have been included
in our Commercial & Specialty Business and Government Business based upon their
utilization of services from IngenioRx and DBG.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with GAAP.
Application of GAAP requires management to make estimates and assumptions that
affect the amounts reported in our consolidated financial statements and
accompanying notes and within this MD&A. We consider our most important
accounting policies that require significant estimates and management judgment
to be those policies with respect to liabilities for medical claims payable,
income taxes, goodwill and other intangible assets, investments and retirement
benefits, which are discussed below. Our other significant accounting policies
are summarized in Note 2, "Basis of Presentation and Significant Accounting
Policies," of the Notes to Consolidated Financial Statements included in Part
II, Item 8 of this Annual Report on Form 10-K.
We continually evaluate the accounting policies and estimates used to prepare
the consolidated financial statements. In general, our estimates are based on
historical experience, evaluation of current trends, information from
third-party professionals and various other assumptions that we believe to be
reasonable under the known facts and circumstances. Estimates can require a
significant amount of judgment and a different set of assumptions could result
in material changes to our reported results.
Medical Claims Payable
The most subjective accounting estimate in our consolidated financial statements
is our liability for medical claims payable. At December 31, 2019, this
liability was $8,842 and represented 19% of our total consolidated liabilities.
We record this liability and the corresponding benefit expense for incurred but
not paid claims, including the estimated costs of processing such claims.
Incurred but not paid claims include (1) an estimate for claims that are
incurred but not reported, as well as claims reported to us but not yet
processed through our systems, which approximated 98%, or $8,633, of our total
medical claims liability as of December 31, 2019; and (2) claims reported to us
and processed through our systems but not yet paid, which approximated 2%, or
$209, of the total medical claims payable as of December 31, 2019. The level of
claims payable processed through our systems but not yet paid may fluctuate from
one period-end to the next, from approximately 1% to 5% of our total medical
claims liability, due to timing of when claim payments are made.
Liabilities for both claims incurred but not reported and reported but not yet
processed through our systems are determined in the aggregate, employing
actuarial methods that are commonly used by health insurance actuaries and meet
Actuarial Standards of Practice. Actuarial Standards of Practice require that
the claim liabilities be appropriate under moderately adverse circumstances. We
determine the amount of the liability for incurred but not paid claims by
following a detailed actuarial process that uses both historical claim payment
patterns as well as emerging medical cost trends to project our best estimate of
claim liabilities. Under this process, historical paid claims data is formatted
into "claim triangles," which compare claim incurred dates to the dates of claim
payments. This information is analyzed to create "completion factors" that
represent the average percentage of total incurred claims that have been paid
through a given date after being incurred. Completion factors are applied to
claims paid through the period-end date to estimate the ultimate claim expense
incurred for the period. Actuarial estimates of incurred but not paid claim
liabilities are then determined by subtracting the actual paid claims from the
estimate of the ultimate incurred claims.
For the most recent incurred months (typically the most recent two months), the
percentage of claims paid for claims incurred in those months is generally low.
This makes the completion factor methodology less reliable for such months.
Therefore, incurred claims for recent months are not projected from historical
completion and payment patterns; rather, they are projected by estimating the
claims expense for those months based on recent claims expense levels and
healthcare trend levels, or "trend factors."

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Because the reserve methodology is based upon historical information, it must be
adjusted for known or suspected operational and environmental changes. These
adjustments are made by our actuaries based on their knowledge and their
estimate of emerging impacts to benefit costs and payment speed. Circumstances
to be considered in developing our best estimate of reserves include changes in
utilization levels, unit costs, mix of business, benefit plan designs, provider
reimbursement levels, processing system conversions and changes, claim inventory
levels, claim processing patterns, claim submission patterns and operational
changes resulting from business combinations. A comparison of prior period
liabilities to re-estimated claim liabilities based on subsequent claims
development is also considered in making the liability determination. In our
comparison to prior periods, the methods and assumptions are not changed as
reserves are recalculated; rather, the availability of additional paid claims
information drives changes in the re-estimate of the unpaid claim liability. To
the extent appropriate, changes in such development are recorded as a change to
current period benefit expense.
We regularly review and set assumptions regarding cost trends and utilization
when initially establishing claim liabilities. We continually monitor and adjust
the claims liability and benefit expense based on subsequent paid claims
activity. If it is determined that our assumptions regarding cost trends and
utilization are materially different than actual results, our income statement
and financial position could be impacted in future periods. Adjustments of prior
year estimates may result in additional benefit expense or a reduction of
benefit expense in the period an adjustment is made. Further, due to the
considerable variability of healthcare costs, adjustments to claim liabilities
occur each period and are sometimes significant as compared to the net income
recorded in that period. Prior period development is recognized immediately upon
the actuary's judgment that a portion of the prior period liability is no longer
needed or that an additional liability should have been accrued. That
determination is made when sufficient information is available to ascertain that
the re-estimate of the liability is reasonable.
While there are many factors that are used as a part of the estimation of our
medical claims payable liability, the two key assumptions having the most
significant impact on our incurred but not paid claims liability as of
December 31, 2019 were the completion and trend factors. As discussed above,
these two key assumptions can be influenced by utilization levels, unit costs,
mix of business, benefit plan designs, provider reimbursement levels, processing
system conversions and changes, claim inventory levels, claim processing
patterns, claim submission patterns and operational changes resulting from
business combinations.
There is variation in the reasonable choice of completion factors by duration
for durations of three months through twelve months where the completion factors
have the most significant impact. As previously discussed, completion factors
tend to be less reliable for the most recent months and therefore are not
specifically utilized for months one and two. In our analysis for the claim
liabilities at December 31, 2019, the variability in months three to five was
estimated to be between 40 and 90 basis points, while months six through twelve
have much lower estimated variability ranging from 0 to 30 basis points.
The difference in completion factor assumptions, assuming moderately adverse
experience, results in variability of 3%, or approximately $241, in the
December 31, 2019 incurred but not paid claims liability, depending on the
completion factors chosen. It is important to note that the completion factor
methodology inherently assumes that historical completion rates will be
reflective of the current period. However, it is possible that the actual
completion rates for the current period will develop differently from historical
patterns and therefore could fall outside the possible variations described
herein.
The other major assumption used in the establishment of the December 31, 2019
incurred but not paid claim liability was the trend factors. In our analysis for
the period ended December 31, 2019, there was a 320 basis point differential in
the high and low trend factors assuming moderately adverse experience. This
range of trend factors would imply variability of 5%, or approximately $468, in
the incurred but not paid claims liability, depending upon the trend factors
used. Because historical trend factors are often not representative of current
claim trends, the trend experience for the most recent six to nine months, plus
knowledge of recent events likely affecting current trends, have been taken into
consideration in establishing the incurred but not paid claims liability at
December 31, 2019.
See Note 11, "Medical Claims Payable," of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a
reconciliation of the beginning and ending balance for medical claims payable
for the years ended December 31, 2019, 2018 and 2017. Components of the total
incurred claims for each year include amounts accrued for current year estimated
claims expense as well as adjustments to prior year estimated accruals. In Note
11, "Medical Claims Payable," the line labeled "Net incurred medical claims:
Prior years redundancies" accounts for those

                                      -57-
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adjustments made to prior year estimates. The impact of any reduction of "Net
incurred medical claims: Prior years redundancies" may be offset as we establish
the estimate of "Net incurred medical claims: Current year." Our reserving
practice is to consistently recognize the actuarial best estimate of our
ultimate liability for our claims. When we recognize a release of the
redundancy, we disclose the amount that is not in the ordinary course of
business, if material.
The ratio of current year medical claims paid as a percent of current year net
medical claims incurred was 89.3% for 2019, 90.2% for 2018 and 89.4% for 2017.
This ratio serves as an indicator of claims processing speed whereby claims were
processed slightly slower during 2019 than in 2018 and close to the same speed
as in 2017.
We calculate the percentage of prior year redundancies in the current year as a
percent of prior year net incurred claims payable less prior year redundancies
in the current year in order to demonstrate the development of the prior year
reserves. For the year ended December 31, 2019, this metric was 7.4%, largely
driven by favorable trend factor development at the end of 2018 as well as
favorable completion factor development from 2018. For the year ended
December 31, 2018, this metric was 13.7%, largely driven by favorable trend
factor development at the end of 2017 as well as favorable completion factor
development from 2017. For the year ended December 31, 2017, this metric was
18.9%, largely driven by favorable trend factor development at the end of 2016.
We calculate the percentage of prior year redundancies in the current year as a
percent of prior year net incurred medical claims to indicate the percentage of
redundancy included in the preceding year calculation of current year net
incurred medical claims. We believe this calculation supports the reasonableness
of our prior year estimate of incurred medical claims and the consistency in our
methodology. For the year ended December 31, 2019, this metric was 0.7%, which
was calculated using the redundancy of $500. This metric was 1.3% for 2018 and
1.8% for 2017. These metrics demonstrate a generally consistent level of reserve
conservatism.
The following table shows the variance between total net incurred medical claims
as reported in Note 11, "Medical Claims Payable," of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form
10-K, for each of 2018 and 2017 and the incurred claims for such years had it
been determined retrospectively (computed as the difference between "net
incurred medical claims - current year" for the year shown and "net incurred
medical claims - prior years redundancies" for the immediately following year):
                                                               Years Ended December 31
                                                                2018             2017
Total net incurred medical claims, as reported             $    68,651       $   69,244
Retrospective basis, as described above                         69,081      

69,447

Variance                                                   $      (430 )     $     (203 )
Variance to total net incurred medical claims, as reported        (0.6 )%   

(0.3 )%

Given that our business is primarily short tailed (which means that medical
claims are generally paid within twelve months of the member receiving service
from the provider), the variance to total net incurred medical claims, as
reported above, is used to assess the reasonableness of our estimate of ultimate
incurred medical claims for a given calendar year with the benefit of one year
of experience. We expect that substantially all of the development of the 2019
estimate of medical claims payable will be known during 2020.
The 2018 variance to total net incurred medical claims, as reported of (0.6)%
was higher than the 2017 percentage of (0.3)%. This was driven by the fact that
the change in the prior year redundancy reported for 2019 as compared to 2018
was greater than the change in the prior year redundancy reported for 2018 as
compared to 2017.
Income Taxes
We account for income taxes in accordance with FASB guidance, which requires,
among other things, the separate recognition of deferred tax assets and deferred
tax liabilities. Such deferred tax assets and deferred tax liabilities represent
the tax effect of temporary differences between financial reporting and tax
reporting measured at tax rates enacted at the time the deferred tax asset or
liability is recorded. A valuation allowance must be established for deferred
tax assets if it is "more

                                      -58-
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likely than not" that all or a portion may be unrealized. Our judgment is required in determining an appropriate valuation allowance. At each financial reporting date, we assess the adequacy of the valuation allowance by evaluating each of our deferred tax assets based on the following: • the types of temporary differences that created the deferred tax asset;

• the amount of taxes paid in prior periods and available for a carry-back

claim;

• the tax rate at which the deferred tax assets will likely be utilized in

       the future;


•      the forecasted future taxable income, and therefore, likely future
       deduction of the deferred tax item; and


•      any significant other issues impacting the likely realization of the
       benefit of the temporary differences.


We, like other companies, frequently face challenges from tax authorities
regarding the amount of taxes due. These challenges include questions regarding
the timing and amount of deductions that we have taken on our tax returns. In
evaluating any additional tax liability associated with various positions taken
in our tax return filings, we record additional liabilities for potential
adverse tax outcomes. Based on our evaluation of our tax positions, we believe
we have appropriately accrued for uncertain tax benefits, as required by the
applicable guidance. To the extent we prevail in matters we have accrued for,
our future effective tax rate would be reduced and net income would increase. If
we are required to pay more than accrued, our future effective tax rate would
increase and net income would decrease. Our effective tax rate and net income in
any given future period could be materially impacted.
In the ordinary course of business, we are regularly audited by federal and
other tax authorities, and from time to time, these audits result in proposed
assessments. We believe our tax positions comply with applicable tax law, and we
intend to defend our positions vigorously through the federal, state and local
appeals processes. We believe we have adequately provided for any reasonably
foreseeable outcome related to these matters. Accordingly, although their
ultimate resolution may require additional tax payments, we do not anticipate
any material impact on our results of operations or financial condition from
these matters.
For additional information, see Note 7, "Income Taxes," of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
Goodwill and Other Intangible Assets
Our consolidated goodwill at December 31, 2019 was $20,500 and other intangible
assets were $8,674. The sum of goodwill and other intangible assets represented
37.7% of our total consolidated assets and 92.0% of our consolidated
shareholders' equity at December 31, 2019.
We follow FASB guidance for business combinations and goodwill and other
intangible assets, which specifies the types of acquired intangible assets that
are required to be recognized and reported separately from goodwill. Under the
guidance, goodwill and other intangible assets (with indefinite lives) are not
amortized but are tested for impairment at least annually. Furthermore, goodwill
and other intangible assets are allocated to reporting units for purposes of the
annual impairment test. Our impairment tests require us to make assumptions and
judgments regarding the estimated fair value of our reporting units, which
include goodwill and other intangible assets. In addition, certain other
intangible assets with indefinite lives, such as trademarks, are also tested
separately.
We complete our annual impairment tests of existing goodwill and other
intangible assets with indefinite lives during the fourth quarter of each year.
These tests involve the use of estimates related to the fair value of goodwill
at the reporting unit level and other intangible assets with indefinite lives,
and require a significant degree of management judgment and the use of
subjective assumptions. Certain interim impairment tests are also performed when
potential impairment indicators exist or changes in our business or other
triggering events occur. We have the option of first performing a qualitative
assessment for each reporting unit to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount,
which is an indication that our goodwill may be impaired. These qualitative
impairment tests include assessing events and factors that could affect the fair
value of the indefinite-lived intangible assets. Our procedures include
assessing our financial performance, macroeconomic conditions, industry and
market considerations, various asset specific

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factors and entity specific events. If we determine that a reporting unit's
goodwill may be impaired after utilizing these qualitative impairment analysis
procedures, we are required to perform a quantitative impairment test.
Our quantitative impairment test utilizes the projected income and market
valuation approaches for goodwill and the projected income approach for our
indefinite lived intangible assets. Use of the projected income and market
valuation approaches for our goodwill impairment test reflects our view that
both valuation methodologies provide a reasonable estimate of fair value. The
projected income approach is developed using assumptions about future revenue,
expenses and net income derived from our internal planning process. These
estimated future cash flows are then discounted. Our assumed discount rate is
based on our industry's weighted-average cost of capital. Market valuations are
based on observed multiples of certain measures including revenue; earnings
before interest, taxes, depreciation and amortization; and book value of
invested capital (debt and equity) and include market comparisons to publicly
traded companies in our industry.
We did not incur any impairment losses as a result of our 2019 annual impairment
tests, as it was determined that it is more likely than not that the estimated
fair values of our reporting units were substantially in excess of the carrying
values as of December 31, 2019. Additionally, we do not believe that the
estimated fair values of our reporting units are at risk of becoming impaired in
the next twelve months.
If estimated fair values are less than the carrying values of goodwill and other
intangibles with indefinite lives in future annual impairment tests, or if
significant impairment indicators are noted relative to other intangible assets
subject to amortization, we may be required to record impairment losses against
future income.
For additional information, see Note 3, "Business Acquisitions" and Note 9,
"Goodwill and Other Intangible Assets," of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Investments
Current and long-term marketable investment securities were $21,220 at
December 31, 2019 and represented 27.4% of our total consolidated assets at
December 31, 2019. We classify fixed maturity securities in our investment
portfolio as "available-for-sale" or "trading" and report those securities at
fair value. Certain fixed maturity securities are available to support current
operations and, accordingly, we classify such investments as current assets
without regard to their contractual maturity. Investments used to satisfy
contractual, regulatory or other requirements are classified as long-term,
without regard to contractual maturity.
We review fixed maturity investment securities to determine if declines in fair
value below cost are other-than-temporary. This review is subjective and
requires a high degree of judgment. We conduct this review on a quarterly basis,
using both qualitative and quantitative factors, to determine whether a decline
in value is other-than-temporary. Such factors considered include the extent to
which a security's market value has been less than its cost, the reasons for the
decline in value (i.e., credit event compared to liquidity, general credit
spread widening, currency exchange rate or interest rate factors), financial
condition and near term prospects of the issuer, including the credit ratings
and changes in the credit ratings of the issuer, recommendations of investment
advisors, and forecasts of economic, market or industry trends.
FASB other-than-temporary impairment, or OTTI, guidance applies to fixed
maturity securities and provides guidance on the recognition, presentation of,
and disclosures for OTTIs. If a fixed maturity security is in an unrealized loss
position and we have the intent to sell the fixed maturity security, or it is
more likely than not that we will have to sell the fixed maturity security
before recovery of its amortized cost basis, the decline in value is deemed to
be other-than-temporary and is presented within the other-than-temporary
impairment losses recognized in our consolidated statements of income. For
impaired fixed maturity securities that we do not intend to sell or it is more
likely than not that we will not have to sell such securities, but we expect
that we will not fully recover the amortized cost basis, the credit component of
the OTTI is presented within the other-than-temporary impairment losses
recognized in our consolidated statements of income and the non-credit component
of the OTTI is recognized in accumulated other comprehensive loss in our
consolidated balance sheets. Furthermore, unrealized losses entirely caused by
non-credit related factors related to fixed maturity securities for which we
expect to fully recover the amortized cost basis continue to be recognized in
accumulated other comprehensive loss.
The credit component of an OTTI is determined primarily by comparing the net
present value of projected future cash flows with the amortized cost basis of
the fixed maturity security. The net present value is calculated by discounting
our best estimate of projected future cash flows at the effective interest rate
implicit in the fixed maturity security at the date of

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acquisition. For mortgage-backed and asset-backed securities, cash flow
estimates are based on assumptions regarding the underlying collateral,
including prepayment speeds, vintage, type of underlying asset, geographic
concentrations, default rates, recoveries and changes in value. For all other
securities, cash flow estimates are driven by assumptions regarding probability
of default, including changes in credit ratings and estimates regarding timing
and amount of recoveries associated with a default.
We have a committee of accounting and investment associates and management that
is responsible for managing the impairment review process. We believe we have
adequately reviewed our investment securities for impairment and that our
investment securities are carried at fair value. However, over time, the
economic and market environment may provide additional insight regarding the
fair value of certain securities, which could change our judgment regarding
impairment. This could result in OTTI losses on investments being charged
against future income. Given the uncertainty of future market conditions, as
well as the significant judgments involved, there is continuing risk that
declines in fair value may occur and material OTTI losses on investments may be
recorded in future periods.
In addition to marketable investment securities, we held additional long-term
investments of $4,228, or 5.5% of total consolidated assets, at December 31,
2019. These long-term investments consisted primarily of certain other equity
investments, the cash surrender value of corporate-owned life insurance policies
and real estate. Due to their less liquid nature, these investments are
classified as long-term.
Through our investing activities, we are exposed to financial market risks,
including those resulting from changes in interest rates and changes in equity
market valuations. We manage market risks through our investment policy, which
establishes credit quality limits and limits on investments in individual
issuers. Ineffective management of these risks could have an impact on our
future results of operations and financial condition. Our investment portfolio
includes fixed maturity securities with a fair value of $20,181 at December 31,
2019. The weighted-average credit rating of these securities was "A" as of
December 31, 2019. Included in this balance are investments in fixed maturity
securities of states, municipalities and political subdivisions of $900 that are
guaranteed by third parties. With the exception of four securities with a fair
value of $12, these securities are all investment-grade and carry a
weighted-average credit rating of "A" as of December 31, 2019. The securities
are guaranteed by a number of different guarantors, and we do not have any
material exposure to any single guarantor, neither indirectly through the
guarantees, nor directly through investment in the guarantor. Further, due to
the high underlying credit rating of the issuers, the weighted-average credit
rating of the fixed maturity securities without a guarantee, for which such
information is available, was "A" as of December 31, 2019.
Fair values of fixed maturity and equity securities are based on quoted market
prices, where available. These fair values are obtained primarily from
third-party pricing services, which generally use Level I or Level II inputs for
the determination of fair value in accordance with FASB guidance for fair value
measurements and disclosures. We have controls in place to review the pricing
services' qualifications and procedures used to determine fair values. In
addition, we periodically review the pricing services' pricing methodologies,
data sources and pricing inputs to ensure the fair values obtained are
reasonable.
We obtain quoted market prices for each security from the pricing services,
which are derived through recently reported trades for identical or similar
securities, making adjustments through the reporting date based upon available
market observable information. For securities not actively traded, the pricing
services may use quoted market prices of comparable instruments or discounted
cash flow analyses, incorporating inputs that are currently observable in the
markets for similar securities. Inputs that are often used in these valuation
methodologies include, but are not limited to, broker quotes, benchmark yields,
credit spreads, default rates and prepayment speeds. As we are responsible for
the determination of fair value, we perform analysis on the prices received from
the pricing services to determine whether the prices are reasonable estimates of
fair value. Our analysis includes procedures such as a review of month-to-month
price fluctuations and price comparisons to secondary pricing services. There
were no adjustments to quoted market prices obtained from the pricing services
during the years ended December 31, 2019 and 2018.
In certain circumstances, it may not be possible to derive pricing model inputs
from observable market activity, and therefore, such inputs are estimated
internally. Such securities are designated Level III in accordance with FASB
guidance. Securities designated Level III at December 31, 2019 totaled $397 and
represented approximately 1.7% of our total assets measured at fair value on a
recurring basis. Our Level III securities primarily consisted of certain
corporate securities and equity securities for which observable inputs were not
always available and the fair values of these securities were estimated using
inputs including, but not limited to, prepayment speeds, credit spreads, default
rates and benchmark yields.

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For additional information, see Part II, Item 7A "Quantitative and Qualitative
Disclosures about Market Risk," and Note 2, "Basis of Presentation and
Significant Accounting Policies," Note 4, "Investments," and Note 6, "Fair
Value," of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K.
Retirement Benefits
Pension Benefits
We sponsor defined benefit pension plans for some of our employees. These plans
are accounted for in accordance with FASB guidance for retirement benefits,
which requires that amounts recognized in financial statements be determined on
an actuarial basis. As permitted by the guidance, we calculate the value of plan
assets as described below. Further, the difference between our expected rate of
return and the actual performance of plan assets, as well as certain changes in
pension liabilities, are amortized over future periods.
An important factor in determining our pension expense is the assumption for
expected long-term return on plan assets. As of our December 31, 2019
measurement date, we selected a weighted-average long-term rate of return on
plan assets of 7.33%. We use a total portfolio return analysis in the
development of our assumption. Factors such as past market performance, the
long-term relationship between fixed maturity and equity securities, interest
rates, inflation and asset allocations are considered in the assumption. The
assumption includes an estimate of the additional return expected from active
management of the investment portfolio. Peer data and an average of historical
returns are also reviewed for appropriateness of the selected assumption. We
believe our assumption of future returns is reasonable. However, if we lower our
expected long-term return on plan assets, future contributions to the pension
plan and pension expense would likely increase.
This assumed long-term rate of return on assets is applied to a calculated value
of plan assets, which recognizes changes in the fair value of plan assets in a
systematic manner over three years, producing the expected return on plan assets
that is included in the determination of pension expense. We apply a corridor
approach to amortize unrecognized actuarial gains or losses. Under this
approach, only accumulated net actuarial gains or losses in excess of 10% of the
greater of the projected benefit obligation or the fair value of plan assets are
amortized over the average remaining service or lifetime of the workforce as a
component of pension expense. The net deferral of past asset gains or losses
affects the calculated value of plan assets and, ultimately, future pension
expense.
The discount rate reflects the current rate at which the pension liabilities
could be effectively settled at the end of the year based on our most recent
measurement date. We use the annual spot rate approach for setting our discount
rate. Under the spot rate approach, individual spot rates from a full yield
curve of published rates are used to discount each plan's cash flows to
determine the plan's obligation. At the December 31, 2019 measurement date, the
weighted-average discount rate under the annual spot rate approach was 3.11%,
compared to 4.15% at the December 31, 2018 measurement date. The net effect of
changes in the discount rate, as well as the net effect of other changes in
actuarial assumptions and experience, have been deferred and amortized as a
component of pension expense in accordance with FASB guidance.
In managing the plan assets, our objective is to be a responsible fiduciary
while minimizing financial risk. Plan assets include a diversified mix of equity
securities, investment grade fixed maturity securities and other types of
investments across a range of sectors and levels of capitalization to maximize
long-term return for a prudent level of risk. In addition to producing a
reasonable return, the investment strategy seeks to minimize the volatility in
our expense and cash flow.
Effective January 1, 2019, we curtailed the benefits under the Anthem Cash
Balance Plan B pension plan. All grandfathered participants no longer have pay
credits added to their accounts, but continue to earn interest on existing
account balances. Participants continue to earn years of pension service for
vesting purposes.
Other Postretirement Benefits
We provide most associates with certain medical, vision and dental benefits upon
retirement. We use various actuarial assumptions, including a discount rate and
the expected trend in healthcare costs, to estimate the costs and benefit
obligations for our retiree benefits.

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At our December 31, 2019 measurement date, the selected discount rate for all
plans was 2.93%, compared to a discount rate of 4.04% at the December 31, 2018
measurement rate. We developed this rate using the annual spot rate approach as
described above.
The assumed healthcare cost trend rates used to measure the expected cost of
pre-Medicare (those who are not currently eligible for Medicare benefits) other
benefits at our December 31, 2019 measurement date was 7.00% for 2020 with a
gradual decline to 4.50% by the year 2028. The assumed healthcare cost trend
rates used to measure the expected cost of post-Medicare (those who are
currently eligible for Medicare benefits) other benefits at our December 31,
2019 measurement date was 6.00% for 2020 with a gradual decline to 4.50% by the
year 2028. These estimated trend rates are subject to change in the future. The
healthcare cost trend rate assumption affects the amounts reported. For example,
an increase in the assumed healthcare cost trend rate of one percentage point
would increase the postretirement benefit obligation as of December 31, 2019 by
$23 and would increase service and interest costs by $1. Conversely, a decrease
in the assumed healthcare cost trend rate of one percentage point would decrease
the postretirement benefit obligation as of December 31, 2019 by $20 and would
decrease service and interest costs by $1.
For additional information regarding our retirement benefits, see Note 10,
"Retirement Benefits," of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
New Accounting Pronouncements
For information regarding new accounting pronouncements that were issued or
became effective during the year ended December 31, 2019 that had, or are
expected to have, a material impact on our financial position, results of
operations or financial statement disclosures, see the "Recently Adopted
Accounting Guidance" and "Recent Accounting Guidance Not Yet Adopted" sections
of Note 2, "Basis of Presentation and Significant Accounting Policies," of the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
Liquidity and Capital Resources
Introduction
Our cash receipts result primarily from premiums, administrative fees and other
revenue, investment income, proceeds from the sale or maturity of our investment
securities, proceeds from borrowings, and proceeds from the issuance of common
stock under our employee stock plans. Cash disbursements result mainly from
claims payments, administrative expenses, taxes, purchases of investment
securities, interest expense, payments on borrowings, acquisitions, capital
expenditures, repurchases of our debt securities and common stock and the
payment of cash dividends. Cash outflows fluctuate with the amount and timing of
settlement of these transactions. Any future decline in our profitability would
likely have an unfavorable impact on our liquidity.
We manage our cash, investments and capital structure so we are able to meet the
short-term and long-term obligations of our business while maintaining financial
flexibility and liquidity. We forecast, analyze and monitor our cash flows to
enable investment and financing within the overall constraints of our financial
strategy.
A substantial portion of the assets held by our regulated subsidiaries are in
the form of cash and cash equivalents and investments. After considering
expected cash flows from operating activities, we generally invest cash that
exceeds our near term obligations in longer term marketable fixed maturity
securities to improve our overall investment income returns. Our investment
strategy is to make investments consistent with insurance statutes and other
regulatory requirements, while preserving our asset base. Our investments are
generally available-for-sale to meet liquidity and other needs. Our subsidiaries
pay out excess capital annually in the form of dividends to their respective
parent companies for general corporate use, as permitted by applicable
regulations.
The availability of financing in the form of debt or equity is influenced by
many factors, including our profitability, operating cash flows, debt levels,
debt ratings, contractual restrictions, regulatory requirements and market
conditions. The securities and credit markets have in the past experienced
higher than normal volatility, although current market conditions are more
stable. During recent years, the federal government and various governmental
agencies have taken a number of steps to improve liquidity in the financial
markets and strengthen the regulation of the financial services market. In
addition,

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governments around the world have developed their own plans to provide liquidity
and security in the credit markets and to ensure adequate capital in certain
financial institutions.
We have a $3,500 commercial paper program. Should commercial paper issuance be
unavailable, we have the ability to use a combination of cash on hand and/or our
two senior revolving credit facilities, which provide for combined credit in the
amount of $3,500, to redeem any outstanding commercial paper upon maturity.
Additionally, we believe the lenders participating in our credit facilities
would be willing and able to provide financing in accordance with their legal
obligations. In addition to the senior revolving credit facilities, we estimate
that we expect to receive approximately $3,035 of dividends from our
subsidiaries during 2020, which also provides further operating and financial
flexibility.
A summary of our major sources and uses of cash and cash equivalents for the
years ended December 31, 2019, 2018 and 2017 is as follows:
                                             Years Ended December 31                    $ Change
                                          2019        2018        2017       2019 vs. 2018     2018 vs. 2017
Sources of Cash:
Net cash provided by operating
activities                              $ 6,061     $ 3,827     $ 4,185     $       2,234     $        (358 )
Proceeds from sales, maturities, calls
and redemptions of investments, net of
purchases                                     -       1,929           -            (1,929 )           1,929
Issuance of common stock under Equity
Units stock purchase contracts                -       1,250           -            (1,250 )           1,250
Issuances of commercial paper and
short- and long-term debt, net of
repayments                                  608           -       3,653               608            (3,653 )
Issuances of common stock under
employee stock plans                        187         173         225                14               (52 )
Changes in bank overdrafts                    -           -          71                 -               (71 )
Other sources of cash, net                  254         174         703                80              (529 )
Total sources of cash                     7,110       7,353       8,837              (243 )          (1,484 )
Uses of Cash:
Purchases of investments, net of
proceeds from sales, maturities, calls
and redemptions                          (1,919 )         -      (2,913 )          (1,919 )           2,913
Purchases of subsidiaries, net of cash
acquired                                      -      (1,760 )    (2,080 )           1,760               320
Repurchase and retirement of common
stock                                    (1,701 )    (1,685 )    (1,998 )             (16 )             313

Purchases of property and equipment (1,077 ) (1,208 ) (791 )

           131              (417 )
Repayments of commercial paper and
short- and long-term debt, net of
issuances                                     -      (1,086 )         -             1,086            (1,086 )
Cash dividends                             (818 )      (776 )      (705 )             (42 )             (71 )
Changes in bank overdrafts                 (169 )      (210 )         -                41              (210 )
Other uses of cash, net                    (423 )      (301 )      (820 )            (122 )             519
Total uses of cash                       (6,107 )    (7,026 )    (9,307 )             919             2,281
Effect of foreign exchange rates on
cash and cash equivalents                     -          (2 )         4                 2                (6 )
Net increase (decrease) in cash and
cash equivalents                        $ 1,003     $   325     $  (466 )

$ 678 $ 791

Liquidity-Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The increase in cash provided by operating activities was primarily due to the
impact of membership growth in our Medicaid and Medicare businesses as well as
higher net income in 2019. These increases in operating cash flow were partially
offset by the impact of the timing of working capital changes.
Other significant changes in sources and uses of cash year-over-year included an
increase in net purchases of investments in 2019 compared to net proceeds
received from sales, maturities, calls and redemptions of investments in 2018, a
decrease in cash paid for acquisitions, an increase in net proceeds from the
issuance of commercial paper and short- and long-term debt

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in 2019 compared to net repayments in 2018 and cash received from the issuance
of common stock under our Equity Units stock purchase contracts in 2018 that did
not recur in 2019.
Financial Condition
We maintained a strong financial condition and liquidity position, with
consolidated cash, cash equivalents and investments in fixed maturity and equity
securities of $26,157 at December 31, 2019. Since December 31, 2018, total cash,
cash equivalents and investments in fixed maturity and equity securities
increased by $3,518, primarily due to cash generated from operations and
issuances of commercial paper and short- and long-term debt, net of repayments.
These increases were partially offset by cash used for repurchases of our common
stock, purchases of property and equipment and cash dividends paid to
shareholders.
Many of our subsidiaries are subject to various government regulations that
restrict the timing and amount of dividends and other distributions that may be
paid to their respective parent companies. Certain accounting practices
prescribed by insurance regulatory authorities, or statutory accounting
practices, differ from GAAP. Changes that occur in statutory accounting
practices, if any, could impact our subsidiaries' future dividend capacity. In
addition, we have agreed to certain undertakings to regulatory authorities,
including the requirement to maintain certain capital levels in certain of our
subsidiaries.
At December 31, 2019, we held $2,673 of cash, cash equivalents and investments
at the parent company, which are available for general corporate use, including
investment in our businesses, acquisitions, potential future common stock
repurchases and dividends to shareholders, repurchases of debt securities and
debt and interest payments.
Debt
Periodically, we access capital markets and issue debt, or Notes, for long-term
borrowing purposes, for example, to refinance debt, to finance acquisitions or
for share repurchases. Certain of these Notes may have a call feature that
allows us to redeem the Notes at any time at our option and/or a put feature
that allows a Note holder to redeem the Notes upon the occurrence of both a
change in control event and a downgrade of the Notes below an investment grade
rating. For more information on our debt, including redemptions and issuances,
see Note 12, "Debt" of the Notes to Consolidated Financial Statements included
in Part II, Item 8 of this Annual Report on Form 10-K.
We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from
the amounts presented on our audited consolidated balance sheets included in
Part II, Item 8 of this Annual Report on Form 10-K. Our debt-to-capital ratio is
calculated as total debt divided by total debt plus total shareholders' equity.
Total debt is the sum of short-term borrowings, current portion of long-term
debt, and long-term debt, less current portion. We believe our debt-to-capital
ratio assists investors and rating agencies in measuring our overall leverage
and additional borrowing capacity. In addition, our bank covenants include a
maximum debt-to-capital ratio that we cannot and did not exceed. Our
debt-to-capital ratio may not be comparable to similarly titled measures
reported by other companies. Our consolidated debt-to-capital ratio was 39.5%
and 40.2% as of December 31, 2019 and 2018, respectively.
Our senior debt is rated "A" by S&P Global, "BBB" by Fitch Ratings, Inc., "Baa2"
by Moody's Investor Service, Inc. and "bbb+" by AM Best Company, Inc. We intend
to maintain our senior debt investment grade ratings. If our credit ratings are
downgraded, our business, financial condition and results of operations could be
adversely impacted by limitations on future borrowings and a potential increase
in our borrowing costs.
Future Sources and Uses of Liquidity
We have a shelf registration statement on file with the Securities and Exchange
Commission to register an unlimited amount of any combination of debt or equity
securities in one or more offerings. Specific information regarding terms and
securities being offered will be provided at the time of an offering. Proceeds
from future offerings are expected to be used for general corporate purposes,
including, but not limited to, the repayment of debt, investments in or
extensions of credit to our subsidiaries and the financing of possible
acquisitions or business expansions.
We have a senior revolving credit facility, or the 5-Year Facility, with a group
of lenders for general corporate purposes. In June 2019, we amended and restated
the credit agreement for the 5-Year Facility to, among other things, extend the

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maturity date from August 2020 to June 2024 and decrease the amount of credit
available from $3,500 to $2,500. In June 2019, we also entered into a 364-day
senior revolving credit facility, or the 364-Day Facility, with a group of
lenders for general corporate purposes, which provides for credit in the amount
of $1,000 and matures in June 2020. Our ability to borrow under these credit
facilities is subject to compliance with certain covenants. We do not believe
the restrictions contained in these covenants materially affect our financial or
operating flexibility. As of December 31, 2019, we were in compliance with all
of our debt covenants. There were no amounts outstanding under the 5-Year
Facility or the 364-Day Facility at December 31, 2019.
Through certain subsidiaries, we have entered into multiple 364-day lines of
credit, or the Subsidiary Credit Facilities, with separate lenders for general
corporate purposes. The Subsidiary Credit Facilities provide combined credit up
to $600. Our ability to borrow under the Subsidiary Credit Facilities is subject
to compliance with certain covenants. At December 31, 2019, we had $50
outstanding under the Subsidiary Credit Facilities.
We have an authorized commercial paper program, the proceeds of which may be
used for general corporate purposes. In August 2019, we increased the amount
available under the commercial paper program from $2,500 to $3,500. At
December 31, 2019, we had $400 outstanding under our commercial paper program.
We are a member, through certain subsidiaries, of the Federal Home Loan Bank of
Indianapolis, the Federal Home Loan Bank of Cincinnati and the Federal Home Loan
Bank of Atlanta, or collectively, the FHLBs. As a member, we have the ability to
obtain short-term cash advances, subject to certain minimum collateral
requirements. At December 31, 2019, we had $650 in outstanding short-term
borrowings from FHLBs.
As discussed in "Financial Condition" above, many of our subsidiaries are
subject to various government regulations that restrict the timing and amount of
dividends and other distributions that may be paid. Based upon these
requirements, we currently estimate that approximately $3,035 of dividends will
be paid to the parent company during 2020. During 2019, we received $3,790 of
dividends from our subsidiaries.
We regularly review the appropriate use of capital, including acquisitions,
common stock and debt security repurchases and dividends to shareholders. The
declaration and payment of any dividends or repurchases of our common stock or
debt is at the discretion of our Board of Directors and depends upon our
financial condition, results of operations, future liquidity needs, regulatory
and capital requirements and other factors deemed relevant by our Board of
Directors.
On January 28, 2020, our Audit Committee declared a quarterly cash dividend to
shareholders of $0.95 per share on the outstanding shares of our common stock.
This quarterly dividend is payable on March 27, 2020 to the shareholders of
record as of March 16, 2020.
Under our Board of Directors' authorization, we maintain a common stock
repurchase program. As of December 31, 2019, we had Board authorization of
$3,792 to repurchase our common stock.
For additional information regarding our sources and uses of capital, see Note
4, "Investments," Note 5 "Derivative Financial Instruments," Note 12 "Debt" and
Note 14 "Capital Stock-Use of Capital-Dividends and Stock Repurchase Program" of
the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.


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Contractual Obligations and Commitments
Our estimated contractual obligations and commitments as of December 31, 2019
are as follows:
                                                                    Payments Due by Period
                                                   Less than                                       More than
                                      Total         1 Year         1-3 Years       3-5 Years        5 Years
On-Balance Sheet:
Debt1                              $  31,249     $     3,447     $     3,653     $     3,853     $    20,296
Operating leases, including
imputed interest2                        795             172             285             203             135
Investment commitments3                   28              11              16               -               1
Other long-term liabilities4             752               9             295             293             155
Off-Balance Sheet:
Purchase obligations5                  3,531           1,236             630           1,076             589
Operating leases, including
imputed interest2                        394              13              60              66             255
Investment commitments6                  971             287             378             106             200
Total contractual obligations and
commitments                        $  37,720     $     5,175     $     5,317     $     5,597     $    21,631

1 Includes estimated interest expense.

2 See Note 17, "Leases," of the Notes to Consolidated Financial Statements,

included in Part II, Item 8 of this Annual Report on Form 10-K.

3 Represents low income housing tax credits.

4 Primarily consists of reserves for future policy benefits, projected other

postretirement benefits, deferred compensation, supplemental executive

retirement plan liabilities and certain other miscellaneous long-term

obligations. Estimated future payments for funded pension benefits have been

    excluded from this table, as we had no funding requirements under ERISA at
    December 31, 2019 as a result of the value of the assets in the plans.


5   Includes estimated payments for future services under contractual
    arrangements from third-party service contracts.

6 Includes unfunded capital commitments for alternative investments.

The above table does not contain $172 of gross liabilities for uncertain tax
positions and interest for which we cannot reasonably estimate the timing of the
resolutions with the respective taxing authorities. For further information, see
Note 7, "Income Taxes," of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
In addition to the contractual obligations and commitments discussed above, we
have a variety of other contractual agreements related to acquiring materials
and services used in our operations. However, we do not believe these other
agreements contain material noncancelable commitments.
We believe that funds from future operating cash flows, cash and investments and
funds available under our senior revolving credit facilities and/or from public
or private financing sources will be sufficient for future operations and
commitments, and for capital acquisitions and other strategic transactions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet derivative instruments, guarantee
transactions, agreements or other contractual arrangements or any
indemnification agreements that will require funding in future periods. We have
not transferred assets to an unconsolidated entity that serves as credit,
liquidity or market risk support to such entity. We do not hold any variable
interest in an unconsolidated entity where such entity provides us with
financing, liquidity, market risk or credit risk support.
Risk-Based Capital
Our regulated subsidiaries' states of domicile have statutory risk-based
capital, or RBC, requirements for health and other insurance companies and HMOs
largely based on the National Association of Insurance Commissioners, or NAIC,

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Risk-Based Capital (RBC) For Health Organizations Model Act, or RBC Model Act.
These RBC requirements are intended to measure capital adequacy, taking into
account the risk characteristics of an insurer's investments and products. The
NAIC sets forth the formula for calculating the RBC requirements, which are
designed to take into account asset risks, insurance risks, interest rate risks
and other relevant risks with respect to an individual insurance company's
business. In general, under the RBC Model Act, an insurance company must submit
a report of its RBC level to the state insurance department or insurance
commissioner, as appropriate, at the end of each calendar year. Our regulated
subsidiaries' respective RBC levels as of December 31, 2019, which was the most
recent date for which reporting was required, were in excess of all applicable
mandatory RBC requirements. In addition to exceeding these RBC requirements, we
are in compliance with the liquidity and capital requirements for a licensee of
the BCBSA and with the tangible net worth requirements applicable to certain of
our California subsidiaries.
For additional information, see Note 21, "Statutory Information," of the Notes
to Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.

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