Elevance Health (ELV) 10-K risk factor changes: FY2019 vs FY2018

[removed: If] [added: If] we fail to appropriately predict, price for and manage healthcare costs, the profitability of our products could decline, which could materially adversely affect our business, cash flows, financial condition and results of [removed: operations.][added: operations.]

Our profitability depends in large part on accurately predicting [added: and pricing] healthcare costs and on our ability to manage future healthcare costs through medical management, product design, negotiation of favorable provider contracts and underwriting criteria.

[removed: Changes in healthcare practices, demographic characteristics including the aging population, inflation, new technologies and therapies, increases in the cost and number of prescription drugs, clusters of high cost cases, changes in the regulatory environment and numerous other] [added: Numerous] factors affecting the cost of healthcare may adversely affect our ability to predict and manage healthcare costs, as well as our business, cash flows, financial condition and results of operations.

[removed: Although federal and state premium and risk adjustment mechanisms could help offset healthcare benefit costs in excess of our projections if our assumptions (including assumptions for] government premium and risk adjustment payments) utilized in setting our premium rates are significantly different than actual results, our income statement and financial condition could still be adversely affected.

Further, federal and state regulatory agencies may restrict [added: or prevent entirely] our ability to implement changes in premium rates.

[removed: The] [added: In addition, the] reserves that we establish for health insurance policy benefits and other contractual rights and benefits are based upon assumptions concerning a number of factors, including trends in healthcare costs, expenses, general economic conditions and other factors.

[added: Physicians, hospitals and other healthcare providers may elect not to] contract with us, and the failure to secure or maintain cost-effective healthcare provider contracts on competitive terms may result in a loss of membership or higher medical costs, which could adversely affect our business.

[removed: The] [added: The] ongoing changes to the ACA and related laws and regulations could adversely affect our business, cash flows, financial condition and results of [removed: operations.][added: operations.]

The legal challenges regarding the ACA, including [removed: the 2018 Texas District Court ACA Decision] [added: a federal district court decision] invalidating the [removed: ACA,] [added: ACA in its entirety,] which judgment has been stayed pending [removed: appeals,] [added: appeal,] continue to contribute to this uncertainty, which could significantly impact the market for our products, the regulations applicable to us and the fees and taxes payable by us.

In addition, the ACA imposes significant fees, assessments and taxes on us and other health insurers, health plans and other industry participants, including the annual non-tax deductible HIP [removed: Fee.][added: Fee; however, the HIP Fee has been permanently repealed beginning January 1, 2021.]

Further regulations and modifications to the ACA at the federal or state level, including [removed: a] [added: any] judicial invalidation of the ACA, [removed: will likely] [added: could] have significant effects on our business and future operations, some of which may adversely affect our results of operations and financial condition.

Based on our experience in public exchange markets to date, we have made adjustments to our premium rates and geographic participation, and [removed: we] will continue to evaluate the performance of our public exchange plans, the future viability of the public exchanges and availability of federal subsidies, and may make further adjustments to our rates and [removed: participation going forward.]

[removed: We] [added: We] are subject to significant government regulation, and changes [added: or proposed changes] in the regulation of our business by federal and state regulators may adversely affect our business, cash flows, financial [removed: condition and] [added: condition,] results of [removed: operations.][added: operations and the market price of our securities.]

[removed: In addition to the ACA and efforts] [added: We are subject] to [removed: modify the ACA, we face] [added: significant] state and federal regulation associated with many aspects of our business, including, but not limited to, licensing, premiums, marketing activities, provider contracting, access and payment standards, and corporate governance and financial reporting matters.

In addition, [removed: our PBM] [added: IngenioRx] is also subject to an increasing number of licensure, registration and other laws and accreditation standards that impact the business practices of a pharmacy benefit manager.

We must identify, assess and respond to new laws and regulations, as well as comply with the [added: various existing laws and regulations applicable to our business.]

Changes in existing laws, rules and regulatory interpretation or future laws, rules, regulatory interpretations or judgments could force us to change how we conduct our business, affect the products we [removed: offer,] [added: offer (and where we offer them),] restrict revenue and enrollment growth, increase our costs, including operating, healthcare technology and administrative costs, restrict our ability to obtain new product approvals and implement changes in premium rates and require enhancements to our compliance infrastructure and internal controls [removed: environment.][added: environment, which could adversely impact our business and results of operations.]

Our insurance, managed healthcare and HMO subsidiaries are subject to extensive regulation and supervision by regulatory authorities [added: and agencies] in each state in which they are licensed or authorized to do business, in addition to regulation by federal agencies.

[removed: Future] [added: Delays in obtaining or failure to obtain or maintain these approvals, as well as future] regulatory action by state or federal authorities could have a material adverse effect on the profitability or marketability of our health benefits or managed care products or on our business, financial condition and results of operations.

In addition, because of our participation in government-sponsored programs such as Medicare and Medicaid, [removed: a number] [added: many] of our subsidiaries are also subject to regulation by CMS and state Medicaid agencies, and to changes in government regulations or policy with respect to, among other things, reimbursement levels, eligibility requirements, benefit coverage requirements and additional governmental participation, which could also adversely affect our business, cash flows, financial condition and results of operations.

[removed: Some states have similar] laws relating to HMOs and other payers such as consumer operated and oriented plans (co-ops) established under the ACA.

[removed: State] [added: We expect state] legislatures will continue to focus on healthcare delivery and financing issues.

A number of states in which we offer Medicaid products have not opted for Medicaid expansion under the ACA, at least for the present [removed: time.][added: time, and states frequently review public program eligibility.]

Where states [removed: allow certain programs] [added: make changes] to [removed: expire or have not opted for Medicaid expansion,] [added: reduce eligibility,] we could experience reduced Medicaid enrollment and reduced growth opportunities.

If future modifications to laws and regulations [removed: significantly reduce Medicaid] [added: at the federal or state level result in reduced public] enrollment, this [removed: will] [added: could] negatively impact our Medicaid business.

[removed: We] [added: We] face competition in many of our markets, and if we fail to adequately adapt to changes in our industry and develop and implement strategic growth opportunities, our ability to compete and grow may be adversely [removed: affected.][added: affected.]

As a health benefits company, we operate in a highly competitive environment and in an industry that is subject to significant changes from legislative reform, business consolidations, new strategic alliances, new market entrants, aggressive marketing practices by other health benefits [removed: organizations, technological advancements and market pressures brought about by an informed] [added: organizations] and [removed: organized customer base, particularly among large employers, which may increasingly have the ability to contract directly with providers.][added: technological advancements.]

These factors have produced and will likely continue to [removed: produce] [added: produce,] significant pressures on our profitability.

[removed: In addition,] [added: Furthermore,] as a result of changes to traditional health insurance over the past several years, the health insurance industry has experienced a significant shift in membership to [removed: insurance] products with lower margins.

[removed: In order to profitably grow our] business in the future, we need to not only grow our profitable medical membership, but also continue to diversify our sources of revenue and earnings, including through the increased sale of our specialty products, such as dental, vision and other supplemental products, expansion of [removed: non-ACA medical products, expansion of] our non-insurance assets and establishment of new cost of care solutions, including innovations in PBM services.

[removed: Due] [added: Also, due] to the price transparency provided by public exchanges and new market entrants, we face competitive pressures from new and existing competitors in the market for Individual health insurance.

[removed: A] [added: A] significant reduction in the enrollment in our health benefits [removed: programs,] [added: or PBM products or services,] particularly in states where we have large regional concentrations, could have an adverse effect on our business, cash flows, financial condition and results of [removed: operations.][added: operations.]

A significant reduction in the number of enrollees in our health benefits [removed: programs] [added: or PBM products or services] could adversely affect our business, cash flows, financial condition and results of operations.

Factors that could contribute to a reduction in enrollment include: reductions in workforce by existing customers; a general economic upturn that results in fewer individuals being eligible for Medicaid programs; a general economic downturn that results in business failures and high unemployment rates; employers no longer offering certain healthcare coverage as an employee benefit or electing to offer coverage on a voluntary, employee-funded basis; participation on public exchanges; federal and state regulatory changes, including the elimination of the individual mandate penalty in the [removed: ACA effective January 1, 2019;] [added: ACA;] failure to obtain new customers or retain existing customers; premium increases and benefit changes; our exit from a specific market; negative publicity and news coverage; and failure to attain or maintain nationally recognized accreditations.

[removed: A] [added: A] cyber attack or other privacy or data security incident could result in an unauthorized disclosure of sensitive or confidential information, cause a loss of data, disrupt a large amount of our operations, give rise to remediation or other expenses, expose us to liability under federal and state laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial condition and results of [removed: operations.][added: operations.]

We are subject to various federal, state and international laws and rules regarding the use and disclosure of certain sensitive or confidential information, including HIPAA, the HITECH Act, the Gramm-Leach-Bliley Act and numerous state laws governing personal [removed: information.][added: information, including the California Consumer Privacy Act.]

[removed: Our facilities and systems, and those of our] third-party service providers, are regularly the target of, and may be vulnerable to, cyber attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other threats.

We [added: were the target of an external cyber attack in 2015 and] have been, and will likely continue to be, the target of [added: other] attempted cyber attacks and [removed: other] security threats.

In [removed: February 2015, we reported] [added: addition,] the [removed: discovery that certain of our information technology systems had been] [added: litigation between us and Express Scripts regarding] the [removed: target of an external cyber attack,] [added: ESI PBM Agreement continues,] as more fully described under Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory Proceedings [removed: – Cyber Attack Regulatory Proceedings and Litigation,”] [added: - Express Scripts, Inc. Pharmacy Benefit Management Litigation,*”] of the Notes to [removed: our] Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

[removed: We also] [added: In the event of such a cyber attack in the future, we] may be subject to [removed: additional] litigation and governmental investigations which could divert the attention of management from the operation of our business, result in reputational damage and have a material adverse impact on our business, cash flows, financial condition and results of operations.

Total healthcare costs are affected by the number of individual services rendered, the cost of each service and the type of service rendered.

Generally, our premiums on Commercial policies and Medicaid contracts are fixed for a 12-month period and are determined several months prior to the commencement of the premium period.

Accordingly, the costs we incur in excess of our benefit cost projections generally are not recovered in the contract year through higher premiums.

Existing Medicaid contract rates are often established by the applicable state, and our actual costs may exceed those rates.

Although federal and state premium and risk adjustment mechanisms could help offset healthcare benefit costs in excess of our projections if our assumptions (including assumptions for

Further, the integration into our business of entities that we acquire, or the expansion of our business into new areas, may affect the way in which existing laws and rules apply to us, including by subjecting us to laws and rules that did not previously apply to us.

In addition, legislative and/or regulatory policies or proposals that seek to manage the healthcare industry or otherwise impact our business may cause the market price of our securities to decrease, even if such policies or proposals never become effective.

We are required to obtain and maintain insurance and other regulatory approvals to market certain of our products, to increase prices for certain regulated products and to consummate some of our acquisitions and dispositions.

Some states have similar

The NAIC has amended the Life and Health Insurance Guaranty Association Model Act, or NAIC Model Act, to expand the assessment base for long-term care products and to add HMOs as members.

We have experienced assessments in the past, and may experience assessments in the future as a result of other companies that fail to establish premiums sufficient to cover their costs.

If the amended NAIC Model Act is adopted by the states, these changes could impact our assessments.

participation going forward.

If we fail to develop and maintain satisfactory relationships with hospitals, physicians, pharmacy benefit service providers and other healthcare providers, our business, cash flows, financial condition and results of operations may be adversely affected.

Furthermore, decisions to buy our products and services are increasingly made or influenced by consumers, through means such as direct purchasing (for example, Medicare Advantage plans) and insurance exchanges that allow individual choice, or by large employers that may increasingly have the ability to contract directly with providers.

This creates unique market pressures, and in order to compete effectively in the consumer-driven marketplace, we will be required to develop and deliver innovative and potentially disruptive products and services to satisfy evolving market demands.

In addition, the PBM industry is highly competitive, and IngenioRx is subject to competition from national, regional and local PBMs, insurers, health plans, large retail pharmacy chains, large retail stores, supermarkets, other mail order pharmacies, web pharmacies and specialty pharmacies.

Strong competition within the pharmacy benefit business has generated greater demand for lower product and service pricing, increased revenue sharing and enhanced product and service offerings.

Our inability to maintain positive trends, contract on favorable terms with pharmaceutical manufacturers for, among other things, rebates, discounts and administrative fees or a failure to identify and implement new ways to mitigate pricing pressures, could negatively impact our ability to attract or retain customers, negatively impact our margins and have a material adverse effect on our business and results of operations.

In order to profitably grow our

Our facilities and systems, and those of our

We are also participating in programs in several states for the care of dual-eligible members.

Additionally, ongoing CMS system changes related to the data it uses to calculate risk scores in the Medicare Advantage program may impact our federal funding.

Failure to comply with these laws and regulations could result in investigations, litigation, fines, restrictions on, or exclusions from, program participation, or the imposition of corporate

On November 1, 2018, CMS released a proposed rule that would revise its RADV methodology by, among other things, excluding an adjustment for underlying fee-for-service data errors and extrapolating RADV results at the contract level.

If adopted in its current form, the rule could have a detrimental impact on all Medicare Advantage insurers.

While it is uncertain whether CMS will issue the rule as proposed, if adopted, it could have a material adverse impact on our Medicare business and future results of operations.

In addition to the proposed rule, there has been increased government scrutiny and civil litigation under the False Claims Act related to risk adjustment practices under the Medicare Advantage program.

Government investigations, any enforcement actions and civil litigation could result in monetary damages, penalties and business practice changes that could have a material adverse effect on our financial condition, cash flows and results of operations.

Our Medicare and Medicaid contracts are also subject to various MLR rules, including minimum MLR thresholds, rebate requirements and audits, which could adversely affect our membership and revenues if any of our state Medicare or Medicaid plans do not meet an applicable minimum MLR thresholds.

Parity Act; and customer audits and contract performance, including government contracts.

In the Delaware Court litigation, trial commenced in late February 2019 and concluded in March 2019, and closing arguments were held in November 2019.

Our PBM business is subject to the risks inherent in the

In addition, the practice of pharmacy is subject to federal and state laws and regulation, including those of state boards of pharmacy, individual state-controlled substance authorities, the U.S. Drug Enforcement Agency and the FDA.

Federal and state legislatures also regularly consider new regulations for the industry that could materially affect current industry practices, including potential new legislation and regulations regarding the receipt or disclosure of rebates, discounts and other fees from pharmaceutical companies, the development and use of formularies and other utilization management tools, the use of average wholesale prices or other pricing benchmarks, pricing for specialty pharmaceuticals, limited access to networks and pharmacy network reimbursement methodologies.

Our PBM business would be adversely affected if we are unable to contract on favorable terms with pharmaceutical manufacturers for, among other things, rebates, discounts and administrative fees.

In particular, beginning in the second quarter of 2019, we began delegating certain PBM administrative functions, such as claims processing and prescription fulfillment, to CVS Health pursuant to the CVS PBM Agreement.

In addition, although we completed the transition of our members from Express Scripts to IngenioRx on January 1, 2020, Express Scripts continues to provide certain audit and various run-out transition services related to our PBM business pursuant to the ESI PBM Agreement.

The defense of any actions may result in significant

Mergers, acquisitions, joint ventures, strategic partnerships and other business combinations involve risks that could have a material adverse effect on our business, cash flows, financial condition and results of operation.

Government-imposed limitations on Medicare and Medicaid reimbursement have also caused the private sector to bear a greater share of increasing healthcare costs.

Future modifications to, or enactment of, laws and regulations that impact our product pricing and required product benefits may also impact our profitability in future periods.

In general, healthcare benefit costs in excess of our cost projections reflected in our fully insured product pricing cannot be recovered in the current premium period through higher premiums.

Fiscal concerns regarding the continued viability of programs such as Medicare and Medicaid may cause decreasing reimbursement rates, including retroactive decreases in Medicaid reimbursement rates, delays in premium payments or reimbursement rate increases for government-sponsored programs that are lower than the increase in cost of care trends.

Physicians, hospitals and other healthcare providers may elect not to

The reduction of the individual mandate penalty to zero, effective in 2019, is also expected to result in further deterioration of the overall Individual market risk pool.

various existing laws and regulations applicable to our business.

We may experience assessments in the future if, for example, premiums established by other companies for their health insurance products, including certain long-term care products, are inadequate to cover the cost of care.

In addition, the PBM industry is highly competitive, and our PBM business will be subject to competition from owned drugstores, retail drugstore chains, supermarkets, discount retailers, membership clubs, internet companies and other mail-order and long-term care pharmacies.

The elimination of the individual mandate penalty in the ACA, effective January 1, 2019, may further disrupt the public exchange markets.

The attackers gained unauthorized access to certain of our information technology systems and obtained personal information related to many individuals and employees.

We have incurred expenses to investigate and remediate this matter and expect to continue to incur expenses of this nature in the foreseeable future.

Although the consolidated civil actions, state court cases and investigation by the Office of Civil Rights related to this cyber attack have been settled and dismissed, respectively, an ongoing investigation by a multi-state group of Attorneys General remains outstanding.

sensitive or confidential member information, whether by us or by one of our third-party service providers, could require us to expend significant resources to continue to modify or enhance our protective measures and to remediate any damage.

We are also participating in MMPs in several states.

It is difficult to predict the future impact of the ACA or other regulatory reforms on our Government Business segment due to the potential for further ACA modifications and other reforms.

In addition, Medicare and Medicaid are subject to various MLR rules.

Our Medicare and Medicaid contracts are also subject to minimum MLR audits.

In addition, there are an increasing number of investigations regarding compliance with various provisions of the ACA.

These investigations are being conducted by CMS and other federal authorities as well as state regulators.

As a result, we could be subject to multiple investigations of the same issue.

These investigations, and any possible enforcement actions, could result in penalties and the imposition of corrective action plans and/or changes to industry practices, which could adversely affect our ability to market our products.

The litigation in Delaware continues.

Further, due to the potential significance of the allegations and damages claimed by Cigna, we expect that our officers will continue to spend substantial time focused on the litigation.

In particular, we are a party to agreements with each of Express Scripts and CVS Health for the provision of certain PBM services to our plans.

In January 2019, we provided notice to Express Scripts terminating the ESI PBM Agreement effective March 1, 2019, with the twelve-month transition period provided for in the ESI Agreement to migrate the services beginning on March 2, 2019.

The litigation between us and Express Scripts regarding the ESI PBM Agreement continues, as more fully described under 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.

Our PBM business also would be adversely affected if we are unable to contract on favorable terms with pharmaceutical manufacturers, and we could suffer exposure to liabilities and reputational harm in connection with purported errors by mail order or retail pharmacy businesses.

Most of our regulated subsidiaries are subject to RBC standards imposed by their states of domicile.

creditors, and are not evaluations directed toward the protection of investors in our common stock.

We have built a significant portion of our current business through mergers and acquisitions, joint ventures and strategic alliances and we expect to pursue such opportunities in the future.

The principal sources of our cash receipts are premiums,

[removed: (In] [added: *(In] Millions, Except Per Share Data or As Otherwise Stated [removed: Herein)][added: Herein)*]

[removed: Overview][added: Overview]

We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately [removed: 40] [added: 41] medical members through our affiliated health plans as of December 31, [removed: 2018.][added: 2019.]

In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, [removed: Blue Cross] and [removed: Blue Shield of Georgia, and] Empire Blue Cross Blue Shield or Empire Blue Cross.

We also conduct business through arrangements with other BCBS licensees [removed: in Louisiana, South Carolina and western New York.][added: as well as other strategic partners.]

Through our subsidiaries, we also serve customers in [removed: over 25] [added: numerous] states across the country as [removed: America’s 1st Choice,] [added: Aim Specialty Health,] Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare.

[removed: Prior year amounts] [added: Amounts for prior years] have been reclassified [added: through this MD&A to conform to the current year presentation] for comparability.

Administrative fees [added: and other revenue] come from contracts where our customers are self-insured, or where the fee is based on either [added: the] processing of transactions or a percent of network discount savings [removed: realized.][added: realized, revenues from our Medicare processing business and from other health-related businesses, including disease management programs and miscellaneous other income.]

[removed: Other] [added: We define operating] revenue [removed: includes miscellaneous income other than] [added: as] premium [removed: revenue] [added: income] and administrative [removed: fees.][added: fees and other revenue.]

[removed: Unit costs include the cost of outpatient medical procedures] per visit, inpatient hospital care per admission, physician fees per office visit and prescription drug prices.

Our managed care plans include: Preferred Provider [removed: Organizations, or PPOs;] [added: Organizations;] Health Maintenance Organizations, or HMOs; Point-of-Service [removed: plans, or POS] plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health [removed: Plans, or CDHPs;] [added: Plans;] and hospital only and limited benefit products.

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, [added: 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.]

For additional information about our business and reportable segments, see Part I, Item 1, “Business” and [removed: in] 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.

[removed: Business Trends][added: 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 [removed: system, which we expect will continue to impact our business model and strategy.][added: system.]

Also, the legal challenges regarding the ACA, including [removed: the ultimate outcome of the December 2018] [added: a federal district court] decision [removed: of the U.S. District Court for the Northern District of Texas, Fort Worth Division] invalidating the [removed: ACA (the] [added: ACA, or the] “2018 [removed: Texas District Court] ACA [removed: Decision”),] [added: Decision”,] which judgment has been stayed pending appeal, could significantly disrupt our business.

During [removed: 2018,] [added: 2019,] we [removed: strategically reduced] [added: modestly expanded] our participation in the Individual ACA-compliant market.

[removed: We] currently offer Individual ACA-compliant products in [removed: 73] [added: 91] of the 143 rating regions in which we operate.

We expect IngenioRx to provide our members with more cost-effective solutions and improve our ability to integrate pharmacy benefits within our [removed: already strong] medical and specialty platform.

[removed: Pricing Trends:] [added: Pricing Trends:] We strive to price our healthcare benefit products consistent with anticipated underlying medical trends.

We price our affected products to cover the impact of the HIP [removed: Fee.][added: Fee when applicable.]

The HIP Fee was suspended for [removed: 2019 and is scheduled to resume] [added: 2019, has resumed] for [removed: 2020.][added: 2020 and has been permanently repealed beginning in 2021.]

[removed: Medical] [added: Medical] Cost [removed: Trends:] [added: 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 estimate that our aggregate cost of care trend [added: for the full year of 2019] was [removed: slightly below] [added: approximately 6.0%, at] the midpoint of our 5.5% to 6.5% [added: estimated] range for the [removed: full year of 2018.][added: year.]

[removed: Regulatory] [added: Regulatory] Trends and [removed: Uncertainties][added: Uncertainties]

Changes to our business environment are likely to continue [removed: for the next several years] as elected officials at the national and state levels continue to [removed: propose] [added: enact,] and [removed: enact] [added: both elected officials and candidates for election continue to propose,] significant modifications to existing laws and regulations, including [removed: the reduction of the individual mandate penalty to zero effective January 1, 2019, elimination of funding for cost-sharing subsidies made available for qualified individuals, and] changes to taxes and fees.

In addition, the legal challenges regarding the ACA, including the [removed: ultimate outcome of the] 2018 [removed: Texas District Court ACA Decision, continue to contribute to this uncertainty.]

We will continue to evaluate the impact of the ACA as [removed: additional guidance is made available and] any further developments or judicial rulings occur.

[removed: We price our] [added: Our] affected products [added: are priced] to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee.

There was no corresponding expense for [removed: 2017] [added: 2019] due to the suspension of the HIP Fee for [removed: 2017.][added: 2019.]

[removed: Other] [added: Other] Significant Items or [removed: Transactions][added: Transactions]

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 [removed: recent] acquisition of Express Scripts by Cigna Corporation, or Cigna.

For additional information regarding this lawsuit, see Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management [removed: Litigation,”] [added: Litigation,*”] of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

[removed: On] [added: In] February [removed: 15,] 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.

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 [removed: five-star rating from the Centers for Medicare & Medicaid Services.]

For additional information about the ongoing litigation related to the Cigna Merger Agreement, see Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory Proceedings - Cigna Corporation Merger [removed: Litigation,”] [added: 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 [removed: stock (2013 through January 2019),] [added: stock,] repurchases of our common [removed: stock (2019 and prior),] [added: stock,] and debt repurchases and new debt issuances [removed: (2018] [added: (2019] and prior).

[added: Selected] Operating [removed: Performance][added: Performance]

Operating revenue for the year ended December 31, [removed: 2018] [added: 2019] was [removed: $91,341,] [added: $103,141,] an increase of [removed: $2,280,] [added: $11,800,] or [removed: 2.6%,] [added: 12.9%,] from the year ended December 31, [removed: 2017.][added: 2018.]

Net income for the year ended December 31, [removed: 2018] [added: 2019] was [removed: $3,750, a decrease] [added: $4,807, an increase] of [removed: $93,] [added: $1,057,] or [removed: 2.4%,] [added: 28.2%,] from the year ended December 31, [removed: 2017.][added: 2018.]

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.

Also, in the second quarter of 2019, we began providing pharmacy benefits management, or PBM, services through our IngenioRx subsidiary.

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.

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.

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.

Unit costs include the cost of outpatient medical procedures

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.

We expect the ACA will continue to impact our business model and strategy.

We

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.

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 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.

ACA Decision, which judgment has been stayed pending appeal, continue to contribute to this uncertainty.

The HIP Fee has resumed and increased to $15,523 for 2020 and has been permanently eliminated beginning in 2021.

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.

five-star rating from the Centers for Medicare & Medicaid Services.

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.

The increase in EPS resulted primarily from the increase in net income in 2019.

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.

In 2019, we continued growing our government-sponsored business and modestly increased our participation in the Individual ACA-compliant market.

average number of BlueCard® claims received per month.

| FEHB | | 1,594 | | | 1,556 | | | 1,562 | | | 38 | | | 2.4 | % | | (6 | ) | | (0.4 | )% |

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.

Medicare membership increased primarily due to

higher sales during open enrollment exceeding lapses.

| Cost of products sold | | 1,992 | | | | — | | | | — | | | | 1,992 | | | | NM | | | — | | | | — | |

NM Not meaningful.

These increases in premiums were partially offset by the impact of the HIP Fee suspension for 2019.

During the fourth quarter of 2018, we reclassified certain ancillary businesses to align how our segments are currently being managed.

Additionally, we earn administrative fee revenues from our Medicare processing business and from other health-related businesses including disease management programs.

\-42\-

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.

In October 2017, we established a new pharmacy benefits manager, or PBM, called IngenioRx, and entered into a five-year agreement with CaremarkPCS Health, L.L.C., or CVS Health, which is a subsidiary of CVS Health Corporation, to begin offering PBM solutions upon the conclusion of our current PBM Agreement with Express Scripts Inc., or Express Scripts.

The twelve-month transition period to migrate the services from Express Scripts begins March 2, 2019, at which time CVS Health can begin providing certain PBM services to IngenioRx.

\-43\-

We anticipate the Local Group medical cost trend will be in the range of 5.5% to 6.5% in 2019.

The HIP Fee is suspended for 2019 and scheduled to resume for 2020.

In October 2017, we established IngenioRx and entered into a five-year agreement with CVS Health to begin offering PBM solutions (the “CVS PBM Agreement”), which coincides with the conclusion of our current PBM agreement with Express Scripts (the “ESI PBM Agreement”).

As a result of exercising our early termination right, the ESI PBM Agreement will now terminate on March 1, 2019, and the twelve-month transition period to migrate the services begins on March 2, 2019.

At that time CVS Health is able to begin providing certain PBM services to IngenioRx pursuant to the CVS PBM Agreement.

The increase in operating revenue was primarily a result of higher premium revenue in our

Government Business segment, and, to a lesser extent, increased administrative fees and other revenue in our Commercial & Specialty Business segment.

These increases were partially offset by a decrease in premium revenue in our Commercial & Specialty Business segment.

The decrease in net income was primarily a result of higher income tax expense, net realized losses on investments and increased amortization of other intangible assets.

The decrease in EPS resulted from the decrease in net income, partially offset by the lower number of shares outstanding in 2018.

The decrease in operating cash flow from 2017 of $358 was primarily due to increased spend to support growth initiatives and the impact of membership declines due to our reduced participation in ACA-compliant Individual marketplaces, and to a lesser extent, membership declines in our fully-insured Local Group business.

The decrease was further offset by lower income taxes paid in 2018 as a result of the tax bill, H.R.1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, or the Tax Cuts and Jobs Act, enacted by the federal government on December 22, 2017.

The Tax Cuts and Jobs Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.

In 2018, we reduced our participation in the Individual ACA-compliant market.

and persons under age 65 with disabilities.

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.

During the fourth quarter of 2018 we made a number of changes to our membership reporting to better align our reported membership to the appropriate type, funding arrangement and segment, including movement of our Employer Group Medicare Advantage members from National Accounts to Medicare Advantage, reclassification of these Employer Group members from the Commercial & Specialty Business segment to our Government Business segment, and other marginal changes.

| Federal Employee Program® | | 1,556 | | | 1,562 | | | 1,570 | | | (6 | ) | | (0.4 | )% | | (8 | ) | | (0.5 | )% |

| 1 | Certain types of membership have been reclassified to conform to the current year presentation, as described above. |

Total medical membership decreased primarily due to decreases in our Individual, Local Group and FEP membership, partially offset by increases in our Medicare, Medicaid, National Accounts and BlueCard® membership.

Our reduced participation in ACA-compliant marketplaces led to the decreases in our Individual and fully-insured memberships.

This decrease in fully-insured membership was partially offset by an increase in Medicare membership as a result of our America’s 1st Choice acquisition and higher sales during open enrollment.

Self-funded medical membership increased due to

increases in our National Accounts and Large Group businesses and higher activity from BlueCard® membership.

Local Group membership decreased as a result of competitive pressures in fully-insured membership, partially offset by new sales and growth in our existing self-funded business.

National Accounts membership increased primarily due to new sales and growth from existing contracts exceeding lapses.

Medicare Advantage membership increased primarily due to membership acquired through the acquisition of America’s 1st Choice and organic growth in existing markets.

Medicaid membership increased primarily due to new business, partially offset by certain state market contractions and membership reverification processes.

Dental membership decreased primarily due to our reduced participation in ACA-compliant marketplaces, partially offset by higher sales in our Local Group and National Accounts businesses.

Dental administration membership decreased primarily due to the loss of a large managed dental contract, partially offset by membership expansion under current contracts.

[removed: (In] [added: *(In] Millions, Except Per Share Data or As Otherwise Stated [removed: Herein)][added: Herein)*]

Potential impacts discussed below are based upon sensitivity analyses performed on our financial position as of December 31, [removed: 2018.][added: 2019.]

[removed: Investments][added: Investments]

Investments in fixed maturity securities include corporate [removed: securities] [added: securities,] which account for [removed: 46.2%] [added: 45.5%] of [removed: the] [added: our] total fixed maturity securities at December 31, [removed: 2018] [added: 2019] and are subject to credit/default risk.

In a declining economic environment, corporate yields will usually [removed: increase] [added: increase,] prompted by concern over the ability of corporations to make interest payments, thus causing a decrease in the price of corporate securities, and the decline in value of the corporate fixed maturity portfolio.

A 100 basis point increase in interest rates would result in an approximate [removed: $733] [added: $20] decrease in fair value, whereas a 100 basis point decrease in interest rates would result in an approximate [removed: $723] [added: $20] increase in fair value.

As of December 31, [removed: 2018, 8.2%] [added: 2019, 4.9%] of our investments were equity securities.

An immediate 10% decrease in each equity investment’s value, arising from market movement, would result in a fair value decrease of [removed: $153.][added: $104.]

Alternatively, an immediate 10% increase in each equity investment’s value, attributable to the same factor, would result in a fair value increase of [removed: $153.][added: $104.]

For additional information regarding our investments, see Note 4, “Investments,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 and “Critical Accounting Policies and Estimates - [removed: Investments”] [added: *Investments*”] within Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

[removed: Long-Term Debt][added: Long-Term Debt]

Our total long-term debt at December 31, [removed: 2018] [added: 2019] consists of senior unsecured notes, convertible debentures, commercial paper and subordinated surplus notes by one of our insurance subsidiaries.

At December 31, [removed: 2018,] [added: 2019,] the carrying value and estimated fair value of our long-term debt was [removed: $18,066] [added: $19,385] and [removed: $18,872,] [added: $21,774,] respectively.

This debt is subject to interest rate [removed: risk] [added: risk,] as these instruments have fixed interest rates and the fair value is affected by changes in market interest rates.

For additional information regarding our long-term debt, see Note 6, “Fair Value” and Note 12, [removed: “Debt”] [added: “Debt,”] of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

[removed: Derivatives][added: Derivatives]

As of December 31, [removed: 2018,] [added: 2019,] we recorded a net [removed: liability] [added: asset] of [removed: $4,] [added: $21,] the estimated fair value of the swaps at that date.

A 100 basis point increase in interest rates would result in an approximate [removed: $27] [added: $860] decrease in fair value, whereas a 100 basis point decrease in interest rates would result in an approximate [removed: $27] [added: $871] increase in fair value.

[removed: General][added: General]

We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately [removed: 40] [added: 41] million medical members through our affiliated health plans as of December 31, [removed: 2018.][added: 2019.]

In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, [removed: Blue Cross] and [removed: Blue Shield of Georgia, and] Empire Blue Cross Blue Shield or Empire Blue Cross.

We also conduct business through arrangements with other BCBS licensees [removed: in Louisiana, South Carolina and western New York.][added: as well as other strategic partners.]

Through our subsidiaries, we also serve customers in [removed: over 25] [added: numerous] states across the country as [removed: America’s 1st Choice,] [added: Aim Specialty Health,] Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare.

In January 2019, we exercised our contractual right to terminate the ESI PBM Agreement earlier than the original expiration date of December 31, [removed: 2019] [added: 2019,] due to the [removed: recent] acquisition of Express Scripts by Cigna Corporation, or Cigna.

For additional information regarding this lawsuit, see Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management [removed: Litigation,”] [added: Litigation,*”] of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

For additional information about the ongoing litigation related to the Cigna Merger Agreement, see Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory Proceedings - Cigna Corporation Merger [removed: Litigation,”] [added: Litigation,*”] of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our managed care plans include: Preferred Provider Organizations, or PPOs; [added: Health Maintenance Organizations, or] HMOs; Point-of-Service, or POS, plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans, or CDHPs; and hospital only and limited benefit products.

We provide an array of specialty and other insurance products and services such as [added: PBM services,] dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare.

[removed: The increased] [added: An ongoing] focus on healthcare costs by employers, the government and consumers has continued to drive the growth of alternatives to traditional indemnity health insurance.

As a [removed: result] [added: result,] we continue to offer our broad access PPO networks with multiple benefit designs, but are also focused on leveraging our provider collaboration [removed: initiatives with our Accountable Care Organization, or ACO, partnerships to develop both narrow and tiered network offerings.]

Under self-funded products, we charge a fee for services and the employer or plan sponsor [added: funds or] reimburses us for the healthcare costs.

Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard®, Medicare, Medicaid and [removed: FEP®.][added: FEHB.]

Non-BCBS-branded business refers to members in our non-BCBS-branded [removed: America’s 1st Choice,] Amerigroup, [removed: CareMore,] [added: Freedom Health,] HealthSun, [added: Optimum HealthCare] and Simply Healthcare plans, as well as HealthLink and UniCare members.

We market our [added: Individual, Medicare and certain Local Group] products through direct marketing activities and an extensive network of independent agents, brokers and retail [removed: partnerships for Individual and Medicare customers, and for certain Local Group customers with a smaller employee base.][added: partnerships.]

Products for National Accounts and Local Group customers with a larger employee base are generally sold through independent brokers or consultants retained by the customer [removed: and working] [added: who work] with industry specialists from our in-house sales force.

Being a licensee of the BCBS association of companies, of which there were 36 independent primary licensees [added: including us] as of December 31, [removed: 2018,] [added: 2019,] provides significant market value, especially when competing for very large multi-state employer groups.

Changes to our business environment are likely to continue [removed: for the next several years] as elected officials at the national and state levels continue to [removed: propose] [added: enact,] and [removed: enact] [added: both elected officials and candidates for election continue to propose,] significant modifications to existing laws and regulations, including [removed: the reduction of the individual mandate penalty to zero effective January 1, 2019, elimination of funding for cost-sharing subsidies made available for qualified individuals, and] changes to taxes and fees.

In addition, the legal challenges regarding the ACA, including [removed: the December 2018] [added: a federal district court] decision [removed: of the U.S. District Court for the Northern District of Texas, Fort Worth Division] invalidating the [removed: ACA (the] [added: ACA, or the] “2018 [removed: Texas District Court] ACA [removed: Decision”),] [added: Decision”,] which judgment has been stayed pending appeal, continue to contribute to this uncertainty.

For additional discussion, see [removed: “Regulation,”] [added: “Regulation”] herein and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K.

In addition to the external forces discussed in the preceding paragraph, our results of operations are impacted by levels and mix of membership which can change as a result of the quality and pricing of our health benefits products and services, [added: aging population,] economic conditions, changes in unemployment, acquisitions, entry into new markets and expansions in or exits from existing markets.

During [removed: 2018,] [added: 2019,] we [removed: strategically reduced] [added: modestly expanded] our participation in the Individual ACA-compliant market.

We currently offer Individual ACA-compliant products in [removed: 73] [added: 91] of the 143 rating regions in which we operate.

We believe healthcare is local and that we have the strong local presence required to understand and meet local customer [removed: needs.][added: needs with regard to any product they are enrolled in with us.]

We have implemented initiatives driving payment innovation and partnering with providers to lower cost and improve the quality of healthcare for our [removed: members] [added: members,] and we continue to develop new and innovative ways to effectively manage risk and engage our members.

Finally, we expect to continue to rationalize our portfolio of businesses and products [removed: and align our]

[added: and align our] investments to capitalize on new opportunities to drive growth in our existing markets and expand into new markets in the future.

Our approach includes not only [added: the] sales and distribution of health benefits products on the Internet, but also implementing advanced capabilities that improve services benefiting customers, agents, brokers, and providers while optimizing administrative costs.

[removed: Significant Transactions][added: Significant Transactions]

| • | Acquisition of Simply Healthcare Holdings, Inc., or Simply Healthcare (2015); [added: and] |

| • | Use of Capital—Board of Directors declarations of dividends on our common [removed: stock (2013 through January 2019);] [added: stock;] repurchases of our common [removed: stock (2019 and prior);] [added: stock;] and debt repurchases and new debt issuances [removed: (2018 and prior);] [added: (2019] and [added: prior).] |

[removed: Competition][added: Competition]

Competition continues to be intense due to aggressive [removed: marketing and] [added: marketing,] pricing, [added: government-sponsored programs bid activity,] business consolidations, new [added: strategic alliances, new] competitors in the market, a proliferation of new products, [added: technological advancements,] the impact of [removed: the ACA,] [added: legislative reform,] and increased quality awareness and price sensitivity among customers.

We believe that participants in the managed care industry compete for customers based on quality of service, price, access to provider networks, access to care management and wellness programs (including health information), innovation, breadth and flexibility of products and benefits, [added: expertise and] reputation (including National Committee on Quality Assurance, or NCQA, accreditation status), brand recognition and financial stability.

Product pricing remains competitive and we strive to price our healthcare benefit products [added: and design our Medicare and Medicaid bids] consistent with anticipated underlying medical trends.

[removed: We believe our pricing strategy, based on] predictive modeling, proprietary research and data-driven [removed: processes] [added: processes,] has positioned us to benefit from the potential growth opportunities available through entry into new markets, expansions in existing markets and as a result of any [removed: subsequent] [added: future] changes to the current regulatory scheme.

We believe that our pricing [added: and bid] strategy, brand name and network quality will provide a strong foundation for membership growth opportunities in the future.

We believe that the quality and price of our products, support services, reputation and prior relationships, along with a reasonable commission [removed: structure] [added: structure,] are the factors agents and brokers consider in choosing whether to market our products.

[removed: Reportable Segments][added: Reportable Segments]

Also, in the second quarter of 2019, we began providing pharmacy benefits management, or PBM, services through our IngenioRx subsidiary.

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.

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.

From December 2009 through December 2019, we delegated certain PBM functions and administrative services to Express Scripts, Inc., or Express Scripts, pursuant our PBM agreement with Express Scripts, or the ESI PBM Agreement.

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 member 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.

On June 6, 2019, we announced our entrance into an agreement to acquire Beacon Health Options, Inc., or Beacon, the largest independently held behavioral health organization in the country.

Beacon serves approximately 40 million individuals across all 50 states.

This acquisition aligns with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people with complex and chronic conditions.

The acquisition is expected to close in the first quarter of 2020 and is subject to standard closing conditions and customary approvals.

We also provide services to the federal government in connection with our Federal Health Products & Services business, or FHPS, which administers the Federal Employees Health Benefits, or FEHB, Program.

initiatives with our Accountable Care Organization, or ACO, partnerships to develop both narrow and tiered network offerings.

Further, IngenioRx was built to simplify pharmacy care and focus on the whole person, and we expect it will make it easier for our customers to achieve the best possible health outcomes at the lowest possible total cost of care.

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, product pricing, medical management and health and wellness programs, including service coordination and case management for addressing complex and specialized health care needs, innovative product design and our ability to maintain or achieve improvement in our CMS Star ratings.

CMS Star ratings affect Medicare Advantage plan reimbursements as well as our eligibility to earn quality-based bonus payments for those plans.

See “Regulation” herein for additional information on our CMS Star ratings.

The continuing growth in our government-sponsored business exposes us to increased regulatory oversight.

Further, we are expanding our financial arrangements with providers to include payment models that encourage value-based care.

We believe focusing on quality of care rather than volume of care is the foundation for improving patient outcomes.

Our value-based payment model supports patient-centered care by improving collaboration between providers and health partners and delivering to our patients the right care, at the right time, in the right place.

| • | Launch of IngenioRx (2019); |

We believe our pricing and bid strategy, based on

In addition, the PBM industry is highly competitive, and IngenioRx is subject to competition from national, regional and local PBMs, insurers, health plans, large retail pharmacy chains, large retail stores, supermarkets, other mail order pharmacies, web pharmacies and specialty pharmacies.

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 integrated health services business, our Diversified Business Group, or DBG, from our Government Business segment to the Other segment to reflect changes in how our segments are being managed.

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.

Medicare

Our Other segment includes our PBM business (IngenioRx), our integrated health services business (DBG) and corporate expenses not allocated to either of our other reportable segments.

health benefit plans in accordance with their own requirements and objectives.

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.

We provide Medicaid and other state

*Pharmacy Products:* In the second quarter of 2019, we began using 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 CVS Health pursuant to 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.

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.

management nurses), all of which have been shown to reduce healthcare costs and improve care outcomes.

On February 15, 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 health maintenance organization, or 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 October 2017, we established a new pharmacy benefits manager, or PBM, called IngenioRx, and entered into a five-year agreement with CaremarkPCS Health, L.L.C., or CVS Health, which is a subsidiary of CVS Health Corporation, to begin offering PBM solutions (the “CVS PBM Agreement”), which coincides with the conclusion of our current PBM agreement with Express Scripts, Inc. or Express Scripts, (the “ESI PBM Agreement”).

As a result of exercising our early termination right, the ESI PBM Agreement will now terminate on March 1, 2019, and the twelve-month transition period to migrate the business begins on March 2, 2019.

At that time CVS Health is able to begin providing certain PBM services to IngenioRx pursuant to the CVS PBM Agreement.

Notwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues.

We also provide services to the federal government in connection with the Federal Employee Program®, or FEP®.

Our results of operations depend in large part on accurately predicting healthcare costs and our ability to manage future healthcare costs through adequate product pricing, medical management, product design and negotiation of favorable provider contracts.

Our reduced participation in the Individual ACA-compliant market in 2018 led to a decrease in our fully-insured membership which was partially offset by an increase in our self-funded membership.

We believe the self-funded portion of our group membership base will continue to increase as a percentage of total group membership.

Private exchanges have gained visibility in the market based on the promise of helping employers reduce costs, increase consumer engagement and manage the complexities created by the ACA and other market forces.

While private exchanges have been a distribution channel in the Medicare and Individual markets for some time, in more recent years the Commercial market has received an increased level of attention from the consulting and broker communities as well as health insurance carriers.

In response, we have continued our broad-based strategy of offering our own private exchange, Anthem Health Marketplace, a consumer experience platform, to groups, while also participating in four large national consultant-led exchanges, several regional broker-led exchanges and various Individual, Commercial and Medicare exchanges.

To date, adoption levels in the Commercial market overall have been lower than analyst predictions.

While the ultimate volume, pace of growth and winning business models remain highly uncertain in this space, we continue to believe we are well positioned to adapt with the market as it evolves.

| • | Divestiture of 1-800 CONTACTS, Inc. (2014). |

During the fourth quarter of 2018, we reclassified certain ancillary businesses to align how our segments are currently being managed.

ACA Public Exchange and Off-Exchange Products: The ACA required the modification of existing products and development of new products to meet the requirements of the legislation, subject to certain transitional relief.

host members, for which we receive administrative fees from the BlueCard® members’ home plans.

Pharmacy Products: We market and sell an integrated prescription drug product to both fully-insured and self-funded customers through our health benefit subsidiaries throughout the country.

providers.

In October 2017, we established a new PBM, called IngenioRx, and entered into a five-year agreement with CVS Health to begin offering PBM solutions upon the conclusion of the current ESI PBM Agreement.

We will delegate certain administrative services, including claims processing and prescription fulfillment, to CVS Health.

Our current ESI PBM Agreement will terminate on March 1, 2019, and the twelve-month transition provided for in the ESI PBM Agreement to migrate the services begins on March 2, 2019.

At that time CVS Health is able to begin providing certain PBM services to IngenioRx.

In March 2016, we filed a lawsuit against Express Scripts seeking to recover damages for pharmacy pricing that is higher than competitive benchmark pricing.

For additional information, 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.

While

All of our health plans have implemented precertification programs for common high-tech radiology studies, including cardiac diagnostic testing, addressing an area of historically significant cost trends.

We are also working to move increasing aspects of this work to the providers we work with via our provider collaboration efforts, a set of capabilities, offerings, programs and products that help us partner with providers to leverage data, insights and technology to deliver the right care, at the right time, in the right place.

This group is comprised of internal and external physician leaders from various specialties and areas of the country, working in cooperation with academic medical centers, practicing community physicians and medical specialty organizations such as the American College of Radiology and national organizations such as the Centers for Disease Control and Prevention and the American Cancer Society.

Service management: In HMO and POS networks, PCPs serve as the overall coordinators of members’ healthcare needs by providing an array of preventive health services and overseeing referrals to specialists for appropriate medical care.

In PPO networks, members have access to network physicians without a PCP serving as the coordinator of care.

Personal Health Care Guidance: These services help improve the quality, coordination and safety of healthcare, enhance communications between patients and their physicians, and reduce medical costs.

Examples of services include member and physician messaging, providing access to evidence-based medical guidelines, physician quality assessment, and other consulting services.

Members are supported by a team of nurses, coaches, educators, and social workers using voice, click-to-chat, secure email and mobile technology.

Our Smart Engagement Platform supports this integrated team using our smart engagement triggers for speech recognition, preventative and clinical gaps in care and highlighting when we have members who are identified for current healthcare support.

Anthem Health Guide is fully integrated with our specialty products, such as dental, vision and other supplemental products, to ensure members can optimize their benefits.

Case Management is an advanced care management program that reaches out to participants with multiple healthcare issues who are at risk for frequent and high levels of medical care in order to offer support and assistance in managing their healthcare needs.

For information regarding our legal proceedings, see Note 13, “Commitments and Contingencies - [removed: Litigation] [added: *Litigation] and Regulatory [removed: Proceedings,”] [added: Proceedings,*”] of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[removed: (Mark One)][added: *(Mark One)*]

| [removed: x] [added: ☒] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF [removed: THE SECURITIES] [added: THE SECURITIES] EXCHANGE ACT OF [removed: 1934] [added: 1934] |

For the fiscal year ended December 31, [removed: 2018][added: 2019]

| [removed: o] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF [removed: THE SECURITIES] [added: THE SECURITIES] EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: ANTHEM, INC.][added: ANTHEM, INC.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: INDIANA] [added: Indiana] | | [removed: 35-2145715] [added: 35-2145715] |

| [removed: (State] [added: (State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization)] [added: organization)] | | [removed: (I.R.S.] [added: (I.R.S.] Employer Identification [removed: Number)] [added: Number)] |

[removed: | 220 VIRGINIA AVENUE INDIANAPOLIS, INDIANA] (Address of principal executive offices) [removed: | | 46204] (Zip Code) [removed: |]

[removed: Registrant’s] [added: Registrant’s] telephone number, including area [removed: code: (800) 331-1476][added: code: (800) 331-1476]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | | [removed: Name] [added: Trading symbol(s) | | Name] of each exchange on which [removed: registered] [added: registered] |

| Common Stock, Par Value $0.01 | | [added: ANTM | |] New York Stock Exchange |

Yes [removed: ¨] [added: ☐] No x

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange [removed: Act.][added: Act.:]

| Large accelerated filer | [removed: x] [added: ☒] | | | Accelerated filer | [removed: ¨] [added: ☐] |

| Non-accelerated filer | [removed: ¨] [added: ☐] | | | Smaller reporting company | [removed: ¨] [added: ☐] |

| Emerging growth company | [removed: ¨] [added: ☐] | | | | |

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming solely for the purposes of this calculation that all Directors and executive officers of the registrant are “affiliates”) as of June [removed: 29, 2018] [added: 28, 2019] was approximately [removed: $61,871,738,688.][added: $72,160,040,688.]

As of February [removed: 7, 2019, 257,011,928] [added: 6, 2020, 252,329,919] shares of the Registrant’s Common Stock were outstanding.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May [removed: 15, 2019.][added: 21, 2020.]

[removed: Annual] [added: Annual] Report on Form [removed: 10-K][added: 10-K]

[removed: For] [added: For] the Year [removed: Ended December] [added: Ended December] 31, [removed: 2018][added: 2019]

[removed: Table] [added: Table] of [removed: Contents][added: Contents]

[removed: | [PART I](#s766A80692A725AAAB9380808CEE31061) | | |][added: PART I]

| ITEM 1. | [removed: [BUSINESS](#sCBC016E611705BFFA7503D7D771F4224)] [added: [BUSINESS](#s4A7B2563387C584FACE53AFC0CE95F12)] | [removed: [3](#sCBC016E611705BFFA7503D7D771F4224)] [added: [3](#s4A7B2563387C584FACE53AFC0CE95F12)] |

| ITEM 1A. | [RISK [removed: FACTORS](#sCD59317442345CC8AE2462F10F39512C)] [added: FACTORS](#s6F439FC142DC59DF928E796E3C42336E)] | [removed: [22](#sCD59317442345CC8AE2462F10F39512C)] [added: [22](#s6F439FC142DC59DF928E796E3C42336E)] |

| ITEM 1B. | [UNRESOLVED SEC STAFF [removed: COMMENTS](#s814EA0EC91035F38B26C5DD83CE44FAC)] [added: COMMENTS](#s073F2B3250395408AB2EF5D7A3E8A790)] | [removed: [38](#s814EA0EC91035F38B26C5DD83CE44FAC)] [added: [39](#s073F2B3250395408AB2EF5D7A3E8A790)] |

| ITEM 2. | [removed: [PROPERTIES](#s9A342B39E44E5FDA8E652707823454CD)] [added: [PROPERTIES](#s02EE96BE04DF53239430BE09811D8707)] | [removed: [38](#s9A342B39E44E5FDA8E652707823454CD)] [added: [39](#s02EE96BE04DF53239430BE09811D8707)] |

| ITEM 3. | [LEGAL [removed: PROCEEDINGS](#s17D7587D52F5578AA478C53BDC9B4AD6)] [added: PROCEEDINGS](#sE74FFD4C2A6C572F8C4FEC26E09A72D0)] | [removed: [38](#s17D7587D52F5578AA478C53BDC9B4AD6)] [added: [40](#sE74FFD4C2A6C572F8C4FEC26E09A72D0)] |

| ITEM 4. | [MINE SAFETY [removed: DISCLOSURES](#s5111D18ADB115056843C869C67A2B2EF)] [added: DISCLOSURES](#s5001FCD01AB6577686E5CECD2006979E)] | [removed: [38](#s5111D18ADB115056843C869C67A2B2EF)] [added: [40](#s5001FCD01AB6577686E5CECD2006979E)] |

| ITEM 5. | [MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY [removed: SECURITIES](#s687EA77FE2B55BFF82CB79D208F4DEDB)] [added: SECURITIES](#s03F80964C4275AEAB8E09D2FF75DA28E)] | [removed: [39](#s687EA77FE2B55BFF82CB79D208F4DEDB)] [added: [41](#s03F80964C4275AEAB8E09D2FF75DA28E)] |

| ITEM 6. | [SELECTED FINANCIAL [removed: DATA](#s8E0567677C9D50B2AF2BF2450287C05A)] [added: DATA](#s890F4DA602AC59169C237931616607F0)] | [removed: [41](#s8E0567677C9D50B2AF2BF2450287C05A)] [added: [43](#s890F4DA602AC59169C237931616607F0)] |

| ITEM 7. | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF [removed: OPERATIONS](#s59809DB0D17F5BD4ADDDF6D3108B45D7)] [added: OPERATIONS](#s62D08CC8AE895416A4CC0918987BEF84)] | [removed: [42](#s59809DB0D17F5BD4ADDDF6D3108B45D7)] [added: [44](#s62D08CC8AE895416A4CC0918987BEF84)] |

| ITEM 7A. | [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET [removed: RISK](#s1AF8DB4B60205A188F0E6D034C5ADA20)] [added: RISK](#sE28C69ADEA5A546589AB214D31B650C6)] | [removed: [68](#s1AF8DB4B60205A188F0E6D034C5ADA20)] [added: [68](#sE28C69ADEA5A546589AB214D31B650C6)] |

220 Virginia Avenue

Indianapolis, Indiana 46204

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

Anthem, Inc.

| [PART II](#s9067D94F639D5899A633C43014692F2A) | | |

| [PART IV](#s6CBEA3175F975B7FB952C51A5BB2CB93) | | |

| [SIGNATURES](#sE01C64BB613D5A899E605BC330F9F0AC) | | [158](#sE01C64BB613D5A899E605BC330F9F0AC) |

10-K 1 antm-2018123110kq42018.htm FORM 10-K

| | | |

| --- | --- | --- |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

(Check one):

| [PART II](#sB7ED4844743A53F38E66E8C26635E83E) | | |

| [PART IV](#s9F44E3AB27BD56C7921D85D77AEB23FE) | | |

| [SIGNATURES](#s95CC137E22C75FD195436AEF55870A1F) | | [155](#s95CC137E22C75FD195436AEF55870A1F) |

In addition to this location, we have operating facilities located in each state where we operate as licensees of the BCBSA, in each state where Amerigroup conducts business and in certain other states [added: and countries] where our other subsidiaries operate.

\-39\-

[removed: PART II][added: PART II]

\-40\-

\-38\-

[removed: Market Information][added: Market Information]

[removed: Holders][added: Holders]

As of February [removed: 7, 2019,] [added: 6, 2020,] there were [removed: 60,778] [added: 57,967] shareholders of record of our common stock.

[removed: Securities] [added: Securities] Authorized for Issuance under Equity Compensation [removed: Plans][added: Plans]

The information required by this Item concerning securities authorized for issuance under our equity compensation plans is set forth in [removed: or incorporated by reference into] Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K.

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

| [removed: Period] [added: Period] | | | [removed: Total Number of Shares Purchased1] [added: Total Number of Shares Purchased1] | | | [removed: Average Price Paid per Share] [added: Average Price Paid per Share] | | | | [removed: Total Number of Shares Purchased as Part of Publicly Announced Programs2] [added: Total Number of Shares Purchased as Part of Publicly Announced Programs2] | | | [removed: Approximate Dollar Value of] [added: Approximate Dollar Value of] Shares [removed: that May] [added: that May] Yet [removed: Be Purchased Under the Programs] [added: Be Purchased Under the Programs] | | |

| [removed: (In] [added: *(In] millions, except share and per share [removed: data)] [added: data)*] | | | | | | | | | | | | | | | |

| 1 | Total number of shares purchased includes [removed: 14,513] [added: 6,079] shares delivered to or withheld by us in connection with employee payroll tax withholding upon exercise or vesting of stock awards. Stock grants to employees and directors and stock issued for stock option plans and stock purchase plans in the consolidated statements of shareholders’ equity are shown net of these shares purchased. |

| 2 | Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board evaluates periodically. During the year ended December 31, [removed: 2018,] [added: 2019,] we repurchased [removed: 6,783,692] [added: 6,332,989] shares at a cost of [removed: $1,685] [added: $1,701] under the program, including the cost of options to purchase shares. The Board of Directors has authorized our common stock repurchase program since 2003. The Board’s most recent authorized increase to the program was $5,000 on December 7, 2017. [removed: Between January 1, 2019 and February 7, 2019, we repurchased 631,943 shares at a cost of $165, bringing our current availability to $5,328 at February 7, 2019.] No duration has been placed on our common stock repurchase [removed: program] [added: program,] and we reserve the right to discontinue the program at any time. |

[removed: Performance Graph][added: Performance Graph]

The following Performance Graph and related information compares the cumulative total return to shareholders of our common stock for the period from December 31, [removed: 2013] [added: 2014] through December 31, [removed: 2018,] [added: 2019,] with the cumulative total return over such period of (i) the Standard & Poor’s 500 Stock Index (the “S&P 500 Index”) and (ii) the Standard & Poor’s Managed Health Care Index (the “S&P Managed Health Care Index”).

The graph assumes an investment of $100 on December 31, [removed: 2013] [added: 2014] in each of our common stock, the S&P 500 Index and the S&P Managed Health Care Index (and the reinvestment of all dividends).

The comparisons shown in the graph below are based on historical [removed: data] [added: data,] and we caution that the stock price performance shown in the graph below is not indicative of, and is not intended to forecast, the potential future performance of our common stock.

[removed: ][added: ]

| | | [removed: December 31,] [added: December 31,] | | | | | | | | | | | | | | | | | | | | | | |

| | | [removed: 2013] [added: 2014] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2018] [added: 2019] | | |

Based upon an initial investment of $100 on December 31, [removed: 2013] [added: 2014] with dividends reinvested.

| October 1, 2019 to October 31, 2019 | | | 672,357 | | | $ | 244.58 | | | 670,000 | | | $ | 3,934 | |

| November 1, 2019 to November 30, 2019 | | | 282,903 | | | 276.20 | | | | 279,500 | | | 3,857 | | |

| December 1, 2019 to December 31, 2019 | | | 222,613 | | | 290.75 | | | | 222,294 | | | 3,792 | | |

| | | | 1,177,873 | | | | | | | 1,171,794 | | | | | |

\-41\-

| Anthem, Inc. | | $ | 100 | | | $ | 113 | | | $ | 119 | | | $ | 188 | | | $ | 222 | | | $ | 259 | |

| S&P 500 Index | | 100 | | | | 101 | | | | 114 | | | | 138 | | | | 132 | | | | 174 | | |

| S&P Managed Health Care Index | | 100 | | | | 122 | | | | 146 | | | | 210 | | | | 232 | | | | 279 | | |

\-42\-

| October 1, 2018 to October 31, 2018 | | | 618,636 | | | $ | 273.13 | | | 612,200 | | | $ | 5,819 | |

| November 1, 2018 to November 30, 2018 | | | 443,657 | | | 277.54 | | | | 438,100 | | | 5,697 | | |

| December 1, 2018 to December 31, 2018 | | | 772,820 | | | 264.85 | | | | 770,300 | | | 5,493 | | |

| | | | 1,835,113 | | | | | | | 1,820,600 | | | | | |

\-39\-

| Anthem, Inc. | | $ | 100 | | | $ | 138 | | | $ | 156 | | | $ | 164 | | | $ | 260 | | | $ | 307 | |

| S&P 500 Index | | 100 | | | | 114 | | | | 115 | | | | 129 | | | | 157 | | | | 150 | | |

| S&P Managed Health Care Index | | 100 | | | | 134 | | | | 163 | | | | 195 | | | | 280 | | | | 311 | | |

\-40\-

The information has been derived from our consolidated financial statements for each of the years in the five-year period ended December 31, [removed: 2018.][added: 2019.]

You should read this selected consolidated financial data in conjunction with the audited consolidated financial statements and notes as of and for the year ended December 31, [removed: 2018] [added: 2019] included in Part II, Item 8 “Financial Statements and Supplementary Data,” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

| | | [removed: As] [added: As] of and for the Years Ended December [removed: 31] [added: 31] | | | | | | | | | | | | | | | | | | |

| | | [removed: 2018 1] [added: 2019] | | | | [removed: 2017 1] [added: 2018 1] | | | | [removed: 2016] [added: 2017 1] | | | | [removed: 2015 1] [added: 2016] | | | | [removed: 2014 2] [added: 2015 1] | | |

| [removed: (in] [added: *(in] millions, except where indicated and except per share [removed: data)] [added: data)*] | | | | | | | | | | | | | | | | | | | | |

| [removed: Income] [added: Income] Statement [removed: Data] [added: Data] | | | | | | | | | | | | | | | | | | | | |

| Total operating [removed: revenue3] [added: revenue2] | | $ | [removed: 91,341] [added: 103,141] | | | $ | [removed: 89,061] [added: 91,341] | | | $ | [removed: 84,194] [added: 89,061] | | | $ | [removed: 78,405] [added: 84,194] | | | $ | [removed: 73,022] [added: 78,405] | |

| Total revenues | | [removed: 92,105] [added: 104,213] | | | | [removed: 90,040] [added: 92,105] | | | | [removed: 84,863] [added: 90,040] | | | | [removed: 79,157] [added: 84,863] | | | | [removed: 73,874] [added: 79,157] | | |

| [removed: Income from continuing operations] [added: Net income] | | [removed: 3,750] [added: 4,807] | | | | [removed: 3,843] [added: 3,750] | | | | [removed: 2,470] [added: 3,843] | | | | [removed: 2,560] [added: 2,470] | | | | 2,560 | | |

| [removed: Per] [added: Per] Share [removed: Data] [added: Data] | | | | | | | | | | | | | | | | | | | | |

| Basic net income per share [removed: - continuing operations] | | $ | [removed: 14.53] [added: 18.81] | | | $ | [removed: 14.70] [added: 14.53] | | | $ | [removed: 9.39] [added: 14.70] | | | $ | [removed: 9.73] [added: 9.39] | | | $ | [removed: 9.28] [added: 9.73] | |

| Diluted net income per share [removed: - continuing operations] | | [removed: 14.19] [added: 18.47] | | | | [removed: 14.35] [added: 14.19] | | | | [removed: 9.21] [added: 14.35] | | | | [removed: 9.38] [added: 9.21] | | | | [removed: 8.96] [added: 9.38] | | |

| Dividends per share | | [removed: 3.00] [added: 3.20] | | | | [removed: 2.70] [added: 3.00] | | | | [removed: 2.60] [added: 2.70] | | | | [removed: 2.50] [added: 2.60] | | | | [removed: 1.75] [added: 2.50] | | |

| [removed: Other] [added: Other] Data [removed: (unaudited)] [added: (unaudited)] | | | | | | | | | | | | | | | | | | | | |

| Benefit expense [removed: ratio4] [added: ratio3] | | [removed: 84.2] [added: 86.8] | | % | | [removed: 86.4] [added: 84.2] | | % | | [removed: 84.8] [added: 86.4] | | % | | [removed: 83.3] [added: 84.8] | | % | | [removed: 83.1] [added: 83.3] | | % |

| Selling, general and administrative expense [removed: ratio5] [added: ratio4] | | [removed: 15.3] [added: 13.0] | | % | | [removed: 14.2] [added: 15.3] | | % | | [removed: 14.9] [added: 14.2] | | % | | [removed: 16.0] [added: 14.9] | | % | | [removed: 16.1] [added: 16.0] | | % |

| Income [removed: from continuing operations] before income tax expense as a percentage of total revenues | | [removed: 5.5] [added: 5.7] | | % | | [removed: 4.4] [added: 5.5] | | % | | [removed: 5.4] [added: 4.4] | | % | | [removed: 5.9] [added: 5.4] | | % | | 5.9 | | % |

| Net income as a percentage of total revenues | | [removed: 4.1] [added: 4.6] | | % | | [removed: 4.3] [added: 4.1] | | % | | [removed: 2.9] [added: 4.3] | | % | | [removed: 3.2] [added: 2.9] | | % | | [removed: 3.5] [added: 3.2] | | % |

| Medical membership [removed: (in thousands)] [added: (*in thousands*)] | | [removed: 39,938] [added: 41,000] | | | | [removed: 40,299] [added: 39,938] | | | | [removed: 39,940] [added: 40,299] | | | | [removed: 38,599] [added: 39,940] | | | | [removed: 37,499] [added: 38,599] | | |

| [removed: Balance] [added: Balance] Sheet [removed: Data] [added: Data] | | | | | | | | | | | | | | | | | | | | |

| Cash and [removed: investments6] [added: investments5] | | $ | [removed: 22,639] [added: 26,157] | | | $ | [removed: 25,179] [added: 22,639] | | | $ | [removed: 23,263] [added: 25,179] | | | $ | [removed: 21,065] [added: 23,263] | | | $ | [removed: 22,062] [added: 21,065] | |

| Total assets | | [removed: 71,571] [added: 77,453] | | | | [removed: 70,540] [added: 71,571] | | | | [removed: 65,083] [added: 70,540] | | | | [removed: 61,718] [added: 65,083] | | | | [removed: 61,676] [added: 61,718] | | |

| Long-term debt, less current portion | | [removed: 17,217] [added: 17,787] | | | | [removed: 17,382] [added: 17,217] | | | | [removed: 14,359] [added: 17,382] | | | | [removed: 15,325] [added: 14,359] | | | | [removed: 14,020] [added: 15,325] | | |

| Total liabilities | | [removed: 43,030] [added: 45,725] | | | | [removed: 44,037] [added: 43,030] | | | | [removed: 39,982] [added: 44,037] | | | | [removed: 38,673] [added: 39,982] | | | | [removed: 37,425] [added: 38,673] | | |

| Total shareholders’ equity | | [removed: 28,541] [added: 31,728] | | | | [removed: 26,503] [added: 28,541] | | | | [removed: 25,101] [added: 26,503] | | | | [removed: 23,045] [added: 25,101] | | | | [removed: 24,251] [added: 23,045] | | |

| [removed: 3] [added: 2] | Operating revenue is obtained by adding premiums and administrative fees and other revenue. |

| [removed: 4] [added: 3] | The benefit expense ratio represents benefit expenses as a percentage of premium revenue. |

| [removed: 5] [added: 4] | The selling, general and administrative expense ratio represents selling, general and administrative expenses as a percentage of total operating revenue. |

| [removed: 6] [added: 5] | Cash and investments is obtained by adding cash and cash equivalents, current and long-term fixed maturity securities and current and long-term equity securities. |

\-43\-

| Net income | | 3,750 | | | | 3,843 | | | | 2,470 | | | | 2,560 | | | | 2,570 | | |

| | |

| --- | --- |

| 2 | The operating results of 1-800 CONTACTS, Inc. are reported as discontinued operations at December 31, 2014 as a result of the divestiture completed on January 31, 2014. Included in net income for the year ended December 31, 2014 is income from discontinued operations, net of tax, of $10. |

\-41\-

[removed: ANTHEM, INC.][added: ANTHEM, INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] FINANCIAL [removed: STATEMENTS][added: STATEMENTS]

[removed: Years ended December] [added: Years ended December] 31, [removed: 2018, 2017 and 2016][added: 2019, 2018 and 2017]

[removed: Contents][added: Contents]

| Report of Independent Registered Public Accounting Firm | [removed: [71](#s8BC78AE85084539F9444787303976278)] [added: [71](#sB4FFA09F43535EFF8E5BFB0C0430A4BA)] |

[removed: | Consolidated] [added: Consolidated] Balance [removed: Sheets | [72](#sE5F9D79965FD5781A88DC778C5CBFBB0) |][added: Sheets]

[removed: | Consolidated] [added: Consolidated] Statements of [removed: Income | [73](#sB137C365883C55E7B4CCBDF631F53F2E) |][added: Income]

[removed: | Consolidated] [added: Consolidated] Statements of Comprehensive [removed: Income | [74](#sDB728AEF39B651F88A4658591E06A74A) |][added: Income]

[removed: | Consolidated] [added: Consolidated] Statements of Cash [removed: Flows | [75](#s1EFDC57E3E075090B429B2D25BEE2E8A) |][added: Flows]

[removed: | Consolidated] [added: Consolidated] Statements of Shareholders’ [removed: Equity | [76](#s9DCC361AC35B555692B59F0B78BDD31A) |][added: Equity]

| Notes to Consolidated Financial Statements | [removed: [77](#s5B29DA6009B3566EA55B14D9EEA51D90)] [added: [79](#s46AF0C0C9B695A98A950AE6660F48445)] |

[removed: Report] [added: Report] of Independent [removed: Registered][added: Registered]

[removed: Public] [added: Public] Accounting [removed: Firm][added: Firm]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of Anthem, Inc. (the Company) as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the Index at Item 15(c) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 [removed: framework)] [added: framework),] and our report dated February [removed: 20, 2019] [added: 19, 2020] expressed an unqualified opinion thereon.

[removed: Adoption] [added: Adoption] of New Accounting [removed: Standard][added: Standards]

As discussed in Note 2 to the consolidated financial statements, [added: on January 1, 2018,] the Company changed its method of accounting for non-consolidated equity investments [added: that are] not accounted for under the equity method of [removed: accounting by requiring changes in fair value to be recognized in income for the year ended December 31, 2018.][added: accounting.]

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[added: |] Consolidated Balance Sheets [added: | [74](#sFED8DDE041C55C2ABF7CEC81071CB702) |]

| [removed: | December] [added: December] 31, [removed: 2018] [added: 2018] | | | | [removed: December 31, 2017] | | | [added: | | | | | | | | | | | | | | | | |]

| [removed: (In] [added: *(In] millions, except share [removed: data)] [added: data)*] | | | | | | | |

| [removed: Assets] [added: Assets] | | | | | | | |

| Cash and cash equivalents | $ | [removed: 3,934] [added: 4,937] | | | $ | [removed: 3,609] [added: 3,934] | |

| Fixed maturity securities, current (amortized cost of [removed: $16,894] [added: $19,021] and [removed: $17,055)] [added: $16,894)] | [removed: 16,692] [added: 19,676] | | | | [removed: 17,377] [added: 16,692] | | |

| Equity securities, current | [removed: 1,493] [added: 1,009] | | | | [removed: 3,599] [added: 1,493] | | |

| Other invested assets, current | [removed: 21] [added: 13] | | | | [removed: 17] [added: 21] | | |

| Accrued investment income | [removed: 162] [added: 173] | | | | [removed: 163] [added: 162] | | |

| Premium receivables | [removed: 4,465] [added: 5,173] | | | | [removed: 3,605] [added: 4,465] | | |

| Self-funded receivables | [removed: 2,278] [added: 2,411] | | | | [removed: 2,580] [added: 2,278] | | |

| Other receivables | [removed: 2,558] [added: 2,634] | | | | [removed: 2,267] [added: 2,558] | | |

| Income taxes receivable | [removed: 10] [added: 335] | | | | [removed: 342] [added: 10] | | |

| Securities lending collateral | [removed: 604] [added: 353] | | | | [removed: 455] [added: 604] | | |

| Other current assets | [removed: 2,104] [added: 2,319] | | | | [removed: 2,249] [added: 2,104] | | |

| Total current assets | [removed: 34,321] [added: 39,033] | | | | [removed: 36,263] [added: 34,321] | | |

| Fixed maturity securities (amortized cost of [removed: $486] [added: $487] and [removed: $555)] [added: $486)] | [removed: 487] [added: 505] | | | | [removed: 561] [added: 487] | | |

| Equity securities | [removed: 33] [added: 30] | | | | 33 | | |

| Other invested assets | [removed: 3,726] [added: 4,228] | | | | [removed: 3,344] [added: 3,726] | | |

| Property and equipment, net | [removed: 2,735] [added: 3,133] | | | | [removed: 2,175] [added: 2,735] | | |

As discussed in Note 2 to the consolidated financial statements, on January 1, 2019, the Company changed its method of accounting for leases.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

| *Valuation of Incurred but Not Paid Claims* | | |

| | | |

| Description of the Matter | | Medical claims payable was $8,842 million at December 31, 2019, a significant portion of which related to the Company’s estimate for claims that are incurred but not paid. As discussed in Note 2 to the consolidated financial statements, the Company’s liability for incurred but not paid claims is determined using actuarial methods that include a number of factors and assumptions, including completion factors, which represent the average percentage of total incurred claims that have been paid through a given date after being incurred based on historical paid claims data, and trend factors, which represent an estimate of claims expense based on recent claims expense levels and healthcare cost levels. There is significant uncertainty inherent in determining management’s best estimate of completion and trend factors, which are used to calculate actuarial estimates of incurred but not paid claims. |

| | | Auditing management’s estimate of incurred but not paid claims was complex and required the involvement of our actuarial specialists due to the highly judgmental nature of the completion and trend factor assumptions used in the valuation process. The significant judgment was primarily due to the sensitivity of management’s best estimate of completion and trend factor assumptions, which have a significant impact on the valuation of incurred but not paid claims. |

| | | |

| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s actuarial process for estimating the liability for incurred but not paid claims. These audit procedures included among others, testing management review controls over completion and trend factor assumptions and the review and approval processes that management has in place for estimating the liability for incurred but not paid claims. |

| | | To test the Company’s liability for incurred but not paid claims, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims and membership data recorded in the source claims processing and disbursement systems to the data used by management in developing completion and trend factor assumptions and comparing a sample of incurred and paid claims to source documentation. With the support of actuarial specialists, we analyzed the Company’s completion and trend factor assumptions based on historical claim experience and emerging cost trends, and independently calculated a range of reasonable reserve estimates for comparison to management’s best estimate of the liability for incurred but not paid claims. Additionally, we performed a review of the prior period liabilities for incurred but not paid claims to subsequent claims development. |

| | | |

| | | |

| | | |

| | | |

| | | |

| | | |

| | | |

| --- | --- | --- |

| | | |

| *Revenue Recognition for New Pharmacy Benefits Manager Business* | | |

| | | |

| Description of the Matter | | Beginning in the second quarter of 2019, the Company commenced operations of its new pharmacy benefits manager (PBM), IngenioRx. Administrative fees and other revenue of $8,968 million for the year ended December 31, 2019 included product revenue for services performed by IngenioRx to unaffiliated PBM customers. As discussed in Note 2 to the consolidated financial statements, product revenue for PBM services to unaffiliated PBM customers is recognized using the gross method at the negotiated contract price when IngenioRx has concluded it is the principal and it controls the PBM services before prescription drugs are transferred to the customer. There is significant judgment in determining whether IngenioRx is the principal of the PBM services, which requires the identification of PBM activities relevant to evaluating control and an assessment of IngenioRx's ability to direct the identified activities. In particular, the PBM activities that determine control include formulary management, network management and pricing discretion. |

| | | Auditing management’s revenue recognition for PBM services to unaffiliated PBM customers required a high degree of auditor judgment due to the subjectivity in determining whether IngenioRx is the principal in the performance of PBM services. These judgments have a significant impact on the presentation and disclosure of product revenue for services performed by IngenioRx to unaffiliated PBM customers. |

| | | |

| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s evaluation of revenue recognition for PBM services performed by IngenioRx to unaffiliated PBM customers. These audit procedures included among others, testing management review controls over the identification of PBM activities relevant to evaluating control and the evaluation performed to assess IngenioRx’s ability to direct the identified activities. |

| | | To test the Company’s revenue recognition for PBM services to unaffiliated PBM customers, our audit procedures included, among others, assessing the PBM activities provided by IngenioRx to the customer and analyzing the contractual rights and obligations contained in its PBM services agreement with CaremarkPCS Health, L.L.C. Further, we evaluated IngenioRx’s ability to direct the identified PBM activities determined to be significant in fulfilling the promise to provide PBM services to its customers by evaluating evidence of management’s control over such activities. In addition, we inspected the terms and conditions of a sample of unaffiliated PBM customer contracts to evaluate IngenioRx’s assertion of control. |

February 19, 2020

Anthem, Inc.

| Cost of products sold | 1,992 | | | | — | | | | — | | |

*See accompanying notes.*

Anthem, Inc.

*See accompanying notes.*

Anthem, Inc.

| Net income | $ | 4,807 | | | $ | 3,750 | | | $ | 3,843 | |

| Premiums paid on equity call options | (1 | | ) | | — | | | | — | | |

*See accompanying notes.*

Anthem, Inc.

| Adoption of Accounting Standards Update No. 2016-02 (Note 2) | — | | | — | | | | — | | | | 26 | | | | — | | | | 26 | | |

| January 1, 2019 | 257.4 | | | 3 | | | | 9,536 | | | | 20,014 | | | | (986 | | ) | | 28,567 | | |

February 20, 2019

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Excess tax benefits from share-based compensation | — | | | | — | | | | (54 | | ) |

| Proceeds from sales of property and equipment | — | | | | 9 | | | | — | | |

| Excess tax benefits from share-based compensation | — | | | | — | | | | 54 | | |

| January 1, 2016 | 261.2 | | | $ | 3 | | | $ | 8,556 | | | $ | 14,778 | | | $ | (292 | ) | | $ | 23,045 | |

1.

We also provide services to the federal government in connection with the Federal Employee Program®, or FEP®.

2.

value of net assets acquired.

We began our 2018 annual test with qualitative analyses.

our existing portfolios of assets and liabilities, as well as changing the characteristics of investments to be purchased or sold in the future.

At the December 31, 2017 measurement date, we changed the discount rate setting methodology from the single equivalent discount rate to the annual spot rate approach.

The spot rate approach produces a more precise measure of service and interest cost, and results in obligations that are equal at the measurement date under both methods.

customers owe us based on actual claim experience.

Our

The HIP Fee is scheduled to go back into effect for 2020.

practice in how certain cash receipts and cash payments are presented and classified.

This update provides guidance to help entities determine whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software or as a service contract.

ASU 2015-05 became effective January 1, 2016 and we elected to adopt the provisions of the new guidance prospectively to all arrangements entered into or materially modified on or after January 1, 2016.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, or ASU 2015-02.

This update amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the consolidation analysis of reporting entities that are involved with variable interest entities.

We adopted the provisions of ASU 2015-02 effective January 1, 2016, and re-evaluated all legal entity investments under the revised consolidation model.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, or ASU 2018-15.

ASU 2018-15 is effective for us on January 1, 2020, with early adoption permitted.

The guidance can be applied either prospectively to all implementation costs incurred after the date of adoption or retrospectively.

The amendments in ASU 2018-11 provide for an additional and optional transition method that allows an entity to initially apply ASC Topic 842 at the adoption date and recognize a cumulative effect adjustment to its opening balance of retained earnings in the period of adoption and continue its reporting for the comparative periods presented in accordance with the current lease guidance in ASC Topic 840.

The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance in ASC Topic 606 and if certain conditions are met.

The amendments in ASU 2018-10

Upon the effective date, ASU 2016-02 will supersede the current lease guidance in ASC Topic 840.

ASU 2016-02 became effective for us on January 1, 2019.

ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements.

As noted above, ASU 2018-11 provides for an additional and optional transition method.

We also do not believe the new standard will have an impact on our liquidity or debt-covenant compliance under our current agreements.

ASU 2017-04 is effective for us on January 1, 2020, with early adoption permitted.

The adoption of ASU 2017-04 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

3.

All of the goodwill was allocated to our Government Business segment.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the fair value of HealthSun’s assets acquired and liabilities assumed, including identifiable intangible assets.

\-139\-

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

We carried out an evaluation as of December 31, [removed: 2018,] [added: 2019,] under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act.

[removed: Management’s] [added: Management’s] Report on Internal Control [removed: over] [added: Over] Financial [removed: Reporting][added: Reporting]

Management, under the supervision and with the participation of the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s Internal Control as of December 31, [removed: 2018.][added: 2019.]

Based on management’s assessment, [removed: which excluded an assessment of Internal Control of America's 1st Choice,] management has concluded that the Company’s Internal Control was effective as of December 31, [removed: 2018] [added: 2019] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

Ernst & Young LLP, the Company’s independent registered public accounting firm, has audited the consolidated financial statements of the Company for the year ended December 31, [removed: 2018,] [added: 2019,] and has also issued an audit report dated February [removed: 20, 2019,] [added: 19, 2020,] on the effectiveness of the Company’s Internal Control as of December 31, [removed: 2018,] [added: 2019,] which is included in this Annual Report on Form 10-K.

[removed: Changes] [added: Changes] in Internal Control [removed: over] [added: Over] Financial [removed: Reporting][added: Reporting]

[removed: There] [added: Other than these new controls, there] have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, [removed: 2018] [added: 2019] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

[removed: Report] [added: Report] of Independent Registered Public Accounting [removed: Firm][added: Firm]

We have audited Anthem, Inc.’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Anthem, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Anthem, Inc. as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the Index at Item 15(c) and our report dated February [removed: 20, 2019] [added: 19, 2020] expressed an unqualified opinion thereon.

During the three months ended December 31, 2019, we implemented certain additional internal controls associated with our new IngenioRx PBM business.

\-143\-

February 19, 2020

\-144\-

The Company completed its acquisition of America's 1st Choice on February 15, 2018.

As permitted by the U.S. Securities and Exchange Commission, management's assessment as of December 31, 2018 did not include the Internal Control of America's 1st Choice, which is included in the Company's consolidated financial statements as of December 31, 2018.

Such operations of America's 1st Choice constituted 0.5% and 0.6% of the Company's total assets and net assets, respectively, as of December 31, 2018, and 1.9% and 1.9% of the Company's total revenue and net income for the year then ended.

\-140\-

As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of America's 1st Choice, which is included in the 2018 consolidated financial statements of the Company and constituted 0.5% and 0.6% of total and net assets, respectively, as of December 31, 2018, and 1.9% and 1.9% of revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of America's 1st Choice.

\-141\-

February 20, 2019

[removed: PART III][added: PART III]

The information required by this Item concerning our Executive Officers, Directors and nominees for Director, Audit Committee members and financial expert(s) and concerning disclosure of [added: any] delinquent filers under Section 16(a) of the Exchange Act and our [removed: Standards] [added: Code] of [removed: Ethical Business] Conduct is incorporated herein by reference from our definitive Proxy Statement for our [removed: 2019] [added: 2020] Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.

The information required by this Item concerning remuneration of our Executive Officers and Directors, material transactions involving such Executive Officers and Directors and Compensation Committee interlocks, as well as the Compensation Committee Report and [added: CEO] Pay Ratio [removed: Disclosure] [added: disclosure] are incorporated herein by reference from our definitive Proxy Statement for our [removed: 2019] [added: 2020] Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.

The information required by this Item concerning the stock ownership of management and five percent beneficial owners [removed: and securities authorized for issuance under equity compensation plans] is incorporated herein by reference from our definitive Proxy Statement for our [removed: 2019] [added: 2020] Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.

Securities Authorized for Issuance under Equity Compensation Plans

Securities authorized for issuance under the our equity compensation plans as of December 31, 2019 are as follows:

| | | | |

| --- | --- | --- | --- |

| | | | |

| Plan Category1 | Number of securities to be issued upon exercise of outstanding options, warrants and rights2 (a) | Weighted-average exercise price of outstanding options, warrants and rights3 (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))4 (c) |

| Equity compensation plans approved by shareholders as of December 31, 2019 | 6,011,131 | $190.31 | 25,381,110 |

| | | | |

| | | | |

| | |

| --- | --- |

| 1 | We have no equity compensation plans pursuant to which awards may be granted in the future that have not been approved by shareholders. |

| | |

| --- | --- |

| 2 | Includes shares that may be issued under the Anthem Incentive Compensation Plan and the Anthem 2017 Incentive Compensation Plan pursuant to the following outstanding awards: 3,143,948 stock options, 575,389 unvested restricted stock units, and 2,291,794 performance stock units (assuming that the outstanding performance stock units are earned at the maximum award level). |

| | |

| --- | --- |

| 3 | Represents the weighted average exercise price of outstanding stock options. Does not take into consideration outstanding restricted stock units or performance stock units, which, once vested, may be converted into shares of our common stock on a one-for-one basis upon distribution at no additional cost. |

| | |

| --- | --- |

| 4 | Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options, warrants and rights”. Includes 20,528,003 shares of common stock available for issuance as stock options, restricted stock awards, performance stock awards, performance awards and stock appreciation rights under the Anthem 2017 Incentive Compensation Plan at December 31, 2019. Includes 4,853,107 shares of common stock available for issuance under the Stock Purchase Plan at December 31, 2019. |

\-145\-

The information required by this Item concerning certain relationships and related person transactions and director independence is incorporated herein by reference from our definitive Proxy Statement for our [removed: 2019] [added: 2020] Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.

The information required by this Item concerning principal accountant fees and services is incorporated herein by reference from our definitive Proxy Statement for our [removed: 2019] [added: 2020] Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.

[removed: PART IV][added: PART IV]

\-146\-

\-143\-

Consolidated Balance Sheets as of December 31, [removed: 2018] [added: 2019] and [removed: 2017][added: 2018]

Consolidated Statements of Income for the years ended December 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016][added: 2017]

Consolidated Statements of Comprehensive Income for the years ended December 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016][added: 2017]

Consolidated Statements of Shareholders’ Equity for the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016][added: 2017]

| [removed: Exhibit Number] [added: Exhibit Number] | | | [removed: Exhibit] [added: Exhibit] | |

| [removed: [3.1](http://www.sec.gov/Archives/edgar/data/1156039/000119312518165264/d589502dex31.htm)] [added: [3.1](http://www.sec.gov/Archives/edgar/data/1156039/000119312519147906/d701558dex31.htm)] | | | [Amended and Restated Articles of Incorporation of the Company, as amended and restated effective May [removed: 16, 2018,] [added: 15, 2019,] incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May [removed: 16, 2018.](http://www.sec.gov/Archives/edgar/data/1156039/000119312518165264/d589502dex31.htm)] [added: 15, 2019.](http://www.sec.gov/Archives/edgar/data/1156039/000119312519147906/d701558dex31.htm)] | |

| [removed: [3.2](http://www.sec.gov/Archives/edgar/data/1156039/000119312518165264/d589502dex32.htm)] [added: [3.2](http://www.sec.gov/Archives/edgar/data/1156039/000119312519166164/d761251dex32.htm)] | | | [Bylaws of the Company, as amended [removed: and restated] effective May [removed: 16, 2018,] [added: 15, 2019,] incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form [removed: 8-K] [added: 8-K/A] filed on [removed: May 16, 2018.](http://www.sec.gov/Archives/edgar/data/1156039/000119312518165264/d589502dex32.htm)] [added: June 5, 2019.](http://www.sec.gov/Archives/edgar/data/1156039/000119312519166164/d761251dex32.htm)] | |

| [4.2](http://www.sec.gov/Archives/edgar/data/1156039/000119312504213329/dex41.htm) | | | [Indenture, dated as of December 9, 2004, between the Company and The Bank of New York Trust Company, N.A., as trustee, including the Form of the Company’s 5.950% Notes due 2034, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 15, [removed: 2004, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312504213329/dex41.htm)] [added: 2004.](http://www.sec.gov/Archives/edgar/data/1156039/000119312504213329/dex41.htm)] | |

| [4.3](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex41.htm) | | | [Indenture, dated as of January 10, 2006, between the Company and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 11, [removed: 2006, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex41.htm)] [added: 2006.](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex41.htm)] | |

| | | | [(a)](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex44.htm) | [Form of 5.85% Notes due 2036, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on January 11, [removed: 2006, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex44.htm)] [added: 2006.](http://www.sec.gov/Archives/edgar/data/1156039/000119312506004785/dex44.htm)] |

| | | | [(b)](http://www.sec.gov/Archives/edgar/data/1156039/000119312507132564/dex43.htm) | [Form of 6.375% Notes due 2037, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on June 8, [removed: 2007, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312507132564/dex43.htm)] [added: 2007.](http://www.sec.gov/Archives/edgar/data/1156039/000119312507132564/dex43.htm)] |

| | | | [(c)](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex42.htm) | [Form of 4.350% Notes due 2020, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 12, [removed: 2010, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex42.htm)] [added: 2010.](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex42.htm)] |

| | | | [(d)](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex43.htm) | [Form of 5.800% Notes due 2040, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on August 12, [removed: 2010, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex43.htm)] [added: 2010.](http://www.sec.gov/Archives/edgar/data/1156039/000119312510187031/dex43.htm)] |

| | | | [(e)](http://www.sec.gov/Archives/edgar/data/1156039/000119312511222847/dex43.htm) | [Form of 3.700% Notes due 2021, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on August 15, [removed: 2011, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312511222847/dex43.htm)] [added: 2011.](http://www.sec.gov/Archives/edgar/data/1156039/000119312511222847/dex43.htm)] |

| | | | [(f)](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex42.htm) | [Form of 3.125% Notes due 2022, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 7, [removed: 2012, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex42.htm)] [added: 2012.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex42.htm)] |

| | | | [(g)](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex43.htm) | [Form of 4.625% Notes due 2042, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on May 7, [removed: 2012, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex43.htm)] [added: 2012.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512215126/d347251dex43.htm)] |

| | | | [(h)](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex44.htm) | [Form of 3.300% Notes due 2023, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on September 10, [removed: 2012, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex44.htm)] [added: 2012.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex44.htm)] |

| | | | [(i)](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex45.htm) | [Form of 4.650% Notes due 2043, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on September 10, [removed: 2012, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex45.htm)] [added: 2012.](http://www.sec.gov/Archives/edgar/data/1156039/000119312512386056/d408375dex45.htm)] |

| | | | [(j)](http://www.sec.gov/Archives/edgar/data/1156039/000119312513312857/d577328dex43.htm) | [Form of 5.100% Notes due 2044, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on July 31, [removed: 2013, SEC File No. 001-16751.](http://www.sec.gov/Archives/edgar/data/1156039/000119312513312857/d577328dex43.htm)] [added: 2013.](http://www.sec.gov/Archives/edgar/data/1156039/000119312513312857/d577328dex43.htm)] |

| | | | [removed: [(k)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex42.htm)] [added: [(k)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex43.htm)] | [Form of [removed: 2.250%] [added: 3.500%] Notes due [removed: 2019,] [added: 2024,] incorporated by reference to Exhibit [removed: 4.2] [added: 4.3] to the Company’s Current Report on Form 8-K filed on August 12, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex42.htm)] [added: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex43.htm)] |

| | | | [removed: [(l)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex43.htm)] [added: [(l)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex44.htm)] | [Form of [removed: 3.500%] [added: 4.650%] Notes due [removed: 2024,] [added: 2044,] incorporated by reference to Exhibit [removed: 4.3] [added: 4.4] to the Company’s Current Report on Form 8-K filed on August 12, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex43.htm)] [added: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex44.htm)] |

| | | | [removed: [(m)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex44.htm)] [added: [(m)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex45.htm)] | [Form of [removed: 4.650%] [added: 4.850%] Notes due [removed: 2044,] [added: 2054,] incorporated by reference to Exhibit [removed: 4.4] [added: 4.5] to the Company’s Current Report on Form 8-K filed on August 12, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex44.htm)] [added: 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex45.htm)] |

| | | | [removed: [(n)](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex45.htm)] [added: [(h)](http://www.sec.gov/Archives/edgar/data/1156039/000119312519240850/d756383dex41.htm)] | [Form of [removed: 4.850%] [added: 2.375%] Notes due [removed: 2054,] [added: 2025,] incorporated by reference to Exhibit [removed: 4.5] [added: 4.1] to the Company’s Current Report on Form 8-K filed on [removed: August 12, 2014.](http://www.sec.gov/Archives/edgar/data/1156039/000119312514306698/d774115dex45.htm)] [added: September 9, 2019.](http://www.sec.gov/Archives/edgar/data/1156039/000119312519240850/d756383dex41.htm)] |