Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ANTHEM, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2020, 2019 and 2018

Contents

Report of Independent Registered Public Accounting Firm			74
Audited Consolidated Financial Statements:
Consolidated Balance Sheets			76
Consolidated Statements of Income			77
Consolidated Statements of Comprehensive Income			78
Consolidated Statements of Cash Flows			79
Consolidated Statements of Shareholders’ Equity			80
Notes to Consolidated Financial Statements			81

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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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 18, 2021 expressed an unqualified opinion thereon.

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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

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Valuation of Incurred but Not Paid Claims
Description of the Matter						Medical claims payable was $11,359 million at December 31, 2020, 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 agreeing 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.

/s/ ERNST & YOUNG LLP

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

Indianapolis, Indiana

February 18, 2021

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Anthem, Inc.

Consolidated Balance Sheets

			December 31, 2020						December 31, 2019
(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents			$	5,741					$	4,937
Fixed maturity securities, current (amortized cost of $22,222 and $19,021; allowance for credit losses of $7 and $0)			23,433						19,676
Equity securities			1,559						1,009
Premium receivables			5,279						5,014
Self-funded receivables			2,849						2,570
Other receivables			2,830						2,807
Other current assets			4,060						3,020
Total current assets			45,751						39,033
Long-term investments:
Fixed maturity securities (amortized cost of $532 and $487; allowance for credit losses of $0 and $0)			562						505
Other invested assets			4,285						4,258
Property and equipment, net			3,483						3,133
Goodwill			21,691						20,500
Other intangible assets			9,405						8,674
Other noncurrent assets			1,438						1,350
Total assets			$	86,615					$	77,453
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Medical claims payable			$	11,359					$	8,842
Other policyholder liabilities			4,590						3,050
Unearned income			1,259						1,017
Accounts payable and accrued expenses			5,493						4,198
Short-term borrowings			—						700
Current portion of long-term debt			700						1,598
Other current liabilities			6,052						4,127
Total current liabilities			29,453						23,532
Long-term debt, less current portion			19,335						17,787
Reserves for future policy benefits			794						759
Deferred tax liabilities, net			2,019						2,227
Other noncurrent liabilities			1,815						1,420
Total liabilities			53,416						45,725
Commitments and contingencies—Note 14
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 - 245,401,430 and 252,922,161			3						3
Additional paid-in capital			9,244						9,448
Retained earnings			23,802						22,573
Accumulated other comprehensive income (loss)			150						(296)
Total shareholders’ equity			33,199						31,728
Total liabilities and shareholders’ equity			$	86,615					$	77,453

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Income

			Years Ended December 31
(In millions, except per share data)			2020						2019						2018
Revenues
Premiums			$	104,109					$	94,173					$	85,421
Product revenue			10,384						2,760						—
Administrative fees and other revenue			6,315						6,208						5,920
Total operating revenue			120,808						103,141						91,341
Net investment income			877						1,005						970
Net realized gains (losses) on financial instruments			182						67						(206)
Total revenues			121,867						104,213						92,105
Expenses
Benefit expense			88,045						81,786						71,895
Cost of products sold			8,953						1,992						—
Selling, general and administrative expense			17,450						13,364						14,020
Interest expense			784						746						753
Amortization of other intangible assets			361						338						358
Loss on extinguishment of debt			36						2						11
Total expenses			115,629						98,228						87,037
Income before income tax expense			6,238						5,985						5,068
Income tax expense			1,666						1,178						1,318
Net income			$	4,572					$	4,807					$	3,750
Net income per share
Basic			$	18.23					$	18.81					$	14.53
Diluted			$	17.98					$	18.47					$	14.19
Dividends per share			$	3.80					$	3.20					$	3.00

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Comprehensive Income

						Years Ended December 31
(In millions)						2020						2019						2018
Net income						$	4,572					$	4,807					$	3,750
Other comprehensive income (loss), net of tax:
Change in net unrealized gains/losses on investments						428						680						(418)
Change in non-credit component of impairment losses on investments						—						—						(2)
Change in net unrealized gains/losses on cash flow hedges						12						(16)						37
Change in net periodic pension and postretirement costs						(1)						26						(90)
Foreign currency translation adjustments						7						—						(1)
Other comprehensive income (loss)						446						690						(474)
Total comprehensive income						$	5,018					$	5,497					$	3,276

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Cash Flows

			Years Ended December 31
(In millions)			2020						2019						2018
Operating activities
Net income			$	4,572					$	4,807					$	3,750
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses on financial instruments			(182)						(67)						206
Depreciation and amortization			1,154						1,133						1,132
Deferred income taxes			(540)						81						91
Impairment of property and equipment			198						—						—
Share-based compensation			283						294						226
Changes in operating assets and liabilities:
Receivables, net			(256)						(1,053)						(695)
Other invested assets			(32)						(48)						(1)
Other assets			(283)						(170)						(26)
Policy liabilities			3,528						1,826						(1,059)
Unearned income			202						115						(36)
Accounts payable and other liabilities			1,978						(445)						97
Income taxes			72						(325)						323
Other, net			(6)						(87)						(181)
Net cash provided by operating activities			10,688						6,061						3,827
Investing activities
Purchases of investments			(19,492)						(22,954)						(9,671)
Proceeds from sale of investments			11,318						18,598						9,662
Maturities, calls and redemptions from investments			4,741						2,437						1,938
Changes in securities lending collateral			(849)						254						(149)
Purchases of subsidiaries, net of cash acquired			(1,976)						—						(1,760)
Purchases of property and equipment			(1,021)						(1,077)						(1,208)
Other, net			(45)						(50)						(71)
Net cash used in investing activities			(7,324)						(2,792)						(1,259)
Financing activities
Net repayments of commercial paper borrowings			(150)						(297)						(107)
Proceeds from long-term borrowings			2,484						2,473						835
Repayments of long-term borrowings			(1,932)						(1,123)						(1,684)
Proceeds from short-term borrowings			970						7,590						9,120
Repayments of short-term borrowings			(1,670)						(8,035)						(9,250)
Changes in securities lending payable			849						(254)						150
Proceeds from issuance of common stock under Equity Units stock purchase contracts			—						—						1,250
Repurchase and retirement of common stock			(2,700)						(1,701)						(1,685)
Cash dividends			(954)						(818)						(776)
Proceeds from issuance of common stock under employee stock plans			176						187						173
Taxes paid through withholding of common stock under employee stock plans			(128)						(84)						(81)
Other, net			488						(204)						(186)
Net cash used in financing activities			(2,567)						(2,266)						(2,241)
Effect of foreign exchange rates on cash and cash equivalents			7						—						(2)
Change in cash and cash equivalents			804						1,003						325
Cash and cash equivalents at beginning of year			4,937						3,934						3,609
Cash and cash equivalents at end of year			$	5,741					$	4,937					$	3,934

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Shareholders’ Equity

			Common Stock												Additional Paid-in Capital												Accumulated Other Comprehensive Income (Loss)						Total Shareholders’ Equity
(In millions)			Number of Shares						Par Value									Retained Earnings
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			—						—						—						91						(91)						—
December 31, 2018			257.4						3						9,536						19,988						(986)						28,541
Adoption of Accounting Standards Update No. 2016-02			—						—						—						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 conversions			—						—						(209)						—						—						(209)
December 31, 2019			252.9						3						9,448						22,573						(296)						31,728
Adoption of Accounting Standards Update No. 2016-13 (Note 2)			—						—						—						(35)						—						(35)
January 1, 2020			252.9						3						9,448						22,538						(296)						31,693
Net income			—						—						—						4,572						—						4,572
Other comprehensive income			—						—						—						—						446						446
Repurchase and retirement of common stock			(9.4)						—						(353)						(2,347)						—						(2,700)
Dividends and dividend equivalents			—						—						—						(961)						—						(961)
Issuance of common stock under employee stock plans, net of related tax benefits			1.9						—						330						—						—						330
Convertible debenture repurchases and conversions			—						—						(181)						—						—						(181)
December 31, 2020			245.4						$	3					$	9,244					$	23,802					$	150					$	33,199

See accompanying notes.

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Anthem, Inc.

Notes to Consolidated Financial Statements

December 31, 2020

(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 43 medical members through our affiliated health plans as of December 31, 2020. 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 (“PPOs”); Health Maintenance Organizations (“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 (“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 (“FEHB”) Program.

We are an independent licensee of the Blue Cross and Blue Shield Association (“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 (“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, Beacon, 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 (“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 (“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.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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.

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 $170 and $215 at December 31, 2020 and 2019, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.

Investments: We classify fixed maturity securities in our investment portfolio as “available-for-sale” and report those securities at fair value. Certain fixed maturity securities are available to support current operations and, accordingly, we classify such investments as current assets without regard to their contractual maturity. Investments used to satisfy contractual, regulatory or other requirements are classified as long-term, without regard to contractual maturity.

Prior to 2020, our fixed maturity securities were evaluated for other-than-temporary impairment where credit-related impairments were presented within the other-than-temporary impairment losses recognized in our consolidated statements of income with an adjustment to the security’s amortized cost basis. Effective January 1, 2020, 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, we write down the fixed maturity security’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do not intend to sell or if 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, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive income. 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 income.

The credit component of an impairment 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 purchase. 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 purchase date of the securities. Such adjustments are reported within net investment income.

In accordance with the Financial Accounting Standards Board (“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.

We have corporate-owned life insurance policies on certain participants in our deferred compensation plans and other members of management. The cash surrender value of the corporate-owned life insurance policies is reported under the caption “Other invested assets” in our consolidated balance sheets.

We use the equity method of accounting for investments in companies in which our ownership interest may enable 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. The equity method investments are reported under the caption “Other invested assets” in our consolidated balance sheets.

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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 income 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: Receivables are reported net of amounts for expected credit losses. The allowance for doubtful accounts is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.

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 $146 and $237 at December 31, 2020 and 2019, 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 $54 and $46 at December 31, 2020 and 2019, respectively.

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 $374 and $242 at December 31, 2020 and 2019, respectively.

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 income. 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

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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.

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

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. Estimated fair values developed based on our assumptions and judgments might be 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.

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. 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 (“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 one step. The fair value of a reporting unit is determined and compared to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized. This goodwill impairment loss is equal to the excess of the reporting unit’s carrying amount over its fair value.

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-

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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.

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, 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, 2020, 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.

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Notes to Consolidated Financial Statements (continued)

Liabilities for both claims incurred but not reported and reported but not yet processed through our systems are determined in the aggregate, employing actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. Actuarial Standards of Practice require that the claim liabilities be appropriate under moderately adverse circumstances. We determine the amount of the liability for incurred but not paid claims by following a detailed actuarial process that uses both historical claim payment patterns as well as emerging medical cost trends to project our best estimate of claim liabilities. Under this process, historical paid claims data is formatted into “claim triangles,” which compare claim incurred dates to the dates of claim payments. This information is analyzed to create “completion factors” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred. Completion factors are applied to claims paid through the period-end date to estimate the ultimate claim expense incurred for the period. Actuarial estimates of incurred but not paid claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims.

For the most recent incurred months (typically the most recent two months), the percentage of claims paid for claims incurred in those months is generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for recent months are not projected from historical completion and payment patterns; rather, they are projected by estimating the claims expense for those months based on recent claims expense levels and healthcare trend levels (“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, 2020 or 2019.

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 include liabilities for premium refunds based upon the minimum medical loss ratio (“MLR”), the relative health risk of members, and 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 (collectively the “ACA”). If we do not meet or

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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 and Medicare) in accordance with regulations issued by the Department of Health and Human Services (“HHS”). Such calculations are made using estimated calendar year medical loss expense and premiums, as defined by HHS.

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.

Product revenue includes revenue for services performed by our IngenioRx 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 our affiliated 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 revenue includes 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 products or 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, 2020. Revenue recognized in 2020 and 2019 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.

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Notes to Consolidated Financial Statements (continued)

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.

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 15, “Capital Stock.”

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 are expensed when first aired. Total advertising and marketing expense was $558, $467 and $385 for the years ended December 31, 2020, 2019 and 2018, respectively.

Health Insurance Provider Fee**:** The ACA imposed an annual Health Insurance Provider Fee (“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 HIP Fee was 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 recorded our estimated liability for the HIP Fee in full at the beginning of the year with a corresponding deferred asset that was amortized on a straight-line basis to selling, general and administrative expense. The final calculation and payment of the annual HIP Fee was due by September 30th of each fee year. The HIP Fee was non-deductible for federal income tax purposes. Our affected products were priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee when it was in effect. The total amount due from allocations to health insurers was $14,300 for 2018. The HIP Fee was suspended for 2019, resumed and increased to $15,523 for 2020 and has been permanently eliminated beginning in 2021. For the years ended December 31, 2020 and 2018, we recognized $1,570 and $1,544, respectively, as selling, general and administrative expense related to the HIP Fee. There was no corresponding expense for 2019 due to the suspension of the HIP Fee for 2019.

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 (“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 sheets. 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

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Notes to Consolidated Financial Statements (continued)

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.

We assess our ROU assets for impairment when there are indicators and compare the carrying amount of the ROU asset to its estimated undiscounted future cash flows. If the estimated undiscounted future cash flows are less than the carrying amount of the ROU asset, an impairment calculation is performed. An impairment loss is recorded for the difference of the ROU asset’s carrying value that exceeds its estimated discounted cash flows. During 2020, we recorded $258 for impairment and abandonment of ROU assets. See Note 18, “Leases” for additional information about the ROU asset impairment and abandonment charges.

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 13, “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: The FASB issued Accounting Standards Update No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) in January 2021, and Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) in March 2020. ASU 2021-01 and ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic, or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. We adopted ASU 2021-01 on January 7, 2021 and ASU 2020-04 on November 2, 2020, and the adoptions did not have an impact on our consolidated financial position, results of operations or cash flows.

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 (“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 held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the 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 balance sheet at the date of adoption and a prospective transition approach for debt securities for which an other-than-temporary impairment 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 recognized a cumulative-effect adjustment of $35 to our opening retained earnings for credit related allowances on receivables. The adoption did not have an impact on our consolidated statements of income or cash flows.

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Notes to Consolidated Financial Statements (continued)

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 (“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 (“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. We adopted the disclosure requirements of ASU 2018-14 on December 31, 2020, 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. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments became 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.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This update removes Step 2 of the goodwill impairment test under the then-existing guidance, which required 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. 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.

Recent Accounting Guidance Not Yet Adopted: In November 2020, the FASB issued Accounting Standards Update No. 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application (“ASU 2020-11”). The amendments in ASU 2020-11 make changes to the effective date and early application of Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”) which was issued in November 2018. The amendments in ASU 2020-11 have extended the original effective date by one year and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022. 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 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 2020-11 and ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.

In October 2020, the FASB issued Accounting Standards Update No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs (“ASU 2020-08”). The amendments clarify when an entity should assess whether a callable debt security is within the scope of accounting guidance, which impacts the amortization period for nonrefundable fees and other costs. ASU 2020-08 is effective for interim and annual reporting periods beginning

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Notes to Consolidated Financial Statements (continued)

after December 15, 2020, with early adoption permitted. Upon adoption, the amendments are to be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. We adopted ASU 2020-08 on January 1, 2021, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments eliminate two of the three accounting models that require separate accounting for convertible features of debt securities, simplify the contract settlement assessment for equity classification, require the use of the if-converted method for all convertible instruments in the diluted earnings per share calculation and expand disclosure requirements. The amendments are effective for our annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. We are currently evaluating the effects the adoption of ASU 2020-06 will have on our consolidated financial statements and disclosures.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 remove certain exceptions to the general principles in Accounting Standards Codification 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 adopted ASU 2019-12 on January 1, 2021, 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, 2020 that had, or are expected to have, a material impact on our financial position, results of operations, cash flows or financial statement disclosures.

3. Business Acquisitions

Pending Acquisition of MMM Holdings LLC and Affiliates

On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries, including MMM Holdings, LLC (“MMM”) and its Medicare Advantage plan MMM Healthcare, LLC, Medicaid plan and other affiliated companies. MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.

Beacon Health Options, Inc.

On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc. (“Beacon”) the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition aligned 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.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of Beacon’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the preliminary fair value of net assets acquired resulted in preliminary goodwill of $1,072 at December 31, 2020, all of which was allocated to our Other segment. Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is consistent with

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Notes to Consolidated Financial Statements (continued)

our stated intentions and strategy. As of December 31, 2020, the initial accounting for the acquisition has not been finalized. Any additional payments or receipts of cash resulting from contractual purchase price adjustments or any subsequent adjustments made to the assets acquired or liabilities assumed during the measurement period will continue to be recorded as an adjustment to goodwill.

The preliminary fair value of the net assets acquired from Beacon includes $752 of other intangible assets at December 31, 2020, which primarily consist of finite-lived customer relationships with amortization periods ranging from 9 to 21 years. The results of operations of Beacon are included in our consolidated financial statements within our Other segment for the period following February 28, 2020. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.

4. Business Optimization Initiatives

During 2020, our management introduced enterprise-wide initiatives to optimize our business and, as a result, we recorded a charge of $653 in selling, general and administrative expenses. This charge includes $258 for impairment and abandonment of operating-lease related right-of-use assets, $198 for impairment and abandonment of property and equipment and $197 for future payments for employee termination costs in connection with the repositioning and reskilling of our workforce. The charges recognized in the Commercial & Specialty Business, Government Business, IngenioRx and Other segments in 2020, were $311, $205, $4 and $133, respectively. See also Note 20, “Segment Information”. We expect most of the employee termination costs to be paid by the end of 2021. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization, including process automation and a reduction in our office space footprint.

A summary of the employee termination costs activity for the year ended December 31, 2020 and ending balance at December 31, 2020 is as follows:

			Commercial & Specialty Business						Government Business						IngenioRx						Other						Total
2020 Business Optimization Initiatives
Employee termination costs:
Costs incurred in 2020			$	96					$	92					$	1					$	8					$	197
Payments made in 2020			(4)						(4)						—						(2)						(10)
Total liabilities for employee termination costs ending balance at December 31, 2020			$	92					$	88					$	1					$	6					$	187

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Notes to Consolidated Financial Statements (continued)

5. Investments

A summary of current and long-term fixed maturity securities, available-for-sale, at December 31, 2020 and 2019 is as follows:

																																							Non-Credit Component of Impairment Recognized in Accumulated Other Comprehensive Loss
			Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses												Allowance For Credit Losses						Estimated Fair Value
									Less than 12 Months						12 Months or Greater
December 31, 2020:
Fixed maturity securities:
United States Government securities			$	765					$	11					$	(2)					$	—					$	—					$	774					$	—
Government sponsored securities			63						6						—						—						—						69						—
Foreign government securities			290						17						(2)						—						—						305						—
States, municipalities and political subdivisions, tax-exempt			5,185						395						(1)						—						—						5,579						—
Corporate securities			10,233						697						(20)						(11)						(7)						10,892						(1)
Residential mortgage-backed securities			4,208						154						(8)						(9)						—						4,345						(2)
Commercial mortgage-backed securities			73						3						(1)						(3)						—						72						—
Other securities			1,937						33						(5)						(6)						—						1,959						—
Total fixed maturity securities			$	22,754					$	1,316					$	(39)					$	(29)					$	(7)					$	23,995					$	(3)
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)

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Notes to Consolidated Financial Statements (continued)

For fixed maturity securities in an unrealized loss position at December 31, 2020 and 2019, 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, 2020:
Fixed maturity securities:
United States Government securities			27						$	301					$	(2)					—						$	—					$	—
Government sponsored securities			—						—						—						1						—						—
Foreign government securities			55						35						(2)						9						4						—
States, municipalities and political subdivisions, tax-exempt			36						57						(1)						1						3						—
Corporate securities			646						765						(20)						150						169						(11)
Residential mortgage-backed securities			224						442						(8)						90						110						(9)
Commercial mortgage-backed securities			6						16						(1)						3						4						(3)
Other securities			207						509						(5)						79						179						(6)
Total fixed maturity securities			1,201						$	2,125					$	(39)					333						$	469					$	(29)
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)

Below are discussions by security type for unrealized losses and credit losses as of December 31, 2020:

Corporate securities: An allowance for credit losses on certain retail, travel and entertainment, energy, and basic materials sector fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, decline in fair value and industry condition along with other available market data. With multiple risk factors present, these securities were reviewed for expected future cash flow to determine the portion of unrealized losses that were credit related and to record an allowance for credit losses. Unrealized losses on our other corporate securities were largely due to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of December 31, 2020. We do not intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.

As for the remaining securities shown in the table above, unrealized losses on these securities have not been recognized into income because we do not intend to sell these investments and it is likely that we will not be required to sell these investments prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated these securities for any change in credit rating and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.

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Notes to Consolidated Financial Statements (continued)

The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the year ended December 31, 2020:

Year Ended December 31, 2020															Corporate Securities												Foreign Government Securities						Total
Allowance for credit losses:
			Beginning balance												$	—											$	—					$	—
			Additions for securities for which no previous expected credit losses were recognized												64												1						65
			Securities sold during the period												(17)												(1)						(18)
			Decreases to the allowance for credit losses on securities												(40)												—						(40)
Total allowance for credit losses															$	7											$	—					$	7

The amortized cost and fair value of fixed maturity securities at December 31, 2020, 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			$	592					$	595
Due after one year through five years			5,981						6,261
Due after five years through ten years			6,874						7,296
Due after ten years			5,026						5,426
Mortgage-backed securities			4,281						4,417
Total fixed maturity securities			$	22,754					$	23,995

Equity Securities

A summary of current equity securities at December 31, 2020 and 2019 is as follows:

			December 31, 2020						December 31, 2019
Equity Securities:
Exchange traded funds			$	1,154					$	44
Fixed maturity mutual funds			144						643
Common equity securities			201						237
Private equity securities			60						85
Total			$	1,559					$	1,009

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Notes to Consolidated Financial Statements (continued)

Investment Income

The major categories of net investment income for the years ended December 31, 2020, 2019 and 2018 are as follows:

			2020						2019						2018
Fixed maturity securities			$	725					$	721					$	681
Equity securities			71						100						86
Cash equivalents			28						64						51
Other			91						149						193
Investment income			915						1,034						1,011
Investment expense			(38)						(29)						(41)
Net investment income			$	877					$	1,005					$	970

Investment Gains

Net realized investment gains/losses and the net change in unrealized appreciation/depreciation on investments for the years ended December 31, 2020, 2019 and 2018 are as follows:

			2020						2019						2018
Net realized gains (losses):
Fixed maturity securities:
Gross realized gains from sales			$	175					$	125					$	85
Gross realized losses from sales			(105)						(59)						(116)
Impairment losses recognized in income			(7)						(13)						(9)
Net realized gains (losses) from sales of fixed maturity securities			63						53						(40)
Equity securities:
Gross realized gains			269						147						77
Gross realized losses			(75)						(84)						(276)
Net realized gains (losses) on equity securities			194						63						(199)
Other investments:
Gross realized gains from sales			18						3						27
Gross realized losses from sales			—						(1)						—
Impairment losses recognized in income			(91)						(34)						(17)
Net realized gains (losses) from sales of other investments			(73)						(32)						10
Net realized gains (losses) on investments			184						84						(229)
Change in net unrealized gains (losses) on investments:
Fixed maturity securities			575						874						(529)
Equity securities			—						—						—
Other investments			(5)						—						5
Total change in net unrealized gains (losses) on investments			570						874						(524)
Deferred income tax (expense) benefit			(142)						(194)						106
Change in net unrealized gains (losses) on investments			428						680						(418)
Net realized gains (losses) on investments and change in net unrealized gains (losses) on investments			$	612					$	764					$	(647)

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Notes to Consolidated Financial Statements (continued)

The gains and losses related to equity securities for the years ended December 31, 2020 and 2019 are as follows:

						2020						2019						2018
Net realized gains (losses) recognized on equity securities						$	194					$	63					$	(199)
Less: Net realized (gains) losses recognized on equity securities sold during the period						(61)						(39)						57
Unrealized gains (losses) recognized in income on equity securities still held at December 31						$	133					$	24					$	(142)

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:

			2020						2019						2018
Proceeds			$	11,122					$	8,351					$	8,380
Gross realized gains			175						125						85
Gross realized losses			(105)						(59)						(116)

A significant judgment in the valuation of investments is the determination of when a credit loss has occurred. We follow a consistent and systematic process for recognizing impairments on securities that sustain credit 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 credit impaired, an allowance is created.

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.

At December 31, 2020 and 2019, there were no individual investments that exceeded 10% of shareholders’ equity.

At December 31, 2020 and 2019, there were three and zero, respectively, fixed maturity investments that did not produce income during the years then ended.

As of December 31, 2020 and 2019, we had committed approximately $1,320 and $999, respectively, to future capital calls from various third-party investments in exchange for an ownership interest in the related entities.

At December 31, 2020 and 2019, securities with carrying values of approximately $562 and $505, respectively, were deposited by our insurance subsidiaries under requirements of regulatory authorities.

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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 $1,199 and $351 at December 31, 2020 and 2019, respectively. The value of the collateral represented 102% and 103% of the market value of the securities on loan at December 31, 2020 and 2019, respectively.

The remaining contractual maturities of our securities lending transactions at December 31, 2020 is as follows:

			Overnight and Continuous
Securities lending transactions
Cash			$	1,056
United States Government securities			143
Total			$	1,199

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Notes to Consolidated Financial Statements (continued)

6. 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, 2020 and 2019, we had received collateral of $37 and $22, respectively, 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, 2020 and 2019 is as follows:

			Contractual/ Notional Amount						Balance Sheet Location						Estimated Fair Value
			Asset						(Liability)
December 31, 2020
Hedging instruments
Interest rate swaps - fixed to floating			$	575					Other assets/other liabilities						$	37					$	—
Non-hedging instruments
Interest rate swaps			27						Equity securities						—						—
Futures			183						Equity securities						6						(5)
Subtotal non-hedging			210						Subtotal non-hedging						6						(5)
Total derivatives			$	785					Total derivatives						43						(5)
									Amounts netted						—						—
									Net derivatives						$	43					$	(5)
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					$	—

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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 LIBOR. A summary of our outstanding fair value hedges at December 31, 2020 and 2019 is as follows:

Type of Fair Value Hedges						Year Entered Into						Outstanding Notional Amount												Interest Rate Received									Expiration Date
			2020						2019
Interest rate swap						2020						$	75					$	—					4.101			%						September 1, 2027
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						4.350									August 15, 2020
Interest rate swap						2017						—						50						4.350									August 15, 2020
Interest rate swap						2015						—						200						4.350									August 15, 2020
Interest rate swap						2014						—						150						4.350									August 15, 2020
Interest rate swap						2013						—						10						4.350									August 15, 2020
Interest rate swap						2012						—						200						4.350									August 15, 2020
Total notional amount outstanding												$	575					$	1,200

The following amounts were recorded on our consolidated balance sheets related to cumulative basis adjustments for fair value hedges at December 31, 2020 and 2019:

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
			2020						2019						2020						2019
Current portion of long term-debt						$	700					$	1,598					$	37					$	22
Long-term debt						19,335						17,787						—						(1)

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 future financings that were anticipated at the time of entering into the swaps. During 2020, swaps in the notional amount of $725 were terminated. All swaps have expired or were terminated as of December 31, 2020.

The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive income (loss), net of tax, was $250 and $262 at December 31, 2020 and 2019, respectively. As of December 31, 2020, the total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $14. 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 income (loss) for the years ended December 31, 2020, 2019 and 2018 is as follows:

						Hedge Loss Recognized in Other Comprehensive Income (Loss)						Income Statement Location of Loss Reclassification from Accumulated Other Comprehensive Income (Loss)						Hedge Loss Reclassified from Accumulated Other Comprehensive Income (Loss)
Type of Cash Flow Hedge
Year ended December 31, 2020
Forward starting pay fixed swaps						$	—					Interest expense						$	(15)
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)

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, 2020, 2019 and 2018 is as follows:

			Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
			2020												2019												2018
			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			$	182					$	(784)					$	67					$	(746)					$	(206)					$	(753)
Gain (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items			—						(15)						—						2						—						—
Derivatives designated as hedging instruments			—						15						—						(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)						—						(15)						—						(14)

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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, 2020, 2019 and 2018 is as follows:

Type of Non-hedging Derivatives						Income Statement Location of Gain (Loss) Recognized						Derivative Gain (Loss) Recognized
Year ended December 31, 2020
Interest rate swaps						Net realized gains (losses) on financial instruments						$	(1)
Options						Net realized gains (losses) on financial instruments						(5)
Futures						Net realized gains (losses) on financial instruments						4
Total												$	(2)
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

7. 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, foreign government securities, and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. 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.

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. Derivatives presented within the fair value hierarchy table below are presented on a gross basis and not on a master netting basis by counterparty.

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 11, “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 (“NAV”) of the shares held.

Partnership 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. In accordance with FASB guidance, certain investments that are measured at fair value using the NAV per share as a practical expedient have been classified in the fair value hierarchy. The fair value amounts presented are intended to permit reconciliation of the fair value hierarchy to the total investments of the master trust.

Commingled fund: Fair value is based on NAV per fund share, primarily derived from the quoted prices in active markets on the underlying equity securities.

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 (“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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Anthem, Inc.

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, 2020 and 2019 is as follows:

			Level I						Level II						Level III						Total
December 31, 2020
Assets:
Cash equivalents			$	3,163					$	—					$	—					$	3,163
Fixed maturity securities, available-for-sale:
United States Government securities			—						774						—						774
Government sponsored securities			—						69						—						69
Foreign government securities			—						305						—						305
States, municipalities and political subdivisions, tax-exempt			—						5,579						—						5,579
Corporate securities			—						10,567						325						10,892
Residential mortgage-backed securities			—						4,343						2						4,345
Commercial mortgage-backed securities			—						72						—						72
Other securities			—						1,954						5						1,959
Total fixed maturity securities, available-for-sale			—						23,663						332						23,995
Equity securities:
Exchange traded funds			1,154						—						—						1,154
Fixed maturity mutual funds			—						144						—						144
Common equity securities			171						30						—						201
Private equity securities			—						—						60						60
Total equity securities			1,325						174						60						1,559
Securities lending collateral			—						1,199						—						1,199
Derivatives			—						43						—						43
Total assets			$	4,488					$	25,079					$	392					$	29,959
Liabilities:
Derivatives			$	—					$	(5)					$	—					$	(5)
Total liabilities			$	—					$	(5)					$	—					$	(5)
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			206						31						—						237
Private equity securities			—						—						85						85
Total equity securities			250						674						85						1,009
Securities lending collateral			—						353						—						353
Derivatives			—						23						—						23
Total assets			$	2,265					$	20,919					$	397					$	23,581
Liabilities:
Derivatives			$	—					$	(1)					$	—					$	(1)
Total liabilities			$	—					$	(1)					$	—					$	(1)

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Anthem, Inc.

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, 2020, 2019 and 2018 is as follows:

			Corporate Securities						Residential Mortgage- backed Securities												Other Securities						Equity Securities						Total
Year ended December 31, 2020
Beginning balance at January 1, 2020			$	303					$	2											$	7					$	85					$	397
Total gains (losses):
Recognized in net income			(3)						—												—						(19)						(22)
Recognized in accumulated other comprehensive income			(5)						—												—						—						(5)
Purchases			85						—												—						16						101
Sales			(19)						—												—						(22)						(41)
Settlements			(44)						—												(2)						—						(46)
Transfers into Level III			10						—												—						—						10
Transfers out of Level III			(2)						—												—						—						(2)
Ending balance at December 31, 2020			$	325					$	2											$	5					$	60					$	392
Change in unrealized gains or losses included in net income related to assets still held at December 31, 2020			$	—					$	—											$	—					$	(19)					$	(19)
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 gains or 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 gains (losses):
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 gains or losses included in net income related to assets still held at December 31, 2018			$	—					$	—											$	—					$	30					$	30

There were no individually material transfers into or out of Level III during the years ended December 31, 2020, 2019 or 2018.

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 Beacon on February 28, 2020. The preliminary values of net assets acquired in our acquisition of Beacon and resulting goodwill and other intangible assets were recorded at fair

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

value primarily using Level III inputs. The majority of Beacon’s 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 preliminary fair values of goodwill and other intangible assets acquired in our acquisition of Beacon 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 Beacon described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2020 or 2019.

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, unobservable inputs or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. The use of assumptions for unobservable inputs for the determination of fair value involves a level of judgment and uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of 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, 2020, 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: Other invested asset 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.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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.

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, 2020 and 2019 is as follows:

			Carrying Value						Estimated Fair Value
			Level I						Level II						Level III						Total
December 31, 2020
Assets:
Other invested assets			$	4,285					$	—					$	—					$	4,285					$	4,285
Liabilities:
Debt:
Commercial paper			250						—						250						—						250
Notes			19,677						—						23,307						—						23,307
Convertible debentures			108						—						712						—						712
December 31, 2019
Assets:
Other invested assets			$	4,258					$	—					$	—					$	4,258					$	4,258
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

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

8. Income Taxes

The components of deferred income taxes at December 31, 2020 and 2019 are as follows:

			2020						2019
Deferred income tax assets:
Accrued expenses			$	588					$	331
Bad debt reserves			143						89
Insurance reserves			187						139
Lease liabilities			204						180
Retirement liabilities			205						216
Deferred compensation			31						28
Federal and state operating loss carryforwards			274						124
Other			113						71
Subtotal			1,745						1,178
Less: valuation allowance			(84)						(45)
Total deferred income tax assets			1,661						1,133
Deferred income tax liabilities:
Federal and state intangible assets			2,073						1,999
Capitalized software			670						554
Depreciation and amortization			37						62
Investment basis			407						230
Retirement assets			260						249
Lease right-of-use asset			131						164
Prepaid expenses			102						102
Total deferred income tax liabilities			3,680						3,360
Net deferred income tax liabilities			$	2,019					$	2,227

In the table above, certain amounts for the year ended December 31, 2019 have been reclassified from a net to gross presentation to more fully reflect the federal and state tax effects by type of temporary difference. This reclassification does not impact amounts presented in the financial statements.

As of December 31, 2020, the Company’s undistributed earnings from non-U.S. subsidiaries are intended to be indefinitely reinvested in non-U.S. operations, and therefore no U.S. deferred taxes have been recorded.

Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consist of the following:

			2020						2019						2018
Current tax expense:
Federal			$	1,731					$	1,019					$	1,128
State and local			461						84						78
Total current tax expense			2,192						1,103						1,206
Deferred tax (benefit) expense			(526)						75						112
Total income tax expense			$	1,666					$	1,178					$	1,318

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Anthem, Inc.

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, 2020, 2019 and 2018 is as follows:

			2020												2019												2018
			Amount						Percent						Amount						Percent						Amount						Percent
Amount at statutory rate			$	1,310					21.0		%				$	1,257					21.0		%				$	1,064					21.0		%
State and local income taxes net of federal tax expense/benefit			235						3.8						138						2.3						63						1.2
Tax exempt interest and dividends received deduction			(22)						(0.4)						(24)						(0.4)						(27)						(0.5)
HIP fee			330						5.3						—						—						324						6.4
Basis adjustments from recent acquisitions			(110)						(1.8)						—						—						(28)						(0.6)
Tax Cuts and Jobs Act			—						—						—						—						(28)						(0.6)
Other, net			(77)						(1.2)						(193)						(3.2)						(50)						(0.9)
Total income tax expense			$	1,666					26.7		%				$	1,178					19.7		%				$	1,318					26.0		%

During the year ended December 31, 2020, we recognized income tax expense of $1,666, or $6.55 per diluted share, which included income tax expense of $330, or $1.30 per diluted share as a result of the non-tax deductibility of the HIP Fee payment, which was reinstated for 2020.

During the year ended December 31, 2019, we recognized income tax expense of $1,178, or $4.53 per diluted share. The HIP Fee payment was suspended for 2019.

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.

The change in the carrying amount of gross unrecognized tax benefits from uncertain tax positions for the years ended December 31, 2020 and 2019 is as follows:

			2020						2019
Balance at January 1			$	146					$	241
Additions based on:
Tax positions related to current year			76						1
Tax positions related to prior years			40						—
Reductions based on:
Tax positions related to prior years			(13)						(63)
Settlements with taxing authorities			—						(33)
Balance at December 31			$	249					$	146

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.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

The amount of unrecognized tax benefits that would impact our effective tax rate in future periods, if recognized, was $227 and $140 at December 31, 2020 and 2019, respectively. Also included in the table above, at December 31, 2020, is $2 that would be recognized as an adjustment to additional paid-in capital, which would not affect our effective tax rate. In 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 2020, 2019, or 2018.

For the year ended December 31, 2020, we recognized a net interest expense of $7. For the years ended December 31, 2019 and 2018, we recognized a net interest (benefit) expense of $(11) and $15, respectively. We had accrued approximately $33 and $26 for the payment of interest at December 31, 2020 and 2019, respectively.

As of December 31, 2020, as further described below, certain tax years remain open to examination by the Internal Revenue Service (“IRS”) and various state and local authorities. As a result of these examinations and discussions with taxing agencies, 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 ($15) to ($147).

We are a member of the IRS Compliance Assurance Process (“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, 2020, the IRS examination of our 2020 and 2019 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, 2020, we had federal net operating loss carryforwards of $40 that will expire beginning 2033 through 2037 and $7 that have an indefinite carryforward period; state net operating loss carryforwards expire beginning 2022 through 2040, with some having an indefinite carryforward period.

During 2020, 2019 and 2018, federal income taxes paid totaled $1,790, $1,403 and $738, respectively.

9. Property and Equipment

A summary of property and equipment at December 31, 2020 and 2019 is as follows:

			2020						2019
Computer software, purchased and internally developed			$	5,247					$	4,314
Computer equipment, furniture and other equipment			1,218						1,264
Leasehold improvements			671						715
Building and improvements			174						169
Land and improvements			17						17
Property and equipment, gross			7,327						6,479
Accumulated depreciation and amortization			(3,844)						(3,346)
Property and equipment, net			$	3,483					$	3,133

Depreciation expense for 2020, 2019 and 2018 was $176, $147 and $124, respectively. Amortization expense on computer software and leasehold improvements for 2020, 2019 and 2018 was $462, $528 and $528, respectively, which includes amortization expense on computer software, both purchased and internally developed, for 2020, 2019 and 2018 of $412, $450 and $465, respectively. Capitalized costs related to the internal development of software of $4,783 and $3,939 at December 31, 2020 and 2019, respectively, are reported with computer software.

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Our activities as disclosed in Note 4, “Business Optimization Initiatives”, include impairment of property and equipment. We recorded an impairment charge of $198 for property and equipment in 2020 which is in selling, general and administrative expenses.

10. Goodwill and Other Intangible Assets

A summary of the change in the carrying amount of goodwill for our segments (see Note 20, “Segment Information”) for 2020 and 2019 is as follows:

			Commercial and Specialty Business						Government Business						IngenioRx						Other						Total
Balance as of January 1, 2019			$	11,551					$	8,953					$	—					$	—					$	20,504
Adjustments			—						(674)						—						670						(4)
Balance as of December 31, 2019			11,551						8,279						—						670						20,500
Acquisitions and adjustments			42						52						48						1,049						1,191
Balance as of December 31, 2020			$	11,593					$	8,331					$	48					$	1,719					$	21,691
Accumulated impairment as of December 31, 2020			$	(41)					$	—					$	—					$	—					$	(41)

Goodwill adjustments in 2019 include certain reclassifications made for changes in segment reporting. For additional information, see Note 20, “Segment Information”.

As required by FASB guidance, we completed annual impairment tests of existing goodwill and other intangible assets with indefinite lives during 2020, 2019 and 2018. 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 2020, 2019 or 2018, 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, 2020 and 2019 are as follows:

			2020																		2019
Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Intangible assets with finite lives:
Customer relationships			$	5,180					$	(3,766)					$	1,414					$	4,500					$	(3,469)					$	1,031
Provider and hospital relationships			323						(114)						209						228						(98)						130
Other			444						(177)						267						352						(129)						223
Total			5,947						(4,057)						1,890						5,080						(3,696)						1,384
Intangible assets with indefinite lives:
Blue Cross and Blue Shield and other trademarks			6,299						—						6,299						6,299						—						6,299
State Medicaid licenses			1,216						—						1,216						991						—						991
Total			7,515						—						7,515						7,290						—						7,290
Other intangible assets			$	13,462					$	(4,057)					$	9,405					$	12,370					$	(3,696)					$	8,674

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

As of December 31, 2020, the estimated amortization expense for each of the five succeeding years is as follows: 2021, $324; 2022, $271; 2023, $233; 2024, $196; and 2025, $159.

11. 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 (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 (“ERISA”), as further 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.

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
			2020						2019						2020						2019
Benefit obligation at beginning of year			$	1,880					$	1,743					$	423					$	431
Service cost			—						—						1						1
Interest cost			47						62						10						15
Plan participant contributions			—						—						18						17
Actuarial loss (gain)			219						200						(15)						5
Settlements			(80)						(35)						—						—
Benefits paid			(57)						(90)						(38)						(46)
Benefit obligation at end of year			$	2,009					$	1,880					$	399					$	423

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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

			Pension Benefits												Other Benefits
			2020						2019						2020						2019
Fair value of plan assets at beginning of year			$	2,026					$	1,818					$	367					$	336
Actual return on plan assets			290						329						33						55
Employer contributions			7						4						11						5
Plan participant contributions			—						—						18						17
Settlements			(80)						(35)						—						—
Benefits paid			(57)						(90)						(38)						(46)
Fair value of plan assets at end of year			$	2,186					$	2,026					$	391					$	367

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

			Pension Benefits												Other Benefits
			2020						2019						2020						2019
Noncurrent assets			$	248					$	212					$	—					$	—
Current liabilities			(6)						(6)						—						—
Noncurrent liabilities			(65)						(60)						(8)						(56)
Net amount at December 31			$	177					$	146					$	(8)					$	(56)

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

			Pension Benefits												Other Benefits
			2020						2019						2020						2019
Net actuarial loss			$	749					$	734					$	3					$	25
Prior service cost (credit)			—						1						(12)						(19)
Net amount before tax at December 31			$	749					$	735					$	(9)					$	6

The accumulated benefit obligation for the defined benefit pension plans was $2,007 and $1,878 at December 31, 2020 and 2019, respectively.

As of December 31, 2020, certain pension plans had accumulated benefit obligations in excess of plan assets. Such plans had accumulated benefit obligation and fair value of plan assets of $111 and $42, respectively. For those same plans, the projected benefit obligation was also in excess of plan assets. Such plans had projected benefit obligation and fair value of plan assets of $113 and $42, respectively.

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

			Pension Benefits												Other Benefits
			2020						2019						2020						2019
Discount rate			2.24		%				3.11		%				1.99		%				2.93		%
Rate of compensation increase			3.00		%				3.00		%				3.00		%				3.00		%
Expected rate of return on plan assets			6.72		%				7.33		%				6.60		%				7.00		%
Interest crediting rate			3.82		%				3.82		%				0.87		%				1.81		%

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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:

			2020						2019						2018
Pension Benefits
Service cost			$	—					$	—					$	8
Interest cost			47						62						55
Expected return on assets			(138)						(138)						(147)
Recognized actuarial loss			24						17						22
Settlement loss			29						9						5
Net periodic benefit credit			$	(38)					$	(50)					$	(57)
Other Benefits
Service cost			$	1					$	1					$	1
Interest cost			10						15						15
Expected return on assets			(25)						(22)						(24)
Recognized actuarial loss			—						2						3
Amortization of prior service credit			(7)						(12)						(12)
Net periodic benefit credit			$	(21)					$	(16)					$	(17)

During the years ended December 31, 2020, 2019 and 2018, we incurred total settlement losses of $29, $9 and $5, 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:

			2020						2019						2018
Pension Benefits
Discount rate			3.11		%				4.15		%				3.44		%
Rate of compensation increase			3.00		%				3.00		%				3.00		%
Expected rate of return on plan assets			7.33		%				7.44		%				7.83		%
Interest crediting rate			3.82		%				3.83		%				3.82		%
Other Benefits
Discount rate			2.93		%				4.04		%				3.42		%
Rate of compensation increase			3.00		%				3.00		%				3.00		%
Expected rate of return on plan assets			7.00		%				7.00		%				7.00		%
Interest crediting rate			1.81		%				3.12		%				2.35		%

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, 2020 measurement date was 7.00% for 2021 with a gradual decline to 4.50% by the year 2033. 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, 2020 measurement date was 5.50% for 2021 with a gradual decline to 4.50% by the year 2033. These estimated trend rates are subject to change in the future.

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 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

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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 a commingled fund comprised primarily of equity securities. As of December 31, 2020, 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.

The partnerships hold various types of underlying assets such as real estate and investments in oil and gas companies. Generally, the partnership interests are not redeemable and are transferable only with the consent of the general partner. Unfunded commitments related to all partnership interests totaled approximately $3 and $29 at December 31, 2020 and 2019, respectively.

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.

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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, 2020, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $64, are as follows (see Note 7, “Fair Value,” for additional information regarding the definition of level inputs):

			Level I						Level II						Level III						Total
December 31, 2020
Pension Benefit Assets:
Equity securities:
U.S. securities			$	710					$	—					$	—					$	710
Foreign securities			238						—						—						238
Mutual funds			42						—						—						42
Fixed maturity securities:
Government securities			—						237						—						237
Corporate securities			—						394						—						394
Asset-backed securities			—						137						—						137
Other types of investments:
Commingled fund			—						112						—						112
Insurance company contracts			—						—						189						189
Total pension benefit assets at fair value			$	990					$	880					$	189					2,059
Partnership investments																					74
Total pension benefit assets																					$	2,133
Other Benefit Assets:
Equity securities:
U.S. securities			$	9					$	—					$	—					$	9
Foreign securities			3						—						—						3
Mutual funds			23						—						—						23
Fixed maturity securities:
Government securities			—						2						—						2
Corporate securities			—						4						—						4
Asset-backed securities			—						3						—						3
Other types of investments:
Commingled fund			—						2						—						2
Life insurance contracts			—						—						323						323
Investment in DOL 103-12 trust			—						11						—						11
Total other benefit assets			$	35					$	22					$	323					$	380

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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, 2019, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $64, are as follows:

			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:
Insurance company contracts			—						—						175						175
Commingled fund			—						136						—						136
Total pension benefit assets at fair value			$	861					$	890					$	175					1,926
Partnership investments																					52
Total pension benefit assets																					$	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:
Life insurance contracts			—						—						294						294
Investment in DOL 103-12 trust			—						12						—						12
Commingled fund			—						1						—						1
Total other benefit assets at fair value			$	35					$	22					$	294					$	351

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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, 2020, 2019 and 2018 is as follows:

															Insurance Company Contracts						Life Insurance Contracts						Total
Year ended December 31, 2020
Beginning balance at January 1, 2020															$	175					$	294					$	469
Actual return on plan assets relating to assets still held at the reporting date															7						29						36
Purchases															15						—						15
Sales															(8)						—						(8)
Ending balance at December 31, 2020															$	189					$	323					$	512
Year ended December 31, 2019
Beginning balance at January 1, 2019															$	166					$	249					$	415
Actual return on plan assets relating to assets still held at the reporting date															12						45						57
Purchases															6						—						6
Sales															(9)						—						(9)
Ending balance at December 31, 2019															$	175					$	294					$	469
Year ended December 31, 2018
Beginning balance at January 1, 2018															$	173					$	269					$	442
Actual return on plan assets relating to assets still held at the reporting date															(7)						(15)						(22)
Purchases															8						—						8
Sales															(8)						(5)						(13)
Ending balance at December 31, 2018															$	166					$	249					$	415

There were no other transfers into or out of Level III during the years ended December 31, 2020, 2019 or 2018.

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, 2020, 2019 and 2018, no material contributions were necessary to meet ERISA required funding levels. However, during each of the years ended December 31, 2020, 2019 and 2018, we made tax deductible discretionary contributions to the pension benefit plans of $7, $4, and $4. Employer contributions to other benefit plans represent discretionary contributions and do not include payments to retirees for current benefits.

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

			Pension Benefits						Other Benefits
2021			$	131					$	35
2022			128						34
2023			126						32
2024			121						31
2025			119						30
2026 - 2030			552						125

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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 $221, $201 and $211 during 2020, 2019 and 2018, 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.

12. Medical Claims Payable

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 20, “Segment Information”), for the year ended December 31, 2020 is as follows:

			Commercial & Specialty Business						Government Business						Other						Total
Gross medical claims payable, beginning of year			$	3,039					$	5,608					$	—					$	8,647
Ceded medical claims payable, beginning of year			(14)						(19)						—						(33)
Net medical claims payable, beginning of year			3,025						5,589						—						8,614
Business combinations and purchase adjustments			—						141						198						339
Net incurred medical claims:
Current year			24,894						58,912						1,288						85,094
Prior years redundancies			(375)						(262)						—						(637)
Total net incurred medical claims			24,519						58,650						1,288						84,457
Net payments attributable to:
Current year medical claims			21,736						51,602						1,291						74,629
Prior years medical claims			2,527						5,165						—						7,692
Total net payments			24,263						56,767						1,291						82,321
Net medical claims payable, end of year			3,281						7,613						195						11,089
Ceded medical claims payable, end of year			13						33						—						46
Gross medical claims payable, end of year			$	3,294					$	7,646					$	195					$	11,135

Activity in our Other segment resulted from our acquisition of Beacon.

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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, 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

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

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 estimated. The prior year redundancy of $637 shown above for the year ended December 31, 2020 represents an estimate

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

based on paid claim activity from January 1, 2020 to December 31, 2020. 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 $637 redundancy relates to claims incurred in calendar year 2019.

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, 2020, 2019 and 2018, 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. The impact from COVID-19 on healthcare utilization and medical claims submission patterns has increased estimation uncertainty on our incurred but not reported liability at December 31, 2020. Slowdowns in claims submission patterns and increases in utilization levels for COVID-19 testing and treatment during the fourth quarter of 2020 are the primary factors that lead to the increased estimation uncertainty.

			Favorable Developments by Changes in Key Assumptions
			2020						2019						2018
Assumed trend factors			$	(599)					$	(325)					$	(515)
Assumed completion factors			(38)						(175)						(415)
Total			$	(637)					$	(500)					$	(930)

The favorable development recognized in 2020 resulted primarily from trend factors in late 2019 developing more favorably than originally expected as well as a smaller contribution from completion factor development.

The favorable development recognized in 2019 resulted primarily from trend 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 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
						2020						2019						2018
Net incurred medical claims:
Commercial & Specialty Business						$	24,519					$	25,752					$	23,638
Government Business						58,650						52,443						45,013
Other						1,288						—						—
Total net incurred medical claims						84,457						78,195						68,651
Quality improvement and other claims expense						3,588						3,591						3,244
Benefit expense						$	88,045					$	81,786					$	71,895

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Incurred claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2020, 2019 and 2018 is as follows:

Commercial & Specialty Business						Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	26,943					$	26,753					$	26,747
2019												25,942						25,572
2020																		24,894
Total																		$	77,213

Paid claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2020, 2019 and 2018 is as follows:

Commercial & Specialty Business						Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	24,367					$	26,643					$	26,721
2019												23,026						25,475
2020																		21,736
Total																		$	73,932

At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $26, $97 and $3,158 for the claim years 2018 and prior, 2019 and 2020, respectively.

At December 31, 2020, the cumulative number of reported claims for the Commercial & Specialty Business was 93, 87 and 74 for the claim years 2018 and prior, 2019 and 2020, respectively.

Incurred claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:

Government Business						Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	49,616					$	49,306					$	49,278
2019												52,753						52,518
2020																		59,053
Total																		$	160,849

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

Paid claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:

Government Business						Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	44,959					$	49,201					$	49,231
2019												47,269						52,403
2020																		51,602
Total																		$	153,236

At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for the Government Business was $47, $115 and $7,451 for the claim years 2018 and prior, 2019 and 2020, respectively.

At December 31, 2020, the cumulative number of reported claims for the Government Business was 225, 241 and 236 for the claim years 2018 and prior, 2019 and 2020, respectively.

Incurred claims development, net of reinsurance, for Other as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:

Other						Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	—					$	—					$	—
2019												—						—
2020																		1,486
Total																		$	1,486

Paid claims development, net of reinsurance, for Other as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:

Other						Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
						2018						2019
Claim Years						(Unaudited)						(Unaudited)						2020
2018 & Prior						$	—					$	—					$	—
2019												—						—
2020																		1,291
Total																		$	1,291

At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for Other was $0, $0 and $195 for the claim years 2018 and prior, 2019 and 2020, respectively.

At December 31, 2020, the cumulative number of reported claims for Other was $0, $0, and $27 for the claim years 2018 and prior, 2019 and 2020, respectively.

The information about incurred claims development, paid claims development and cumulative number of reported claims for the years ended December 31, 2018 and 2019 for our Commercial & Specialty Business, Government Business and Other, is unaudited and presented as supplementary information.

The cumulative number of reported claims for each claim year for our Commercial & Specialty Business, Government Business and Other have been developed using historical data captured by our claim payment systems. The provided claim

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Anthem, Inc.

Notes to Consolidated Financial Statements (continued)

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, Government Business and Other incurred and paid claims development information for the three years ended December 31, 2020, reflected in the tables above, to the consolidated ending balance for medical claims payable included in the consolidated balance sheet, as of December 31, 2020, is as follows:

			Commercial & Specialty Business						Government Business						Other						Total
Cumulative incurred claims and allocated claim adjustment expenses, net of reinsurance			$	77,213					$	160,849					$	1,486					$	239,548
Less: Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance			73,932						153,236						1,291						228,459
Net medical claims payable, end of year			3,281						7,613						195						11,089
Ceded medical claims payable, end of year			13						33						—						46
Insurance lines other than short duration			—						224						—						224
Gross medical claims payable, end of year			$	3,294					$	7,870					$	195					$	11,359

13. 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, the Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York, (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, 2020 and 2019, $0 and $650, respectively, were outstanding under our short-term FHLB borrowings. Outstanding short-term FHLB borrowings at December 31, 2019 had fixed interest rates of 1.664%.

Through certain subsidiaries, we have entered into multiple 364-day lines of credit (the “Subsidiary Credit Facilities”) with separate lenders for general corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to $300. 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, 2020 and 2019, $0 and $50, 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, 2020 and 2019 consists of the following:

			2020						2019
Senior unsecured notes:
2.500%, due 2020			$	—					$	899
4.350%, due 2020			—						699
3.700%, due 2021			700						699
2.950%, due 2022			749						747
3.125%, due 2022			848						847
3.300%, due 2023			1,027						1,013
3.350%, due 2024			847						846
3.500%, due 2024			796						795
2.375%, due 2025			1,253						845
3.650%, due 2027			1,591						1,590
4.101%, due 2028			1,257						1,253
2.875%, due 2029			819						819
2.250%, due 2030			1,089						—
5.950%, due 2034			334						334
5.850%, due 2036			396						396
6.375%, due 2037			366						366
5.800%, due 2040			114						124
4.625%, due 2042			873						888
4.650%, due 2043			978						987
4.650%, due 2044			779						792
5.100%, due 2044			565						594
4.375%, due 2047			1,387						1,386
4.550%, due 2048			839						838
3.700%, due 2049			811						811
3.125%, due 2050			987						—
4.850%, due 2054			247						247
Surplus note:
9.000%, due 2027			25						25
Senior convertible debentures:
2.750%, due 2042			108						145
Variable rate debt:
Commercial paper program			250						400
Total long-term debt			20,035						19,385
Current portion of long-term debt			(700)						(1,598)
Long-term debt, less current portion			$	19,335					$	17,787

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

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We generally issue senior unsecured notes (“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 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 November 23, 2020, we repaid, at maturity, the $900 outstanding balance of our 2.500% senior unsecured notes. On August 17, 2020, we repaid, at maturity, the $700 outstanding balance of our 4.350% senior unsecured notes.

Additionally, during the year ended December 31, 2020, we repurchased $79 of outstanding principal amount of certain other senior unsecured notes, plus applicable premium for early redemption plus accrued and unpaid interest, for cash totaling $109. We recognized a loss on extinguishment of debt of $30 for the repurchase of these notes.

On May 5, 2020, we issued $400 aggregate principal amount of additional senior notes pursuant to a reopening of our existing 2.375% Notes due 2025 (the “2025 Notes”), $1,100 aggregate principal amount of 2.250% Notes due 2030 (the “2030 Notes”), and $1,000 aggregate principal amount of 3.125% Notes due 2050 (the “2050 Notes”) under our shelf registration statement. The 2025 Notes constitute an additional issuance of our 2.375% notes due 2025, of which $850 aggregate principal amount was issued on September 9, 2019. Interest on the 2025 Notes is deemed to have accrued from January 15, 2020 and is payable semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020. Interest on the 2030 Notes and 2050 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 2020. The proceeds were used for working capital and general corporate purposes, including, but not limited to, repayment of short-term and long-term debt, repurchase of our common stock pursuant to our share repurchase program and to fund acquisitions.

On September 9, 2019, we issued $850 aggregate principal amount of the 2025 Notes, $825 aggregate principal amount of 2.875% Notes due 2029 (the “2029 Notes”), and $825 aggregate principal amount of 3.700% Notes due 2049 (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 (“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 (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 (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.

The surplus note is an unsecured obligation of Anthem Insurance Companies, Inc. (“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

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Insurance (“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 (the “5-Year Facility”) with a group of lenders for general corporate purposes. The 5-Year Facility provides credit up to $2,500 and matures in June 2024. We also have a 364-day senior revolving credit facility (the “364-Day Facility”) with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000. In May 2020, we amended and extended the 364-Day Facility, which now matures in June 2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of December 31, 2020, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 37.6%. We do not believe the restrictions contained in any of our credit facility covenants materially affect our financial or operating flexibility. As of December 31, 2020, we were in compliance with all of the debt covenants under these credit facilities. There were no amounts outstanding under the 364-Day Facility at any time during the years ended December 31, 2020 or the year ended December 31, 2019. At December 31, 2020 and December 31, 2019, there were no amounts outstanding under our 5-Year Facility.

We have an authorized commercial paper program of up to $3,500, the proceeds of which may be used for general corporate purposes. At December 31, 2020, we had $250 outstanding under our commercial paper program with a weighted-average interest rate of 0.1600%. At December 31, 2019, we had $400 outstanding under our commercial paper program with a weighted-average interest rate of 1.8528%. Commercial paper borrowings have been classified as long-term debt at December 31, 2020 and 2019, 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.

Convertible Debentures

On October 9, 2012, we issued $1,500 of senior convertible debentures (the “Debentures”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (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 (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 (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.

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.

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During the year ended December 31, 2020, $56 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 conversions with cash for total payments of $222. We recognized a loss on the extinguishment of debt related to the Debentures of $6, based on the fair values of the debt on the conversion settlement dates. 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. 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.

As of December 31, 2020, our common stock was last traded at a price of $321.09 per share. If the remaining Debentures had been converted or matured at December 31, 2020, we would have been obligated to pay the principal of the Debentures plus an amount in cash or shares equal to $560. 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, 2020, the related balances, conversion rate and conversion price of the Debentures:

Outstanding principal amount			$	159
Unamortized debt discount			$	49
Net debt carrying amount			$	108
Equity component carrying amount			$	58
Conversion rate (shares of common stock per $1,000 of principal amount)			14.0808
Effective conversion price (per $1,000 of principal amount)			$	71.0187

The remaining amortization period of the unamortized debt discount as of December 31, 2020 is approximately 22 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, 2020, 2019 and 2018, we recognized $6, $9 and $12, respectively, of interest expense related to the Debentures, of which $5, $7 and $10, respectively, represented interest expense recognized at the stated interest rate of 2.750% and $1, $2 and $2, respectively, represented interest expense resulting from amortization of the debt discount.

Total interest paid during 2020, 2019 and 2018 was $794, $755, and $728, respectively.

We were in compliance with all applicable covenants under all of our outstanding debt agreements at December 31, 2020 and 2019.

Future maturities of all long-term debt outstanding at December 31, 2020 are as follows: 2021, $950; 2022, $1,597; 2023, $1,027; 2024, $1,643; 2025, $1,253 and thereafter, $13,565.

14. 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

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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 $250 at December 31, 2020. 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 (the “Blue plans”) across the country. Cases filed in twenty-eight states 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 (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 (“Sherman Act”) and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers.

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 the defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield trademarks. In April 2019, plaintiffs filed their motions for class certification in conjunction with their supporting expert reports, and the defendants filed their motions to exclude plaintiffs’ experts, as well as their opposition to plaintiffs’ motions for class certification, in July 2019.

The BCBSA and Blue plans have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the subscriber plaintiffs. If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $594, and will contain certain non-monetary terms including (i) eliminating the “national best efforts” rule in the BCBSA license agreements (which rule limits the percentage of non-Blue revenue permitted for each Blue plan) and (ii) allowing for some large national employers with self-funded benefit plans to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. We recognized our estimated payment obligation of $548, net of third party insurance coverage received as of December 31, 2020.

On November 30, 2020, the Court issued an order preliminarily approving the Subscriber Settlement Agreement, following which members of the Subscriber class were provided notice of the Settlement Agreement and an opportunity to opt out of the class. All terms of the Subscriber Settlement Agreement are subject to final approval by the Court before they

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become effective. Objections to the settlement as well as the deadline for those that wish to opt-out from the settlement must be submitted by July 28, 2021. Claims must be filed by November 5, 2021. A final approval hearing has been scheduled for October 20, 2021. If the Court grants approval of the Subscriber Settlement Agreement, and after all appellate rights have expired or have been exhausted in a manner that affirms the Court’s final order and judgment, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective.

In October 2020, after the Court lifted the stay as to the provider litigation, provider plaintiffs filed a renewed motion for class certification, and defendants filed an opposition to that motion. We intend to continue to vigorously defend the provider suit; however, its 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) (“BCC”) was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court (the “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, 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 (“GPT”) calculated as 2.35% on gross premiums. As a licensed Health Care Service Plan, BCC has paid the California Corporate Franchise Tax (“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.

Because the 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.

In March 2018, the Superior Court denied BCC's motion for judgment on the pleadings and similar motions brought by other entities. BCC filed a motion for summary judgment with the Superior Court, which was heard in October 2020. In December 2020, the Superior Court granted BCC's motion for summary judgment, dismissing the plaintiff's lawsuit. We intend to vigorously defend any appeal of this lawsuit.

Express Scripts, Inc. Pharmacy Benefit Management Litigation

In March 2016, we filed a lawsuit against Express Scripts, Inc. (“Express Scripts”), our vendor at the time 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 (the “ESI PBM Agreement”), over $158 in damages related to operational breaches, as well as various declarations under the ESI PBM Agreement, 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. Rebuttal expert reports were submitted in October 2020, discovery must be completed in April 2021, and motions for summary judgment must be filed in May 2021. 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.

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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 good faith and fair dealing implied in the health plans, (i) by failing to adequately monitor Express Scripts’ pricing under the ESI PBM Agreement, (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 (the “Second Circuit”), which was heard in October 2018. In December 2020, the Second Circuit affirmed the trial court's decision dismissing the ERISA complaint. Plaintiffs have filed a Petition for Rehearing and Rehearing En Banc. 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 Corporation (“Cigna”) announced that we entered into the Cigna Agreement and Plan of Merger (“Cigna Merger Agreement”) pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice (“DOJ”) along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia (“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 (“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 arguments in November 2019 and took the matter under consideration. In August 2020, the Delaware Court issued an opinion finding that neither party was owed damages and that we did not owe Cigna the $1,850 termination fee. The Delaware Court issued an order implementing its opinion in October 2020. Cigna filed its notice of appeal in November 2020 challenging the Court's decision that Anthem did not owe Cigna a termination fee. Cigna filed its appellate brief in December 2020, and we filed our response in January 2021. We believe Cigna’s allegations are without merit and we intend to vigorously defend against Cigna’s allegations; however, the ultimate outcome of the appeal of this 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

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the outcome of our litigation with Cigna in the Delaware Court. This lawsuit’s ultimate outcome cannot be presently determined.

Medicare Risk Adjustment Litigation

In March 2020, the DOJ filed a civil lawsuit against Anthem, Inc. in the U.S. District Court for the Southern District of New York in a case captioned United States v. Anthem, Inc. The DOJ’s suit alleges, among other things, that we falsely certified the accuracy of the diagnosis data we submitted to the Centers for Medicare and Medicaid Services (“CMS”) for risk-adjustment purposes under Medicare Part C and knowingly failed to delete inaccurate diagnosis codes. The DOJ further alleges that, as a result of these purported acts, we caused CMS to calculate the risk-adjustment payments based on inaccurate diagnosis information, which enabled us to obtain unspecified amounts of payments in Medicare funds in violation of the False Claims Act. The DOJ filed an amended complaint in July 2020, alleging the same causes of action but revising some of its allegations. In September 2020, we filed a motion to transfer the lawsuit to the Southern District of Ohio, a motion to dismiss part of the lawsuit, and a motion to strike certain allegations in the amended complaint. The motions are fully briefed and no decision has been rendered. We intend to continue to vigorously defend this suit; however, the ultimate outcome cannot be presently determined.

Investigations of CareMore and HealthSun

With the assistance of outside counsel, we are conducting investigations of risk-adjustment practices involving data submitted to CMS (unrelated to our retrospective chart review program) at CareMore Health Plans, Inc. (“CareMore”), one of our California subsidiaries, and HealthSun Health Plans, Inc. (“HealthSun”), one of our Florida subsidiaries. Our CareMore investigation has resulted in the termination of CareMore’s relationship with one contracted provider in California. Our HealthSun investigation focuses on risk adjustment practices initiated prior to our acquisition of HealthSun in December 2017 that continued after the acquisition. We have voluntarily self-disclosed the existence of both of our investigations to CMS and the Criminal Division of the DOJ, which then initiated an investigation. We are cooperating with the government's investigation. We are in the process of analyzing the scope of potential data corrections to be submitted to CMS. We have also asserted indemnity claims for escrowed funds under the HealthSun purchase agreement for, among other things, breach of healthcare and financial representation provisions, based on the conduct discovered during our investigation. We are in active litigation with two groups of sellers regarding part of the escrowed funds in cases captioned Shareholder Representative Services, LLC v. ATH Holding Company, LLC and Highland Acquisition Holdings, LLC and LPPAS Representative, LLC v. ATH Holding Company, LLC, both pending in the Delaware Court.

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 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 have investigated events related to the cyber attack, including how it occurred, its consequences and our responses. In September 2020, we entered into a settlement to resolve the investigation by a multi-state group of attorneys general, which was the final outstanding matter related to the 2015 cyber attack. We have undertaken commitments that align with our ongoing and consistent focus to protect information in addition to a monetary payment of $39, which was fully accrued in a prior period.

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

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Notes to Consolidated Financial Statements (continued)

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 March 2020, we entered into an agreement with a vendor for information technology infrastructure and related management and support services through June 2025. The new agreement supersedes certain prior agreements for such services and includes provisions for additional services not provided under those agreements. Our remaining commitment under this agreement at December 31, 2020 is approximately $1,426. We will have the ability to terminate the agreement upon the occurrence of certain events, subject to early termination fees.

Beginning in the second quarter of 2019, we began using our pharmacy benefits manager IngenioRx, Inc. (“IngenioRx”) to market and offer PBM services to our fully-insured and self-funded affiliated health plan customers, as well as to external customers outside of the health plans we own. The comprehensive prescription benefits management services portfolio includes, but is not limited to, formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities. Also in the second quarter of 2019, IngenioRx began delegating certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy.

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, 2020, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.

15. Capital Stock

Stock Incentive Plan****s

Our Board of Directors has adopted the 2017 Anthem Incentive Compensation Plan (“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.

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Notes to Consolidated Financial Statements (continued)

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. Stock options vest over three years in equal annual installments and generally have a term of ten years from the grant date.

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 2020 will vest in 2023, based on certain revenue and earnings targets over the three year period of 2020 to 2022. Performance units issued in 2019 will vest in 2022, based on certain revenue and earnings targets over the three year period of 2019 to 2021. Performance units issued in 2018 will vest in 2021, based on certain revenue and earnings targets over the three year period of 2018 to 2020.

For the years ended December 31, 2020, 2019 and 2018, we recognized share-based compensation expense of $283, $294 and $226, respectively, as well as related tax benefits of $74, $78 and $61, respectively.

A summary of stock option activity for the year ended December 31, 2020 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, 2020			3.1						$	190.28
Granted			1.0						271.61
Exercised			(0.9)						136.89
Forfeited or expired			(0.1)						273.91
Outstanding at December 31, 2020			3.1						230.00						6.75						$	280
Exercisable at December 31, 2020			1.6						185.08						5.37						$	217

The intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 amounted to $147, $188 and $172, respectively. We recognized tax benefits of $40, $52 and $47 during the years ended December 31, 2020, 2019 and 2018, respectively, from option exercises and disqualifying dispositions. During the years ended December 31, 2020, 2019 and 2018, we received cash of $129, $143 and $141, respectively, from exercises of stock options.

The total fair value of restricted stock awards that vested during the years ended December 31, 2020, 2019 and 2018 was $335, $245 and $237, respectively.

A summary of the status of nonvested restricted stock activity, including restricted stock units, for the year ended December 31, 2020 is as follows:

			Restricted Stock Shares and Units						Weighted-Average Grant Date Fair Value per Share
Nonvested at January 1, 2020			1.4						$	242.54
Granted			1.3						272.37
Vested			(1.3)						196.25
Forfeited			(0.1)						272.50
Nonvested at December 31, 2020			1.3						272.51

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Notes to Consolidated Financial Statements (continued)

During the year ended December 31, 2020, we granted approximately 0.3 restricted stock units that are contingent upon us achieving certain revenue and earning targets over the three year period of 2020 to 2022. These grants have been included in the activity shown above, but will be subject to adjustment at the end of 2022, based on results in the three year period.

As of December 31, 2020, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock, including restricted stock units, amounted to $30 and $154, respectively, which will be amortized over the weighted-average remaining requisite service periods of 11 months and 13 months, respectively.

As of December 31, 2020, there were approximately 19.5 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.

The following weighted-average assumptions were used to estimate the fair values of options granted during the years ended December 31, 2020, 2019 and 2018:

			2020						2019						2018
Risk-free interest rate			1.30		%				2.69		%				2.90		%
Volatility factor			26.00		%				25.00		%				30.00		%
Dividend yield (annual)			1.40		%				1.00		%				1.30		%
Weighted-average expected life (years)			4.30						4.40						3.70

The following weighted-average fair values were determined for the years ending December 31, 2020, 2019 and 2018:

			2020						2019						2018
Options granted during the year			$	54.05					$	68.66					$	55.48
Restricted stock awards granted during the year			272.37						305.88						233.73

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 (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, 2020, based on GAAP guidance. There were 0.2 shares issued during the year ended December 31, 2020. As of December 31, 2020, 4.6 shares were available for issuance under the Stock Purchase Plan.

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Notes to Consolidated Financial Statements (continued)

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.

A summary of the cash dividend activity for the years ended December 31, 2020 and 2019 is as follows:

Declaration Date						Record Date						Payment Date						Cash Dividend per Share						Total
Year ended December 31, 2020
January 28, 2020						March 16, 2020						March 27, 2020						$	0.95					$	240
April 28, 2020						June 10, 2020						June 25, 2020						0.95						242
July 28, 2020						September 10, 2020						September 25, 2020						0.95						238
October 27, 2020						December 7, 2020						December 22, 2020						0.95						234
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

On January 26, 2021, our Audit Committee declared a quarterly cash dividend to shareholders of $1.13 per share on the outstanding shares of our common stock. This quarterly dividend is payable on March 25, 2021 to the shareholders of record as of March 10, 2021.

Under our Board of Directors’ authorization, we maintain a common stock repurchase program. On January 26, 2021, our Audit Committee, pursuant to authorization granted by the Board of Directors, authorized a $5,000 increase to our 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. We temporarily suspended our share repurchase program in March 2020 as a precautionary measure in light of the COVID-19 pandemic, but resumed the program in late June 2020 after market conditions improved.

A summary of common stock repurchases for the years ended December 31, 2020 and 2019 is as follows:

									Years Ended December 31
			2020						2019
Shares repurchased									9.4						6.3
Average price per share									$	286.35					$	268.65
Aggregate cost									$	2,700					$	1,701
Authorization remaining at end of year									$	1,092					$	3,792

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 13, “Debt.”

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Notes to Consolidated Financial Statements (continued)

16. Accumulated Other Comprehensive Income

A reconciliation of the components of accumulated other comprehensive income (loss) at December 31, 2020 and 2019 is as follows:

			2020						2019
Investments:
Gross unrealized gains			$	1,316					$	720
Gross unrealized losses			(65)						(44)
Net pretax unrealized gains			1,251						676
Deferred tax liability			(302)						(155)
Net unrealized gains on investments			949						521
Non-credit components of impairments on investments:
Gross unrealized losses			(3)						(3)
Deferred tax asset			1						1
Net unrealized non-credit component of impairments on investments			(2)						(2)
Cash flow hedges:
Gross unrealized losses			(316)						(331)
Deferred tax asset			66						69
Net unrealized losses on cash flow hedges			(250)						(262)
Defined benefit pension plans:
Deferred net actuarial loss			(749)						(734)
Deferred prior service cost			—						(1)
Deferred tax asset			190						188
Net unrecognized periodic benefit costs for defined benefit pension plans			(559)						(547)
Postretirement benefit plans:
Deferred net actuarial loss			(3)						(25)
Deferred prior service credits			12						19
Deferred tax (liability) asset			(2)						2
Net unrecognized periodic benefit credit (costs) for postretirement benefit plans			7						(4)
Foreign currency translation adjustments:
Gross unrealized gains (losses)			6						(3)
Deferred tax (liability) asset			(1)						1
Net unrealized gains (losses) on foreign currency translation adjustments			5						(2)
Accumulated other comprehensive income (loss)			$	150					$	(296)

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Notes to Consolidated Financial Statements (continued)

Other comprehensive income (loss) reclassification adjustments for the years ended December 31, 2020, 2019 and 2018 are as follows:

			2020						2019						2018
Investments:
Net holding gain (loss) on investment securities arising during the period, net of tax (expense) benefit of $(160), $(198), and $133, respectively			$	478					$	695					$	(465)
Reclassification adjustment for net realized (gain) loss on investment securities, net of tax expense (benefit) of $13, $4, and $(13), respectively			(50)						(15)						47
Total reclassification adjustment on investments			428						680						(418)
Non-credit component of impairments on investments:
Non-credit component of impairments on investments, net of tax benefit of $0, $0, and $1, respectively			—						—						(2)
Cash flow hedges:
Holding gain (loss), net of tax (expense) benefit of $(3), $4, and $(10), respectively			12						(16)						37
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax (expense) benefit of $(2), $(9), and $29, respectively			(1)						26						(90)
Foreign currency translation adjustment, net of tax expense of $2, $0, and $0, respectively			7						—						(1)
Net gain (loss) recognized in other comprehensive income (loss), net of tax (expense) benefit of $(154), $(199), and $140, respectively			$	446					$	690					$	(474)

17. 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, 2020, 2019 and 2018 is as follows:

			2020												2019												2018
Written						Earned						Written						Earned						Written						Earned
Direct			$	102,479					$	100,832					$	91,579					$	91,131					$	83,652					$	84,030
Assumed			3,326						3,356						3,196						3,087						1,447						1,442
Ceded			(79)						(79)						(45)						(45)						(51)						(51)
Net premiums			$	105,726					$	104,109					$	94,730					$	94,173					$	85,048					$	85,421
Percentage—assumed to net premiums			3.1		%				3.2		%				3.4		%				3.3		%				1.7		%				1.7		%

The table above includes certain reclassifications between direct and assumed premiums for 2019 and 2018. These reclassifications did not impact any amounts presented in the consolidated financial statements.

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Notes to Consolidated Financial Statements (continued)

A summary of net premiums written and earned by segment (see Note 20, “Segment Information”) for the years ended December 31, 2020, 2019 and 2018 is as follows:

			2020												2019												2018
Written						Earned						Written						Earned						Written						Earned
Reportable segments:
Commercial & Specialty Business			$	31,745					$	31,471					$	32,113					$	31,944					$	30,661					$	30,532
Government Business			72,308						71,188						62,617						62,229						54,387						54,889
Other			1,673						1,450						—						—						—						—
Net premiums			$	105,726					$	104,109					$	94,730					$	94,173					$	85,048					$	85,421

The effect of reinsurance on benefit expense for the years ended December 31, 2020, 2019 and 2018 is as follows:

			2020						2019						2018
Direct			$	85,168					$	79,110					$	70,789
Assumed			2,967						2,733						1,179
Ceded			(90)						(57)						(73)
Net benefit expense			$	88,045					$	81,786					$	71,895

The effect of reinsurance on certain assets and liabilities at December 31, 2020 and 2019 is as follows:

			2020						2019
Policy liabilities, assumed			$	490					$	471
Unearned income, assumed			85						114
Premiums payable, ceded			12						11
Premiums receivable, assumed			347						324

18. 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 14 years.

The information related to our leases is as follows:

			Balance Sheet Location						December 31, 2020						December 31, 2019
Operating Leases
Right-of-use assets			Other noncurrent assets						$	646					$	575
Lease liabilities, current			Other current liabilities						110						158
Lease liabilities, noncurrent			Other noncurrent liabilities						847						482

												Years Ended December 31
												2020						2019
Lease Expense
Operating lease expense												$	438					$	198
Short-term lease expense												50						46
Sublease income												(9)						(16)
Total lease expense												$	479					$	228

Lease expense for 2018 was $207.

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Notes to Consolidated Financial Statements (continued)

Our activities as disclosed in Note 4, “Business Optimization Initiatives”, include reducing our office space footprint. As a result, we performed an interim impairment test and recorded an impairment charge of $258 for affected right-of-use assets in 2020 which is included in the operating lease expense shown above.

												Years Ended December 31
												2020						2019
Other information
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases												$	207					$	176
Right-of-use assets obtained in exchange for new lease liabilities, operating leases												$	384					$	112
Weighted average remaining lease term in years, operating leases												7						6
Weighted average discount rate, operating leases												3.21		%				4.09		%

At December 31, 2020, future lease payments for noncancelable operating leases with initial or remaining terms of one year or more are as follows:

2021			$	197
2022			180
2023			156
2024			125
2025			88
Thereafter			236
Total future minimum payments			$	982
Less imputed interest			(25)
Total lease liabilities			$	957

As of December 31, 2020, 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 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 $139.

19. Earnings per Share

The denominator for basic and diluted earnings per share at December 31, 2020, 2019 and 2018 is as follows:

			2020						2019						2018
Denominator for basic earnings per share—weighted-average shares			250.8						255.5						258.1
Effect of dilutive securities—employee stock options, non-vested restricted stock awards, convertible debentures and equity units			3.5						4.8						6.1
Denominator for diluted earnings per share			254.3						260.3						264.2

During the years ended December 31, 2020, 2019 and 2018, weighted-average shares related to certain stock options of 1.2, 0.6 and 0.3, 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, 2020, 2019 and 2018, we issued approximately 0.3, 0.2 and 0.3 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 2020 contingent restricted stock units are being measured over the three year period of 2020 through 2022, the 2019 contingent restricted stock units are being measured over the three year period of 2019 through 2021 and the 2018 contingent restricted stock units are being measured over the three year period of 2018 through 2020. Contingent restricted stock units generally vest in March of the year following each measurement period.

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Notes to Consolidated Financial Statements (continued)

20. Segment Information

Beginning in 2020, IngenioRx meets the quantitative threshold for a reportable segment based on the FASB guidance. The results of our operations are now described through four reportable segments: Commercial & Specialty Business, Government Business, IngenioRx 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, stop loss insurance, provider network access, medical cost management, disease management, wellness programs, underwriting, actuarial services 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 (“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. Medicare Advantage membership also includes Medicare Advantage members in our Group Retiree Solutions business who are related to National Accounts, retired members of Local Group accounts, or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us. 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.

Our IngenioRx segment includes our PBM business, which began its operations during the second quarter of 2019. IngenioRx markets and offers PBM services to our affiliated health plan customers, as well as to external customers outside of the health plans we own. IngenioRx has a comprehensive PBM services portfolio, which includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities. In 2019, IngenioRx was included in our Other reportable segment. Amounts for 2019 have been reclassified to conform to the current year presentation for comparability.

Our Other segment includes our Diversified Business Group (“DBG”), which is our integrated health services business, and certain eliminations and corporate expenses not allocated to our other reportable segments. Also, beginning on February 28, 2020, our Other segment includes Beacon.

We define operating revenues to include premium income, product revenue 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 20.3%, 20.7% and 19.8% of our total consolidated revenues from agencies of the U.S. government for the years ended December 31, 2020, 2019, and 2018, 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 (losses) on financial instruments, 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.

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Notes to Consolidated Financial Statements (continued)

For our 2019 segment reporting, operating gain generated from IngenioRx activities were allocated and included in our Commercial & Specialty Business and Government Business based upon their utilization of those services, which aligns with the method by which we assessed the 2019 operating performance of our reportable segments. Beginning January 1, 2020, we are managing the operating performance of each of our segments on a standalone basis. Prior year 2019 allocations were not restated to conform to the 2020 presentation; however, operating margins for IngenioRx were approximately 8% in 2019.

Financial data by reportable segment for the years ended December 31, 2020, 2019 and 2018 is as follows:

			Commercial & Specialty Business						Government Business						IngenioRx						Other						Eliminations						Total
Year ended December 31, 2020
Operating revenue - unaffiliated			$	36,699					$	71,572					10,384						$	2,153					$	—					$	120,808
Operating revenue - affiliated			—						—						11,527						3,904						(15,431)						—
Operating gain (loss)			2,681						2,444						1,361						(126)						—						6,360
Depreciation and amortization of property and equipment			—						—						—						638						—						638
Year ended December 31, 2019
Operating revenue - unaffiliated			$	37,421					$	62,632					2,007						$	1,081					$	—					$	103,141
Operating revenue - affiliated			—						—						3,395						1,212						(4,607)						—
Operating gain (loss)			4,032						2,056						—						(89)						—						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

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Notes to Consolidated Financial Statements (continued)

The major product revenues for each of the reportable segments for the years ended December 31, 2020, 2019 and 2018 are as follows:

			2020						2019						2018
Commercial & Specialty Business
Managed care products			$	29,815					$	30,311					$	29,012
Managed care services			5,296						5,451						5,218
Dental/Vision products and services			1,231						1,302						1,220
Other			357						357						332
Total Commercial & Specialty Business			36,699						37,421						35,782
Government Business
Managed care products			71,188						62,229						54,889
Managed care services			384						403						459
Total Government Business			71,572						62,632						55,348
IngenioRx
Pharmacy products and services			21,911						5,402						—
Other
Integrated health services			5,787						2,149						1,489
Other			270						144						30
Total Other Business			6,057						2,293						1,519
Eliminations
Eliminations			(15,431)						(4,607)						(1,308)
Total product revenues			$	120,808					$	103,141					$	91,341

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, 2020, 2019 and 2018 is as follows:

			2020						2019						2018
Reportable segments operating revenues			$	120,808					$	103,141					$	91,341
Net investment income			877						1,005						970
Net realized gains (losses) on financial instruments			182						67						(206)
Total revenues			$	121,867					$	104,213					$	92,105

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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, 2020, 2019 and 2018 is as follows:

			2020						2019						2018
Reportable segments operating gain			$	6,360					$	5,999					$	5,426
Net investment income			877						1,005						970
Net realized gains (losses) on financial instruments			182						67						(206)
Interest expense			(784)						(746)						(753)
Amortization of other intangible assets			(361)						(338)						(358)
Loss on extinguishment of debt			(36)						(2)						(11)
Income before income tax expense			$	6,238					$	5,985					$	5,068

21. Related Party Transactions

We have a 19.50% equity investment in National Accounts Service Company, LLC (“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 $58, $78 and $79, for the years ended December 31, 2020, 2019 and 2018, respectively. Amounts due to NASCO were $5 and $4 at December 31, 2020 and 2019, respectively.

We have an equity investment in APC Passe, LLC, which offers Medicaid products in Arkansas. During the years ended December 31, 2020 and 2019, in the normal course of business, we assumed premiums of $446 and $408, respectively, from APC Passe, LLC, which is included in our total assumed premiums (see Note 17, “Reinsurance”). Amounts due to APC Passe, LLC were $115 and $162 at December 31, 2020 and 2019, respectively.

22. 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., Beacon Health Options of California, Inc. and CareMore Health Plan are regulated by the California Department of Managed Health Care (“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 (“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 (“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, 2020 and 2019, 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 $5,800 and $5,500 as of December 31, 2020 and 2019, 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 $600 and $610 as of December 31, 2020 and 2019, 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 $13,717 and $13,044 at December 31, 2020 and 2019, 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 $3,170, $3,840 and $3,412 for 2020, 2019 and 2018, respectively. GAAP equity of the DMHC regulated entities was $3,851 and $3,359 at December 31, 2020 and 2019, respectively. GAAP net income of the DMHC regulated entities was $753, $878 and $789 for the years ended December 31, 2020, 2019 and 2018, respectively.

23. Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data is as follows:

			For the Quarter Ended
			March 31						June 30						September 30						December 31
2020
Total revenues			$	29,621					$	29,264					$	31,158					$	31,824
Income before income tax expense			2,089						3,149						389						611
Net income			1,523						2,276						222						551
Basic net income per share			$	6.03					$	9.02					$	0.88					$	2.23
Diluted net income per share			5.94						8.91						0.87						2.19
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