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, 2021 and the MD&A included in our 2021 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 months ended March 31, 2022 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2022, or any other period.

Overview

We are one of the largest health benefits companies in the United States in terms of medical membership, serving nearly 47 million medical members through our affiliated health plans as of March 31, 2022. 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. In addition, we conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, MMM, Optimum HealthCare, Simply Healthcare, and/or UniCare. We offer pharmacy benefits management (“PBM”) services through our IngenioRx, Inc. (“IngenioRx”) subsidiary. We are licensed to conduct insurance operations in all 50 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 2021 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 uncertainty in the labor market and put pressure on the healthcare system, and it has impacted, and will likely continue to impact, our membership, benefit expense and members behavior, including how members access healthcare services. 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 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 the first quarter of 2022. In the first quarter of 2022, our Medicaid membership continued to grow as a result of the temporary suspension of eligibility recertification in response to the COVID-19 pandemic, which we expect will remain suspended at least until the third quarter of 2022. Once eligibility recertification resumes, which may not occur until 2023 in certain states, we expect a decline in our Medicaid membership. At the same time, we expect growth in our Commercial risk-based and fee-based plans, including through Individual on-exchange products through state- or federally-facilitated marketplaces (the “Public Exchange”), as members exiting Medicaid in our fourteen Commercial states seek coverage elsewhere. See “Business Trends - Medical Cost Trends” below for a discussion of the impact of COVID-19 on our healthcare costs.

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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 as resulting legislative and regulatory changes to manage our response and assess and mitigate potential adverse impacts to our business. For additional discussion regarding our risks related to the COVID-19 pandemic and our other risk factors, see Part I, Item 1A, “Risk Factors” included in our 2021 Annual Report on Form 10-K.

Business Trends

We made the decision to modestly expand our participation in the “Public Exchange” for 2022 after also expanding in 2021. As a result, for 2022 we are offering Public Exchange products in 122 of the 143 rating regions in which we operate, in comparison to 103 of 143 rating regions in 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. Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees. In addition, the 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 features 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 health 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, testing and treatment 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.

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 care and condition management, program integrity and specialty pharmacy management and utilization 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.

At its onset, the COVID-19 pandemic caused a decrease in utilization of non-COVID-19 health services, which decreased our claim costs in 2020. As the pandemic continued through 2021, our non-COVID-19 healthcare utilization experience gradually increased and largely normalized. Our COVID-19 related healthcare expenses increased during 2021 as new variants (Delta and Omicron) emerged and vaccinations and boosters became available.

The Omicron surge quickly declined during the first quarter of 2022, with COVID-19 inpatient authorizations, provider-based tests, visits and vaccinations all decreasing to lower levels by the end of the first quarter of 2022; concurrently, non-COVID-19 healthcare utilization recovered from lower levels earlier in the quarter. In 2022, we anticipate additional claim costs for new pharmaceutical treatments for COVID-19 and compliance with governmental regulations on COVID-19 testing reimbursement. We expect claims costs related to COVID-19 testing, treatment and hospitalizations will continue throughout 2022 even during periods with lower COVID-19 infection and confirmed case activity. The ongoing cost and volume of

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covered services related to the COVID-19 pandemic may have a material adverse effect on our future claim costs. We continue to closely 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 2021 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 health benefits, consumer eligibility for public programs and our cash flows for all lines of business, and which have introduced increased uncertainty around our cost structure. These actions, which are or have been in effect for various durations, provide, among other things:

• mandates to waive cost-sharing for COVID-19 testing (including over-the-counter testing in accordance with state and federal requirements), vaccines and related services;

• reforms, including waiving Medicare originating site restrictions for qualified providers of 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.

Beginning in July 2022, the health plan price transparency regulations issued in October 2020 by the U.S. Departments of Health and Human Services, Labor and Treasury (the “Health Plan Transparency Rule”) will require us to disclose, on a monthly basis, detailed pricing information regarding negotiated rates for all covered items and services between the plan or issuer and in-network providers and historical payments to, and billed charges from, out-of-network providers. Additionally, beginning in 2023, we will be required to make available to members personalized out-of-pocket cost information and the underlying negotiated rates for 500 covered healthcare items and services, including prescription drugs. In 2024, this requirement will expand to all items and services.

The Consolidated Appropriations Act of 2021, which was enacted in December 2020 (the “Appropriations Act”), has impacted and in the future 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, mental health parity reporting, and reporting on pharmacy benefits and drug costs. The requirements of the Appropriations Act applicable to us have varying effective dates, some of which were effective in December 2021 and others that 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 Public 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 credit provisions became effective in January 2021, while the COBRA premium subsidization was effective from April 2021 through September 2021.

Since its enactment in 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), has introduced new risks, regulatory challenges and uncertainties, has impacted our business model and strategy and has required changes in the way our products are designed, underwritten, priced, distributed and administered. The ACA has evolved and various challenges since its enactment have introduced increased uncertainty to our business. In June 2021, the U.S. Supreme Court issued its opinion and dismissed the last legal challenge to the constitutionality of the ACA, leaving the law intact. We expect the ACA will continue to significantly impact our business and results of operations, including pricing, minimum medical loss ratios and the geographies in which our products are available, and as a result of future modifications of, and guidance by federal regulatory

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agencies related to, the ACA and our businesses more broadly. We will continue to evaluate the impact of the ACA as any further developments 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 2021 Annual Report on Form 10-K.

Other Significant Items

Business and Operational Matters

On March 10, 2022, we announced our intent to change our name to better reflect our business and our journey from a traditional health benefits organization to a lifetime, trusted health partner. At our annual meeting of shareholders on May 18, 2022, our shareholders will vote on a proposed amendment to our amended and restated articles of incorporation to change our name to Elevance Health, Inc. Shareholders of record on March 17, 2022 are entitled to vote. If approved by our shareholders, we expect the name change to occur in the second quarter of 2022.

On November 10, 2021, we announced our entrance into an agreement with Personal Touch Holding Corporation to acquire Integra Managed Care (“Integra”). Integra is a managed long-term care plan that serves New York state Medicaid members, enabling adults with long-term care needs and disabilities to live safely and independently in their own homes. The acquisition is expected to close by the end of the second quarter of 2022 and is subject to standard closing conditions and customary approvals.

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.

For additional information, see Note 3, “Business Acquisitions,” of the Notes to Consolidated Financial Statements included in Part I, 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. 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. In the fourth quarter of 2021, we identified additional office space reductions and related fixed asset impairments due to the continuing COVID-19 pandemic and recorded a charge of $202 in selling general and administrative expenses. 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 Quarterly Report on 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

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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 terms imposing non-monetary obligations on the defendants. As of March 31, 2022, 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 Quarterly Report on Form 10-Q.

Selected Operating Performance

For the twelve months ended March 31, 2022, total medical membership increased by 3.3 million, or 7.5%. The increase was driven primarily by organic growth in our Medicaid business due to the continued temporary suspension of eligibility recertification during the COVID-19 pandemic, the acquisitions of MMM in the second quarter of 2021 and Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract and the launch of our HealthyBlue managed care alliance in North Carolina in the third quarter of 2021. Our Medicare Advantage membership also increased due to organic growth. Increases in our Commercial & Specialty Business segment were driven primarily by new sales exceeding lapses in both our Group fee-based and our Group risk-based membership.

Operating revenue for the three months ended March 31, 2022 was $37,886, an increase of $5,788, or 18.0%, from the three months ended March 31, 2021. This increase in operating revenue was primarily driven by higher premium revenue due mainly to organic membership growth in our Medicaid business resulting primarily from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic. Other contributors to the operating revenue increase were the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract and the retroactive reinstatement of a Medicaid directed payment program. Membership increases and rate increases designed to cover medical cost trends in our Medicare Advantage and Commercial risk-based businesses also provided additional premium revenue. Product revenue increased due to growth in integrated pharmacy members in our IngenioRx segment which also contributed to the overall operating revenue increase.

Net income for the three months ended March 31, 2022 was $1,795, an increase of $128, or 7.7%, from the three months ended March 31, 2021. This increase in net income was primarily due to a net operating gain increase from our business units and increased net investment income, partially offset by increased losses on financial instruments, increased interest expense, increased amortization of intangibles and increased income tax expense due to higher income before income tax expense.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $7.39 for the three months ended March 31, 2022, which represented a 10.1% increase from EPS of $6.71 for the three months ended March 31, 2021. Our diluted shares for the three months ended March 31, 2022 were 244.4, a decrease of 3.8, or 1.5%, compared to the three months ended March 31, 2021. The increase in EPS resulted primarily from the increase in net income, as well as from the lower shares outstanding during the three months ended March 31, 2022.

Operating cash flow for the three months ended March 31, 2022 and 2021 was $2,541 and $2,505, respectively. The minor increase in operating cash flow was due to higher net income in 2022, partially offset by the impact of working capital changes year over year.

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Membership

The following table presents our medical membership by reportable segment and customer type as of March 31, 2022 and 2021. 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. For a more detailed description of our medical membership, see the “Membership” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Annual Report on Form 10-K.

			March 31
(In thousands)			2022						2021						Change						% Change
Medical Membership
Commercial & Specialty Business:
Individual			818						731						87						11.9		%
Group Risk-Based			4,028						3,837						191						5.0		%
Commercial Risk-Based			4,846						4,568						278						6.1		%
BlueCard®			6,370						6,166						204						3.3		%
Group Fee-Based			20,148						19,515						633						3.2		%
Commercial Fee-Based			26,518						25,681						837						3.3		%
Total Commercial & Specialty Business			31,364						30,249						1,115						3.7		%
Government Business:
Medicare Advantage			1,921						1,538						383						24.9		%
Medicare Supplement			939						930						9						1.0		%
Total Medicare			2,860						2,468						392						15.9		%
Medicaid			10,919						9,172						1,747						19.0		%
Federal Employees Health Benefits			1,632						1,632						—						—		%
Total Government Business			15,411						13,272						2,139						16.1		%
Total Medical Membership			46,775						43,521						3,254						7.5		%
Other Membership
Life and Disability Members			4,679						4,766						(87)						(1.8)		%
Dental Members			6,649						6,599						50						0.8		%
Dental Administration Members			1,588						1,488						100						6.7		%
Vision Members			9,211						7,798						1,413						18.1		%
Medicare Part D Standalone Members			279						450						(171)						(38.0)		%

Medical Membership

Total medical membership increased in both our Commercial & Specialty Business and Government Business segments. The largest increase was in our Government Business segment, primarily due to organic Medicaid membership growth resulting from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic, the acquisitions of MMM in the second quarter of 2021 and Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022, as well as the launch of our HealthyBlue managed care alliance in North Carolina in the third quarter of 2021. Our Medicare Advantage membership also increased due to organic growth. Increases in our Commercial & Specialty Business segment were driven primarily by new sales exceeding lapses in both our Group fee-based and Group risk-based membership. BlueCard membership increases and Individual membership increases due to our Public Exchange expansion in 2022 also contributed to our overall membership increases.

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 lapses and negative in-group change exceeding membership increases in our Group fee-based business. Dental membership

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increased primarily due to sales exceeding lapses in our Group risk-based accounts and penetration increases in our Federal Employees Health Benefits (“FEHB”) program, partially offset by the loss of a significant Group fee-based account. Dental administration membership increased primarily due to increased sales to other BCBS plans associated with the FEHB program. Vision membership increased primarily due to the launch of a new entry level vision product in our Group markets, as well as the growth in our Medicare Advantage business. Medicare Part D Standalone membership declined as we discontinued certain legacy products.

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three months ended March 31, 2022 and 2021 are as follows:

						Three Months Ended March 31
						2022						2021																		Change						% Change
Total operating revenue						$	37,886					$	32,098																	$	5,788					18.0		%
Net investment income						360						291																		69						23.7		%
Net losses on financial instruments						(151)						(4)																		(147)						NM
Total revenues						38,095						32,385																		5,710						17.6		%
Benefit expense						28,215						23,699																		4,516						19.1		%
Cost of products sold						2,883						2,313																		570						24.6		%
Selling, general and administrative expense						4,341						3,925																		416						10.6		%
Other expense1						330						272																		58						21.3		%
Total expenses						35,769						30,209																		5,560						18.4		%
Income before income tax expense						2,326						2,176																		150						6.9		%
Income tax expense						531						509																		22						4.3		%
Net income						$	1,795					$	1,667																	$	128					7.7		%
Net loss (income) attributable to noncontrolling interests						10						(2)																		12						NM
Shareholders’ net income						$	1,805					$	1,665																	$	140					8.4		%
Average diluted shares outstanding						244.4						248.2																		(3.8)						(1.5)		%
Diluted shareholders’ net income per share						$	7.39					$	6.71																	$	0.68					10.1		%
Effective tax rate						22.8		%				23.4		%																						(60) bp3
Benefit expense ratio2						86.1		%				85.6		%																						50 bp3
Selling, general and administrative expense ratio4						11.5		%				12.2		%																						(70) bp3
Income before income tax expense as a percentage of total revenues						6.1		%				6.7		%																						(60) bp3
Shareholders’ net income as a percentage of total revenues						4.7		%				5.1		%																						(40) bp3

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

NM Not meaningful.

1 Includes interest expense and amortization of other intangible assets.

2 Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended March 31, 2022 and 2021 were $32,785 and $27,676, 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 March 31, 2022 Compared to the Three Months Ended March 31, 2021

Total operating revenue increased primarily as a result of higher premium revenue due mainly to organic membership growth in our Medicaid business resulting primarily from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic. Other contributors to the operating revenue increase were the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract and the retroactive reinstatement of a Medicaid directed payment program. Membership increases and rate increases designed to cover medical cost trends in our Medicare Advantage and Commercial risk-based businesses also

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provided additional premium revenue. Product revenue increased due to growth in integrated pharmacy members in our IngenioRx segment which also contributed to the overall operating revenue increase.

Net investment income increased primarily due to increases in net income from our alternative investments and higher income from fixed maturity securities.

Net losses on financial instruments increased primarily as a result of increased losses on fixed maturity securities and fewer gains on equity securities. Losses related to our Russia and Ukraine fixed maturity securities were not material. At March 31, 2022, our remaining holdings of Russia and Ukraine fixed maturity securities were not material.

Benefit expense increased primarily due to healthcare costs associated with organic membership growth in our Medicaid and Medicare businesses, the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract and the retroactive reinstatement of a Medicaid directed payment program. Higher healthcare costs in our Commercial risk-based business also contributed to the increased benefit expense.

Our benefit expense ratio increased primarily due to the impact of continued increases in our Government Business segment membership, which has a higher benefit expense ratio than our Commercial & Specialty Business segment membership. Higher healthcare costs in our Commercial risk-based businesses also contributed to the benefit expense ratio increase.

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 increased primarily due to the increased costs to support growth.

Our selling, general and administrative expense ratio decreased primarily due to the operating revenue growth in 2022, partially offset by increased costs to support growth.

Our shareholders’ net income as a percentage of total revenues decreased in 2022 as compared to 2021 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 gains (losses) on financial instruments, interest expense, amortization of other intangible assets 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 income before income tax expense to reportable segments’ operating gain, 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 months ended March 31, 2022 and 2021:

						Three Months Ended March 31
						2022						2021																		Change						% Change
Operating Revenue
Commercial & Specialty Business						$	10,269					$	9,491																	$	778					8.2		%
Government Business						23,758						19,283																		4,475						23.2		%
IngenioRx						6,683						5,862																		821						14.0		%
Other						3,221						2,370																		851						35.9		%
Eliminations						(6,045)						(4,908)																		(1,137)						NM
Total operating revenue						$	37,886					$	32,098																	$	5,788					18.0		%
Operating Gain
Commercial & Specialty Business						$	1,082					$	1,268																	$	(186)					(14.7)		%
Government Business						789						478																		311						65.1		%
IngenioRx						398						407																		(9)						(2.2)		%
Other						178						8																		170						NM
Operating Margin
Commercial & Specialty Business						10.5		%				13.4		%																						(290) bp
Government Business						3.3		%				2.5		%																						80 bp
IngenioRx						6.0		%				6.9		%																						(90) bp

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

Commercial & Specialty Business

Operating revenue increased primarily due to higher premiums in our Commercial risk-based businesses due to increased membership, premium rate increases in our Commercial risk-based businesses designed to cover medical cost trends and increased administrative fees in our Commercial fee-based businesses.

Operating gain decreased primarily due to the net unfavorable effect of COVID-19 and increased selling, general and administrative costs to support growth and innovation. These impacts were partially offset by positive contribution from the growth in our risk-based and fee-based membership.

Government Business

Operating revenue increased primarily as a result of higher premium revenue due mainly to organic membership growth in our Medicaid business primarily resulting from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic. Other contributors to the operating revenue increase were the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract and the retroactive reinstatement of a Medicaid directed payment program. Membership increases and rate increases designed to cover medical cost trends in our Medicare Advantage business also increased premium revenue.

The increase in operating gain was primarily driven by the acquisition of MMM in the second quarter of 2021, organic membership growth in our Medicaid business resulting from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic, improved risk revenue in Medicare and favorable out of period adjustments in our Medicaid businesses. These increases were partially offset by increased selling, general and administrative costs to support growth.

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IngenioRx

Operating revenue increased as a result of higher prescription volume, driven by growth in integrated medical and pharmacy members in 2022.

The decrease in operating gain was primarily driven by the non-recurrence of a favorable out of period adjustment recorded in the first quarter of 2021, partially offset by the impact of higher prescription volume resulting from growth in integrated medical and pharmacy members.

Other

Operating revenue increased primarily due to higher revenue for expanded services performed by our Diversified Business Group for our Commercial & Specialty Business segment in 2022. In addition, results in 2022 include revenue from myNEXUS, which was acquired in the second quarter of 2021.

Operating gain increased primarily due to improved performance in our Diversified Business Group’s affiliated and unaffiliated earnings and the acquisition of myNEXUS. The increase in operating gain was further driven by lower unallocated corporate expenses in 2022.

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 2021 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, 2021, 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 March 31, 2022, our critical accounting policies and estimates have not changed from those described in our 2021 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 March 31, 2022, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2021 Annual Report on Form 10-K. For a reconciliation of the beginning and ending balance for medical claims payable for the three months ended March 31, 2022 and 2021, 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 three months ended March 31, 2022 and 2021, 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 March 31, 2022.

																					Favorable Developments by Changes in Key Assumptions
																					Three Months Ended March 31
																					2022						2021
Assumed trend factors																					$	880					$	998
Assumed completion factors																					53						490
Total																					$	933					$	1,488

The favorable development recognized in the three months ended March 31, 2022 and 2021 resulted primarily from trend factors in late 2021 and late 2020, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter part of 2020 developing faster than expected also contributed to the favorable development for the three months ended March 31, 2021.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 61.0% and 62.1% for the three months ended March 31, 2022 and 2021, respectively. This ratio serves as an indicator of claims processing speed whereby claims payments slowed down slightly during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. 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 three months ended March 31, 2022, this metric was 7.6%, largely driven by favorable trend factor development at the end of 2021. For the three months ended March 31, 2021, this metric was 15.5%, largely driven by favorable trend factor development at the end of 2020 as well as favorable completion factor development from 2020.

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 three months ended March 31, 2022, this metric was 0.9%, which was calculated using the redundancy of $933. For the three months ended March 31, 2021, the comparable metric was 1.8%, which was calculated using the redundancy of $1,488. 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 three months ended March 31, 2022, 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.

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

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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 2021 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three months ended March 31, 2022, 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 three months ended March 31, 2022 and 2021 is as follows:

			Three Months Ended March 31												2022 vs. 2021
			2022						2021						Change
Sources of Cash:
Net cash provided by operating activities			$	2,541					$	2,505					$	36
Issuances of commercial paper and short- and long-term debt, net of repayments			211						3,212						(3,001)
Proceeds from issuance of common stock under employee stock plans			76						89						(13)
Other sources of cash, net			420						65						355
Total sources of cash			3,248						5,871						(2,623)
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions			(794)						(1,330)						536
Purchases of subsidiaries, net of cash acquired			(61)						(27)						(34)
Repurchase and retirement of common stock			(545)						(447)						(98)
Purchases of property and equipment			(254)						(204)						(50)
Cash dividends			(309)						(277)						(32)
Total uses of cash			(1,963)						(2,285)						322
Effect of foreign exchange rates on cash and cash equivalents			(4)						(1)						(3)
Net increase in cash and cash equivalents			$	1,281					$	3,585					$	(2,304)

The increase in cash provided by operating activities was primarily driven by higher net income in 2022, partially offset by the impact of working capital changes, year-over-year.

Other significant changes in sources or uses of cash year-over-year included reduced proceeds from commercial paper and short- and long-term debt, net of repayments, partially offset by reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions and other sources of cash, net.

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 $34,638 at March 31, 2022. Since December 31, 2021, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $978, primarily due to cash generated from operations and net proceeds from the issuance of commercial paper. The increase was partially offset by cash used for common stock repurchases, dividends paid to shareholders, purchases of property and equipment and cash used for acquisitions.

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

At March 31, 2022, we held $1,424 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.

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 39.2% and 38.9% as of March 31, 2022 and December 31, 2021, respectively.

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.

Capital Resources

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.

We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes. In April 2022, we amended and restated the credit agreement for the 5-Year Facility to, among other things, extend the maturity date of the 5-Year Facility from June 2024 to April 2027 and increase the amount of credit available under the 5-Year Facility from $2,500 to $4,000. Also in April 2022, concurrently with the amendment and restatement of the 5-Year Facility, we terminated our 364-day senior revolving credit facility that provided for credit in the amount of $1,000, which was scheduled to mature in June 2022 (the “2021 364-Day Facility” and together with the 5-Year Facility, the “Credit Facilities”). In June 2021, we terminated our 364-day senior revolving credit facility (the “prior 364-Day Facility”), which was scheduled to mature in June 2021, and entered into the 2021 364-Day Facility with a group of lenders for general corporate purposes. Our ability to borrow under the 5-Year Facility 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 credit agreement for the 5-Year Facility. We do not believe the restrictions contained in our 5-Year Credit Facility covenants materially affect our financial or operating flexibility. As of March 31, 2022, we were in compliance with all of the debt covenants under the Credit Facilities.

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 up to $200.

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Our ability to borrow under the Subsidiary Credit Facilities is subject to compliance with certain covenants. At March 31, 2022 and December 31, 2021, we had no outstanding borrowings under the Subsidiary Credit Facilities.

We have a $3,500 commercial paper program, the proceeds of which may be used for general corporate purposes. Should commercial paper issuance become unavailable, we have the ability to use a combination of cash on hand and/or our 5-Year Facility, which provides for credit in the amount of $4,000, to redeem any outstanding commercial paper upon maturity.

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. We had $275 of outstanding short-term borrowings from the FHLBs at March 31, 2022 and December 31, 2021.

While there is no assurance in the current economic environment, we believe the lenders participating in our credit facilities, if market conditions allow, would be willing to provide financing in accordance with their legal obligations. At March 31, 2022, we had $525 outstanding under our commercial paper 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.

For additional information regarding our sources and uses of capital at March 31, 2022, 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.

In addition to regulations regarding the timing and amount of dividends, 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 Health Organizations 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, 2021, which was the most recent date for which reporting was required, were in excess of all applicable mandatory RBC requirements. In addition to exceeding these RBC requirements, we are in compliance with the liquidity and capital requirements for a licensee of the BCBSA and with the tangible net worth requirements applicable to certain of our California subsidiaries. For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2021 included in our 2021 Annual Report on Form 10-K.

Future Sources and Uses of Liquidity

We believe that funds from cash on hand, future operating cash receipts, investments and funds available under our commercial paper program, our 5-Year Facility, our Subsidiary Credit Facilities and the FHLBs will be adequate to fund our expected cash disbursements over the next twelve months.

There have been no material changes to our long-term liquidity requirements as disclosed in our 2021 Annual Report on Form 10-K. For additional updates regarding our estimated long-term liquidity requirements, 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. We believe that funds from future operating cash flows, cash and investments and funds available under our 5-Year Facility and/or from public or private financing sources will be sufficient for future operations and commitments, and for capital acquisitions and other strategic transactions.

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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, state and international law and 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; the impact of a cyber-attack or other cyber security breach resulting in 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 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; intense competition to attract and retain employees; risks associated with our international operations; and various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations.

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