Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ANTHEM, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2019**,** 2018 and 2017

Contents

Report of Independent Registered Public Accounting Firm	71
Audited Consolidated Financial Statements:
Consolidated Balance Sheets	74
Consolidated Statements of Income	75
Consolidated Statements of Comprehensive Income	76
Consolidated Statements of Cash Flows	77
Consolidated Statements of Shareholders’ Equity	78
Notes to Consolidated Financial Statements	79

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Report of Independent Registered

Public Accounting Firm

To the Shareholders and the Board of Directors of Anthem, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Anthem, Inc. (the Company) as of December 31, 2019 and 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, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 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, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, on January 1, 2018, the Company changed its method of accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting.

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

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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.

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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.

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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.

/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 1944.

Indianapolis, Indiana

February 19, 2020

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Anthem, Inc.

Consolidated Balance Sheets

	December 31, 2019				December 31, 2018
(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents	$	4,937			$	3,934
Fixed maturity securities, current (amortized cost of $19,021 and $16,894)	19,676				16,692
Equity securities, current	1,009				1,493
Other invested assets, current	13				21
Accrued investment income	173				162
Premium receivables	5,173				4,465
Self-funded receivables	2,411				2,278
Other receivables	2,634				2,558
Income taxes receivable	335				10
Securities lending collateral	353				604
Other current assets	2,319				2,104
Total current assets	39,033				34,321
Long-term investments:
Fixed maturity securities (amortized cost of $487 and $486)	505				487
Equity securities	30				33
Other invested assets	4,228				3,726
Property and equipment, net	3,133				2,735
Goodwill	20,500				20,504
Other intangible assets	8,674				9,007
Other noncurrent assets	1,350				758
Total assets	$	77,453			$	71,571
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Policy liabilities:
Medical claims payable	$	8,842			$	7,454
Reserves for future policy benefits	85				75
Other policyholder liabilities	3,050				2,590
Total policy liabilities	11,977				10,119
Unearned income	1,017				902
Accounts payable and accrued expenses	4,198				4,959
Security trades pending payable	84				197
Securities lending payable	351				604
Short-term borrowings	700				1,145
Current portion of long-term debt	1,598				849
Other current liabilities	3,692				3,190
Total current liabilities	23,617				21,965
Long-term debt, less current portion	17,787				17,217
Reserves for future policy benefits, noncurrent	674				706
Deferred tax liabilities, net	2,227				1,960
Other noncurrent liabilities	1,420				1,182
Total liabilities	45,725				43,030
Commitments and contingencies—Note 13
Shareholders’ equity
Preferred stock, without par value, shares authorized - 100,000,000; shares issued and outstanding - none	—				—
Common stock, par value $0.01, shares authorized - 900,000,000; shares issued and outstanding - 252,922,161 and 257,395,577	3				3
Additional paid-in capital	9,448				9,536
Retained earnings	22,573				19,988
Accumulated other comprehensive loss	(296		)		(986		)
Total shareholders’ equity	31,728				28,541
Total liabilities and shareholders’ equity	$	77,453			$	71,571

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Income

	Years Ended December 31
(In millions, except per share data)	2019				2018				2017
Revenues
Premiums	$	94,173			$	85,421			$	83,648
Administrative fees and other revenue	8,968				5,920				5,413
Total operating revenue	103,141				91,341				89,061
Net investment income	1,005				970				867
Net realized gains (losses) on financial instruments	114				(180		)		145
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments	(53		)		(29		)		(35		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)	6				3				2
Other-than-temporary impairment losses recognized in income	(47		)		(26		)		(33		)
Total revenues	104,213				92,105				90,040
Expenses
Benefit expense	81,786				71,895				72,236
Cost of products sold	1,992				—				—
Selling, general and administrative expense	13,364				14,020				12,650
Interest expense	746				753				739
Amortization of other intangible assets	338				358				169
Loss on extinguishment of debt	2				11				282
Total expenses	98,228				87,037				86,076
Income before income tax expense	5,985				5,068				3,964
Income tax expense	1,178				1,318				121
Net income	$	4,807			$	3,750			$	3,843
Net income per share
Basic	$	18.81			$	14.53			$	14.70
Diluted	$	18.47			$	14.19			$	14.35
Dividends per share	$	3.20			$	3.00			$	2.70

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Comprehensive Income

		Years Ended December 31
(In millions)		2019				2018				2017
Net income		$	4,807			$	3,750			$	3,843
Other comprehensive income (loss), net of tax:
Change in net unrealized gains/losses on investments		680				(418		)		173
Change in non-credit component of other-than-temporary impairment losses on investments		—				(2		)		4
Change in net unrealized gains/losses on cash flow hedges		(16		)		37				(65		)
Change in net periodic pension and postretirement costs		26				(90		)		51
Foreign currency translation adjustments		—				(1		)		3
Other comprehensive income (loss)		690				(474		)		166
Total comprehensive income		$	5,497			$	3,276			$	4,009

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Cash Flows

	Years Ended December 31
(In millions)	2019				2018				2017
Operating activities
Net income	$	4,807			$	3,750			$	3,843
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses on financial instruments	(114		)		180				(145		)
Other-than-temporary impairment losses recognized in income	47				26				33
Loss on extinguishment of debt	2				11				282
Loss on disposal of assets	3				13				15
Deferred income taxes	81				91				(1,272		)
Amortization, net of accretion	986				1,008				780
Depreciation expense	147				124				111
Share-based compensation	294				226				170
Changes in operating assets and liabilities:
Receivables, net	(1,053		)		(695		)		(22		)
Other invested assets	(48		)		(1		)		(36		)
Other assets	(170		)		(26		)		(629		)
Policy liabilities	1,826				(1,059		)		732
Unearned income	115				(36		)		(120		)
Accounts payable and accrued expenses	(593		)		122				922
Other liabilities	148				(25		)		(120		)
Income taxes	(325		)		323				(194		)
Other, net	(92		)		(205		)		(165		)
Net cash provided by operating activities	6,061				3,827				4,185
Investing activities
Purchases of fixed maturity securities	(10,487		)		(8,244		)		(9,795		)
Proceeds from fixed maturity securities:
Sales	5,914				6,442				7,932
Maturities, calls and redemptions	2,437				1,938				1,848
Purchases of equity securities	(11,825		)		(896		)		(5,416		)
Proceeds from sales of equity securities	12,364				2,809				3,463
Purchases of other invested assets	(642		)		(531		)		(1,164		)
Proceeds from sales of other invested assets	320				411				219
Changes in collateral and settlement of non-hedging derivatives	—				—				65
Changes in securities lending collateral	254				(149		)		625
Purchases of subsidiaries, net of cash acquired	—				(1,760		)		(2,080		)
Purchases of property and equipment	(1,077		)		(1,208		)		(791		)
Other, net	(50		)		(71		)		12
Net cash used in investing activities	(2,792		)		(1,259		)		(5,082		)
Financing activities
Net (repayments of) proceeds from commercial paper borrowings	(297		)		(107		)		175
Proceeds from long-term borrowings	2,473				835				5,458
Repayments of long-term borrowings	(1,123		)		(1,684		)		(2,815		)
Proceeds from short-term borrowings	7,590				9,120				5,835
Repayments of short-term borrowings	(8,035		)		(9,250		)		(5,000		)
Changes in securities lending payable	(254		)		150				(625		)
Changes in bank overdrafts	(169		)		(210		)		71
Premiums paid on equity call options	(1		)		—				—
Proceeds from sale of put options	—				1				1
Proceeds from issuance of common stock under Equity Units stock purchase contracts	—				1,250				—
Repurchase and retirement of common stock	(1,701		)		(1,685		)		(1,998		)
Change in collateral and settlements of debt-related derivatives	(34		)		23				(149		)
Cash dividends	(818		)		(776		)		(705		)
Proceeds from issuance of common stock under employee stock plans	187				173				225
Taxes paid through withholding of common stock under employee stock plans	(84		)		(81		)		(46		)
Net cash (used in) provided by financing activities	(2,266		)		(2,241		)		427
Effect of foreign exchange rates on cash and cash equivalents	—				(2		)		4
Change in cash and cash equivalents	1,003				325				(466		)
Cash and cash equivalents at beginning of year	3,934				3,609				4,075
Cash and cash equivalents at end of year	$	4,937			$	3,934			$	3,609

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Shareholders’ Equity

	Common Stock							Additional Paid-in Capital								Accumulated Other Comprehensive Loss				Total Shareholders’ Equity
(In millions)	Number of Shares			Par Value					Retained Earnings
January 1, 2017	263.7			$	3			$	8,805			$	16,560			$	(267	)		$	25,101
Net income	—			—				—				3,843				—				3,843
Other comprehensive income	—			—				—				—				166				166
Premiums for and settlement of equity options	—			—				1				—				—				1
Repurchase and retirement of common stock	(10.5	)		—				(356		)		(1,642		)		—				(1,998		)
Dividends and dividend equivalents	—			—				—				(707		)		—				(707		)
Issuance of common stock under employee stock plans, net of related tax benefits	2.9			—				342				—				—				342
Convertible debenture conversions	—			—				(245		)		—				—				(245		)
December 31, 2017	256.1			3				8,547				18,054				(101		)		26,503
Adoption of Accounting Standards Update No. 2016-01 (Note 2)	—			—				—				320				(320		)		—
January 1, 2018	256.1			3				8,547				18,374				(421		)		26,503
Net income	—			—				—				3,750				—				3,750
Other comprehensive loss	—			—				—				—				(474		)		(474		)
Issuance of common stock under Equity Units stock purchase contracts	6.0			—				1,250				—				—				1,250
Premiums for and settlement of equity options	—			—				1				—				—				1
Repurchase and retirement of common stock	(6.8	)		—				(243		)		(1,442		)		—				(1,685		)
Dividends and dividend equivalents	—			—				—				(785		)		—				(785		)
Issuance of common stock under employee stock plans, net of related tax benefits	2.1			—				318				—				—				318
Convertible debenture conversions	—			—				(337		)		—				—				(337		)
Adoption of Accounting Standards Update No. 2018-02 (Note 2)	—			—				—				91				(91		)		—
December 31, 2018	257.4			3				9,536				19,988				(986		)		28,541
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
Net income	—			—				—				4,807				—				4,807
Other comprehensive income	—			—				—				—				690				690
Repurchase and retirement of common stock	(6.3	)		—				(275		)		(1,426		)		—				(1,701		)
Dividends and dividend equivalents	—			—				—				(822		)		—				(822		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.8			—				396				—				—				396
Convertible debenture repurchases and conversions	—			—				(209		)		—				—				(209		)
December 31, 2019	252.9			$	3			$	9,448			$	22,573			$	(296	)		$	31,728

See accompanying notes.

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Anthem, Inc.

Notes to Consolidated Financial Statements

December 31, 2019

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

1. Organization

References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.

We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 41 medical members through our affiliated health plans as of December 31, 2019. We offer a broad spectrum of network-based managed care plans to Large Group, Small Group, Individual, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations, or PPOs; Health Maintenance Organizations, or HMOs; Point-of-Service plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-funded customers, including claims processing, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management, or PBM, dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare. We also provide services to the federal government in connection with our Federal Health Products & Services business, which administers the Federal Employees Health Benefits, or FEHB, Program.

We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as Aim Specialty Health, Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare. Also, in the second quarter of 2019, we began providing PBM services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements include the accounts of Anthem and its subsidiaries and have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar, or USD. We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during the period. The net effect of these translation adjustments is included in “Foreign currency translation adjustments” in our consolidated statements of comprehensive income.

Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Cash and Cash Equivalents: Cash and cash equivalents includes available cash and all highly liquid investments with maturities of three months or less when purchased. We control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits, and we have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled $215 and $222 at December 31, 2019 and 2018, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.

Investments: Financial Accounting Standards Board, or FASB, other-than-temporary impairment, or OTTI, guidance applies to fixed maturity securities and provides guidance on the recognition, presentation of, and disclosures for OTTIs. If a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is presented within the other-than-temporary impairment losses recognized in our consolidated statements of income. For impaired fixed maturity securities that we do not intend to sell or it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost basis, the credit component of the OTTI is presented within the other-than-temporary impairment losses recognized in our consolidated statements of income and the non-credit component of the OTTI is recognized in accumulated other comprehensive loss in our consolidated balance sheets. Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for which we expect to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive loss.

The credit component of an OTTI is determined primarily by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of acquisition. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.

For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. Such adjustments are reported within net investment income.

Effective January 1, 2018 and in accordance with the FASB guidance, the changes in fair value of our marketable equity securities are recognized in our results of operations within net realized gains and losses on financial instruments. Prior to 2018, the unrealized gains or losses on our equity securities previously classified as available-for-sale were included in accumulated other comprehensive loss as a separate component of shareholders’ equity, unless the decline in value was deemed to be other-than-temporary and we did not have the intent and ability to hold such equity securities until their full cost could be recovered, in which case such equity securities were written down to fair value and the loss was charged to other-than-temporary impairment losses recognized in income.

We maintain various rabbi trusts to account for the assets and liabilities under certain deferred compensation plans. Under these plans, the participants can defer certain types of compensation and elect to receive a return on the deferred amounts based on the changes in fair value of various investment options, primarily a variety of mutual funds. We have corporate-owned life insurance policies on certain participants in our deferred compensation plans. The cash surrender value of the corporate-owned life insurance policies is reported in other invested assets, long-term, in the consolidated balance sheets. The remaining rabbi trust assets are generally invested according to the participant’s investment election and are classified as trading, which are reported in other invested assets, current, in the consolidated balance sheets.

We use the equity method of accounting for investments in companies in which our ownership interest enables us to influence the operating or financial decisions of the investee company. Our proportionate share of equity in net income of these unconsolidated affiliates is reported within net investment income.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.

We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. Under FASB guidance related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, we recognize the collateral as an asset, which is reported as securities lending collateral on our consolidated balance sheets, and we record a corresponding liability for the obligation to return the collateral to the borrower, which is reported as securities lending payable. The securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending collateral are included in accumulated other comprehensive loss as a separate component of shareholders’ equity. The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or depreciates slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.

Receivables: Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $237 and $278 at December 31, 2019 and 2018, respectively. Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers. Self-funded receivables are reported net of an allowance for doubtful accounts of $46 and $47 at December 31, 2019 and 2018, respectively. The allowance for doubtful accounts is based on historical collection trends and our judgment regarding the ability to collect specific accounts.

Other receivables include pharmacy rebates, provider advances, claims recoveries, reinsurance receivables, proceeds due from brokers on investment trades, other government receivables and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts of $242 and $280 at December 31, 2019 and 2018, respectively, which is based on historical collection trends and our judgment regarding the ability to collect specific accounts.

Income Taxes: We file a consolidated income tax return. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement and tax return basis of assets and liabilities based on enacted tax rates and laws. The deferred tax benefits of the deferred tax assets are recognized to the extent realization of such benefits is more likely than not. Deferred income tax expense or benefit generally represents the net change in deferred income tax assets and liabilities during the year, excluding the impact from amounts initially recorded for business combinations, if any, and amounts recorded to accumulated other comprehensive loss. Current income tax expense represents the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for the year reported.

We account for income tax contingencies in accordance with FASB guidance that contains a model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold, which all income tax positions must achieve before being recognized in the financial statements.

Property and Equipment: Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is computed principally by the straight-line method over estimated useful lives ranging from fifteen to thirty-nine years for buildings and improvements, three to five years for computer equipment and software, and the lesser of the remaining life of the building lease, if any, or seven years for furniture and other equipment. Leasehold improvements are depreciated over the term of the related lease. Certain costs related to the development or purchase of internal-use software are capitalized and amortized over estimated useful lives ranging from five to ten years.

Goodwill and Other Intangible Assets: FASB guidance requires business combinations to be accounted for using the acquisition method of accounting, and it also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill. Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Other intangible assets represent the values assigned to customer relationships, provider and hospital networks, Blue Cross and Blue Shield and other trademarks, licenses and other agreements, such as non-compete. Goodwill and other intangible assets are allocated to reportable segments based on the relative fair value of the components of the businesses acquired.

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Notes to Consolidated Financial Statements (continued)

Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment at least annually. We complete our annual impairment tests of existing goodwill and other intangible assets with indefinite lives during the fourth quarter of each year. Certain interim impairment tests are also performed when potential impairment indicators exist or changes in our business or other triggering events occur. Goodwill and other intangible assets are allocated to reporting units for purposes of the annual goodwill impairment test. Other intangible assets with indefinite lives, such as trademarks, are tested for impairment separately.

FASB guidance allows for qualitative assessments of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of a goodwill impairment analysis and whether it is more likely than not that an indefinite-lived intangible asset is impaired for purposes of an indefinite-lived intangible asset impairment analysis. Quantitative analysis must be performed if qualitative analyses are not conclusive. Entities also have the option to bypass the assessment of qualitative factors and proceed directly to performing quantitative analyses. Our impairment tests require us to make assumptions and judgments regarding the estimated fair value of our reporting units, including goodwill and other intangible assets with indefinite lives. Estimated fair values developed based on our assumptions and judgments might be significantly different if other reasonable assumptions and estimates were to be used.

Qualitative analysis involves assessing situations and developments that could affect key drivers used to evaluate whether the fair value of our goodwill and indefinite-lived intangible assets are impaired. Our procedures include assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset specific factors, and entity specific events.

Fair value for purposes of a quantitative goodwill impairment test is calculated using a blend of the projected income and market valuation approaches. The projected income approach is developed using assumptions about future revenue, expenses and net income derived from our internal planning process. Our assumed discount rate is based on our industry’s weighted-average cost of capital and reflects volatility associated with the cost of equity capital. Market valuations include market comparisons to publicly traded companies in our industry and are based on observed multiples of certain measures including revenue; earnings before interest, taxes, depreciation and amortization, or EBITDA; and book value of invested capital. A goodwill impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, the fair value of a reporting unit is determined and compared to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation on a business acquisition, at the impairment test date.

Fair value for purposes of a quantitative impairment test for indefinite-lived intangible assets is estimated using a projected income approach. We recognize an impairment loss when the estimated fair value of indefinite-lived intangible assets is less than the carrying value. If significant impairment indicators are noted relative to other intangible assets subject to amortization, we may be required to record impairment losses against future income.

Derivative Financial Instruments: We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. Derivatives embedded within non-derivative instruments, such as options embedded in convertible fixed maturity securities, are bifurcated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. Our use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which we are subject, and by our own derivative policy. Our derivative use is generally limited to hedging purposes, on an economic basis, and we generally do not use derivative instruments for speculative purposes.

We have exposure to economic losses due to interest rate risk arising from changes in the level or volatility of interest rates. We attempt to mitigate our exposure to interest rate risk through active portfolio management, including rebalancing our existing portfolios of assets and liabilities, as well as changing the characteristics of investments to be purchased or sold in the future. In addition, derivative financial instruments are used to modify the interest rate exposure of certain liabilities or forecasted transactions. These strategies include the use of interest rate swaps and forward contracts, which are used to lock-in interest rates or to hedge, on an economic basis, interest rate risks associated with variable rate debt. We have used these types of instruments as designated hedges against specific liabilities.

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Notes to Consolidated Financial Statements (continued)

All investments in derivatives are recorded as assets or liabilities at fair value. If certain correlation, hedge effectiveness and risk reduction criteria are met, a derivative may be specifically designated as a hedge of exposure to changes in fair value or cash flow. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the nature of any hedge designation thereon. Amounts excluded from the assessment of hedge effectiveness, if any, as well as the ineffective portion of the gain or loss, are reported in results of operations immediately. If the derivative is not designated as a hedge, the gain or loss resulting from the change in the fair value of the derivative is recognized in results of operations in the period of change. Cash flows associated with the settlement of non-designated derivatives are shown on a net basis in investing activity in our consolidated statements of cash flow.

From time to time, we may also purchase derivatives to hedge, on an economic basis, our exposure to foreign currency exchange fluctuations associated with the operations of certain of our subsidiaries. We generally use futures or forward contracts for these transactions. We generally do not designate these contracts as hedges and, accordingly, the changes in fair value of these derivatives are recognized in results of operations immediately.

Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to instruments recognized in the consolidated balance sheets. We attempt to mitigate the risk of non-performance by selecting counterparties with high credit ratings and monitoring their creditworthiness and by diversifying derivatives among multiple counterparties. At December 31, 2019, we believe there were no material concentrations of credit risk with any individual counterparty.

We generally enter into master netting agreements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Certain of our derivative agreements also contain credit support provisions that require us or the counterparty to post collateral if there are declines in the derivative fair value or our credit rating. The derivative assets and derivative liabilities are reported at their fair values net of collateral and netting by the counterparty.

Retirement Benefits: We recognize the funded status of pension and other postretirement benefit plans on the consolidated balance sheets based on fiscal-year-end measurements of plan assets and benefit obligations. Prepaid pension benefits represent prepaid costs related to defined benefit pension plans and are reported with other noncurrent assets. Postretirement benefits represent outstanding obligations for retiree medical, life, vision and dental benefits. Liabilities for pension and other postretirement benefits are reported with current and noncurrent liabilities based on the amount by which the actuarial present value of benefits payable in the next twelve months included in the benefit obligation exceeds the fair value of plan assets.

We determine the expected return on plan assets using the calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over three years. We apply a corridor approach to amortize unrecognized actuarial gains or losses. Under this approach, only accumulated net actuarial gains or losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service or lifetime of the workforce as a component of net periodic benefit cost.

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our most recent measurement date. We use the annual spot rate approach for setting our discount rate. Under the spot rate approach, individual spot rates from a full yield curve of published rates are used to discount each plan’s cash flows to determine the plan’s obligations.

The assumed healthcare cost trend rates used to measure the expected cost of other postretirement benefits are based on an initial assumed healthcare cost trend rate declining to an ultimate healthcare cost trend rate over a select number of years.

Medical Claims Payable: Liabilities for medical claims payable include estimated provisions for incurred but not paid claims on an undiscounted basis, as well as estimated provisions for expenses related to the processing of claims. Incurred but not paid claims include (1) an estimate for claims that are incurred but not reported, as well as claims reported to us but not yet processed through our systems; and (2) claims reported to us and processed through our systems but not yet paid.

Liabilities for both claims incurred but not reported and reported but not yet processed through our systems are determined in the aggregate, employing actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. Actuarial Standards of Practice require that the claim liabilities be appropriate under moderately adverse circumstances. We determine the amount of the liability for incurred but not paid claims by following a

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Notes to Consolidated Financial Statements (continued)

detailed actuarial process that uses both historical claim payment patterns as well as emerging medical cost trends to project our best estimate of claim liabilities. Under this process, historical paid claims data is formatted into “claim triangles,” which compare claim incurred dates to the dates of claim payments. This information is analyzed to create “completion factors” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred. Completion factors are applied to claims paid through the period-end date to estimate the ultimate claim expense incurred for the period. Actuarial estimates of incurred but not paid claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims.

For the most recent incurred months (typically the most recent two months), the percentage of claims paid for claims incurred in those months is generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for recent months are not projected from historical completion and payment patterns; rather, they are projected by estimating the claims expense for those months based on recent claims expense levels and healthcare trend levels, or “trend factors.”

We regularly review and set assumptions regarding cost trends and utilization when initially establishing claim liabilities. We continually monitor and adjust the claims liability and benefit expense based on subsequent paid claims activity. If it is determined that our assumptions regarding cost trends and utilization are materially different than actual results, our income statement and financial position could be impacted in future periods.

Premium deficiencies are recognized when it is probable that expected claims and administrative expenses will exceed future premiums on existing medical insurance contracts without consideration of investment income. Determination of premium deficiencies for longer duration life and disability contracts includes consideration of investment income. For purposes of premium deficiencies, contracts are deemed to be either short or long duration and are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts. Once established, premium deficiencies are released commensurate with actual claims experience over the remaining life of the contract. No premium deficiencies were established at December 31, 2019 or 2018.

Benefit expense includes incurred medical claims as well as quality improvement expenses for our fully-insured members. Quality improvement activities are those designed to improve member health outcomes, prevent hospital readmissions and improve patient safety. They also include expenses for wellness and health promotion provided to our members.

Reserves for Future Policy Benefits: Reserves for future policy benefits include liabilities for life and long-term disability insurance policy benefits based upon interest, mortality and morbidity assumptions from published actuarial tables, modified based upon our experience. Future policy benefits also include liabilities for insurance policies for which some of the premiums received in earlier years are intended to pay anticipated benefits to be incurred in future years. Future policy benefits are continually monitored and reviewed, and when reserves are adjusted, differences are reflected in benefit expense.

The current portion of reserves for future policy benefits relates to the portion of such reserves that we expect to pay within one year. We believe that our liabilities for future policy benefits, along with future premiums received, are adequate to satisfy our ultimate benefit liability; however, these estimates are inherently subject to a number of variable circumstances. Consequently, the actual results could differ materially from the amounts recorded in our consolidated financial statements.

Other Policyholder Liabilities: Other policyholder liabilities include rate stabilization reserves associated with retrospectively rated insurance contracts and certain case-specific reserves. Other policyholder liabilities also includes liabilities for premium refunds based upon the minimum medical loss ratio, or MLR, the relative health risk of members, or other contractual or regulatory requirements. Rate stabilization reserves represent accumulated premiums that exceed what customers owe us based on actual claim experience. The timing of payment of these retrospectively rated refunds is based on the contractual terms with our customers and can vary from period to period based on the specific contractual requirements.

We are required to meet certain minimum MLR thresholds prescribed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA. If we do not meet or exceed the minimum MLR thresholds specified by the ACA, we are required to pay rebates to certain customers. Minimum MLR rebates are calculated by subsidiary, state and applicable line of business (Large Group, Small Group, Individual, Student Health and Medicare) in accordance with regulations issued by the Department of Health and Human Services, or HHS. Such calculations are made using estimated calendar year medical loss expense and premiums, as defined by HHS.

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Notes to Consolidated Financial Statements (continued)

We follow HHS guidelines for determining the types of expenses that may be included in our minimum MLR rebate calculations, which differ from benefit expense and premiums as reported in our consolidated financial statements prepared in conformity with GAAP. Certain amounts reported as expense in our consolidated GAAP financial statements may be reported as a reduction of premiums in accordance with HHS regulations. In addition, profit amounts included in our payments to third-party administrative service providers are recorded as benefit expense in our consolidated GAAP financial statements while HHS does not allow for the inclusion of these expenses within the medical loss expense for purposes of calculating minimum MLR.

Revenue Recognition: Premiums for fully-insured contracts are recognized as revenue over the period insurance coverage is provided, and, if applicable, net of amounts recognized for MLR rebates, risk adjustment, reinsurance and risk corridor under contractual premium stabilization arrangements, the ACA or other regulatory requirements. Premium payments from contracted government agencies are based on eligibility lists produced by the government agencies. Premiums related to the unexpired contractual coverage periods are reflected in the accompanying consolidated balance sheets as unearned income. Premiums include revenue adjustments for retrospectively rated contracts where revenue is based on the estimated loss experience of the contract. Premium rates for certain lines of business are subject to approval by the Department of Insurance of each respective state. Additionally, delays in annual premium rate changes from contracted government agencies require that we defer the recognition of any increases to the period in which the premium rates become final. The value of the impact can be significant in the period in which it is recognized depending on the magnitude of the premium rate increase, the membership to which it applies and the length of the delay between the effective date of the rate increase and the final contract date. Premium rate decreases are recognized in the period the change in premium rate becomes effective and the change in the rate is known, which may be prior to the period when the contract amendment affecting the rate is finalized.

Administrative fees and other revenue include revenue from certain group contracts that provide for the group to be at risk for all, or with supplemental insurance arrangements, a portion, of their claims experience. We charge these self-funded groups an administrative fee, which is based on the number of members in a group or the group’s claim experience. In addition, administrative fees and other revenue include amounts received for the administration of Medicare or certain other government programs. Under our self-funded arrangements, revenue is recognized as administrative services are performed. All benefit payments under these programs are excluded from benefit expense.

Administrative fees and other revenue also include product revenue for services performed by our IngenioRx pharmacy benefit manager, or PBM, for unaffiliated PBM customers. Unaffiliated PBM customers include our self-funded groups that have contracted with IngenioRx for PBM services and, beginning on January 1, 2020, third-party health plans. Product revenues and costs of goods sold for Anthem health plans are eliminated in consolidation. Product revenue for PBM services is recognized using the gross method at the negotiated contract price when IngenioRx has concluded that it is the principal and it controls the services before prescription drugs are transferred to the customer. IngenioRx determined it is the principal due to its contractual rights to design and develop a listing of prescription drugs offered to the customer (formulary management); its control over establishing the pharmacy network available to the customer to have its prescription fulfilled (network management); and its discretion over establishing the pricing for prescription drugs. Overall, control over these activities indicate IngenioRx is primarily responsible for fulfilling the promise to provide PBM services. Product revenues include ingredient costs (net of any rebates or discounts), including any co-payments made by or on behalf of the customer, and administrative fees. IngenioRx recognizes revenue when control of the prescription drugs is transferred to customers, in an amount it expects to be entitled to in exchange for the services provided.

For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at December 31, 2019. Revenue recognized in 2019 and 2018 from performance obligations related to prior years, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.

Cost of Products Sold: IngenioRx’s cost of products sold includes the cost of prescription drugs dispensed to unaffiliated PBM customers (net of rebates or discounts). This cost includes any co-payments made by or on behalf of the customer. Cost of products sold also includes per-claim administrative fees for prescription fulfillment by its vendor and certain IngenioRx direct costs related to sales and administration of customer contracts.

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Notes to Consolidated Financial Statements (continued)

Share-Based Compensation: Our current compensation philosophy provides for share-based compensation, including stock options, restricted stock awards and an employee stock purchase plan. Stock options are granted for a fixed number of shares with an exercise price at least equal to the fair value of the shares at the date of the grant. Restricted stock awards are issued at the fair value of the stock on the grant date. The employee stock purchase plan allows for a purchase price per share which is 90% of the fair value of a share of common stock on the lower of the first or last trading day of the plan quarter. The employee stock purchase plan discount is recognized as compensation expense based on GAAP guidance. All other share-based payments to employees are recognized as compensation expense in our consolidated statements of income based on their fair values. Additionally, excess tax benefits, which result from actual tax benefits realized when awards vest or options are exercised exceeding deferred tax benefits previously recognized based on grant date fair value, are recognized as tax benefits in the income statement. Our share-based employee compensation plans and assumptions are described in Note 14, “Capital Stock.” Also see “Recently Adopted Accounting Guidance” within this Note 2 for reference to accounting changes adopted related to share-based compensation.

Advertising and Marketing Costs**:** We use print, broadcast and other advertising to promote our products and to develop our corporate image. We market our products through direct marketing activities and an extensive network of independent agents, brokers and retail partnerships for Individual and Medicare customers, and for certain Local Group customers with a smaller employee base. 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 who work with industry specialists from our in-house sales force. In the Individual and Small Group markets, we offer products through state or federally facilitated marketplaces, or public exchanges, and off-exchange products. The cost of advertising and marketing for product promotion is expensed as incurred, while advertising and marketing costs associated with our corporate image is expensed when first aired. Total advertising and marketing expense was $467, $385 and $338 for the years ended December 31, 2019, 2018 and 2017, respectively.

Health Insurance Provider Fee**:** The ACA imposed an annual Health Insurance Provider Fee, or HIP Fee, on health insurers that write certain types of health insurance on U.S. risks, which has been permanently repealed effective January 1, 2021. The annual HIP Fee is allocated to health insurers based on the ratio of the amount of an insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S. health risk for those certain lines of business written during the preceding calendar year. We record our estimated liability for the HIP Fee in full at the beginning of the year with a corresponding deferred asset that is amortized on a straight-line basis to selling, general and administrative expense. The final calculation and payment of the annual HIP Fee is due by September 30th of each fee year. The HIP Fee is non-deductible for federal income tax purposes. Our affected products are priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee. The total amount due from allocations to health insurers was $14,300 for 2018. The HIP Fee was suspended for 2017 and 2019, has resumed and increased to $15,523 for 2020 and has been permanently eliminated beginning in 2021. For the year ended December 31, 2018, we recognized $1,544 as selling, general and administrative expense related to the HIP Fee. There was no corresponding expense for 2019 or 2017 due to the suspension of the HIP Fee for 2019 and 2017.

Leases: We lease office space and certain computer and related equipment under noncancelable operating leases. We determine whether an arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid by using the lease term, any amounts probable of being owed under any residual value guarantees and the discount rate determined at lease commencement. As our leases do not generally provide an implicit rate, we use our incremental secured borrowing rate commensurate with the underlying lease terms to determine the present value of our lease payments. Our lease liabilities may include amounts for options to extend or terminate a lease when it is reasonably certain that we will exercise that option. We recognize operating right-of-use, or ROU, assets at an amount equal to the lease liability adjusted for prepaid or accrued rent, the remaining balance of any lease incentives and unamortized initial direct costs.

The operating lease liabilities are reported in other current liabilities and other noncurrent liabilities and the related ROU assets are reported in other noncurrent assets on our consolidated balance sheet as of December 31, 2019. Lease expense for our operating leases is calculated on a straight-line basis over the lease term and is reported in selling, general and administrative expense on our consolidated statements of income. For our office space leases, we account for the lease and non-lease components (such as common area maintenance) as a single lease component. We also do not recognize a lease liability or ROU asset for our office space leases whose lease terms, at commencement, are twelve months or less and that do not include a purchase option or option to extend that we are reasonably certain to exercise.

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Notes to Consolidated Financial Statements (continued)

Earnings per Share: Earnings per share amounts, on a basic and diluted basis, have been calculated based upon the weighted-average common shares outstanding for the period.

Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share may include the dilutive effect of stock options, restricted stock, convertible debentures and Equity Units, using the treasury stock method. See Note 12, “Debt,” for a description of our Equity Units. The treasury stock method assumes exercise of stock options and vesting of restricted stock, with the assumed proceeds used to purchase common stock at the average market price for the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.

Recently Adopted Accounting Guidance: In March 2019, the FASB issued Accounting Standards Update No. 2019-01, Leases (Topic 842): Codification Improvements. In July 2018, the FASB issued Accounting Standards Update No. 2018-11, Leases (Topic 842): Targeted Improvements and Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases. These updates provide additional clarification, an optional transition method, a practical expedient and implementation guidance on the previously issued Accounting Standards Update No. 2016-02, Leases (Topic 842). Collectively, these updates supersede the lease guidance in Accounting Standards Codification, or ASC, Topic 840 and require lessees to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize an ROU asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted this standard on January 1, 2019 by applying the optional transition method on the adoption date and did not adjust comparative periods. We also elected the package of practical expedients permitted, which, among other things, allowed us to carry forward the lease classification for our existing leases. In preparation for the adoption of this standard and to enable preparation of the required financial information, we implemented a new lease accounting software solution as well as new internal controls. The adoption of this standard impacted our 2019 opening consolidated balance sheet, as we recorded operating lease liabilities of $728 and ROU assets of $637, which equals the lease liabilities net of accrued rent, lease incentives and the carrying amount of ceased-use liabilities previously recorded on our consolidated balance sheet under the prior guidance. We also recognized a cumulative-effect adjustment of $26 to our opening retained earnings for deferred gains on our previous sale-leaseback transactions. The adoption of this standard did not have an impact on our consolidated statements of income or cash flows.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for either the entirety of ASU 2018-13 or only the provisions that eliminate or modify disclosure requirements. We early adopted the provisions that eliminate and modify disclosure requirements, on a retrospective basis, effective in our 2018 Annual Report on Form 10-K. We adopted the new disclosure requirements on January 1, 2020, on a prospective basis. The new disclosure requirements are effective for our interim and annual reporting periods beginning on or after the adoption date.

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, or ASU 2018-02. On December 22, 2017, the federal government enacted a 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. The Tax Cuts and Jobs Act contains significant changes to corporate taxation, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21% and modifying or limiting many business deductions. Current FASB guidance requires adjustments of deferred taxes due to a change in the federal corporate income tax rate to be included in income from operations. As a result, the tax effects of items within accumulated other comprehensive loss did not reflect the appropriate tax rate. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the change in the federal corporate income tax rate. We adopted the amendments in ASU 2018-02 for our interim and annual reporting periods beginning on January 1, 2018 and reclassified $91 of stranded tax effects from accumulated other comprehensive loss to retained earnings on our consolidated balance sheets. The adoption of ASU 2018-02 did not have any impact on our consolidated results of operations or cash flows.

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Notes to Consolidated Financial Statements (continued)

In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, or ASU 2017-12. This update amends the hedge accounting recognition and presentation requirements in ASC Topic 815 with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The update also makes certain targeted improvements to simplify the application of the hedge accounting guidance and provides several transition elections. We adopted ASU 2017-12 on October 1, 2017. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. We adopted ASU 2017-09 on January 1, 2018. The guidance has been and will be applied prospectively to awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have any impact on our consolidated financial position, results of operations or cash flows.

In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, or ASU 2017-08. This update changes the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. Under current guidance, the premium is generally amortized over the contractual life of the instrument. The amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We adopted ASU 2017-08 on January 1, 2019, and the adoption of this standard did not have a material impact on our beginning retained earnings or on our consolidated financial position, results of operations or cash flows.

In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. This amendment requires entities to disaggregate the service cost component from the other components of the benefit cost and present the service cost component in the same income statement line item as other employee compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Certain of our defined benefit plans have previously been frozen, resulting in no annual service costs, and the remaining service costs for our non-frozen plan are not material. We adopted ASU 2017-07 on January 1, 2018 and it did not have a material impact on our results of operations, cash flows or consolidated financial position.

In December 2016, the FASB issued Accounting Standards Update No. 2016-20, Technical Corrections and

Improvements to Topic 606, Revenue from Contracts with Customers. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross verses Net). These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Collectively, these updates require a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These updates supersede almost all existing revenue recognition guidance under GAAP, with certain exceptions, including an exception for our premium revenues, which are recorded on the Premiums line item on our consolidated statements of income and will continue to be accounted for in accordance with the provisions of ASC Topic 944, Financial Services - Insurance. Our administrative service and other contracts that are subject to these Accounting Standards Updates are recorded in the Administrative fees and other revenue line item on our consolidated statements of income and were immaterial to our consolidated total operating revenue at the time of adoption. We adopted these standards on January 1, 2018 using the modified retrospective approach. The adoption of these standards did not have a material impact on our beginning retained earnings, results of operations, cash flows or consolidated financial position.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, or ASU 2016-18. This update amends ASC Topic 230 to add and clarify guidance on the classification and

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Notes to Consolidated Financial Statements (continued)

presentation of restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. We adopted ASU 2016-18 on January 1, 2018 using a retrospective approach. The adoption of ASU 2016-18 did not have a material impact on our consolidated statements of cash flows and did not impact our results of operations or consolidated financial position.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15. This update addresses the presentation and classification on the statement of cash flows for eight specific items, with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented and classified. We adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated statements of cash flows, results of operations or consolidated financial position.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. The amendments in this update simplify several aspects of accounting for and reporting on share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted the amendments in ASU 2016-09 on January 1, 2017. We continue to estimate forfeitures expected to occur in determining stock compensation recognized in each period. We prospectively recognized tax benefits of $36, or $0.13 per diluted share, for the year ended December 31, 2017 in our consolidated statements of income, which previously would have been recorded to additional paid-in capital. In addition, we prospectively recognized excess tax benefits as an operating activity within our consolidated statement of cash flows for the year ended December 31, 2017. Finally, we retrospectively recognized taxes paid on our employees’ behalf through the withholding of common stock as a financing activity within our consolidated statements of cash flows for the years ended December 31, 2017 and 2016.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 change the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. We adopted ASU 2016-01 on January 1, 2018 as a cumulative-effect adjustment and reclassified $320 of unrealized gains on equity investments, net of tax, from accumulated other comprehensive loss to retained earnings on our consolidated balance sheet. Effective January 1, 2018, our results of operations include the changes in fair value of these financial instruments.

Recent Accounting Guidance Not Yet Adopted: In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. The amendments in ASU 2019-12 remove certain exceptions to the general principles in ASC Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We are currently evaluating the effects the adoption of ASU 2019-12 will have on our consolidated financial statements.

In November 2019, the FASB issued Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. In May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments

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Notes to Consolidated Financial Statements (continued)

held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities and provides for additional disclosure requirements. ASU 2016-13 requires a cumulative-effect adjustment to the opening balance of retained earnings on the statement of financial position at the date of adoption and a prospective transition approach for debt securities for which an OTTI had been recognized before the adoption date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the date of adoption. We adopted ASU 2016-13 on January 1, 2020, and the adoption did not have a material impact on our beginning retained earnings or on our consolidated financial position, results of operations or cash flows.

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. The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows. We adopted ASU 2018-15 on January 1, 2020 using a prospective approach for all implementation costs incurred after the date of adoption, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14. The amendments in ASU 2018-14 eliminate, add and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The guidance is to be applied on a retrospective basis to all periods presented. We are currently evaluating the effects the adoption of ASU 2018-14 will have on our disclosures.

In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services Insurance (Topic

944): Targeted Improvements to the Accounting for Long-Duration Contracts, or ASU 2018-12. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments in ASU 2018-12 will be effective for our interim and annual reporting periods beginning after December 15, 2021. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This update removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Upon adoption, the guidance is to be applied prospectively. We adopted ASU 2017-04 on January 1, 2020, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

There were no other new accounting pronouncements that were issued or became effective during the year ended December 31, 2019 that had, or are expected to have, a material impact on our financial position, results of operations, cash flows or financial statement disclosures.

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Notes to Consolidated Financial Statements (continued)

3. Business Acquisitions

Pending Acquisition of Beacon

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 services approximately forty million individuals across all fifty 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 during the first quarter of 2020 and is subject to standard closing conditions and customary approvals.

Acquisition of America’s 1st Choice

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 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 twenty-five Florida and three South Carolina counties. This acquisition aligns with our plans for continued growth in the Medicare Advantage and Special Needs populations.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the fair value of America’s 1st Choice’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the fair value of net assets acquired resulted in goodwill of $1,029 at December 31, 2018, of which $333 was tax deductible. All of the goodwill was allocated to our Government Business segment. Goodwill recognized from the acquisition of America’s 1st Choice primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions to strengthen our position and expand operations in the government sector to service Medicare Advantage and Special Needs populations.

The fair value of the net assets acquired from America’s 1st Choice includes $711 of other intangible assets at December 31, 2018, which primarily consist of finite-lived customer relationships with amortization periods ranging from 7 to 13 years. The results of operations of America’s 1st Choice are included in our consolidated financial statements within our Government Business segment for the periods following February 15, 2018. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.

Acquisition of HealthSun

On December 21, 2017, we completed our acquisition of 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 five-star rating from the Centers for Medicare & Medicaid Services. This acquisition aligns with our plans for continued growth in the Medicare Advantage and dual-eligible populations. The results of operations of HealthSun are included in our consolidated financial statements within our Government Business segment for the periods following December 21, 2017. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.

Termination of Agreement and Plan of Merger with Cigna Corporation

On July 24, 2015, we and Cigna Corporation, or Cigna, announced that we entered into an Agreement and Plan of Merger, or Cigna Merger Agreement, dated as of July 23, 2015, to acquire all outstanding shares of Cigna. On May 12, 2017, we delivered to Cigna a notice terminating the Cigna Merger Agreement. Both we and Cigna have commenced litigation against the other seeking various actions and damages, including Cigna’s damage claim for a $1,850 termination fee pursuant to the terms of the Cigna Merger Agreement. For additional information, see Note 13, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Cigna Corporation Merger Litigation.”

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

4. Investments

A summary of current and long-term fixed maturity securities, available-for-sale, at December 31, 2019 and 2018 is as follows:

																					Non-Credit Component of OTTIs Recognized in Accumulated Other Comprehensive Loss
	Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses								Estimated Fair Value
			Less than 12 Months				12 Months or Greater
December 31, 2019
Fixed maturity securities:
United States Government securities	$	524			$	4			$	(3	)		$	—			$	525			$	—
Government sponsored securities	136				5				—				—				141				—
States, municipalities and political subdivisions, tax-exempt	4,592				262				(3		)		—				4,851				—
Corporate securities	8,870				339				(9		)		(15		)		9,185				(3		)
Residential mortgage-backed securities	3,654				87				(6		)		(3		)		3,732				—
Commercial mortgage-backed securities	84				2				—				—				86				—
Other securities	1,648				21				(3		)		(5		)		1,661				—
Total fixed maturity securities	$	19,508			$	720			$	(24	)		$	(23	)		$	20,181			$	(3	)
December 31, 2018
Fixed maturity securities:
United States Government securities	$	414			$	3			$	—			$	(1	)		$	416			$	—
Government sponsored securities	108				1				—				(1		)		108				—
States, municipalities and political subdivisions, tax-exempt	4,716				91				(3		)		(19		)		4,785				—
Corporate securities	8,189				33				(170		)		(115		)		7,937				(3		)
Residential mortgage-backed securities	2,769				31				(3		)		(47		)		2,750				—
Commercial mortgage-backed securities	69				—				—				(2		)		67				—
Other securities	1,115				14				(8		)		(5		)		1,116				—
Total fixed maturity securities	$	17,380			$	173			$	(184	)		$	(190	)		$	17,179			$	(3	)

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Notes to Consolidated Financial Statements (continued)

For fixed maturity securities in an unrealized loss position at December 31, 2019 and 2018, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position.

	Less than 12 Months											12 Months or Greater
	Number of Securities			Estimated Fair Value				Gross Unrealized Loss				Number of Securities			Estimated Fair Value				Gross Unrealized Loss
(Securities are whole amounts)
December 31, 2019
Fixed maturity securities:
United States Government securities	27			$	250			$	(3	)		2			$	1			$	—
Government sponsored securities	14			12				—				3			1				—
States, municipalities and political subdivisions, tax-exempt	114			306				(3		)		14			11				—
Corporate securities	386			558				(9		)		224			286				(15		)
Residential mortgage-backed securities	321			635				(6		)		189			237				(3		)
Commercial mortgage-backed securities	1			3				—				4			8				—
Other securities	166			415				(3		)		113			358				(5		)
Total fixed maturity securities	1,029			$	2,179			$	(24	)		549			$	902			$	(23	)
December 31, 2018
Fixed maturity securities:
United States Government securities	5			$	47			$	—			25			$	79			$	(1	)
Government sponsored securities	8			11				—				24			31				(1		)
States, municipalities and political subdivisions, tax-exempt	177			295				(3		)		604			1,032				(19		)
Corporate securities	2,185			4,503				(170		)		1,220			2,072				(115		)
Residential mortgage-backed securities	259			383				(3		)		816			1,458				(47		)
Commercial mortgage-backed securities	6			11				—				19			37				(2		)
Other securities	193			599				(8		)		93			237				(5		)
Total fixed maturity securities	2,833			$	5,849			$	(184	)		2,801			$	4,946			$	(190	)

The amortized cost and fair value of fixed maturity securities at December 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.

	Amortized Cost				Estimated Fair Value
Due in one year or less	$	532			$	534
Due after one year through five years	5,367				5,503
Due after five years through ten years	5,633				5,864
Due after ten years	4,238				4,462
Mortgage-backed securities	3,738				3,818
Total fixed maturity securities	$	19,508			$	20,181

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Notes to Consolidated Financial Statements (continued)

Equity Securities

A summary of current and long-term marketable equity securities at December 31, 2019 and 2018 is as follows:

	December 31, 2019				December 31, 2018
Equity Securities:
Exchange traded funds	$	44			$	2
Fixed maturity mutual funds	643				557
Common equity securities	267				654
Private equity securities	85				313
Total	$	1,039			$	1,526

Investment Income

The major categories of net investment income for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
Fixed maturity securities	$	721			$	681			$	614
Equity securities	100				86				116
Cash equivalents	64				51				25
Other	149				193				153
Investment income	1,034				1,011				908
Investment expense	(29		)		(41		)		(41		)
Net investment income	$	1,005			$	970			$	867

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Investment Gains

Net realized investment gains/losses and the net change in unrealized appreciation/depreciation on investments for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
Net realized gains (losses):
Fixed maturity securities:
Gross realized gains from sales	$	125			$	85			$	137
Gross realized losses from sales	(59		)		(116		)		(55		)
Net realized gains (losses) from sales of fixed maturity securities	66				(31		)		82
Equity securities:
Gross realized gains	147				77				140
Gross realized losses	(84		)		(276		)		(17		)
Net realized gains (losses) on equity securities	63				(199		)		123
Other investments:
Gross realized gains from sales	3				27				—
Gross realized losses from sales	(1		)		—				(5		)
Net realized gains (losses) from sales of other investments	2				27				(5		)
Net realized gains (losses) on investments	131				(203		)		200
Other-than-temporary impairment losses recognized in income:
Fixed maturity securities	(13		)		(9		)		(4		)
Equity securities	—				—				(15		)
Other investments	(34		)		(17		)		(14		)
Other-than-temporary impairment losses recognized in income	(47		)		(26		)		(33		)
Change in net unrealized gains (losses) on investments:
Fixed maturity securities	874				(529		)		156
Equity securities	—				—				111
Other investments	—				5				(10		)
Total change in net unrealized gains (losses) on investments	874				(524		)		257
Deferred income tax (expense) benefit	(194		)		106				(84		)
Change in net unrealized gains (losses) on investments	680				(418		)		173
Net realized gains (losses) on investments, other-than-temporary impairment losses recognized in income and change in net unrealized gains (losses) on investments	$	764			$	(647	)		$	340

The gains and losses related to equity securities for the years ended December 31, 2019 and 2018 are as follows:

		2019				2018
Net realized gains (losses) recognized on equity securities		$	63			$	(199	)
Less: Net realized (gains) losses recognized on equity securities sold during the period		(39		)		57
Unrealized gains (losses) recognized in income on equity securities still held at December 31		$	24			$	(142	)

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Notes to Consolidated Financial Statements (continued)

A primary objective in the management of our fixed maturity and equity portfolios is to maximize total return relative to underlying liabilities and respective liquidity needs. In achieving this goal, assets may be sold to take advantage of market conditions or other investment opportunities as well as tax considerations. Sales will generally produce realized gains and losses. In the ordinary course of business, we may sell securities at a loss for a number of reasons, including, but not limited to: (i) changes in the investment environment; (ii) expectations that the fair value could deteriorate further; (iii) desire to reduce exposure to an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected cash flow.

Proceeds from sales, maturities, calls or redemptions of fixed maturity securities and the related gross realized gains and gross realized losses for the years ended December 31 are as follows:

	2019				2018				2017
Proceeds	$	8,351			$	8,380			$	9,780
Gross realized gains	125				85				137
Gross realized losses	(59		)		(116		)		(55		)

A significant judgment in the valuation of investments is the determination of when an other-than-temporary decline in value has occurred. We follow a consistent and systematic process for recognizing impairments on securities that sustain other-than-temporary declines in value. We have established a committee responsible for the impairment review process. The decision to impair a security incorporates both quantitative criteria and qualitative information. The impairment review process considers a number of factors including, but not limited to: (i) the extent to which the fair value is less than book value, (ii) the financial condition and near term prospects of the issuer, (iii) our intent and ability to retain impaired investments for a period of time sufficient to allow for any anticipated recovery in fair value, (iv) our intent to sell or the likelihood that we will need to sell a fixed maturity security before recovery of its amortized cost basis, (v) whether the debtor is current on interest and principal payments, (vi) the reasons for the decline in value (i.e., credit event compared to liquidity, general credit spread widening, currency exchange rate or interest rate factors) and (vii) general market conditions and industry or sector specific factors. For securities that are deemed to be other-than-temporarily impaired, the security is adjusted to fair value and the resulting losses are recognized in the consolidated statements of income. The new cost basis of the impaired security is not increased for future recoveries in fair value.

Other-than-temporary impairments recorded in 2019, 2018 and 2017 were primarily the result of the continued credit deterioration on specific issuers in the bond markets. There were no individually material OTTI losses on investments by issuer during 2019, 2018 or 2017.

Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that changes in these risk factors in the near term could have a material adverse impact on our results of operations or shareholders’ equity.

The changes in the amount of the credit component of OTTI losses on fixed maturity securities recognized in income, for which a portion of the OTTI losses was recognized in other comprehensive income, was not material for the years ended December 31, 2019, 2018 or 2017.

At December 31, 2019 and 2018, there were no investments that exceeded 10% of shareholders’ equity and no fixed maturity investments that did not produce income during the years then ended.

As of December 31, 2019 and 2018, we had committed approximately $999 and $873, respectively, to future capital calls from various third-party investments in exchange for an ownership interest in the related entities.

At December 31, 2019 and 2018, securities with carrying values of approximately $505 and $487, respectively, were deposited by our insurance subsidiaries under requirements of regulatory authorities.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Securities Lending Programs

The fair value of the collateral received at the time of the securities lending transactions amounted to $351 and $604 at December 31, 2019 and 2018, respectively. The value of the collateral represented 103% and 102% of the market value of the securities on loan at December 31, 2019 and 2018, respectively.

The remaining contractual maturities of our securities lending transactions at December 31, 2019 is as follows:

	Overnight and Continuous
Securities lending transactions
Cash	$	291
United States Government securities	59
Other securities	1
Total	$	351

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Notes to Consolidated Financial Statements (continued)

5. Derivative Financial Instruments

We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements which reduce credit risk by permitting net settlement of transactions. At December 31, 2019 we had received collateral of $22 related to our derivative financial instruments. As of December 31, 2018 we had posted collateral of $1 related to our derivative financial instruments.

A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at December 31, 2019 and 2018 is as follows:

	Contractual/ Notional Amount				Balance Sheet Location		Estimated Fair Value
	Asset				(Liability)
December 31, 2019
Hedging instruments
Interest rate swaps - fixed to floating	$	1,200			Other assets/other liabilities		$	22			$	(1	)
Non-hedging instruments
Interest rate swaps	1				Equity securities		—				—
Futures	134				Equity securities		1				—
Subtotal non-hedging	135				Subtotal non-hedging		1				—
Total derivatives	$	1,335			Total derivatives		23				(1		)
					Amounts netted		(1		)		1
					Net derivatives		$	22			$	—
December 31, 2018
Hedging instruments
Interest rate swaps - fixed to floating	$	1,200			Other assets/other liabilities		$	7			$	(11	)
Non-hedging instruments
Interest rate swaps	164				Equity securities		4				(1		)
Options	100				Other assets/other liabilities		—				—
Futures	415				Equity securities		5				(5		)
Subtotal non-hedging	679				Subtotal non-hedging		9				(6		)
Total derivatives	$	1,879			Total derivatives		16				(17		)
					Amounts netted		(14		)		14
					Net derivatives		$	2			$	(3	)

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Fair Value Hedges

We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to the London Interbank Offered Rate, or LIBOR. A summary of our outstanding fair value hedges at December 31, 2019 and 2018 is as follows:

Type of Fair Value Hedges		Year Entered Into		Outstanding Notional Amount								Interest Rate Received			Expiration Date
	2019				2018
Interest rate swap		2018		$	50			$	50			4.101	%		September 1, 2027
Interest rate swap		2018		450				450				3.300			January 15, 2023
Interest rate swap		2018		90				90				4.350			August 15, 2020
Interest rate swap		2017		50				50				4.350			August 15, 2020
Interest rate swap		2015		200				200				4.350			August 15, 2020
Interest rate swap		2014		150				150				4.350			August 15, 2020
Interest rate swap		2013		10				10				4.350			August 15, 2020
Interest rate swap		2012		200				200				4.350			August 15, 2020
Total notional amount outstanding				$	1,200			$	1,200

The following amounts were recorded on our consolidated balance sheets related to cumulative basis adjustments for fair value hedges at December 31, 2019 and 2018:

Balance Sheet Classification in Which Hedged Item is Included		Carrying Amount of Hedged Liability								Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
	2019				2018				2019				2018
Current portion of long term-debt		$	1,598			$	849			$	22			$	7
Long-term debt		17,787				17,217				(1		)		(11		)

Cash Flow Hedges

We have entered into a series of forward starting pay fixed interest rate swaps with the objective of eliminating the variability of cash flows in the interest payments on anticipated future financings. During 2019, swaps in the notional amount of $425 were terminated. We paid an aggregate of $35 to the swap counter parties upon termination.

The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $262 and $246 at December 31, 2019 and 2018, respectively. As of December 31, 2019, the total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $15. No amounts were excluded from effectiveness testing.

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Notes to Consolidated Financial Statements (continued)

A summary of the effect of cash flow hedges in accumulated other comprehensive loss for the years ended December 31, 2019, 2018 and 2017 is as follows:

		Hedge Loss Recognized in Other Comprehensive Income (Loss)				Income Statement Location of Loss Reclassification from Accumulated Other Comprehensive Loss		Hedge Loss Reclassified from Accumulated Other Comprehensive Loss
Type of Cash Flow Hedge
Year ended December 31, 2019
Forward starting pay fixed swaps		$	(35	)		Interest expense		$	(15	)
Year ended December 31, 2018
Forward starting pay fixed swaps		(33		)		Interest expense		(14		)
Year ended December 31, 2017
Forward starting pay fixed swaps		(112		)		Interest expense		(7		)
Forward starting pay fixed swaps						Net realized gains (losses) on financial instruments		(7		)

Income Statement Relationship of Fair Value and Cash Flow Hedging

A summary of the relationship between the effects of fair value and cash flow hedges on the total amount of income and expense presented in our consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	2019								2018								2017
	Net Realized Gains (Losses) on Financial Instruments				Interest Expense				Net Realized Gains (Losses) on Financial Instruments				Interest Expense				Net Realized Gains (Losses) on Financial Instruments				Interest Expense
Total amount of income or expense in the income statement in which the effects of fair value or cash flow hedges are recorded	$	114			$	(746	)		$	(180	)		$	(753	)		$	145			$	(739	)
Gain (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	—				2				—				—				—				—
Derivatives designated as hedging instruments	—				(2		)		—				—				—				—
Loss on cash flow hedging relationships:
Forward starting pay fixed swaps:
Amount of loss reclassified from accumulated other comprehensive loss into net income	—				(15		)		—				(14		)		—				(7		)
Amount of loss reclassified from accumulated other comprehensive loss into net income due to ineffectiveness and missed forecasted transactions	—				—				—				—				(7		)		—

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Notes to Consolidated Financial Statements (continued)

Non-Hedging Derivatives

A summary of the effect of non-hedging derivatives on our consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 is as follows:

Type of Non-hedging Derivatives		Income Statement Location of Gain (Loss) Recognized		Derivative Gain (Loss) Recognized
Year ended December 31, 2019
Interest rate swaps		Net realized gains (losses) on financial instruments		$	1
Options		Net realized gains (losses) on financial instruments		(8		)
Futures		Net realized gains (losses) on financial instruments		(10		)
Total				$	(17	)
Year ended December 31, 2018
Interest rate swaps		Net realized gains (losses) on financial instruments		$	14
Options		Net realized gains (losses) on financial instruments		1
Futures		Net realized gains (losses) on financial instruments		8
Total				$	23
Year ended December 31, 2017
Interest rate swaps		Net realized gains (losses) on financial instruments		$	(9	)
Options		Net realized gains (losses) on financial instruments		(36		)
Futures		Net realized gains (losses) on financial instruments		(3		)
Total				$	(48	)

6. Fair Value

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows:

Level Input:		Input Definition:
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II		Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in the consolidated balance sheets:

Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less, and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I.

Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where available. These fair values are obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value to facilitate fair value measurements and disclosures. Level II securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities, United States Government securities and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls

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Notes to Consolidated Financial Statements (continued)

in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt securities, that are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets.

Equity securities: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available, and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.

Other invested assets, current: Other invested assets, current include securities held in rabbi trusts that are classified as trading. These securities are designated Level I securities, as fair values are based on quoted market prices.

Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value measurements and disclosures.

Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We independently verify prices provided by the counterparties using valuation models that incorporate market observable inputs for similar derivative transactions. Derivatives are designated as Level II securities.

In addition, the following methods and assumptions were used to determine the fair value of each class of pension benefit plan assets and other benefit plan assets not defined above (see Note 10, “Retirement Benefits,” for fair values of benefit plan assets):

Mutual funds: Fair values are based on quoted market prices, which represent the net asset value, or NAV, of the shares held.

Common and collective trusts: Fair values of common/collective trusts that replicate traded money market funds are based on cost, which approximates fair value. Fair values of common/collective trusts that invest in securities are valued at the NAV of the shares held, where the trust applies fair value measurements to the underlying investments to determine the NAV.

Alternative investments: Fair values are estimated based on the plan’s proportionate share of the undistributed partners’ capital as reported in audited financial statements of the partnership.

Contract with insurance company: Fair value of the contract in the insurance company general investment account is determined by the insurance company based on the fair value of the underlying investments of the account.

Investment in DOL 103-12 trust: Fair value is based on the plan’s proportionate share of the fair value of investments held by the trust, qualified as a Department of Labor Regulation 2520.103-12 entity, or DOL 103-12 trust, as reported in the audited financial statements of the trust, where the trustee applies fair value measurements to the underlying investments of the trust.

Life insurance contracts: Fair value is based on the cash surrender value of the policies as reported by the insurer.

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Notes to Consolidated Financial Statements (continued)

A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at December 31, 2019 and 2018 is as follows:

	Level I				Level II				Level III				Total
December 31, 2019
Assets:
Cash equivalents	$	2,015			$	—			$	—			$	2,015
Fixed maturity securities, available-for-sale:
United States Government securities	—				525				—				525
Government sponsored securities	—				141				—				141
States, municipalities and political subdivisions, tax-exempt	—				4,851				—				4,851
Corporate securities	—				8,882				303				9,185
Residential mortgage-backed securities	—				3,730				2				3,732
Commercial mortgage-backed securities	—				86				—				86
Other securities	—				1,654				7				1,661
Total fixed maturity securities, available-for-sale	—				19,869				312				20,181
Equity securities:
Exchange traded funds	44				—				—				44
Fixed maturity mutual funds	—				643				—				643
Common equity securities	236				31				—				267
Private equity securities	—				—				85				85
Total equity securities	280				674				85				1,039
Other invested assets, current	13				—				—				13
Securities lending collateral	—				353				—				353
Derivatives	—				23				—				23
Total assets	$	2,308			$	20,919			$	397			$	23,624
Liabilities:
Derivatives	$	—			$	(1	)		$	—			$	(1	)
Total liabilities	$	—			$	(1	)		$	—			$	(1	)
December 31, 2018
Assets:
Cash equivalents	$	1,815			$	—			$	—			$	1,815
Fixed maturity securities, available-for-sale:
United States Government securities	—				416				—				416
Government sponsored securities	—				108				—				108
States, municipalities and political subdivisions, tax-exempt	—				4,785				—				4,785
Corporate securities	2				7,648				287				7,937
Residential mortgage-backed securities	—				2,744				6				2,750
Commercial mortgage-backed securities	—				67				—				67
Other securities	—				1,099				17				1,116
Total fixed maturity securities, available-for-sale	2				16,867				310				17,179
Equity securities:
Exchange traded funds	2				—				—				2
Fixed maturity mutual funds	—				557				—				557
Common equity securities	601				53				—				654
Private equity securities	—				—				313				313
Total equity securities	603				610				313				1,526
Other invested assets, current	21				—				—				21
Securities lending collateral	314				290				—				604
Derivatives	—				16				—				16
Total assets	$	2,755			$	17,783			$	623			$	21,161
Liabilities:
Derivatives	$	—			$	(17	)		$	—			$	(17	)
Total liabilities	$	—			$	(17	)		$	—			$	(17	)

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Notes to Consolidated Financial Statements (continued)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Corporate Securities				Residential Mortgage- backed Securities				Other Securities				Equity Securities				Total
Year ended December 31, 2019
Beginning balance at January 1, 2019	$	287			$	6			$	17			$	313			$	623
Total gains (losses):
Recognized in net income	(7		)		—				—				(6		)		(13		)
Recognized in accumulated other comprehensive loss	3				—				—				—				3
Purchases	122				—				2				65				189
Sales	(22		)		—				—				(79		)		(101		)
Settlements	(71		)		(2		)		(6		)		—				(79		)
Transfers into Level III	—				—				3				2				5
Transfers out of Level III	(9		)		(2		)		(9		)		(210		)		(230		)
Ending balance at December 31, 2019	$	303			$	2			$	7			$	85			$	397
Change in unrealized losses included in net income related to assets still held at December 31, 2019	$	—			$	—			$	—			$	6			$	6
Year ended December 31, 2018
Beginning balance at January 1, 2018	$	229			$	5			$	16			$	287			$	537
Total (losses) gains:
Recognized in net income	1				—				—				(229		)		(228		)
Recognized in accumulated other comprehensive loss	(5		)		—				—				—				(5		)
Purchases	120				2				18				290				430
Sales	(33		)		—				(1		)		(35		)		(69		)
Settlements	(88		)		(1		)		(10		)		—				(99		)
Transfers into Level III	65				—				9				—				74
Transfers out of Level III	(2		)		—				(15		)		—				(17		)
Ending balance at December 31, 2018	$	287			$	6			$	17			$	313			$	623
Change in unrealized losses included in net income related to assets still held at December 31, 2018	$	—			$	—			$	—			$	30			$	30
Year ended December 31, 2017
Beginning balance at January 1, 2017	$	239			$	11			$	43			$	188			$	481
Total (losses) gains:
Recognized in net income	(1		)		—				—				—				(1		)
Recognized in accumulated other comprehensive loss	3				—				—				11				14
Purchases	88				4				36				89				217
Sales	(48		)		(5		)		(1		)		(1		)		(55		)
Settlements	(64		)		(2		)		(7		)		—				(73		)
Transfers into Level III	15				3				15				—				33
Transfers out of Level III	(3		)		(6		)		(70		)		—				(79		)
Ending balance at December 31, 2017	$	229			$	5			$	16			$	287			$	537
Change in unrealized losses included in net income related to assets still held at December 31, 2017	$	(3	)		$	—			$	—			$	—			$	(3	)

There were no individually material transfers into or out of Level III during the years ended December 31, 2019, 2018 or 2017.

Our valuation policy is determined by members of our treasury and accounting departments. Whenever possible, our policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes or other valuation techniques. These techniques are significantly affected by our assumptions,

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Notes to Consolidated Financial Statements (continued)

including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain quoted prices for each security from third-party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. As we are responsible for the determination of fair value, we perform analysis on the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. This analysis is performed by our internal treasury personnel who are familiar with our investment portfolios, the pricing services engaged and the valuation techniques and inputs used. Our analysis includes procedures such as a review of month-to-month price fluctuations and price comparisons to secondary pricing services. There were no adjustments to quoted market prices obtained from the pricing services during the years ended December 31, 2019, 2018 or 2017.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business Acquisitions,” we completed our acquisition of America’s 1st Choice on February 15, 2018. The net assets acquired in our acquisition of America’s 1st Choice and resulting goodwill and other intangible assets were recorded at fair value primarily using Level III inputs. The majority of America’s 1st Choice assets acquired and liabilities assumed were recorded at their carrying values as of the respective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in our acquisition of America’s 1st Choice were internally estimated based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets could be expected to generate in the future. We developed internal estimates for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of America’s 1st Choice described above, there were no other material assets or liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2019 or 2018.

In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other current assets, deferred income taxes, intangible assets and certain financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.

The carrying amounts reported in the consolidated balance sheets for cash, accrued investment income, premium receivables, self-funded receivables, other receivables, income taxes receivable, unearned income, accounts payable and accrued expenses, security trades pending payable, securities lending payable and certain other current liabilities approximate fair value because of the short-term nature of these items. These assets and liabilities are not listed in the table below.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument that is recorded at its carrying value on the consolidated balance sheets:

Other invested assets, long-term: Other invested assets, long-term primarily include our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. The carrying value of corporate-owned life insurance policies represents the cash surrender value as reported by the respective insurer, which approximates fair value.

Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or if no quoted market prices were available, on the current market interest rates estimated to be available to us for debt of similar terms and remaining maturities.

Long-term debt - commercial paper: The carrying amount for commercial paper approximates fair value, as the underlying instruments have variable interest rates at market value.

Long-term debt - senior unsecured notes and surplus notes: The fair values of our notes are based on quoted market prices in active markets for the same or similar debt, or, if no quoted market prices are available, on the current market observable rates estimated to be available to us for debt of similar terms and remaining maturities.

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Notes to Consolidated Financial Statements (continued)

Long-term debt—convertible debentures: The fair value of our convertible debentures is based on the quoted market price in the active private market in which the convertible debentures trade.

A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance sheets at December 31, 2019 and 2018 is as follows:

	Carrying Value				Estimated Fair Value
	Level I				Level II				Level III				Total
December 31, 2019
Assets:
Other invested assets, long-term	$	4,228			$	—			$	—			$	4,228			$	4,228
Liabilities:
Debt:
Short-term borrowings	700				—				700				—				700
Commercial paper	400				—				400				—				400
Notes	18,840				—				20,470				—				20,470
Convertible debentures	145				—				904				—				904
December 31, 2018
Assets:
Other invested assets, long-term	$	3,726			$	—			$	—			$	3,726			$	3,726
Liabilities:
Debt:
Short-term borrowings	1,145				—				1,145				—				1,145
Commercial paper	697				—				697				—				697
Notes	17,178				—				17,145				—				17,145
Convertible debentures	191				—				1,030				—				1,030

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Notes to Consolidated Financial Statements (continued)

7. Income Taxes

The components of deferred income taxes at December 31, 2019 and 2018 are as follows:

	2019				2018
Deferred tax assets relating to:
Retirement benefits	$	211			$	226
Accrued expenses	280				301
Insurance reserves	114				96
Net operating loss carryforwards	4				7
Bad debt reserves	82				104
State income tax	11				32
Deferred compensation	22				20
Unrealized losses on securities	—				41
Other	77				72
Total deferred tax assets	801				899
Deferred tax liabilities relating to:
Investment basis difference	78				52
Unrealized gains on securities	153				—
Intangible assets:
Trademarks and state Medicaid licenses	1,529				1,529
Customer, provider and hospital relationships	239				290
Internally developed software and other amortization differences	528				461
Retirement benefits	194				183
Debt discount	19				27
State deferred tax	77				105
Depreciation and amortization	48				47
Other	163				165
Total deferred tax liabilities	3,028				2,859
Net deferred tax liability	$	2,227			$	1,960

Included as a component of the state deferred tax liabilities above is a net valuation allowance for states net operating losses of $45 and $95, respectively, at December 31, 2019 and 2018.

Significant components of the provision for income taxes for the years ended December 31, 2019, 2018 and 2017 consist of the following:

	2019				2018				2017
Current tax expense:
Federal	$	1,019			$	1,128			$	1,356
State and local	84				78				39
Total current tax expense	1,103				1,206				1,395
Deferred tax expense (benefit)	75				112				(1,274		)
Total income tax expense	$	1,178			$	1,318			$	121

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Notes to Consolidated Financial Statements (continued)

State and local current tax expense is reported gross of federal benefit, and includes amounts related to audit settlements, uncertain tax positions, state tax credits and true up of prior years’ tax. Such items are included in multiple lines in the following rate reconciliation table on a net of federal tax basis.

A reconciliation of income tax expense recorded in the consolidated statements of income and amounts computed at the statutory federal income tax rate for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019							2018							2017
	Amount				Percent			Amount				Percent			Amount				Percent
Amount at statutory rate	$	1,257			21.0	%		$	1,064			21.0	%		$	1,387			35.0	%
State and local income taxes net of federal tax expense/benefit	138				2.3			63				1.2			(2		)		(0.1	)
Tax exempt interest and dividends received deduction	(24		)		(0.4	)		(27		)		(0.5	)		(58		)		(1.4	)
HIP Fee	—				—			324				6.4			—				—
Tax Cuts and Jobs Act	—				—			(28		)		(0.6	)		(1,108		)		(27.9	)
Other, net	(193		)		(3.2	)		(78		)		(1.5	)		(98		)		(2.5	)
Total income tax expense	$	1,178			19.7	%		$	1,318			26.0	%		$	121			3.1	%

During the year ended December 31, 2018, we recognized income tax expense of $324, or $1.23 per diluted share, as a result of the non-tax deductibility of the HIP Fee payment. On December 22, 2017, the federal government enacted the Tax Cuts and Jobs Act, which contains significant changes to corporate taxation, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21% and modifying or limiting many business deductions. At December 31, 2018, we completed our accounting for the tax effects of enactment of the Tax Cuts and Jobs Act and there was no material change to our 2017 provisional amount. In addition we reclassified, for our interim and annual reporting periods beginning on January 1, 2018, $91 of stranded tax effects from accumulated other comprehensive loss to retained earnings on our consolidated balance sheets.

During the year ended December 31, 2017, we recognized an income tax benefit of $1,108, or $4.14 per diluted share, as a result of the provisional amount recorded related to the remeasurement of our deferred tax balance as a result of the enactment of the Tax Cuts and Jobs Act. The HIP Fee payment was suspended for 2017.

The change in the carrying amount of gross unrecognized tax benefits from uncertain tax positions for the years ended December 31, 2019 and 2018 is as follows:

	2019				2018
Balance at January 1	$	241			$	190
Additions based on:
Tax positions related to current year	1				35
Tax positions related to prior years	—				50
Reductions based on:
Tax positions related to prior years	(63		)		(31		)
Settlements with taxing authorities	(33		)		(3		)
Balance at December 31	$	146			$	241

The table above excludes interest, net of related tax benefits, which is treated as income tax expense (benefit) under our accounting policy. The interest is included in the amounts described in the following paragraph.

The amount of unrecognized tax benefits that would impact our effective tax rate in future periods, if recognized, was $140 and $237 at December 31, 2019 and 2018, respectively. Also included in the table above, at December 31, 2019, is $2 that would be recognized as an adjustment to additional paid-in capital, which would not affect our effective tax rate. In

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Notes to Consolidated Financial Statements (continued)

addition to the contingent liabilities included in the table above, during 2017 we filed protective state income tax refund claims of approximately $310. There were no equivalent protective state income tax refund claims filed in 2019 or 2018.

For the year ended December 31, 2019, tax loss contingencies recorded in a prior year were released; therefore, we recognized a net interest benefit of $11. For the years ended December 31, 2018 and 2017, we recognized a net interest expense of $15 and $3, respectively. We had accrued approximately $26 and $37 for the payment of interest at December 31, 2019 and 2018, respectively.

As of December 31, 2019, as further described below, certain tax years remain open to examination by the Internal Revenue Service, or IRS, and various state and local authorities. In addition, we continue to discuss certain industry issues with the IRS. As a result of these examinations and discussions, we have recorded amounts for uncertain tax positions. It is anticipated that the amount of unrecognized tax benefits will change in the next twelve months due to possible settlements of audits and changes in temporary items. However, the ultimate resolution of these items is dependent on the completion of negotiations with various taxing authorities. While it is difficult to determine when other tax settlements will actually occur, it is reasonably possible that one could occur in the next twelve months and our unrecognized tax benefits could change within a range of approximately $(9) to $(102).

We are a member of the IRS Compliance Assurance Process, or CAP. The objective of CAP is to reduce taxpayer burden and uncertainty while assuring the IRS of the accuracy of tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations.

As of December 31, 2019, the IRS examination of our 2019 and 2017 tax years continues to be in process.

In certain states, we pay premium taxes in lieu of state income taxes. Premium taxes are reported in selling, general and administrative expense.

At December 31, 2019, we had unused federal tax net operating loss carryforwards of approximately $8 to offset future taxable income. The loss carryforwards expire in the years 2032 through 2037. During 2019, 2018 and 2017, federal income taxes paid totaled $1,403, $738 and $1,503, respectively.

8. Property and Equipment

A summary of property and equipment at December 31, 2019 and 2018 is as follows:

	2019				2018
Computer software, purchased and internally developed	$	4,314			$	3,532
Computer equipment, furniture and other equipment	1,264				1,266
Leasehold improvements	715				563
Building and improvements	169				169
Land and improvements	17				18
Property and equipment, gross	6,479				5,548
Accumulated depreciation and amortization	(3,346		)		(2,813		)
Property and equipment, net	$	3,133			$	2,735

Depreciation expense for 2019, 2018 and 2017 was $147, $124 and $111, respectively. Amortization expense on computer software and leasehold improvements for 2019, 2018 and 2017 was $528, $528 and $490, respectively, which includes amortization expense on computer software, both purchased and internally developed, for 2019, 2018 and 2017 of $450, $465 and $435, respectively. Capitalized costs related to the internal development of software of $3,939 and $3,226 at December 31, 2019 and 2018, respectively, are reported with computer software.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

9. Goodwill and Other Intangible Assets

A summary of the change in the carrying amount of goodwill for our segments (see Note 19, “Segment Information”) for 2019 and 2018 is as follows:

	Commercial and Specialty Business				Government Business				Other				Total
Balance as of January 1, 2018	$	11,818			$	7,402			$	11			$	19,231
Acquisitions	—				1,285				—				1,285
Adjustments	(267		)		266				(11		)		(12		)
Balance as of December 31, 2018	11,551				8,953				—				20,504
Adjustments	—				(674		)		670				(4		)
Balance as of December 31, 2019	$	11,551			$	8,279			$	670			$	20,500
Accumulated impairment as of December 31, 2019	$	(41	)		$	—			$	—			$	(41	)

The increase in goodwill in 2018 was primarily due to the acquisition of America’s 1st Choice in February 2018. For additional information regarding this acquisition, see Note 3, “Business Acquisitions”.

Goodwill adjustments in 2019 include certain reclassifications made for changes in segment reporting. The adjustments in 2018 include measurement period adjustments for HealthSun as well as certain reclassifications made for changes in segment reporting. For additional information, see Note 19, “Segment Information”.

As required by FASB guidance, we completed annual impairment tests of existing goodwill and other intangible assets with indefinite lives during 2019, 2018 and 2017. We perform these annual impairment tests during the fourth quarter. FASB guidance also requires interim impairment testing to be performed when potential impairment indicators exist. These tests involve the use of estimates related to the fair value of goodwill and intangible assets with indefinite lives and require a significant degree of management judgment and the use of subjective assumptions. Qualitative testing procedures include assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset specific factors and entity specific events. For quantitative testing, the fair values are estimated using the projected income and market valuation approaches, incorporating Level III internal estimates for inputs, including, but not limited to, revenue projections, income projections, cash flows and discount rates. We did not incur any impairment losses in 2019, 2018 or 2017, as the estimated fair values of our reporting units were substantially in excess of their carrying values.

The components of other intangible assets as of December 31, 2019 and 2018 are as follows:

	2019												2018
Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Intangible assets with finite lives:
Customer relationships	$	4,500			$	(3,469	)		$	1,031			$	4,495			$	(3,185	)		$	1,310
Provider and hospital relationships	228				(98		)		130				228				(85		)		143
Other	352				(129		)		223				352				(88		)		264
Total	5,080				(3,696		)		1,384				5,075				(3,358		)		1,717
Intangible assets with indefinite lives:
Blue Cross and Blue Shield and other trademarks	6,299				—				6,299				6,299				—				6,299
State Medicaid licenses	991				—				991				991				—				991
Total	7,290				—				7,290				7,290				—				7,290
Other intangible assets	$	12,370			$	(3,696	)		$	8,674			$	12,365			$	(3,358	)		$	9,007

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

As of December 31, 2019, the estimated amortization expense for each of the five succeeding years is as follows: 2020, $290; 2021, $244; 2022, $195; 2023, $162; and 2024, $85.

10. Retirement Benefits

We sponsor various non-contributory employee defined benefit plans through certain subsidiaries.

The Anthem Cash Balance Plan A and the Anthem Cash Balance Plan B are cash balance pension plans covering certain eligible employees of the affiliated companies that participate in these plans. Effective January 1, 2006, benefits were curtailed, with the result that most participants stopped accruing benefits but continue to earn interest on benefits accrued prior to the curtailment. Certain participants subject to collective bargaining and certain other participants who met grandfathering rules continued to accrue benefits. Participants who did not receive credits and/or benefit accruals were included in the Anthem Cash Balance Plan A, while employees who were still receiving credits and/or benefits participated in the Anthem Cash Balance Plan B. Effective January 1, 2019, benefits under the Anthem Cash Balance Plan B were curtailed. All grandfathered participants no longer have pay credits added to their accounts but continue to earn interest on existing account balances. Participants continue to earn years of pension service for vesting purposes. Several pension plans acquired through various corporate mergers and acquisitions were merged into these plans in prior years.

The Employees’ Retirement Plan of Blue Cross of California, or the BCC Plan, is a defined benefit pension plan that covers eligible employees of Blue Cross of California who are covered by a collective bargaining agreement. Effective January 1, 2007, benefits were curtailed under the BCC Plan with the result that no Blue Cross of California employees hired or rehired after December 31, 2006 are eligible to participate in the BCC Plan.

All of the plans’ assets consist primarily of equity securities, fixed maturity securities, investment funds and cash. The funding policies for all plans are to contribute amounts at least sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended, or ERISA, as amended by the Pension Protection Act of 2006, and in accordance with income tax regulations, plus such additional amounts as are necessary to provide assets sufficient to meet the benefits to be paid to plan participants.

We use a December 31 measurement date for determining benefit obligations and the fair value of plan assets.

The following tables disclose consolidated “pension benefits,” which include the defined benefit pension plans described above, and consolidated “other benefits,” which include postretirement health and welfare benefits including medical, vision and dental benefits offered to certain employees. Calculations were computed using assumptions at the December 31 measurement dates.

The reconciliation of the benefit obligation is as follows:

	Pension Benefits								Other Benefits
	2019				2018				2019				2018
Benefit obligation at beginning of year	$	1,743			$	1,872			$	431			$	524
Service cost	—				8				1				1
Interest cost	62				55				15				15
Actuarial loss (gain)	200				(70		)		5				(57		)
Benefits paid	(125		)		(122		)		(29		)		(52		)
Benefit obligation at end of year	$	1,880			$	1,743			$	423			$	431

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Notes to Consolidated Financial Statements (continued)

The changes in the fair value of plan assets are as follows:

	Pension Benefits								Other Benefits
	2019				2018				2019				2018
Fair value of plan assets at beginning of year	$	1,818			$	2,012			$	336			$	356
Actual return on plan assets	329				(76		)		55				(17		)
Employer contributions	4				4				5				49
Benefits paid	(125		)		(122		)		(29		)		(52		)
Fair value of plan assets at end of year	$	2,026			$	1,818			$	367			$	336

The net amount included in the consolidated balance sheets is as follows:

	Pension Benefits								Other Benefits
	2019				2018				2019				2018
Noncurrent assets	$	212			$	134			$	—			$	—
Current liabilities	(6		)		(6		)		—				—
Noncurrent liabilities	(60		)		(53		)		(56		)		(95		)
Net amount at December 31	$	146			$	75			$	(56	)		$	(95	)

The net amounts included in accumulated other comprehensive loss that have not been recognized as components of net periodic benefit costs are as follows:

	Pension Benefits								Other Benefits
	2019				2018				2019				2018
Net actuarial loss	$	734			$	751			$	25			$	58
Prior service cost (credit)	1				1				(19		)		(34		)
Net amount before tax at December 31	$	735			$	752			$	6			$	24

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $22 and $0, respectively. The estimated net actuarial loss and prior service credit for postretirement benefit plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $0 and $7, respectively.

The accumulated benefit obligation for the defined benefit pension plans was $1,878 and $1,742 at December 31, 2019 and 2018, respectively.

As of December 31, 2019, certain pension plans had accumulated benefit obligations in excess of plan assets. For those same plans, the projected benefit obligation was also in excess of plan assets. Such plans had a combined projected benefit obligation, accumulated benefit obligation and fair value of plan assets of $104, $102 and $39, respectively.

The weighted-average assumptions used in calculating the benefit obligations for all plans are as follows:

	Pension Benefits						Other Benefits
	2019			2018			2019			2018
Discount rate	3.11	%		4.15	%		2.93	%		4.04	%
Rate of compensation increase	3.00	%		3.00	%		3.00	%		3.00	%
Expected rate of return on plan assets	7.33	%		7.44	%		7.00	%		7.00	%

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The components of net periodic benefit credit included in the consolidated statements of income are as follows:

	2019				2018				2017
Pension Benefits
Service cost	$	—			$	8			$	10
Interest cost	62				55				66
Expected return on assets	(138		)		(147		)		(147		)
Recognized actuarial loss	17				22				22
Settlement loss	9				5				7
Net periodic benefit credit	$	(50	)		$	(57	)		$	(42	)
Other Benefits
Service cost	$	1			$	1			$	1
Interest cost	15				15				21
Expected return on assets	(22		)		(24		)		(23		)
Recognized actuarial loss	2				3				11
Amortization of prior service credit	(12		)		(12		)		(13		)
Net periodic benefit credit	$	(16	)		$	(17	)		$	(3	)

During the years ended December 31, 2019, 2018 and 2017, we incurred total settlement losses of $9, $5 and $7, respectively, as lump-sum payments exceeded the service cost and interest cost components of net periodic benefit cost for certain of our plans.

The weighted-average assumptions used in calculating the net periodic benefit cost for all plans are as follows:

	2019			2018			2017
Pension Benefits
Discount rate	4.15	%		3.44	%		3.77	%
Rate of compensation increase	3.00	%		3.00	%		3.00	%
Expected rate of return on plan assets	7.44	%		7.83	%		7.95	%
Other Benefits
Discount rate	4.04	%		3.42	%		3.82	%
Rate of compensation increase	3.00	%		3.00	%		3.00	%
Expected rate of return on plan assets	7.00	%		7.00	%		7.00	%

The assumed healthcare cost trend rates used to measure the expected cost of pre-Medicare (those who are not currently eligible for Medicare benefits) other benefits at our December 31, 2019 measurement date was 7.00% for 2020 with a gradual decline to 4.50% by the year 2028. The assumed healthcare cost trend rates used to measure the expected cost of post-Medicare (those who are currently eligible for Medicare benefits) other benefits at our December 31, 2019 measurement date was 6.00% for 2020 with a gradual decline to 4.50% by the year 2028. These estimated trend rates are subject to change in the future. The healthcare cost trend rate assumption affects the amounts reported. For example, an increase in the assumed healthcare cost trend rate of one percentage point would increase the postretirement benefit obligation as of December 31, 2019 by $23 and would increase service and interest costs by $1. Conversely, a decrease in the assumed healthcare cost trend rate of one percentage point would decrease the postretirement benefit obligation as of December 31, 2019 by $20 and would decrease service and interest costs by $1.

Plan assets include a diversified mix of equity securities, investment grade fixed maturity securities and other types of investments across a range of sectors and levels of capitalization to maximize long-term return for a prudent level of risk. The

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

weighted-average target allocation for pension benefit plan assets is 44% equity securities, 48% fixed maturity securities, and 8% to all other types of investments. Equity securities primarily include a mix of domestic securities, foreign securities and mutual funds invested in equities. Fixed maturity securities primarily include treasury securities, corporate bonds and asset-backed investments issued by corporations and the U.S. government. Other types of investments primarily include insurance contracts designed specifically for employee benefit plans and partnership interests, collective trusts that replicate money market funds and insurance contracts designed specifically for employee benefit plans. As of December 31, 2019, there were no significant concentrations of investments in the pension benefit assets or other benefit assets. No plan assets were invested in Anthem common stock.

Pension benefit assets and other benefit assets recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2019, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $64, are as follows (see Note 6, “Fair Value,” for additional information regarding the definition of level inputs):

	Level I				Level II				Level III				Total
December 31, 2019
Pension Benefit Assets:
Equity securities:
U.S. securities	$	626			$	—			$	—			$	626
Foreign securities	197				—				—				197
Mutual funds	38				—				—				38
Fixed maturity securities:
Government securities	—				252				—				252
Corporate securities	—				339				—				339
Asset-backed securities	—				163				—				163
Other types of investments:
Alternative investments	—				136				52				188
Insurance company contracts	—				—				175				175
Total pension benefit assets	$	861			$	890			$	227			$	1,978
Other Benefit Assets:
Equity securities:
U.S. securities	$	8			$	—			$	—			$	8
Foreign securities	2				—				—				2
Mutual funds	25				—				—				25
Fixed maturity securities:
Government securities	—				2				—				2
Corporate securities	—				4				—				4
Asset-backed securities	—				3				—				3
Other types of investments:
Alternative investments	—				1				—				1
Life insurance contracts	—				—				294				294
Investment in DOL 103-12 trust	—				12				—				12
Total other benefit assets	$	35			$	22			$	294			$	351

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2018, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $69, are as follows:

	Level I				Level II				Level III				Total
December 31, 2018
Pension Benefit Assets:
Equity securities:
U.S. securities	$	488			$	—			$	—			$	488
Foreign securities	147				—				—				147
Mutual funds	36				—				—				36
Fixed maturity securities:
Government securities	—				248				—				248
Corporate securities	—				347				—				347
Asset-backed securities	—				153				—				153
Other types of investments:
Alternative investments	—				—				187				187
Insurance company contracts	—				—				166				166
Total pension benefit assets	$	671			$	748			$	353			$	1,772
Other Benefit Assets:
Equity securities:
U.S. securities	$	9			$	—			$	—			$	9
Foreign securities	3				—				—				3
Mutual funds	27				—				—				27
Fixed maturity securities:
Government securities	—				3				—				3
Corporate securities	—				5				—				5
Asset-backed securities	—				5				—				5
Other types of investments:
Alternative investments	—				—				2				2
Life insurance contracts	—				—				249				249
Investment in DOL 103-12 trust	—				10				—				10
Total other benefit assets	$	39			$	23			$	251			$	313

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

A reconciliation of the beginning and ending balances of plan assets measured at fair value using Level III inputs for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Alternative Investments				Insurance Company Contracts				Life Insurance Contracts				Total
Year ended December 31, 2019
Beginning balance at January 1, 2019	$	189			$	166			$	249			$	604
Actual return on plan assets relating to assets still held at the reporting date	28				12				45				85
Purchases	24				6				—				30
Sales	(52		)		(9		)		—				(61		)
Transfers out of Level III	(137		)		—				—				(137		)
Ending balance at December 31, 2019	$	52			$	175			$	294			$	521
Year ended December 31, 2018
Beginning balance at January 1, 2018	$	221			$	173			$	269			$	663
Actual return on plan assets relating to assets still held at the reporting date	(10		)		(7		)		(15		)		(32		)
Purchases	—				8				—				8
Sales	(22		)		(8		)		(5		)		(35		)
Ending balance at December 31, 2018	$	189			$	166			$	249			$	604
Year ended December 31, 2017
Beginning balance at January 1, 2017	$	114			$	173			$	238			$	525
Actual return on plan assets relating to assets still held at the reporting date	20				(1		)		31				50
Purchases	126				10				—				136
Sales	(39		)		(9		)		—				(48		)
Ending balance at December 31, 2017	$	221			$	173			$	269			$	663

During 2019, we transferred one of our alternative investments from Level III to Level II based on the inputs used to measure fair value. There were no other transfers into or out of Level III during the years ended December 31, 2019, 2018 or 2017.

Our current funding strategy is to fund an amount at least equal to the minimum required funding as determined under ERISA with consideration of maximum tax deductible amounts. We may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. For the years ended December 31, 2019, 2018 and 2017, no material contributions were necessary to meet ERISA required funding levels. However, during each of the years ended December 31, 2019, 2018 and 2017, we made tax deductible discretionary contributions to the pension benefit plans of $4. Employer contributions to other benefit plans represent discretionary contributions and do not include payments to retirees for current benefits.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Our estimated future payments for pension benefits and postretirement benefits, which reflect expected future service, as appropriate, are as follows:

	Pension Benefits				Other Benefits
2020	$	126			$	37
2021	126				36
2022	127				35
2023	124				34
2024	120				33
2025 - 2029	567				140

In addition to the defined benefit plans, we maintain the Anthem 401(k) Plan, which is a qualified defined contribution plan covering substantially all employees. Voluntary employee contributions are matched by us subject to certain limitations. Contributions made by us totaled $201, $211 and $142 during 2019, 2018 and 2017, respectively. Contributions in 2018 include approximately $58 for a one time contribution made to employees following the enactment of the Tax Cuts and Jobs Act.

11. Medical Claims Payable

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 19, “Segment Information”), for the year ended December 31, 2019 is as follows:

	Commercial & Specialty Business				Government Business				Total
Gross medical claims payable, beginning of year	$	2,586			$	4,680			$	7,266
Ceded medical claims payable, beginning of year	(10		)		(24		)		(34		)
Net medical claims payable, beginning of year	2,576				4,656				7,232
Net incurred medical claims:
Current year	25,942				52,753				78,695
Prior years redundancies	(190		)		(310		)		(500		)
Total net incurred medical claims	25,752				52,443				78,195
Net payments attributable to:
Current year medical claims	23,026				47,268				70,294
Prior years medical claims	2,277				4,242				6,519
Total net payments	25,303				51,510				76,813
Net medical claims payable, end of year	3,025				5,589				8,614
Ceded medical claims payable, end of year	14				19				33
Gross medical claims payable, end of year	$	3,039			$	5,608			$	8,647

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2018 is as follows:

	Commercial & Specialty Business				Government Business				Total
Gross medical claims payable, beginning of year	$	3,383			$	4,431			$	7,814
Ceded medical claims payable, beginning of year	(78		)		(27		)		(105		)
Net medical claims payable, beginning of year	3,305				4,404				7,709
Business combinations and purchase adjustments	—				199				199
Net incurred medical claims:
Current year	24,094				45,487				69,581
Prior years redundancies	(456		)		(474		)		(930		)
Total net incurred medical claims	23,638				45,013				68,651
Net payments attributable to:
Current year medical claims	21,633				41,115				62,748
Prior years medical claims	2,734				3,845				6,579
Total net payments	24,367				44,960				69,327
Net medical claims payable, end of year	2,576				4,656				7,232
Ceded medical claims payable, end of year	10				24				34
Gross medical claims payable, end of year	$	2,586			$	4,680			$	7,266

A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2017 is as follows:

	Commercial & Specialty Business				Government Business				Total
Gross medical claims payable, beginning of year	$	3,247			$	4,409			$	7,656
Ceded medical claims payable, beginning of year	(521		)		(18		)		(539		)
Net medical claims payable, beginning of year	2,726				4,391				7,117
Business combinations and purchase adjustments	—				76				76
Net incurred medical claims:
Current year	29,467				40,910				70,377
Prior years redundancies	(462		)		(671		)		(1,133		)
Total net incurred medical claims	29,005				40,239				69,244
Net payments attributable to:
Current year medical claims	26,250				36,673				62,923
Prior years medical claims	2,176				3,629				5,805
Total net payments	28,426				40,302				68,728
Net medical claims payable, end of year	3,305				4,404				7,709
Ceded medical claims payable, end of year	78				27				105
Gross medical claims payable, end of year	$	3,383			$	4,431			$	7,814

Amounts incurred related to prior years vary from previously estimated liabilities as the claims are ultimately settled. Liabilities at any period-end are continually reviewed and re-estimated as information regarding actual claims payments, or runout, becomes known. This information is compared to the originally established year end liability. Negative amounts reported for incurred medical claims related to prior years result from claims being settled for amounts less than originally

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Notes to Consolidated Financial Statements (continued)

estimated. The prior year redundancy of $500 shown above for the year ended December 31, 2019 represents an estimate based on paid claim activity from January 1, 2019 to December 31, 2019. Medical claim liabilities are usually described as having a “short tail,” which means that they are generally paid within twelve months of the member receiving service from the provider. Accordingly, the majority of the $500 redundancy relates to claims incurred in calendar year 2018.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the years ended December 31, 2019, 2018 and 2017, which are the completion and trend factors. These two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations.

	Favorable Developments by Changes in Key Assumptions
	2019				2018				2017
Assumed trend factors	$	(325	)		$	(515	)		$	(631	)
Assumed completion factors	(175		)		(415		)		(502		)
Total	$	(500	)		$	(930	)		$	(1,133	)

The favorable development recognized in 2019 resulted primarily from trend factors in late 2018 developing more favorably than originally expected as well as a smaller but significant contribution from completion factor development.

The favorable development recognized in 2018 and 2017 resulted from trend and completion factors developing more favorably than originally expected.

The reconciliation of net incurred medical claims to benefit expense included in the consolidated statements of income is as follows:

		Years Ended December 31
		2019				2018				2017
Net incurred medical claims:
Commercial & Specialty Business		$	25,752			$	23,638			$	29,005
Government Business		52,443				45,013				40,239
Total net incurred medical claims		78,195				68,651				69,244
Quality improvement and other claims expense		3,591				3,244				2,992
Benefit expense		$	81,786			$	71,895			$	72,236

Incurred claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2019, 2018 and 2017 is as follows:

Commercial & Specialty Business		Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		2017				2018
Claim Years		(Unaudited)				(Unaudited)				2019
2017 & Prior		$	31,731			$	31,275			$	31,241
2018						24,094				23,938
2019										25,942
Total										$	81,121

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Paid claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2019, 2018 and 2017 is as follows:

Commercial & Specialty Business		Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		2017				2018
Claim Years		(Unaudited)				(Unaudited)				2019
2017 & Prior		$	28,426			$	31,160			$	31,210
2018						21,633				23,860
2019										23,026
Total										$	78,096

At December 31, 2019, the total of incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $31, $78 and $2,916 for the claim years 2017 and prior, 2018 and 2019, respectively.

At December 31, 2019, the cumulative number of reported claims for the Commercial & Specialty Business was 121, 89 and 84 for the claim years 2017 and prior, 2018 and 2019, respectively.

Incurred claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2019, 2018 and 2017 is as follows:

Government Business		Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		2017				2018
Claim Years		(Unaudited)				(Unaudited)				2019
2017 & Prior		$	44,706			$	44,232			$	44,120
2018						45,686				45,488
2019										52,753
Total										$	142,361

Paid claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2019, 2018 and 2017 is as follows:

Government Business		Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		2017				2018
Claim Years		(Unaudited)				(Unaudited)				2019
2017 & Prior		$	40,302			$	44,147			$	44,104
2018						41,115				45,400
2019										47,268
Total										$	136,772

At December 31, 2019, the total of incurred but not reported liabilities plus expected development on reported claims for the Government Business was $16, $89 and $5,484 for the claim years 2017 and prior, 2018 and 2019, respectively.

At December 31, 2019, the cumulative number of reported claims for the Government Business was 221, 216 and 230 for the claim years 2017 and prior, 2018 and 2019, respectively.

The information about incurred claims development, paid claims development and cumulative number of reported claims for the years ended December 31, 2017 and 2018, for both the Commercial & Specialty Business and Government Business, is unaudited and presented as supplementary information.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The cumulative number of reported claims for each claim year, for both the Commercial & Specialty Business and Government Business, have been developed using historical data captured by our claim payment systems. The provided claim amounts are not a precise tool for understanding utilization of medical services. They could be impacted by a variety of factors including changes in provider billing practices, provider reimbursement arrangements, mix of services, benefit design or processing systems. The cumulative number of reported claims has been provided to comply with FASB accounting standards and is not used by management in its claims analysis. Our cumulative number of reported claims may not be comparable to similar measures reported by other health benefits companies.

The reconciliation of the Commercial & Specialty Business and Government Business incurred and paid claims development information for the three years ended December 31, 2019, reflected in the tables above, to the consolidated ending balance for medical claims payable included in the consolidated balance sheet, as of December 31, 2019, is as follows:

	Commercial & Specialty Business				Government Business				Total
Cumulative incurred claims and allocated claim adjustment expenses, net of reinsurance	$	81,121			$	142,361			$	223,482
Less: Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance	78,096				136,772				214,868
Net medical claims payable, end of year	3,025				5,589				8,614
Ceded medical claims payable, end of year	14				19				33
Insurance lines other than short duration	—				195				195
Gross medical claims payable, end of year	$	3,039			$	5,803			$	8,842

12. Debt

Short-term Borrowings

We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati and the Federal Home Loan Bank of Atlanta, or collectively, the FHLBs. As a member we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. At December 31, 2019 and 2018, $650 and $645, respectively, were outstanding under our short-term FHLB borrowings. These outstanding short-term FHLB borrowings at December 31, 2019 and 2018 had fixed interest rates of 1.664% and 2.458%, respectively.

Through certain subsidiaries, we have entered into multiple 364-day lines of credit, or the Subsidiary Credit Facilities, with separate lenders for general corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to $600. The interest rate on each line of credit is based on the LIBOR rate plus a predetermined rate. Our ability to borrow under the lines of credit is subject to compliance with certain covenants. At December 31, 2019 and 2018, $50 and $500, respectively, were outstanding under our Subsidiary Credit Facilities.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Long-term Debt

The carrying value of long-term debt at December 31, 2019 and 2018 consists of the following:

	2019				2018
Senior unsecured notes:
2.250%, due 2019	$	—			$	849
2.500%, due 2020	899				897
4.350%, due 2020	699				688
3.700%, due 2021	699				698
2.950%, due 2022	747				747
3.125%, due 2022	847				846
3.300%, due 2023	1,013				1,000
3.350%, due 2024	846				846
3.500%, due 2024	795				794
2.375%, due 2025	845				—
3.650%, due 2027	1,590				1,589
4.101%, due 2028	1,253				1,250
2.875%, due 2029	819				—
5.950%, due 2034	334				334
5.850%, due 2036	396				396
6.375%, due 2037	366				366
5.800%, due 2040	124				124
4.625%, due 2042	888				887
4.650%, due 2043	987				986
4.650%, due 2044	792				791
5.100%, due 2044	594				594
4.375%, due 2047	1,386				1,386
4.550%, due 2048	838				838
3.700%, due 2049	811				—
4.850%, due 2054	247				247
Surplus note:
9.000%, due 2027	25				25
Senior convertible debentures:
2.750%, due 2042	145				191
Variable rate debt:
Commercial paper program	400				697
Total long-term debt	19,385				18,066
Current portion of long-term debt	(1,598		)		(849		)
Long-term debt, less current portion	$	17,787			$	17,217

All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings and the Subsidiary Credit Facilities.

We generally issue senior unsecured notes, or Notes, for long-term borrowing purposes. Certain of these Notes may have a call feature that allows us to redeem the Notes at any time at our option and/or a put feature that allows a Note holder to

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

redeem the Notes upon the occurrence of both a change in control event and a downgrade of the Notes below an investment grade rating.

On September 9, 2019, we issued $850 aggregate principal amount of 2.375% Notes due 2025, or the 2025 Notes, $825 aggregate principal amount of 2.875% Notes due 2029, or the 2029 Notes, and $825 aggregate principal amount of 3.700% Notes due 2049, or the 2049 Notes, under our shelf registration statement. Interest on the 2025 Notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2020. Interest on the 2029 Notes and the 2049 Notes is payable semi-annually in arrears on March 15 and September 15 each year, commencing March 15, 2020. The proceeds were used for working capital and general corporate purposes, including, but not limited to, the repurchase of our common stock pursuant to our share repurchase program, repayment of short-term and long-term debt and to fund acquisitions.

On August 15, 2019, we repaid, at maturity, the $850 outstanding balance of our 2.250% senior unsecured notes.

On July 16, 2018, we repaid, at maturity, the $650 outstanding balance of our 2.300% senior unsecured notes. On January 15, 2018, we repaid, at maturity, the $625 outstanding balance of our 1.875% senior unsecured notes.

On May 1, 2018, we settled our Equity Units stock purchase contracts at a settlement rate of 0.2412 shares of our common stock, using a market value formula set forth in the Equity Units purchase contracts. This resulted in the issuance of approximately 6 shares. We had issued 25 Equity Units on May 12, 2015, pursuant to an underwriting agreement dated May 6, 2015, in an aggregate principal amount of $1,250. Each Equity Unit had a stated amount of $50 (whole dollars) and consisted of a purchase contract obligating the holder to purchase a certain number of shares of our common stock on May 1, 2018, subject to earlier termination or settlement, for a price in cash of $50 (whole dollars); and a 5% undivided beneficial ownership interest in $1,000 (whole dollars) principal amount of our 1.900% remarketable subordinated notes, or RSNs, due 2028. On March 2, 2018, we remarketed the RSNs and used the proceeds to purchase U.S. Treasury securities that were pledged to secure the stock purchase obligations of the holders of the Equity Units. The purchasers of the RSNs transferred the RSNs to us in exchange for $1,250 principal amount of our 4.101% senior notes due 2028, or the 2028 Notes, and a cash payment of $4. We canceled the RSNs upon receipt and recognized a loss on extinguishment of debt of $18. At the remarketing, we also issued $850 aggregate principal amount of 4.550% notes due 2048, or the 2048 Notes, under our shelf registration statement. We used the proceeds from the 2048 Notes for working capital and general corporate purposes. Interest on the 2028 Notes and the 2048 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2018.

On November 21, 2017, we issued $900 aggregate principal amount of 2.500% Notes due 2020, or the 2020 Notes, $750 aggregate principal amount of 2.950% Notes due 2022, or the 2022 Notes, $850 aggregate principal amount of 3.350% Notes due 2024, or the 2024 Notes, $1,600 aggregate principal amount of 3.650% Notes due 2027, or the 2027 Notes and $1,400 aggregate principal amount of 4.375% Notes due 2047, or the 2047 Notes, under our shelf registration statement. Interest on the 2020 Notes is payable semi-annually in arrears on May 21 and November 21 of each year, commencing on May 21, 2018. Interest on the 2022 Notes, the 2024 Notes, the 2027 Notes and the 2047 Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2018. The net proceeds were used to fund the acquisitions of HealthSun and America’s 1st Choice; and redemption of the Tender Notes, discussed below.

On November 14, 2017, we initiated a cash tender offer to purchase any and all of our 7.000% Notes due 2019, or the Any and All Notes, and certain of our 5.950% Notes due 2034, 5.850% Notes due 2036, 6.375% Notes due 2037, 5.800% Notes due 2040 and 5.100% Notes due 2044, or the Maximum Tender Offer Notes, and collectively with the Any and All Notes, the Tender Notes. On November 21, 2017, we repurchased $185 aggregate principal amount of the Any and All Notes, plus applicable premium and accrued and unpaid interest, for cash totaling $199. On November 30, 2017, we repurchased $836 aggregate principal amount of the Maximum Tender Offer Notes, plus applicable premium and accrued and unpaid interest, for cash totaling $1,095. We recognized a loss on extinguishment of debt of $266 for the repurchase of the Tender Notes.

On December 14, 2017, we redeemed the $255 remaining outstanding principal balance of our 7.000% Notes due 2019, plus applicable premium for early redemption and accrued and unpaid interest to the redemption date, for cash totaling $275. We recognized a loss on extinguishment of debt of $14 for the repurchase of these Notes.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The surplus note is an unsecured obligation of Anthem Insurance Companies, Inc., or Anthem Insurance, a wholly owned subsidiary, and is subordinate in right of payment to all of Anthem Insurance’s existing and future indebtedness. Any payment of interest or principal on the surplus note may be made only with the prior approval of the Indiana Department of Insurance, or IDOI, and only out of capital and surplus funds of Anthem Insurance that the IDOI determines to be available for the payment under Indiana insurance laws.

We have a senior revolving credit facility, or the 5-Year Facility, with a group of lenders for general corporate purposes. In June 2019, we amended and restated the credit agreement for the 5-Year Facility to, among other things, extend the maturity date from August 2020 to June 2024 and decrease the amount of credit available from $3,500 to $2,500. In June 2019, we also entered into a 364-day senior revolving credit facility, or 364-Day Facility, with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000 and matures in June 2020. There were no amounts outstanding under the 5-Year Facility or the 364-Day Facility at any time during the years ended December 31, 2019 or 2018.

We have an authorized commercial paper program of up to $3,500, the proceeds of which may be used for general corporate purposes. In August 2019, we increased the amount available under the commercial paper program from $2,500 to $3,500. At December 31, 2019, we had $400 outstanding under our commercial paper program with a weighted-average interest rate of 1.8528%. At December 31, 2018, we had $697 outstanding under our commercial paper program with a weighted-average interest rate of 2.8270%. Commercial paper borrowings have been classified as long-term debt at December 31, 2019 and 2018, as our general practice and intent is to replace short-term commercial paper outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year, and we have the ability to redeem our commercial paper with borrowings under the senior revolving credit facilities described above.

During the year ended December 31, 2015, we entered into a bridge facility commitment letter and a joinder agreement, and a term loan facility, to finance a portion of the consideration under the now terminated Cigna Merger Agreement. In January 2017, we reduced the size of the bridge facility from $22,500 to $19,500 and extended the termination date under the Cigna Merger Agreement, as well as the availability of commitments under the bridge facility and term loan facility, to April 30, 2017. We recorded $108 of interest expense related to the amortization of the bridge loan facility and other related fees during the year ended December 31, 2017. The commitment of the lenders to provide the bridge facility and term loan facility expired on April 30, 2017.

Convertible Debentures

On October 9, 2012, we issued $1,500 of senior convertible debentures, or the Debentures, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, or the Securities Act. The Debentures are governed by an indenture dated as of October 9, 2012 between us and The Bank of New York Mellon Trust Company, N.A., as trustee, or the Indenture. The Debentures bear interest at a rate of 2.750% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, and mature on October 15, 2042, unless earlier redeemed, repurchased or converted into shares of common stock at the applicable conversion rate. The Debentures also have a contingent interest feature that will require us to pay additional interest based on certain thresholds and for certain events, as defined in the Indenture, beginning on October 15, 2022.

Holders may convert their Debentures at their option prior to the close of business on the business day immediately preceding April 15, 2042, only under the following circumstances: (1) during any fiscal quarter if the last reported sale price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period, or the measurement period, in which the trading price per $1,000 (whole dollars) principal amount of Debentures for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; (3) if we call any or all of the Debentures for redemption, at any time prior to the close of business on the third scheduled trading day prior to the redemption date; or (4) upon the occurrence of specified corporate events, as defined in the Indenture. On and after April 15, 2042 and until the close of business on the third scheduled trading day immediately preceding the Debentures’ maturity date of October 15, 2042, holders may convert their Debentures into common stock at any time irrespective of the preceding circumstances. The Debentures are redeemable at our option at any time on or after October 20, 2022, upon the occurrence of certain events, as defined in the Indenture.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Upon conversion of the Debentures, we will deliver cash up to the aggregate principal amount of the Debentures converted. With respect to any conversion obligation in excess of the aggregate principal amount of the Debentures converted, we have the option to settle the excess with cash, shares of our common stock or a combination thereof based on a daily conversion value, determined in accordance with the Indenture. The initial conversion rate for the Debentures was 13.2319 shares of our common stock per Debenture, which represented a 25% conversion premium based on the closing price of $60.46 per share of our common stock on October 2, 2012 (the date the Debentures’ terms were finalized) and is equivalent to an initial conversion price of $75.575 per share of our common stock.

During the year ended December 31, 2019, we repurchased $15 of the aggregate principal balance of the Debentures. In addition, $57 aggregate principal amount of the Debentures was surrendered for conversion by certain holders in accordance with the terms and provisions of the Indenture. We elected to settle the excess of the principal amount of the repurchases and conversions with cash for total payments of $273. We recognized a loss on the extinguishment of debt related to the Debentures of $2, based on the fair values of the debt on the repurchase and conversion settlement dates. During the year ended December 31, 2018, $109 aggregate principal amount of the Debentures was surrendered for conversion. We elected to settle the excess of the principal amount of the conversions with cash for total payments of $402. We recognized a gain on the extinguishment of debt related to the debentures of $7. During the year ended December 31, 2017, $117 aggregate principal amount of the Debentures was surrendered for conversion. We elected to settle the excess of the principal amount of the conversions with cash for total payments of $345 and recognized a loss on the extinguishment of debt related to the debentures of $2.

As of December 31, 2019, our common stock was last traded at a price of $302.03 per share. If the remaining Debentures had been converted or matured at December 31, 2019, we would have been obligated to pay the principal of the Debentures plus an amount in cash or shares equal to $691. The Debentures and underlying shares of our common stock have not been and will not be registered under the Securities Act, or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

We have accounted for the Debentures in accordance with the cash conversion guidance in FASB guidance for debt with conversion and other options. As a result, the value of the embedded conversion option, net of deferred taxes and equity issuance costs, has been bifurcated from its debt host and recorded as a component of additional paid-in capital in our consolidated balance sheets.

The following table summarizes, at December 31, 2019, the related balances, conversion rate and conversion price of the Debentures:

Outstanding principal amount	$	215
Unamortized debt discount	$	68
Net debt carrying amount	$	145
Equity component carrying amount	$	78
Conversion rate (shares of common stock per $1,000 of principal amount)	13.9500
Effective conversion price (per $1,000 of principal amount)	$	71.6843

The remaining amortization period of the unamortized debt discount as of December 31, 2019 is approximately 23 years. The unamortized discount will be amortized into interest expense using the effective interest method based on an effective interest rate of 5.130%, which represents the market interest rate for a comparable debt instrument that does not have a conversion feature. During the years ended December 31, 2019, 2018 and 2017, we recognized $9, $12 and $17, respectively, of interest expense related to the Debentures, of which $7, $10 and $14, respectively, represented interest expense recognized at the stated interest rate of 2.750% and $2, $2 and $3, respectively, represented interest expense resulting from amortization of the debt discount.

Total interest paid during 2019, 2018 and 2017 was $755, $728, and $778, respectively.

We were in compliance with all applicable covenants under all of our outstanding debt agreements at December 31, 2019 and 2018.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Future maturities of all long-term debt outstanding at December 31, 2019 are as follows: 2020, $1,998; 2021, $699; 2022, $1,594; 2023, $1,013; 2024, $1,641 and thereafter, $12,440.

13. Commitments and Contingencies

Litigation and Regulatory Proceedings

In the ordinary course of business, we are defendants in, or parties to, a number of pending or threatened legal actions or proceedings. To the extent a plaintiff or plaintiffs in the following cases have specified in their complaint or in other court filings the amount of damages being sought, we have noted those alleged damages in the descriptions below. With respect to the cases described below, we contest liability and/or the amount of damages in each matter and believe we have meritorious defenses.

Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many proceedings, however, it is difficult to determine whether any loss is probable or reasonably possible. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of loss.

With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from $0 to approximately $750 at December 31, 2019. This estimated aggregate range of reasonably possible losses is based upon currently available information taking into account our best estimate of such losses for which such an estimate can be made.

Blue Cross Blue Shield Antitrust Litigation

We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees, or Blue plans, across the country. The cases were consolidated into a single, multi-district proceeding captioned In re Blue Cross Blue Shield Antitrust Litigation that is pending in the United States District Court for the Northern District of Alabama, or the Court. Generally, the suits allege that the BCBSA and the Blue plans have conspired to horizontally allocate geographic markets through license agreements, best efforts rules that limit the percentage of non-Blue revenue of each plan, restrictions on acquisitions rules governing the BlueCard and National Accounts programs and other arrangements in violation of the Sherman Antitrust Act, or Sherman Act, and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and actions filed in twenty-eight states have been consolidated into the multi-district proceeding.

In response to cross motions for partial summary judgment by plaintiffs and defendants, the Court issued an order in April 2018 determining that the defendants’ aggregation of geographic market allocations and output restrictions are to be analyzed under a per se standard of review, and the BlueCard program and other alleged Section 1 Sherman Act violations are to be analyzed under the rule of reason standard of review. The Court also found that there remain genuine issues of material fact as to whether defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield trademarks. No dates have been set for either the final pretrial conferences or trials in these actions. In March 2019, the Court issued a Fourth Amended Scheduling Order requiring that briefing on motions for class certification and related expert reports, merits and damages expert reports, and certain dispositive motions occur in 2019. In April 2019, plaintiffs filed their motions for class certification in conjunction with their supporting expert reports. Defendants filed their motions to exclude plaintiffs’ experts, as well as their opposition to plaintiffs’ motions for class certification, in July 2019. The case has been stayed until further notice from the Court.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

We intend to vigorously defend these suits; however, their ultimate outcome cannot be presently determined.

Blue Cross of California Taxation Litigation

In July 2013, our California affiliate Blue Cross of California (doing business as Anthem Blue Cross), or BCC, was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, or HCSP, is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax, or GPT, calculated as 2.35% on gross premiums. As a licensed HCSP, BCC has paid the California Corporate Franchise Tax, or CFT, the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the filing of the complaint.

In March 2018, the Superior Court denied BCC’s motion for judgment on the pleadings and similar motions brought by other entities. We filed a writ of mandate in the California Court of Appeal. Although the California Court of Appeal initially accepted our writ, it later indicated that it will not hear the issues raised by our writ until the case concludes in the Superior Court. The Superior Court has postponed the March 2020 trial date to July 2020. The parties are currently engaged in discovery and are in the process of retaining experts. Because GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles, the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC eventually be determined to be subject to the GPT for the tax periods at issue in the litigation. BCC intends to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.

Express Scripts, Inc. Pharmacy Benefit Management Litigation

In March 2016, we filed a lawsuit against Express Scripts, Inc., or Express Scripts, our vendor for PBM services, captioned Anthem, Inc. v. Express Scripts, Inc., in the U.S. District Court for the Southern District of New York. The lawsuit seeks to recover over $14,800 in damages for pharmacy pricing that is higher than competitive benchmark pricing under the agreement between the parties, or the ESI PBM Agreement, over $158 in damages related to operational breaches, as well as various declarations under the ESI PBM Agreement between the parties, including that Express Scripts: (i) breached its obligation to negotiate in good faith and to agree in writing to new pricing terms; (ii) was required to provide competitive benchmark pricing to us through the term of the ESI PBM Agreement; (iii) has breached the ESI PBM Agreement; and (iv) is required under the ESI PBM Agreement to provide post-termination services, at competitive benchmark pricing, for one year following any termination.

Express Scripts has disputed our contractual claims and is seeking declaratory judgments: (i) regarding the timing of the periodic pricing review under the ESI PBM Agreement; and (ii) that it has no obligation to ensure that we receive any specific level of pricing, that we have no contractual right to any change in pricing under the ESI PBM Agreement and that its sole obligation is to negotiate proposed pricing terms in good faith. In the alternative, Express Scripts claims that we have been unjustly enriched by its payment of $4,675 at the time we entered into the ESI PBM Agreement. In March 2017, the court granted our motion to dismiss Express Scripts’ counterclaims for (i) breach of the implied covenant of good faith and fair dealing, and (ii) unjust enrichment with prejudice. The only remaining claims are for breach of contract and declaratory relief. Fact discovery has been completed. We intend to vigorously pursue our claims and defend against any counterclaims, which we believe are without merit; however, the ultimate outcome cannot be presently determined.

In re Express Scripts/Anthem ERISA Litigation

We are a defendant in a class action lawsuit that was initially filed in June 2016 against Anthem, Inc. and Express Scripts, which has been consolidated into a single multi-district lawsuit captioned In Re Express Scripts/Anthem ERISA Litigation, in the U.S. District Court for the Southern District of New York. The consolidated complaint was filed by plaintiffs against Express Scripts and us on behalf of all persons who are participants in or beneficiaries of any ERISA or non-ERISA healthcare plan from December 1, 2009 to December 31, 2019 in which we provided prescription drug benefits through the ESI PBM Agreement and paid a percentage based co-insurance payment in the course of using that prescription drug benefit. The plaintiffs allege that we breached our duties, either under ERISA or with respect to the implied covenant of

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

good faith and fair dealing implied in the health plans, (i) by failing to adequately monitor Express Scripts’ pricing under the ESI PBM Agreement and (ii) by placing our own pecuniary interest above the best interests of our insureds by allegedly agreeing to higher pricing in the ESI PBM Agreement in exchange for the purchase price for our NextRx PBM business, and (iii) with respect to the non-ERISA members, by negotiating and entering into the ESI PBM Agreement that was allegedly detrimental to the interests of such non-ERISA members. Plaintiffs seek to hold us and Express Scripts jointly and severally liable and to recover all losses suffered by the proposed class, equitable relief, disgorgement of alleged ill-gotten gains, injunctive relief, attorney’s fees and costs and interest.

In April 2017, we filed a motion to dismiss the claims brought against us, and it was granted, without prejudice, in January 2018. Plaintiffs filed a notice of appeal with the United States Court of Appeals for the Second Circuit, which was heard in October 2018 but has not yet been decided. We intend to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.

Cigna Corporation Merger Litigation

In July 2015, we and Cigna announced that we entered into the Cigna Merger Agreement, pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice, or DOJ, along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, or District Court, seeking to block the merger. In February 2017, Cigna purported to terminate the Cigna Merger Agreement and commenced litigation against us in the Delaware Court of Chancery, or Delaware Court, seeking damages, including the $1,850 termination fee pursuant to the terms of the Cigna Merger Agreement, and a declaratory judgment that its purported termination of the Cigna Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc.

Also in February 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from terminating the Cigna Merger Agreement, specific performance compelling Cigna to comply with the Cigna Merger Agreement and damages, which is captioned Anthem Inc. v. Cigna Corp. In April 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District Court, which blocked the merger. In May 2017, after the Delaware Court denied our motion to enjoin Cigna from terminating the Cigna Merger Agreement, we delivered to Cigna a notice terminating the Cigna Merger Agreement.

In the Delaware Court litigation, trial commenced in late February 2019 and concluded in March 2019. The Delaware Court held closing argument in November 2019 and took the matter under consideration. In February 2020, the Delaware Court requested supplemental briefing. The parties have been instructed to negotiate a schedule for the supplemental submissions. We believe Cigna’s allegations are without merit, and we intend to vigorously pursue our claims and defend against Cigna’s allegations; however, the ultimate outcome of our litigation with Cigna cannot be presently determined.

In October 2018, a shareholder filed a derivative lawsuit in the State of Indiana Marion County Superior Court, captioned Henry Bittmann, Derivatively, et al. v. Joseph R Swedish, et al., purportedly on behalf of us and our shareholders against certain current and former directors and officers alleging breaches of fiduciary duties, unjust enrichment and corporate waste associated with the Cigna Merger Agreement. This case has been stayed at the request of the parties pending the outcome of our litigation with Cigna in the Delaware Court. This lawsuit’s ultimate outcome cannot be presently determined.

U.S. Department of Justice (DOJ) Civil Investigative Demands

Beginning in December 2016, the DOJ has issued civil investigative demands to us to discover information about our chart review and risk adjustment programs under Parts C and D of the Medicare program. We understand the DOJ is investigating the programs of other Medicare Advantage health plans, along with providers and vendors. We continue to cooperate with the DOJ’s investigation, and the ultimate outcome cannot presently be determined.

Cyber Attack Regulatory Proceedings and Litigation

In February 2015, we reported that we were the target of a sophisticated external cyber attack, during which the attackers gained unauthorized access to certain of our information technology systems and obtained personal information related to many individuals and employees. To date, there is no evidence that credit card or medical information was accessed or

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Notes to Consolidated Financial Statements (continued)

obtained. Upon discovery of the cyber attack, we took immediate action to remediate the security vulnerability and have continued to implement security enhancements since this incident.

Federal and state agencies are investigating, or have investigated, events related to the cyber attack, including how it occurred, its consequences and our responses. The investigations have all been resolved with the exception of an ongoing investigation by a multi-state group of attorneys general, which remains outstanding. Although we are cooperating in this investigation, we may be subject to additional fines or other obligations. We intend to vigorously defend the remaining regulatory investigation; however, its ultimate outcome cannot be presently determined.

We have contingency plans and insurance coverage for certain expenses and potential liabilities of this nature and will pursue coverage for all applicable losses; however, the ultimate outcome of our pursuit of insurance coverage cannot be presently determined.

Other Contingencies

From time to time, we and certain of our subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in the ordinary course of business. We, like HMOs and health insurers generally, exclude certain healthcare and other services from coverage under our HMO, PPO and other plans. We are, in the ordinary course of business, subject to the claims of our enrollees arising out of decisions to restrict or deny reimbursement for uncovered services. The loss of even one such claim, if it results in a significant punitive damage award, could have a material adverse effect on us. In addition, the risk of potential liability under punitive damage theories may increase significantly the difficulty of obtaining reasonable reimbursement of coverage claims.

In addition to the lawsuits described above, we are also involved in other pending and threatened litigation of the character incidental to our business, and are from time to time involved as a party in various governmental investigations, audits, reviews and administrative proceedings. These investigations, audits, reviews and administrative proceedings include routine and special inquiries by state insurance departments, state attorneys general, the U.S. Attorney General and subcommittees of the U.S. Congress. Such investigations, audits, reviews and administrative proceedings could result in the imposition of civil or criminal fines, penalties, other sanctions and additional rules, regulations or other restrictions on our business operations. Any liability that may result from any one of these actions, or in the aggregate, could have a material adverse effect on our consolidated financial position or results of operations.

Contractual Obligations and Commitments

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. 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 pursuant to the ESI PBM Agreement. In January 2019, we exercised our contractual right to terminate the ESI PBM Agreement earlier than the original expiration date of December 31, 2019, due to the acquisition of Express Scripts by Cigna. 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. Express Scripts continues to provide certain audit and run out transition services related to our PBM business. Notwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues. For additional information regarding this lawsuit, refer to the Litigation and Regulatory Proceedings–Express Scripts, Inc. Pharmacy Benefit Management Litigation section above. We believe we have appropriately recognized all rights and obligations under the ESI PBM Agreement as of December 31, 2019.

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Notes to Consolidated Financial Statements (continued)

Vulnerability from Concentrations

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investment securities, premium receivables and instruments held through hedging activities. All investment securities are managed by professional investment managers within policies authorized by our Board of Directors. Such policies limit the amounts that may be invested in any one issuer and prescribe certain investee company criteria. Concentrations of credit risk with respect to premium receivables are limited due to the large number of employer groups that constitute our customer base in the states in which we conduct business. As of December 31, 2019, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.

14. Capital Stock

Stock Incentive Plan****s

Our Board of Directors has adopted the 2017 Anthem Incentive Compensation Plan, or 2017 Incentive Plan, which has been approved by our shareholders. The term of the 2017 Incentive Plan is such that no awards may be granted on or after May 18, 2027. The 2017 Incentive Plan gives authority to the Compensation Committee of the Board of Directors to make incentive awards to our non-employee directors, employees and consultants, consisting of stock options, stock, restricted stock, restricted stock units, cash-based awards, stock appreciation rights, performance shares and performance units. The 2017 Incentive Plan limits the number of available shares for issuance to 37.5 shares, subject to adjustment as set forth in the 2017 Incentive Plan.

Stock options are granted for a fixed number of shares with an exercise price at least equal to the fair value of the shares at the grant date. Historically, stock options have vested over three years in equal semi-annual installments and generally have a term of ten years from the grant date. Amendments to the 2017 Incentive Plan, effective July 1, 2018, require future grants of stock options to vest in three equal annual installments.

Certain option grants contain provisions whereby the employee continues to vest in the award subsequent to termination due to retirement. Our attribution method for newly granted awards considers all vesting and other provisions, including retirement eligibility, in determining the requisite service period over which the fair value of the awards will be recognized.

Awards of restricted stock or restricted stock units are issued at the fair value of the stock on the grant date and may also include one or more performance measures that must be met for the award to vest. For restricted stock or restricted stock units without performance measures, the restrictions lapse in three equal annual installments. Restricted stock or restricted stock units with performance measures vest in three year installments. Performance units issued in 2019 will vest in 2022, based on earnings targets over the three year period of 2019 to 2021. Performance units issued in 2018 will vest in 2021, based on earnings targets over the three year period of 2018 to 2020. Performance units issued in 2017 will vest in 2020, based on earnings targets over the three year period of 2017 to 2019.

For the years ended December 31, 2019, 2018 and 2017, we recognized share-based compensation expense of $294, $226 and $170, respectively, as well as related tax benefits of $78, $61 and $68, respectively.

A summary of stock option activity for the year ended December 31, 2019 is as follows:

	Number of Shares			Weighted-Average Option Price per Share				Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019	3.7			$	149.65
Granted	0.7			306.61
Exercised	(1.2	)		126.10
Forfeited or expired	(0.1	)		241.26
Outstanding at December 31, 2019	3.1			190.31				6.18		$	355
Exercisable at December 31, 2019	2.0			145.37				4.93		$	312

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Notes to Consolidated Financial Statements (continued)

The intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 amounted to $188, $172 and $192, respectively. We recognized tax benefits of $52, $47 and $76 during the years ended December 31, 2019, 2018 and 2017, respectively, from option exercises and disqualifying dispositions. During the years ended December 31, 2019, 2018 and 2017, we received cash of $143, $141 and $200, respectively, from exercises of stock options.

The total fair value of restricted stock awards that vested during the years ended December 31, 2019, 2018 and 2017 was $245, $237 and $127, respectively.

A summary of the status of nonvested restricted stock activity, including restricted stock units, for the year ended December 31, 2019 is as follows:

	Restricted Stock Shares and Units			Weighted-Average Grant Date Fair Value per Share
Nonvested at January 1, 2019	1.7			$	183.32
Granted	0.6			305.88
Vested	(0.8	)		153.79
Forfeited	(0.1	)		242.38
Nonvested at December 31, 2019	1.4			242.47

During the year ended December 31, 2019, we granted approximately 0.2 restricted stock units that are contingent upon us achieving earning targets over the three year period of 2019 to 2021. These grants have been included in the activity shown above, but will be subject to adjustment at the end of 2021, based on results in the three year period.

As of December 31, 2019, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock, including restricted stock units, amounted to $25 and $139, respectively, which will be amortized over the weighted-average remaining requisite service periods of 11 months and 12 months, respectively.

As of December 31, 2019, there were approximately 20.5 shares of common stock available for future grants under the 2017 Incentive Plan.

Fair Value

We use a binomial lattice valuation model to estimate the fair value of all stock options granted. Expected volatility assumptions used in the binomial lattice model are based on an analysis of implied volatilities of publicly traded options on our stock and historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury strip rates at the time of the grant. The expected term of the options was derived from the outputs of the binomial lattice model, which incorporates post-vesting forfeiture assumptions based on an analysis of historical data. The dividend yield was based on our estimate of future dividend yields. Similar groups of employees that have dissimilar exercise behavior are considered separately for valuation purposes. We utilize the multiple-grant approach for recognizing compensation expense associated with each separately vesting portion of the share-based award.

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Notes to Consolidated Financial Statements (continued)

The following weighted-average assumptions were used to estimate the fair values of options granted during the years ended December 31, 2019, 2018 and 2017:

	2019			2018			2017
Risk-free interest rate	2.69	%		2.90	%		2.31	%
Volatility factor	25.00	%		30.00	%		32.00	%
Dividend yield (annual)	1.00	%		1.30	%		1.60	%
Weighted-average expected life (years)	4.40			3.70			4.00

The following weighted-average fair values were determined for the years ending December 31, 2019, 2018 and 2017:

	2019				2018				2017
Options granted during the year	$	68.66			$	55.48			$	40.88
Restricted stock awards granted during the year	305.88				233.73				174.44

The binomial lattice option-pricing model requires the input of highly subjective assumptions including the expected stock price volatility. Because our stock option grants have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, existing models do not necessarily provide a reliable single measure of the fair value of our stock option grants.

Employee Stock Purchase Plan

We have registered 14.0 shares of common stock for the Employee Stock Purchase Plan, or the Stock Purchase Plan, which is intended to provide a means to encourage and assist employees in acquiring a stock ownership interest in Anthem. Pursuant to the terms of the Stock Purchase Plan, an eligible employee is permitted to purchase no more than $25,000 (actual dollars) worth of stock in any calendar year, based on the fair value of the stock at the end of each plan quarter. Employees become participants by electing payroll deductions from 1% to 15% of gross compensation. Once purchased, the stock is accumulated in the employee’s investment account. The Stock Purchase Plan allows participants to purchase shares of our common stock at a discounted price per share of 90% of the fair value of a share of common stock on the lower of the first or last trading day of the plan quarter purchase period. The Stock Purchase Plan discount was recognized as compensation expense for the year ended December 31, 2019, based on GAAP guidance. There were 0.2 shares issued during the year ended December 31, 2019. As of December 31, 2019, 4.9 shares were available for issuance under the Stock Purchase Plan.

Use of Capital and Stock Repurchase Program

We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders. The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.

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Notes to Consolidated Financial Statements (continued)

A summary of the cash dividend activity for the years ended December 31, 2019 and 2018 is as follows:

Declaration Date		Record Date		Payment Date		Cash Dividend per Share				Total
Year ended December 31, 2019
January 29, 2019		March 18, 2019		March 29, 2019		$	0.80			$	206
April 23, 2019		June 10, 2019		June 25, 2019		0.80				206
July 23, 2019		September 10, 2019		September 25, 2019		0.80				204
October 22, 2019		December 5, 2019		December 20, 2019		0.80				202
Year ended December 31, 2018
January 30, 2018		March 9, 2018		March 23, 2018		$	0.75			$	192
April 24, 2018		June 8, 2018		June 25, 2018		0.75				196
July 24, 2018		September 10, 2018		September 25, 2018		0.75				195
October 30, 2018		December 5, 2018		December 21, 2018		0.75				193

On January 28, 2020, our Audit Committee declared a quarterly cash dividend to shareholders of $0.95 per share on the outstanding shares of our common stock. This quarterly dividend is payable on March 27, 2020 to the shareholders of record as of March 16, 2020.

Under our Board of Directors’ authorization, we maintain a common stock repurchase program. On December 7, 2017, the Board of Directors authorized a $5,000 increase to the common stock repurchase program. Repurchases may be made from time to time at prevailing market prices, subject to certain restrictions on volume, pricing and timing. The repurchases are effected from time to time in the open market, through negotiated transactions, including accelerated share repurchase agreements, and through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Our stock repurchase program is discretionary, as we are under no obligation to repurchase shares. We repurchase shares under the program when we believe it is a prudent use of capital. The excess cost of the repurchased shares over par value is charged on a pro rata basis to additional paid-in capital and retained earnings.

A summary of common stock repurchases for the years ended December 31, 2019 and 2018 is as follows:

		Years Ended December 31
	2019				2018
Shares repurchased		6.3				6.8
Average price per share		$	268.65			$	248.34
Aggregate cost		$	1,701			$	1,685
Authorization remaining at end of year		$	3,792			$	5,493

We expect to utilize the remaining authorized amount over a multi-year period, subject to market and industry conditions.

For additional information regarding the use of capital for debt security repurchases, see Note 12, “Debt.”

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Notes to Consolidated Financial Statements (continued)

15. Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss at December 31, 2019 and 2018 is as follows:

	2019				2018
Investments:
Gross unrealized gains	$	720			$	173
Gross unrealized losses	(44		)		(371		)
Net pretax unrealized gains (losses)	676				(198		)
Deferred tax (liability) asset	(155		)		39
Net unrealized gains (losses) on investments	521				(159		)
Non-credit components of OTTI on investments:
Gross unrealized losses	(3		)		(3		)
Deferred tax asset	1				1
Net unrealized non-credit component of OTTI on investments	(2		)		(2		)
Cash flow hedges:
Gross unrealized losses	(331		)		(311		)
Deferred tax asset	69				65
Net unrealized losses on cash flow hedges	(262		)		(246		)
Defined benefit pension plans:
Deferred net actuarial loss	(734		)		(751		)
Deferred prior service cost	(1		)		(1		)
Deferred tax asset	188				193
Net unrecognized periodic benefit costs for defined benefit pension plans	(547		)		(559		)
Postretirement benefit plans:
Deferred net actuarial loss	(25		)		(58		)
Deferred prior service credits	19				34
Deferred tax asset	2				6
Net unrecognized periodic benefit costs for postretirement benefit plans	(4		)		(18		)
Foreign currency translation adjustments:
Gross unrealized losses	(3		)		(3		)
Deferred tax asset	1				1
Net unrealized losses on foreign currency translation adjustments	(2		)		(2		)
Accumulated other comprehensive loss	$	(296	)		$	(986	)

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Notes to Consolidated Financial Statements (continued)

Other comprehensive income (loss) reclassification adjustments for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
Investments:
Net holding gain (loss) on investment securities arising during the period, net of tax (expense) benefit of $(198), $133, and ($153), respectively	$	695			$	(465	)		$	280
Reclassification adjustment for net realized (gain) loss on investment securities, net of tax expense (benefit) of $4, $(13), and $58, respectively	(15		)		47				(107		)
Total reclassification adjustment on investments	680				(418		)		173
Non-credit component of OTTI on investments:
Non-credit component of OTTI on investments, net of tax benefit (expense) of $0, $1, and ($3), respectively	—				(2		)		4
Cash flow hedges:
Holding (loss) gain, net of tax benefit (expense) of $4, $(10), and $35, respectively	(16		)		37				(65		)
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax (expense) benefit of $(9), $29, and $(35), respectively	26				(90		)		51
Foreign currency translation adjustment, net of tax expense of $0, $0, and ($1), respectively	—				(1		)		3
Net gain (loss) recognized in other comprehensive loss, net of tax (expense) benefit of $(199), $140, and ($99), respectively	$	690			$	(474	)		$	166

16. Reinsurance

We reinsure certain risks with other companies and assume risk from other companies. We remain primarily liable to policyholders under ceded insurance contracts and are contingently liable for amounts recoverable from reinsurers in the event that such reinsurers do not meet their contractual obligations.

A summary of direct, assumed and ceded premiums written and earned for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019								2018								2017
Written				Earned				Written				Earned				Written				Earned
Direct	$	93,953			$	93,505			$	84,835			$	85,213			$	83,974			$	83,418
Assumed	822				713				264				259				275				275
Ceded	(45		)		(45		)		(51		)		(51		)		(44		)		(45		)
Net premiums	$	94,730			$	94,173			$	85,048			$	85,421			$	84,205			$	83,648
Percentage—assumed to net premiums	0.9		%		0.8		%		0.3		%		0.3		%		0.3		%		0.3		%

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Notes to Consolidated Financial Statements (continued)

A summary of net premiums written and earned by segment (see Note 19, “Segment Information”) for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019								2018								2017
Written				Earned				Written				Earned				Written				Earned
Reportable segments:
Commercial & Specialty Business	$	32,113			$	31,944			$	30,661			$	30,532			$	35,382			$	35,503
Government Business	62,617				62,229				54,387				54,889				48,823				48,145
Net premiums	$	94,730			$	94,173			$	85,048			$	85,421			$	84,205			$	83,648

The effect of reinsurance on benefit expense for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019				2018				2017
Direct	$	81,254			$	71,749			$	72,135
Assumed	589				219				217
Ceded	(57		)		(73		)		(116		)
Net benefit expense	$	81,786			$	71,895			$	72,236

The effect of reinsurance on certain assets and liabilities at December 31, 2019 and 2018 is as follows:

	2019				2018
Policy liabilities, assumed	$	213			$	50
Unearned income, assumed	114				6
Premiums payable, ceded	11				17
Premiums receivable, assumed	35				37

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Notes to Consolidated Financial Statements (continued)

17. Leases

We lease office space and certain computer and related equipment using noncancelable operating leases. Our leases have remaining lease terms of 1 year to 15 years.

The information related to our leases is as follows:

	Balance Sheet Location		December 31, 2019
Operating Leases
Right-of-use assets	Other noncurrent assets		$	575
Lease liabilities, current	Other current liabilities		158
Lease liabilities, noncurrent	Other noncurrent liabilities		482

			Year Ended December 31, 2019
Lease Expense
Operating lease expense			$	198
Short-term lease expense			46
Sublease income			(16		)
Total lease expense			$	228
Other information
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases			$	176
Right-of-use assets obtained in exchange for new lease liabilities, operating leases			$	112
Weighted average remaining lease term, operating leases			6 years
Weighted average discount rate, operating leases			4.09		%

Lease expense for 2018 and 2017 was $207 and $205, respectively.

At December 31, 2019, future lease payments for noncancelable operating leases with initial or remaining terms of one year or more are as follows:

2020	$	172
2021	149
2022	136
2023	116
2024	87
Thereafter	135
Total future minimum payments	$	795
Less imputed interest	(155		)
Total lease liabilities	$	640

As of December 31, 2019, we have additional operating leases for building spaces that have not yet commenced, and some building spaces are being constructed by the lessors and their agents. These leases have terms of up to 12 years and are expected to commence on various dates during 2020 and 2021 when the construction is complete and we take possession of the buildings. The undiscounted lease payments for these leases, which are not included in the tables above, aggregate $394.

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Notes to Consolidated Financial Statements (continued)

18. Earnings per Share

The denominator for basic and diluted earnings per share at December 31, 2019, 2018 and 2017 is as follows:

	2019			2018			2017
Denominator for basic earnings per share—weighted-average shares	255.5			258.1			261.5
Effect of dilutive securities—employee stock options, non-vested restricted stock awards, convertible debentures and equity units	4.8			6.1			6.3
Denominator for diluted earnings per share	260.3			264.2			267.8

During the years ended December 31, 2019, 2018 and 2017, weighted-average shares related to certain stock options of 0.6, 0.3 and 0.4, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. The Equity Unit purchase contracts were settled in May 2018, and approximately 6.0 shares of our common stock were issued and included in the basic earnings per share calculation.

During the years ended December 31, 2019, 2018 and 2017, we issued approximately 0.2, 0.3 and 0.4 restricted stock units, respectively, of which vesting was contingent upon us meeting certain earnings targets. Contingent restricted stock units are excluded from the denominator for diluted earnings per share and are included only if and when the contingency is met. The 2019 contingent restricted stock units are being measured over the three year period of 2019 through 2021, the 2018 contingent restricted stock units are being measured over the three year period of 2018 through 2020 and the 2017 contingent restricted stock units are being measured over the three year period of 2017 through 2019. Contingent restricted stock units generally vest in March of the year following each measurement period.

19. Segment Information

Our organizational structure is comprised of three reportable segments: Commercial & Specialty Business; Government Business; and Other.

Our Commercial & Specialty Business segment includes our Local Group, National Accounts, Individual and Specialty businesses. Business units in the Commercial & Specialty Business segment offer fully-insured health products; provide a broad array of managed care services to self-funded customers including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services; and provide an array of specialty and other insurance products and services such as dental, vision, life and disability insurance benefits.

Our Government Business segment includes our Medicare and Medicaid businesses, National Government Services, or NGS, and services provided to the federal government in connection with the FEHB program. Our Medicare business includes services such as Medicare Supplement plans; Medicare Advantage, including Special Needs Plans; Medicare Part D; and dual-eligible programs through Medicare-Medicaid Plans. Our Medicaid business includes our managed care alternatives through publicly funded healthcare programs, including Medicaid, ACA-related Medicaid expansion programs, Temporary Assistance for Needy Families programs, programs for seniors and people with disabilities, Children’s Health Insurance Programs, and specialty programs such as those focused on long-term services and support, HIV/AIDS, foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities. NGS acts as a Medicare contractor for the federal government in several regions across the nation.

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 PBM, which began operations during the second quarter of 2019. In addition, during the second quarter, 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. Amounts for prior years have been reclassified to conform to the current year presentation for comparability. Based on the FASB guidance, as of December 31, 2019, IngenioRx and DBG did not collectively meet the quantitative thresholds for a reportable segment.

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Notes to Consolidated Financial Statements (continued)

We define operating revenues to include premium income and administrative fees and other revenues. Operating revenues are derived from premiums and fees received, primarily from the sale and administration of health benefit products. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense.

Through our participation in various federal government programs, we generated approximately 20.7%, 19.8% and 17.8% of our total consolidated revenues from agencies of the U.S. government for the years ended December 31, 2019, 2018, and 2017, respectively. These revenues are contained in the Government Business segment.

The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 2, “Basis of Presentation and Significant Accounting Policies,” except that certain shared administrative expenses for each segment are recognized on a pro rata allocated basis, which in the aggregate approximates the consolidated expense. Any difference between the allocated expenses and actual consolidated expense is included in other expenses not allocated to reportable segments. Affiliated revenues represent revenues or cost for services provided by IngenioRx and DBG to our subsidiaries, are recorded at cost or management’s estimate of fair market value, and are eliminated in consolidation. We evaluate performance of the reportable segments based on operating gain or loss as defined above. We evaluate net investment income, net realized gains on financial instruments, OTTI losses recognized in income, interest expense, amortization expense, gain or loss on extinguishment of debt, income taxes and assets and liabilities on a consolidated basis, as these items are managed in a corporate shared service environment and are not the responsibility of segment operating management.

For our segment reporting, operating gains (losses) generated from IngenioRx and DBG affiliated activity have been included in our Commercial & Specialty Business and Government Business based upon their utilization of services from IngenioRx and DBG.

Financial data by reportable segment for the years ended December 31, 2019, 2018 and 2017 is as follows:

	Commercial & Specialty Business				Government Business				Other				Eliminations				Total
Year ended December 31, 2019
Operating revenue - unaffiliated	$	37,421			$	62,632			$	3,088			$	—			$	103,141
Operating revenue - affiliated	—				—				4,607				(4,607		)		—
Operating gain (loss)	4,046				2,054				(101		)		—				5,999
Depreciation and amortization of property and equipment	—				—				675				—				675
Year ended December 31, 2018
Operating revenue - unaffiliated	$	35,782			$	55,348			$	211			$	—			$	91,341
Operating revenue - affiliated	—				—				1,308				(1,308		)		—
Operating gain (loss)	3,600				1,928				(102		)		—				5,426
Depreciation and amortization of property and equipment	—				—				652				—				652
Year ended December 31, 2017
Operating revenue - unaffiliated	$	40,363			$	48,587			$	111			$	—			$	89,061
Operating revenue - affiliated	—				—				16				(16		)		—
Operating gain (loss)	2,847				1,442				(114		)		—				4,175
Depreciation and amortization of property and equipment	—				—				601				—				601

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The major product revenues for each of the reportable segments for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
Commercial & Specialty Business
Managed care products	$	30,311			$	29,012			$	33,971
Managed care services	5,451				5,218				4,732
Dental/Vision products and services	1,302				1,220				1,218
Other	357				332				442
Total Commercial & Specialty Business	37,421				35,782				40,363
Government Business
Managed care products	62,229				54,889				48,144
Managed care services	403				459				443
Total Government Business	62,632				55,348				48,587
Other
Other	7,695				1,519				127
Eliminations
Eliminations	(4,607		)		(1,308		)		(16		)
Total product revenues	$	103,141			$	91,341			$	89,061

The classification between managed care products and managed care services in the above table primarily distinguishes between the levels of risk assumed. Managed care products represent insurance products where we bear the insurance risk, whereas managed care services represent product offerings where we provide claims adjudication and other administrative services to the customer, but the customer principally bears the insurance risk.

Asset, liability and equity details by reportable segment have not been disclosed, as we do not internally report such information.

A reconciliation of reportable segments’ operating revenue to the amounts of total revenues included in our consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019				2018				2017
Reportable segments operating revenues	$	103,141			$	91,341			$	89,061
Net investment income	1,005				970				867
Net realized gains (losses) on financial instruments	114				(180		)		145
Other-than-temporary impairment losses recognized in income	(47		)		(26		)		(33		)
Total revenues	$	104,213			$	92,105			$	90,040

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

A reconciliation of reportable segments’ operating gain to income before income tax expense included in our consolidated statements of income for the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019				2018				2017
Reportable segments operating gain	$	5,999			$	5,426			$	4,175
Net investment income	1,005				970				867
Net realized gains (losses) on financial instruments	114				(180		)		145
Other-than-temporary impairment losses recognized in income	(47		)		(26		)		(33		)
Interest expense	(746		)		(753		)		(739		)
Amortization of other intangible assets	(338		)		(358		)		(169		)
Loss on extinguishment of debt	(2		)		(11		)		(282		)
Income before income tax expense	$	5,985			$	5,068			$	3,964

20. Related Party Transactions

We have a 19.50% equity investment in National Accounts Service Company, LLC, or NASCO, which processes National Accounts claims and provides other administrative services for us and certain other BCBS plans. Administrative expenses incurred related to NASCO services totaled $78, $79 and $73, for the years ended December 31, 2019, 2018 and 2017, respectively. Amounts due to NASCO were $4 and $5 at December 31, 2019 and 2018, respectively.

We have an equity investment in APC Passe, LLC, which offers Medicaid products in Arkansas. During the year ended December 31, 2019, in the normal course of business, we assumed premiums of $408 from APC Passe, LLC, which is included in our total assumed premiums (see Note 16, “Reinsurance”).

21. Statutory Information

The majority of our insurance and HMO subsidiaries report their accounts in conformity with accounting practices prescribed or permitted by state insurance regulatory authorities, commonly referred to as statutory accounting, which vary in certain respects from GAAP. However, certain of our insurance and HMO subsidiaries, including BCC, Blue Cross of California Partnership Plan, Inc., Golden West Health Plan, Inc. and CareMore Health Plan are regulated by the California Department of Managed Health Care, or DMHC, and report their accounts in conformity with GAAP (these entities are collectively referred to as the “DMHC regulated entities”). Typical differences of GAAP reporting as compared to statutory reporting are the recognition of all assets including those that are non-admitted for statutory purposes and recognition of all deferred tax assets without regard to statutory limits. The National Association of Insurance Commissioners, or NAIC, developed a codified version of the statutory accounting principles, designed to foster more consistency among the states for accounting guidelines and reporting. Prescribed statutory accounting practices are set forth in a variety of publications of the NAIC as well as state laws, regulations and general administrative rules.

Our ability to pay dividends and credit obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends to us by our insurance and HMO subsidiaries without prior approval of the insurance departments of each subsidiary’s domiciliary jurisdiction is limited by formula. Dividends in excess of these amounts are subject to prior approval by the respective state insurance departments or the DMHC.

Our statutory basis insurance and HMO subsidiaries are subject to risk-based capital, or RBC, requirements. RBC is a method developed by the NAIC to determine the minimum amount of statutory capital appropriate for an insurance company or HMO to support its overall business operations in consideration of its size and risk profile. The formula for determining the amount of RBC specifies various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity. Below minimum RBC requirements are classified within certain levels, each of which requires specified corrective action. Additionally, the DMHC regulated entities are subject to capital and solvency requirements as prescribed by the DMHC. As of December 31, 2019 and 2018, all of our regulated subsidiaries exceeded the minimum applicable mandatory RBC requirements and/or capital and solvency requirements of their applicable governmental regulator. The statutory RBC necessary to satisfy regulatory requirements of our statutory basis insurance and HMO subsidiaries was approximately $5,500 and $4,800 as of December 31, 2019 and 2018, respectively. The tangible net

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

equity required for the DMHC regulated entities was approximately $610 and $570 as of December 31, 2019 and 2018, respectively.

Statutory-basis capital and surplus of our insurance and HMO subsidiaries and capital and surplus of our other regulated subsidiaries, excluding the DMHC regulated entities, was $13,044 and $12,038 at December 31, 2019 and 2018, respectively. Statutory-basis net income of our insurance and HMO subsidiaries and net income of our other regulated subsidiaries, excluding the DMHC regulated entities, was $3,840, $3,412 and $2,674 for 2019, 2018 and 2017, respectively. GAAP equity of the DMHC regulated entities was $3,359 and $3,125 at December 31, 2019 and 2018, respectively. GAAP net income of the DMHC regulated entities was $878, $789 and $1,047 for the years ended December 31, 2019, 2018 and 2017, respectively.

22. Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data is as follows:

	For the Quarter Ended
	March 31				June 30				September 30				December 31
2019
Total revenues	$	24,666			$	25,466			$	26,674			$	27,407
Income before income tax expense	1,945				1,453				1,489				1,098
Net income	1,551				1,139				1,183				934
Basic net income per share	$	6.03			$	4.44			$	4.64			$	3.69
Diluted net income per share	5.91				4.36				4.55				3.62
2018
Total revenues	$	22,537			$	22,944			$	23,251			$	23,373
Income before income tax expense	1,780				1,504				1,242				542
Net income	1,312				1,054				960				424
Basic net income per share	$	5.13			$	4.07			$	3.70			$	1.64
Diluted net income per share	4.99				3.98				3.62				1.61