Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying consolidated financial statements and notes, our consolidated financial statements and notes as of and for the year ended December 31, 2020 and the MD&A included in our 2020 Annual Report on Form 10-K. References to the terms “we,” “our,” “us,” or “Anthem” used throughout this MD&A refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states” include the District of Columbia and Puerto Rico, unless the context otherwise requires.

Results of operations, cost of care trends, investment yields and other measures for the three and nine months ended September 30, 2021 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2021, or any other period.

Overview

We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 45 medical members through our affiliated health plans as of September 30, 2021. 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 and Puerto Rico as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, MMM, Optimum HealthCare, Simply Healthcare, and/or UniCare. Pharmacy benefits management (“PBM”) services are offered through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all fifty states, the District of Columbia and Puerto Rico through our subsidiaries.

For additional information about our organization, see Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2020 Annual Report on Form 10-K. Additional information on our segments can be found in this MD&A and in Note 15, “Segment Information” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

COVID-19

The COVID-19 pandemic continues to impact the global economy, cause market instability and put pressure on the healthcare system, and it has impacted, and will likely continue to impact, our membership, our benefit expense and our members' behavior, including how members access healthcare. We continue to assist our customers, providers, members and communities in addressing the effects of the COVID-19 pandemic, including by providing expanded benefit coverage for COVID-19 diagnostic tests, treatment and vaccine administration and taking steps to increase vaccinations by enabling, educating, and encouraging vaccine acceptance among our members as well as in the communities in which we operate.

COVID-19 care, testing and vaccine administration, and the impact of new COVID-19 variants, have resulted in increased medical costs for us in 2021. Since June 30, 2020, our Medicaid membership has grown as a result of the temporary suspension of eligibility recertification in response to the COVID-19 pandemic, which will remain suspended at least until the first quarter of 2022. Our Commercial fee-based membership has decreased in this same period due to in-group attrition likely attributable to the COVID-19 pandemic. See “Business Trends - Medical Cost Trends” below for a discussion of the impact of COVID-19 on our healthcare costs.

The COVID-19 pandemic continues to evolve and the full extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted at this time. We will continue to monitor the COVID-19 pandemic as well

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as resulting legislative and regulatory changes to manage our response and assess and mitigate potential adverse impacts to our business. For additional discussion related to the COVID-19 pandemic and our risk factors, see Part I, Item 1, “Business–COVID-19”, Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations–COVID-19” included in our 2020 Annual Report on Form 10-K.

Business Trends

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”) has changed and may continue to make broad-based changes to the U.S. healthcare system. In June 2021, the U.S. Supreme Court issued its opinion and dismissed the latest legal challenge to the constitutionality of the ACA, leaving the law intact. We expect the ACA will continue to impact our business model and strategy. In 2020, we made the decision to modestly expand our participation in the Individual ACA-compliant market for 2021. Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such as expected financial performance, regulatory environment, and underlying market characteristics. We currently offer Individual ACA-compliant products in 103 of the 143 rating regions in which we operate. In addition, the continuing growth in our government-sponsored business exposes us to increased regulatory oversight.

Our IngenioRx subsidiary markets and offers PBM services to our affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own. Our comprehensive PBM services portfolio includes services such as formulary management, pharmacy networks, a prescription drug database, member services and mail order capabilities. IngenioRx delegates 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.

Pricing Trends: We strive to price our healthcare benefit products consistent with anticipated underlying medical cost trends. We continue to closely monitor the COVID-19 pandemic (including new COVID-19 variants, which may be more contagious or severe, or less responsive to treatment or vaccines) and the impacts it may have on our pricing, such as surges in COVID-19 related hospitalizations, infection rates, the cost of COVID-19 vaccines and the return of non-COVID-19 healthcare utilization to our estimate of normal levels, based on historical utilization patterns. We frequently make adjustments to respond to legislative and regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants. Product pricing in our Commercial & Specialty Business segment, including our Individual and Small Group lines of business, remains competitive. Revenues from the Medicare and Medicaid programs are dependent, in whole or in part, upon annual funding from the federal government and/or applicable state governments. The ACA imposed an annual Health Insurance Provider Fee (“HIP Fee”) on health insurers that write certain types of health insurance on U.S. risks. When applicable, we priced our affected products to cover the impact of the HIP Fee, including during 2020. The HIP Fee has been permanently repealed beginning in 2021.

Medical Cost Trends: Our medical cost trends are primarily driven by increases in the utilization of services across all provider types and the unit cost increases of these services. We work to mitigate these trends through various medical management programs such as utilization management, condition management, program integrity and specialty pharmacy management, as well as benefit design changes. There are many drivers of medical cost trends that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high cost prescription drugs, and healthcare provider or member fraud.

The COVID-19 pandemic initially caused a decrease in utilization of non-COVID-19 health services, which decreased our claim costs in 2020. Over the course of the first half of 2021, our non-COVID-19 healthcare utilization experience gradually increased toward normalized levels, while COVID-19 related healthcare expenses declined and COVID-19 vaccination administration costs increased. During the third quarter of 2021, the COVID-19 Delta variant caused a significant increase in COVID-19 related healthcare utilization as a result of increased testing, treatment, and hospitalization costs, which was partially offset by a reduction in non-COVID-19 healthcare utilization. The reduction in non-COVID-19 healthcare utilization was particularly notable in the inpatient setting, as some regions limited elective surgeries in order to preserve limited resources to treat patients hospitalized with COVID-19.

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Our expenses in 2020 and the first nine months of 2021 included additional costs to cover COVID-19 related testing, treatment and vaccine administration. In the fourth quarter of 2021, we expect COVID-19 related healthcare expenses to decline from the surge experienced during the third quarter of 2021 related to the Delta variant and utilization of non-COVID-19 healthcare services to recover toward the levels experienced in 2021 prior to the Delta surge. We anticipate additional COVID-19 vaccination costs as young children become eligible for the vaccine and more adults choose to receive the vaccine and booster doses. Further increases and pent-up demand in the utilization of non-COVID-19 healthcare services, as well as increases in acuity associated with deferred services and the long-term health complications of COVID-19, may increase our claim costs in the future and affect our medical cost trends. We continue to monitor the COVID-19 pandemic and its impacts on our business, financial condition, results of operations and medical cost trends.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in our 2020 Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

Federal and state governments have enacted, and may continue to enact, legislation and regulations in response to the COVID-19 pandemic that have had, and we expect will continue to have, a significant impact on healthcare benefits, consumer eligibility for public programs and our cash flows for all of our lines of business. These actions, which are or have been in effect for various durations, provide, among other things:

waivers on cost-sharing on COVID-19 testing, treatment, vaccines and related services;
reforms, including waiving Medicare originating site restrictions for qualified providers providing telehealth services;
financial support to healthcare providers, including expansion of the Medicare accelerated payment program to all providers receiving Medicare payments;
mandated expansion of premium payment terms, including the time period for which claims can be denied for lack of payment; and
mandates related to prior authorizations and payment levels to providers, additional consumer enrollment windows and an increased ability to provide telehealth services.

The Consolidated Appropriations Act of 2021, which was enacted in December 2020 (the “Appropriations Act”), contains a number of provisions that may have a material effect upon our business, including procedures and coverage requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker compensation and reporting on pharmacy benefits and drug costs. The health plan-related requirements of the Appropriations Act have varying effective dates beginning as early as December 2021, some of which have been extended since the enactment of the Appropriations Act.

The American Rescue Plan Act of 2021, (the “Rescue Plan”), which was enacted in March 2021, contains several health-related provisions that have impacted our business, including expansion of premium tax credits for our Individual exchange business and full subsidization of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) continuation coverage for those who were involuntarily terminated or had their work hours reduced. The Rescue Plan’s premium tax provisions became effective in January 2021, while the COBRA premium subsidization extended from April through September 2021.

The ACA presented us with new growth opportunities, but also introduced new risks, regulatory challenges and uncertainties, and required changes in the way products are designed, underwritten, priced, distributed and administered. Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees. We will continue to evaluate the impact of the ACA as any further developments or judicial rulings occur.

For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business – Regulation”, Part I, Item 1A, “Risk Factors”, and the “Regulatory Trends and Uncertainties” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Annual Report on Form 10-K.

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Other Significant Items

Business and Operational Matters

On June 29, 2021, we completed our acquisition of MMM Holdings, LLC (“MMM”) and its Medicare Advantage plan, Medicaid plan and other affiliated companies from InnovaCare Health, L.P. MMM is a Puerto Rico-based 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.

On April 28, 2021, we completed our acquisition of myNEXUS, Inc. (“myNEXUS”) from WindRose Health Investors. myNEXUS is a comprehensive home-based nursing management company for payors and, at the time of acquisition, delivered integrated clinical support services for Medicare Advantage members across twenty states. This acquisition aligns with our strategy to manage integrated, whole person multi-site care and support by providing national, large-scale expertise to manage nursing services in the home and facilitate transitions of care.

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.

For additional information, see Note 3, “Business Acquisitions,” of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q.

In 2020, we introduced enterprise-wide initiatives to optimize our business, and as a result, recorded a charge of $653 in selling, general and administrative expenses for the year ended December 31, 2020. 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. For additional information see Note 4, “Business Optimization Initiatives” and Note 16, “Leases” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Litigation Matters

In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”), have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the plaintiffs representing a putative nationwide class of health plan subscribers. Generally, the lawsuits in the BCBSA Litigation challenge elements of the licensing agreements between the BCBSA and the independently owned and operated Blue plans. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and the Subscriber Settlement Agreement applies only to the putative subscriber class. No settlement agreement has been reached with the provider plaintiffs at this time, and the defendants continue to contest the consolidated cases brought by the provider 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 include certain non-monetary terms. As of September 30, 2021, the liability balance accrued for our estimated remaining payment obligation was $507, net of payments made. All terms of the Subscriber Settlement Agreement are subject to approval by the Court before they become effective. For additional information regarding the BCBSA Litigation, see Note 11, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

In January 2019, we exercised our contractual right to terminate our PBM agreement (the “ESI PBM Agreement”) with Express Scripts, Inc. (“Express Scripts”). We completed the transition of our members from Express Scripts to IngenioRx by January 1, 2020. Notwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues. For additional information regarding this lawsuit, see Note 11, “Commitments

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and Contingencies – Litigation and Regulatory Proceedings – Express Scripts, Inc. Pharmacy Benefit Management Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Selected Operating Performance

For the twelve months ended September 30, 2021, total medical membership increased 2.4, or 5.7%. Our medical membership grew in both our Government Business and Commercial & Specialty Business segments. The increase in our Government Business membership was primarily driven by increases in our Medicaid membership, including organic growth resulting from the temporary suspension of eligibility recertification during the COVID-19 pandemic, which will remain suspended at least until the first quarter of 2022, our acquisition of MMM on June 29, 2021, the launch of our HealthyBlue managed care alliance in North Carolina and organic growth in our Medicare Advantage business. Commercial & Specialty Business membership growth included increases in Group risk-based membership resulting from sales exceeding lapses and increases in Individual membership due to the ACA expansion in 2021, partially offset by declines in Group fee-based membership due to in-group attrition likely resulting from the COVID-19 pandemic.

Operating revenue for the three months ended September 30, 2021 was $35,548, an increase of $4,899, or 16.0%, from the three months ended September 30, 2020. The increase in operating revenue for the three months ended September 30, 2021 compared to 2020 was primarily driven by higher premium revenue due mainly to membership growth in our Government Business segment, including related to our acquisition of MMM, and increased product revenue in our IngenioRx segment. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021. Operating revenue for the nine months ended September 30, 2021 was $100,925, an increase of $11,650, or 13.0%, from the nine months ended September 30, 2020. The increase in operating revenue for the nine months ended September 30, 2021 compared to 2020 was primarily driven by higher premium revenue due mainly to membership growth in our Government Business segment, including related to the acquisition of MMM, increased product revenue in our IngenioRx segment and premium rate increases in our Commercial & Specialty Business segment. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

Net income for the three months ended September 30, 2021 was $1,502, an increase of $1,280, or 576.6%, from the three months ended September 30, 2020. The increase in net income for the three months ended September 30, 2021 was primarily due to increased operating gain in all of our business segments, primarily the result of the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual recognized during the third quarter of 2020. Net income for the nine months ended September 30, 2021 was $4,970, an increase of $949, or 23.6% from the nine months ended September 30, 2020. The increase in net income for the nine months ended September 30, 2021 was primarily due to increased operating gain in all of our business segments, primarily due to the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual recognized during the third quarter of 2020. These operating gain increases were partially offset by increased COVID-19 and non-COVID-19 healthcare costs.

Our fully-diluted shareholders' earnings per share (“EPS”) was $6.13 for the three months ended September 30, 2021, which represented a 604.6% increase from EPS of $0.87 for the three months ended September 30, 2020. Our fully-diluted shareholders' EPS was $20.09 for the nine months ended September 30, 2021, which represented a 27.6% increase from fully-diluted EPS of $15.75 for the nine months ended September 30, 2020. The increase in EPS for the three and nine months ended September 30, 2021 compared to 2020 resulted primarily from the increase in net income, as well as lower shares outstanding in 2021.

Operating cash flow for the nine months ended September 30, 2021 and 2020 was $6,692 and $6,875, respectively. The decrease in operating cash flow was primarily driven by the timing of working capital changes, partially offset by higher net income in 2021.

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Membership

In the first quarter of 2021, we updated our medical membership reporting to better align with how we view our business. Our medical membership now includes the following customer types: Individual, Group risk-based, Group fee-based, BlueCard®, Medicare, Medicaid and our Federal Employees Health Benefits (“FEHB”) Program. BCBS-branded business generally refers to members in our service areas licensed by the BCBSA. Non-BCBS-branded business refers to members in our non-BCBS-branded Amerigroup, Freedom Health, HealthSun, MMM, Optimum HealthCare and Simply Healthcare plans, as well as HealthLink and UniCare members. In addition to the above medical membership, we also serve customers who purchase one or more of our other products or services that are often ancillary to our health business.

Individual consists of individual customers under age 65 and their covered dependents. Individual policies are generally sold through independent agents and brokers, retail partnerships, our in-house sales force or via the exchanges. Individual business is sold on a risked-based basis. We offer on-exchange products through public exchanges and off-exchange products. Federal premium subsidies are available only for certain public exchange Individual products. Unsubsidized Individual customers are generally more sensitive to product pricing and, to a lesser extent, the configuration of the network and the efficiency of administration. Customer turnover is generally higher with Individual as compared to Group risk-based business.
Group risk-based consists of employer customers who purchase products on a full-risk basis, which are products for which we charge a premium and indemnify our policyholders against costs for health benefits. Group risk-based accounts include Local Group customers and National Accounts. Local Group consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as customers with more than 5% of eligible employees located outside of the headquarter state with up to 5,000 eligible employees. In addition, Local Group includes Student Health members. National Accounts generally consist of multi-state employer groups primarily headquartered in an Anthem service area with at least 5% of the eligible employees located outside of the headquarter state and with more than 5,000 eligible employees. Some exceptions are allowed based on broker and consultant relationships. Group risk-based accounts are generally sold through brokers or consultants who work with industry specialists from our in-house sales force and are offered both on and off the public exchanges.
Group fee-based customers represent employer groups, Local Group, including UniCare members, and National Accounts, who purchase fee-based products and elect to retain most or all of the financial risk associated with their employees’ healthcare costs. Some fee-based customers choose to purchase stop loss coverage to limit their retained risk. Group fee-based accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force.
BlueCard® host customers represent enrollees of Blue Cross and/or Blue Shield plans not owned by Anthem who receive healthcare services in our BCBSA licensed markets. BlueCard® membership consists of estimated host members using the national BlueCard® program. Host members are generally members who reside in or travel to a state in which an Anthem subsidiary is the Blue Cross and/or Blue Shield licensee and who are covered under an employer-sponsored health plan issued by a non-Anthem controlled BCBSA licensee (the “home Blue plan”). We perform certain functions, including claims pricing and administration, for BlueCard® members, for which we receive administrative fees from the BlueCard® members’ home Blue plans. Other administrative functions, including maintenance of enrollment information and customer service, are performed by the home Blue plan. Host members are computed using, among other things, the average number of BlueCard® claims received per month.
Medicare customers are Medicare-eligible individual members age 65 and over who have enrolled in Medicare Supplement plans; Medicare Advantage, including Special Needs Plans (“SNPs”), also known as Medicare Advantage SNPs; Medicare Part D; and dual-eligible programs through Medicare-Medicaid Plans (“MMPs”). Medicare Supplement plans typically pay the difference between healthcare costs incurred by a beneficiary and amounts paid by Medicare. Medicare Advantage plans provide Medicare beneficiaries with a managed care alternative to traditional Medicare and often include a Medicare Part D benefit. In addition, our Medicare Advantage SNPs provide tailored benefits to special needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-income seniors and persons under age 65 with disabilities. Medicare Advantage SNPs are coordinated care plans specifically designed to provide targeted care, covering all the healthcare services considered medically necessary for members and often providing professional care coordination services, with personal guidance and programs that help members maintain their health. Medicare Advantage membership also includes Medicare Advantage members in our Group Retiree Solutions business who

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are retired members of Commercial accounts or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us. Medicare Part D offers a prescription drug plan to Medicare and MMP beneficiaries. MMP, which was established as a result of the passage of the ACA, is a demonstration program focused on serving members who are dually eligible for Medicaid and Medicare. Medicare Supplement and Medicare Advantage products are marketed in the same manner, primarily through independent agents and brokers.

Medicaid membership represents eligible members who receive healthcare benefits through publicly funded healthcare programs, including Medicaid, ACA-related Medicaid expansion programs, Temporary Assistance for Needy Families, programs for seniors and people with disabilities, Children’s Health Insurance Programs, and specialty programs such as those focused on long-term services and support, HIV/AIDS, foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities, among others.
FEHB members consist of United States government employees and their dependents within our geographic markets through our participation in the national contract between the BCBSA and the U.S. Office of Personnel Management.

The following table presents our medical membership by reportable segment and customer type as of September 30, 2021 and 2020. Also included below is other membership by product. The medical membership and other membership data presented are unaudited and in certain instances include estimates of the number of members represented by each contract at the end of the period.


	September 30
(In thousands)	2021	2020	Change	% Change
Medical Membership
Commercial & Specialty Business:
Individual	769	701	68	9.7	%
Group Risk-Based	3,946	3,774	172	4.6	%
Commercial Risk-Based	4,715	4,475	240	5.4	%
BlueCard®	6,166	6,106	60	1.0	%
Group Fee-Based	19,370	19,508	(138)	(0.7)	%
Commercial Fee-Based	25,536	25,614	(78)	(0.3)	%
Total Commercial & Specialty Business	30,251	30,089	162	0.5	%
Government Business:
Medicare Advantage	1,853	1,416	437	30.9	%
Medicare Supplement	947	933	14	1.5	%
Total Medicare	2,800	2,349	451	19.2	%
Medicaid	10,391	8,569	1,822	21.3	%
Federal Employees Health Benefits	1,629	1,618	11	0.7	%
Total Government Business	14,820	12,536	2,284	18.2	%
Total Medical Membership	45,071	42,625	2,446	5.7	%
Other Membership
Life and Disability Members	4,695	5,029	(334)	(6.6)	%
Dental Members	6,637	6,356	281	4.4	%
Dental Administration Members	1,486	1,315	171	13.0	%
Vision Members	7,974	7,487	487	6.5	%
Medicare Part D Standalone Members	438	405	33	8.1	%

Medical Membership

Total medical membership increased primarily due to growth in our Government Business, which was driven primarily by increases in our Medicaid membership, including organic growth resulting from the temporary suspension of eligibility

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recertification during the COVID-19 pandemic, growth resulting from our acquisition of MMM on June 29, 2021 and the launch of our HealthyBlue managed care alliance in North Carolina. Our Medicare Advantage membership also increased due to organic growth. Increases in Group risked-based membership resulting from sales exceeding lapses and increases in Individual membership due to our ACA expansion in 2021 also contributed to overall membership increases. Declines in our Group fee-based membership due to in-group attrition likely attributable to the COVID-19 pandemic partially offset the increases in our medical membership.

Other Membership

Our other membership can be impacted by changes in our medical membership, as our medical members often purchase our other products that are ancillary to our health business. Life and disability membership decreased primarily due to the loss of a Group risked-based account and membership decreases in our Group fee-based business. Dental membership increased primarily due to higher sales in our Individual and Group risk-based accounts and growth in our FEHB program. Dental administration membership increased due to growth in our FEHB program. Vision membership increased as a result of growth in our Medicare business.

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2021 and 2020 are as follows:


	Three Months Ended September 30						Nine Months Ended September 30						Change
	Three Months Ended September 30						Nine Months Ended September 30
	2021 vs. 2020						2021 vs. 2020

	2021			2020			2021			2020			$		%		$		%
Total operating revenue	$	35,548		$	30,649		$	100,925		$	89,275		$	4,899	16.0	%	$	11,650	13.0	%
Net investment income	335			280			1,026			591			55		19.6	%	435		73.6	%
Net realized (losses) gains on financial instruments	(61)			229			107			177			(290)		NM		(70)		(39.5)	%
Total revenues	35,822			31,158			102,058			90,043			4,664		15.0	%	12,015		13.3	%
Benefit expense	26,645			22,921			75,107			63,957			3,724		16.2	%	11,150		17.4	%
Cost of products sold	2,898			2,222			7,825			6,431			676		30.4	%	1,394		21.7	%
Selling, general and administrative expense	3,946			5,305			11,692			13,132			(1,359)		(25.6)	%	(1,440)		(11.0)	%
Other expense1	337			321			909			896			16		5.0	%	13		1.5	%
Total expenses	33,826			30,769			95,533			84,416			3,057		9.9	%	11,117		13.2	%
Income before income tax expense	1,996			389			6,525			5,627			1,607		413.1	%	898		16.0	%
Income tax expense	494			167			1,555			1,606			327		195.8	%	(51)		(3.2)	%


Net income	$	1,502		$	222		$	4,970		$	4,021		$	1,280	576.6	%	$	949	23.6	%
Net loss (income) attributable to noncontrolling interests	7			—			(3)			—			7		NM		(3)		NM
Shareholders’ net income	$	1,509		$	222		$	4,967		$	4,021		$	1,287	579.7	%	$	946	23.5	%

Average diluted shares outstanding	246.0			254.2			247.2			255.3			(8.2)		(3.2)	%	(8.1)		(3.2)	%



Diluted shareholders’ net income per share	$	6.13		$	0.87		$	20.09		$	15.75		$	5.26	604.6	%	$	4.34	27.6	%
Effective tax rate	24.7		%	42.9		%	23.8		%	28.5		%			(1820) bp3				(470) bp3
Benefit expense ratio2	87.7		%	86.8		%	86.7		%	83.1		%			90 bp3				360 bp3
Selling, general and administrative expense ratio4	11.1		%	17.3		%	11.6		%	14.7		%			(620) bp3				(310) bp3
Income before income tax expense as a percentage of total revenues	5.6		%	1.2		%	6.4		%	6.2		%			440 bp3				20 bp3
Shareholders’ net income as a percentage of total revenues	4.2		%	0.7		%	4.9		%	4.5		%			350 bp3				40 bp3

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Certain of the following definitions are also applicable to all other results of operations tables in this discussion:

NM Not meaningful.

1 Includes interest expense, amortization of other intangible assets and loss on extinguishment of debt.

2 Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended September 30, 2021 and 2020 were $30,395 and $26,392, respectively. Premiums for the nine months ended September 30, 2021 and 2020 were $86,604 and $77,001, respectively.

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

4 Selling, general and administrative expense ratio represents selling, general and administrative expense as a percentage of total operating revenue.

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Total operating revenue increased primarily as a result of higher premium revenue due mainly to membership growth in our Government Business segment, including related to our acquisition of MMM, and increased product revenue in our IngenioRx segment. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

Net investment income increased primarily due to increases in income from other invested assets, partially offset by declines in fixed maturity income due to lower yields on fixed maturity securities.

We recognized net realized losses on financial instruments for the three months ended September 30, 2021 compared to net realized gains on financial instruments for the three months ended September 30, 2020. The change was primarily due to the fair value of equity securities still held moving from gains to losses, which is recorded in earnings.

Benefit expense increased primarily due to cost increases resulting from membership growth in our Medicaid and Medicare businesses, including related to our acquisition of MMM and increased COVID-19 healthcare costs for both our Commercial & Specialty Business and Government Business segments.

Our benefit expense ratio increased primarily due to the repeal of the HIP Fee for 2021, partially offset by the impact of negative rate adjustments within our Medicaid business in 2020.

Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx for our unaffiliated PBM customers. Cost of products sold increased as the corresponding pharmacy product revenues increased.

Selling, general and administrative expense decreased primarily due to the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual that were both recognized during the third quarter of 2020, as well as the repeal of the HIP Fee for 2021. These decreases were partially offset by increased costs to support growth in our businesses.

Our selling, general and administrative expense ratio decreased primarily due to the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual which were both recognized in the third quarter of 2020, increased operating revenue in 2021 and the repeal of the HIP Fee for 2021. These items were partially offset by increased costs to support growth in our businesses.

Our effective income tax rate decreased primarily due to the repeal of the HIP Fee, for years after 2020, applied to our quarterly results, which in 2020, included the impact of expenses for business optimization initiatives and the BCBSA litigation accrual recognized during the three months ended September 30, 2020.

Our shareholders’ net income as a percentage of total revenues increased in 2021 as compared to 2020 as a result of all factors discussed above.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Total operating revenue increased primarily as a result of higher premium revenue due mainly to membership growth in our Government Business segment, including the acquisition of MMM, and increased product revenue in our IngenioRx segment. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

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Net realized gains on financial instruments decreased primarily due to a change from gains to losses in the fair value of equity securities still held, which is recorded in earnings, partially offset by a change from losses to gains on other invested assets and higher net realized gains on fixed maturity securities.

Benefit expense increased primarily due to cost increases resulting from membership growth in our non-MMM Medicaid and Medicare businesses and increased COVID-19 and non-COVID-19 healthcare costs for both our Commercial & Specialty Business and Government Business segments.

Our benefit expense ratio increased primarily due to increased COVID-19 and non-COVID-19 healthcare costs for both our Commercial & Specialty Business and Government Business segments, and, to a lesser extent, the repeal of the HIP Fee for 2021.

Selling, general and administrative expense decreased primarily due to the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual recognized during the third quarter of 2020, as well as the repeal of the HIP Fee for 2021. These decreases were partially offset by increased costs to support growth in our businesses.

Our selling, general and administrative expense ratio decreased primarily due to increased operating revenue in 2021, the absence of charges in 2021 for our business optimization initiatives and the BCBSA litigation accrual recognized in the third quarter of 2020 and the repeal of the HIP Fee for 2021. These items were partially offset by increased costs to support growth in our businesses.

Our effective income tax rate decreased primarily due to the repeal of the HIP Fee for 2021, which was non-deductible for tax purposes.

Our shareholders’ net income as a percentage of total revenues increased in 2021 as compared to 2020 as a result of all factors discussed above.

Reportable Segments Results of Operations

Our results of operations discussed throughout this MD&A are determined in accordance with U.S. generally accepted accounting principles (“GAAP”). We also calculate operating gain and operating margin to further aid investors in understanding and analyzing our core operating results and comparing them among periods. We define operating revenue as premium income, product revenue and administrative fees and other revenue. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense. It does not include net investment income, net realized gains (losses) on financial instruments, interest expense, amortization of other intangible assets, loss on extinguishment of debt or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management. Operating margin is calculated as operating gain divided by operating revenue. We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating periods and setting incentive compensation targets. This information is not intended to be considered in isolation or as a substitute for income before income tax expense, shareholders’ net income or EPS prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable segments’ operating gain to income before income tax expense, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Results of our operations are described through four reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and Other. For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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The following table presents a summary of the reportable segment financial information for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30						Nine Months Ended September 30						Change
	Three Months Ended September 30						Nine Months Ended September 30
	2021 vs 2020						2021 vs 2020
	2021			2020			2021			2020			$		%		$		%
Operating Revenue
Commercial & Specialty Business	$	9,863		$	9,326		$	28,904		$	27,476		$	537	5.8	%	$	1,428	5.2	%
Government Business	21,658			18,101			61,007			52,809			3,557		19.7	%	8,198		15.5	%
IngenioRx	6,549			5,582			18,630			16,048			967		17.3	%	2,582		16.1	%
Other	2,670			1,798			7,557			4,277			872		48.5	%	3,280		76.7	%
Eliminations	(5,192)			(4,158)			(15,173)			(11,335)			(1,034)		NM		(3,838)		NM
Total operating revenue	$	35,548		$	30,649		$	100,925		$	89,275		$	4,899	16.0	%	$	11,650	13.0	%

Operating Gain (Loss)
Commercial & Specialty Business1	$	620		$	(234)		$	2,679		$	2,558		$	854	NM		$	121	4.7	%
Government Business2	967			246			2,313			2,275			721		293.1	%	38		1.7	%
IngenioRx3	445			345			1,257			998			100		29.0	%	259		26.0	%
Other4	27			(156)			52			(76)			183		NM		128		NM

Operating Margin
Commercial & Specialty Business	6.3		%	(2.5)		%	9.3		%	9.3		%			880 bp				0 bp
Government Business	4.5		%	1.4		%	3.8		%	4.3		%			310 bp				(50) bp
IngenioRx	6.8		%	6.2		%	6.7		%	6.2		%			60 bp				50 bp

1 Includes expenses of $566 for the BCBSA litigation accrual and $299 for business optimization initiatives recognized in the three and nine months ended September 30, 2020.

2 Includes expenses of $183 for business optimization initiatives and $28 for the BCBSA litigation accrual recognized in the three and nine months ended September 30, 2020.

3 Includes expenses of $3 for business optimization initiatives recognized in the three and nine months ended September 30, 2020.

4 Includes expenses of $122 for business optimization initiatives recognized in the three and nine months ended September 30, 2020.

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Commercial & Specialty Business

Operating revenue increased primarily due to increased membership in our Commercial risk-based businesses, premium rate increases in our Commercial risk-based businesses designed to cover medical cost trends and administrative fee increases in our Group fee-based business. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

Operating gain increased primarily due to the absence of charges in 2021 for the BCBSA litigation accrual and our business optimization initiatives, which were both recognized during the third quarter of 2020.

Government Business

Operating revenue increased primarily due to higher premium revenue growth in our non-MMM Medicaid business, driven by the temporary suspension of eligibility recertification, which will remain suspended at least until the first quarter of 2022. The acquisition of MMM on June 29, 2021 and non-MMM membership growth in our Medicare business also

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contributed to the operating revenue growth. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

The increase in operating gain was primarily driven by the impact of negative rate adjustments within our Medicaid business in 2020 related to COVID-19, the absence of charges in 2021 for our business optimization initiatives recognized during the third quarter of 2020 and membership growth in our Medicaid and Medicare businesses, including related to the acquisition of MMM on June 29, 2021.

IngenioRx

Operating revenue increased as a result of higher drug spend from IngenioRx customers, including spend related to increased Medicaid membership within our Government Business segment.

The increase in operating gain was primarily driven by growth in integrated medical and pharmacy members in 2021.

Other

Operating revenue increased primarily due to higher administrative fees and other revenue for services performed by our Diversified Business Group for our Commercial & Specialty Business and Government Business segments.

We recognized an operating gain for the three months ended September 30, 2021 compared to an operating loss for the three months ended September 30, 2020. The change was primarily driven by the absence of charges in 2021 for our business optimization initiatives recognized during the third quarter of 2020 and a decline in unallocated corporate expenses in 2021.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Commercial & Specialty Business

Operating revenue increased primarily due to premium rate increases in our Group risk-based business designed to cover medical cost trends, increased membership in our Commercial risk-based businesses, administrative fee increases in our Group fee-based business and the non-recurring premium credits provided to members enrolled in select Group and Individual health plans in response to the COVID-19 pandemic in the second quarter of 2020. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021.

Operating gain increased primarily due to the absence of charges in 2021 for the BCBSA litigation accrual and our business optimization initiatives, that were both recognized during the third quarter of 2020, as well as the non-recurring premium credits that were provided to members enrolled in select Group and Individual health plans in response to the COVID-19 pandemic in the second quarter of 2020. These increases were partially offset by increased COVID-19 and non-COVID-19 healthcare costs in 2021.

Government Business

Operating revenue increased primarily due to higher premium revenue growth in our non-MMM Medicaid business, driven by the temporary suspension of eligibility recertification, which will remain suspended at least until the first quarter of 2022. Non-MMM membership growth in our Medicare business and the acquisition of MMM on June 29, 2021 also contributed to operating revenue growth. These increases were partially offset by the impact of lower premium revenue associated with the repeal of the HIP Fee for 2021, increased experience-rated refunds in our Medicaid business and lower risk revenue.

The increase in operating gain was primarily driven by increased revenue resulting from membership growth in our Medicaid and Medicare businesses, including related to the acquisition of MMM on June 29, 2021 and the absence of charges in 2021 for our business optimization initiatives recognized during the third quarter of 2020. These increases were partially offset by an increase in COVID-19 and non-COVID-19 healthcare costs, increased experience-rated refunds in our Medicare business and lower risk revenue.

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IngenioRx

Operating revenue increased as a result of higher drug spend from IngenioRx customers, including spend related to increased Medicaid membership within our Government Business segment.

The increase in operating gain was primarily driven by growth in integrated medical and pharmacy members in 2021.

Other

We recognized an operating gain for the nine months ended September 30, 2021 compared to an operating loss for the nine months ended September 30, 2020. The change was primarily driven by the absence of charges in 2021 for our business optimization initiatives recognized during the third quarter of 2020 and a decline in unallocated corporate expenses in 2021, partially offset by an increase in non-COVID 19 utilization impacting the risk sharing arrangements within the Diversified Business Group, as utilization was depressed during the nine months ended September 30, 2020.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in conformity with GAAP. Application of GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes and within this MD&A. We consider our most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical claims payable, income taxes, goodwill and other intangible assets, investments and retirement benefits. Our accounting policies related to these items are discussed in our 2020 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2020, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2021, our critical accounting policies and estimates have not changed from those described in our 2020 Annual Report on Form 10-K.

Medical Claims Payable

The most subjective accounting estimate in our consolidated financial statements is our liability for medical claims payable. Our accounting policies related to medical claims payable are discussed in the references cited above. As of September 30, 2021, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2020 Annual Report on Form 10-K. For a reconciliation of the beginning and ending balance for medical claims payable for the nine months ended September 30, 2021 and 2020, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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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 nine months ended September 30, 2021 and 2020, which are the trend and completion 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 continues to provide increased estimation uncertainty on our incurred but not reported liability at September 30, 2021.


	Favorable Developments by Changes in Key Assumptions
	Nine Months Ended September 30
	2021		2020
Assumed trend factors	$	1,443	$	606
Assumed completion factors	379		94
Total	$	1,822	$	700

The favorable development recognized in the nine months ended September 30, 2021 and 2020 resulted primarily from trend factors in late 2020 and late 2019, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter parts of 2020 and 2019 developing faster than expected also contributed to the favorability.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 83.8% and 85.3% for the nine months ended September 30, 2021 and 2020, respectively. This ratio serves as an indicator of claims processing speed whereby claims payments slowed down slightly during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This was driven by the strengthening of incurred but not reported claims, within our medical claims payable, to account for an increase in overall payment cycle time.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net medical claims payable less prior year redundancies in the current period in order to demonstrate the development of prior year reserves. For the nine months ended September 30, 2021, this metric was 19.7%, largely driven by favorable trend factor development at the end of 2020 as well as favorable completion factor development from 2019 and 2020. For the nine months ended September 30, 2020, this metric was 8.8%, largely driven by favorable trend factor development at the end of 2019 as well as favorable completion factor development from 2019.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims. We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology. For the nine months ended September 30, 2021, this metric was 2.2%, which was calculated using the redundancy of $1,822. For the nine months ended September 30, 2020, the comparable metric was 0.9%, which was calculated using the redundancy of $700. We believe these metrics demonstrate an appropriate level of reserve conservatism.

New Accounting Pronouncements

For information regarding new accounting pronouncements that were adopted and new accounting pronouncements that were issued during the nine months ended September 30, 2021, see the “Recently Adopted Accounting Guidance” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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Liquidity and Capital Resources

Sources and Uses of Capital

Our cash receipts result primarily from premiums, product revenue, administrative fees and other revenue, investment income, proceeds from the sale or maturity of our investment securities, proceeds from borrowings, and proceeds from the issuance of common stock under our employee stock plans. Cash disbursements result mainly from claims payments, administrative expenses, taxes, purchases of investment securities, interest expense, payments on borrowings, acquisitions, capital expenditures, repurchases of our debt securities and common stock and the payment of cash dividends. Cash outflows fluctuate with the amount and timing of settlement of these transactions. Any future decline in our profitability would likely have an unfavorable impact on our liquidity.

For a more detailed overview of our liquidity and capital resources management, see the “Introduction” section included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three and nine months ended September 30, 2021, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Liquidity

A summary of our major sources and uses of cash and cash equivalents for the nine months ended September 30, 2021 and 2020 is as follows:


	Nine Months Ended September 30				2021 vs. 2020
	2021		2020		Change
Sources of Cash:
Net cash provided by operating activities	$	6,692	$	6,875	$	(183)

Issuances of commercial paper and short- and long-term debt, net of repayments	2,533		570		1,963


Proceeds from issuance of common stock under employee stock plans	161		112		49

Other sources of cash, net	173		474		(301)
Total sources of cash	9,559		8,031		1,528
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions	(3,403)		(4,207)		804
Purchases of subsidiaries, net of cash acquired	(3,442)		(1,973)		(1,469)
Repurchase and retirement of common stock	(1,378)		(1,342)		(36)
Purchases of property and equipment	(747)		(743)		(4)

Cash dividends	(831)		(720)		(111)



Total uses of cash	(9,801)		(8,985)		(816)
Effect of foreign exchange rates on cash and cash equivalents	(9)		1		(10)
Net decrease in cash and cash equivalents	$	(251)	$	(953)	$	702

The decrease in cash provided by operating activities was primarily driven by the timing of working capital changes, partially offset by higher net income in 2021.

Other significant changes in sources or uses of cash year-over-year included an increase in net proceeds received from the issuance of commercial paper and short-term and long-term debt, net of repayments, an increase in cash paid for the purchase of subsidiaries, net of cash acquired, and a decrease in purchases of investments, net of proceeds from sales, maturities, calls and redemptions.

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Financial Condition

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $34,582 at September 30, 2021. Since December 31, 2020, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $3,287, primarily due to cash generated from operations and net proceeds from the issuance of commercial paper and short-term and long-term debt. The increase was partially offset by cash used for acquisitions, common stock repurchases, dividends paid to shareholders and purchases of property and equipment.

Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies. Certain accounting practices prescribed by insurance regulatory authorities, or statutory accounting practices, differ from GAAP. Changes that occur in statutory accounting practices, if any, could impact our subsidiaries’ future dividend capacity. In addition, we have agreed to certain undertakings to regulatory authorities, including requirements to maintain certain capital levels in certain of our subsidiaries.

At September 30, 2021, we held $1,360 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

Debt

Periodically, we access capital markets and issue debt (“Notes”) for long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases. Certain of these Notes may have a call feature that allows us to redeem the Notes at any time at our option and/or a put feature that allows a Note holder to redeem the Notes upon the occurrence of both a change in control event and a downgrade of the Notes below an investment grade rating. For more information on our debt, including redemptions and issuances, see Note 10, “Debt,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our consolidated balance sheets included in Part I, Item 1 of this Form 10-Q. Our debt-to-capital ratio is calculated as total debt divided by total debt plus total shareholders’ equity. Total debt is the sum of short-term borrowings, current portion of long-term debt and long-term debt, less current portion. We believe our debt-to-capital ratio assists investors and rating agencies in measuring our overall leverage and additional borrowing capacity. In addition, our bank covenants include a maximum debt-to-capital ratio that we cannot and did not exceed. Our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies. Our consolidated debt-to-capital ratio was 38.9% and 37.6% as of September 30, 2021 and December 31, 2020, respectively. The increase in our consolidated debt-to-capital ratio was primarily due to the debt issued in our March 2021 Notes offering, offset by our redemption of Notes in May 2021.

Our senior debt is rated “A” by S&P Global Ratings, “BBB” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc. and “bbb+” by AM Best Company, Inc. We intend to maintain our senior debt investment grade ratings. If our credit ratings are downgraded, our business, liquidity, financial condition and results of operations could be adversely impacted by limitations on future borrowings and a potential increase in our borrowing costs.

Future Sources and Uses of Liquidity

We have a 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. On June 3, 2021, we terminated our 364-day senior revolving credit facility, which was scheduled to mature in June 2021 (the “prior 364-Day Facility”), and entered into a new 364-day senior revolving credit facility (the “new 364-Day Facility” and together with the 5-Year Facility, the “Credit Facilities”) with a group of lenders for general corporate purposes. The new 364-Day Facility provides for credit in the amount of $1,000 and matures in June 2022. 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 September 30, 2021, our debt-to-capital ratio, as defined and calculated under the Credit Facilities, was 38.9%. We do not believe the restrictions contained in any of our Credit Facility covenants materially affect our financial or operating flexibility. As of September 30, 2021, we were in compliance with all of the debt covenants under these Credit Facilities. There were no amounts outstanding under the prior 364-Day Facility or the new 364-Day Facility at any time during the nine months ended September 30, 2021 or the year

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ended December 31, 2020. At September 30, 2021 and December 31, 2020, 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. Should commercial paper issuance become unavailable, we intend to use a combination of cash on hand and/or our Credit Facilities, which provide for combined credit up to $3,500, to redeem any outstanding commercial paper upon maturity. While there is no assurance in the current economic environment, we believe the lenders participating in our Credit Facilities, if market conditions allow, will be willing to provide financing in accordance with their legal obligations. At September 30, 2021, we had $100 outstanding under our commercial paper program.

We have a shelf registration statement on file with the U.S. Securities and Exchange Commission to register an unlimited amount of any combination of debt or equity securities in one or more offerings. Specific information regarding terms and securities being offered will be provided at the time of an offering. Proceeds from future offerings are expected to be used for general corporate purposes, including, but not limited to, the repayment of debt, investments in or extensions of credit to our subsidiaries, the financing of possible acquisitions or business expansions or the repurchase of shares of our common stock.

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.

For additional information regarding our sources and uses of capital at September 30, 2021, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Risk-Based Capital

Our regulated subsidiaries’ states of domicile have statutory risk-based capital (“RBC”) requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (RBC) for Insurers Model Act (the “RBC Model Act”). These RBC requirements are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s investments and products. The NAIC sets forth the formula for calculating the RBC requirements, which are designed to take into account asset risks, insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company’s business. In general, under the RBC Model Act, an insurance company must submit a report of its RBC level to the state insurance department or insurance commissioner, as appropriate, at the end of each calendar year. Our regulated subsidiaries’ respective RBC levels as of December 31, 2020, which was the most recent date for which reporting was required, were in excess of all mandatory RBC requirements. In addition to exceeding the RBC requirements, we are in compliance with the liquidity and capital requirements for a licensee of the BCBSA and with the tangible net equity requirements applicable to certain of our California subsidiaries.

For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2020 included in our 2020 Annual Report on Form 10-K.

Contractual Obligations and Commitments

We believe that funds from future operating cash flows, cash and investments and funds available under our 5-Year Facility and our new 364-Day Facility senior revolving credit facilities and/or from public or private financing sources will be sufficient for future operations and commitments, and for capital acquisitions and other strategic transactions.

There have been no material changes to our Contractual Obligations and Commitments disclosure in our 2020 Annual Report on Form 10-K other than an increase in our borrowings. For additional information regarding our estimated contractual obligations and commitments, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and the “Other Contingencies” and “Contractual Obligations and Commitments” sections of Note 11 “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include, but are not limited to: the impact of large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19, and catastrophes; trends in healthcare costs and utilization rates; our ability to secure sufficient premium rates, including regulatory approval for and implementation of such rates; the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; our ability to contract with providers on cost-effective and competitive terms; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquiries, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon; our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our healthcare product mix; costs and other liabilities associated with litigation, government investigations, audits or reviews; risks and uncertainties related to our pharmacy benefit management (“PBM”) business, including non-compliance by any party with the PBM services agreement between us and CaremarkPCS Health, L.L.C.; medical malpractice or professional liability claims or other risks related to healthcare and PBM services provided by our subsidiaries; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; changes in U.S. tax laws; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; our ability to repurchase shares of our common stock and pay dividends on our common stock due to the adequacy of our cash flow and earnings and other considerations; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; the impact of international laws and regulations; intense competition to attract and retain employees; and various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.

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