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Anthem, Inc. (ANTM) SEC Filing 10-Q Quarterly Report for the period ending Wednesday, March 31, 2021

Anthem, Inc.

CIK: 1156039 Ticker: ANTM

Exhibit 99.1

PRESS RELEASE

 

LOGO

ANTHEM REPORTS FIRST QUARTER 2021 RESULTS,

RAISES FULL YEAR OUTLOOK

 

   

First quarter GAAP net income was $6.71 per share, including net negative adjustment items of $0.30 per share. Adjusted net income was $7.01* per share.

 

   

Operating revenue grew by 9.0%, or 10.7% adjusted for the repeal of the health insurance tax, over the prior year quarter to $32.1 billion.

 

   

Medical enrollment increased by 1.4 million members year over year and 596 thousand members sequentially to 43.5 million members.

 

   

Second quarter 2021 dividend of $1.13 per share declared to shareholders.

 

   

Raising full year adjusted net income outlook from greater than $24.50* per share to greater than $25.10* per share.

Indianapolis, Ind. - April 21, 2021 - Anthem, Inc. (NYSE: ANTM) reported first quarter 2021 results that reflect strong financial performance.

“Our results in the first quarter reflect strong execution and a continued focus on supporting our communities through the pandemic,” said Gail K. Boudreaux, President and CEO. “We expect the positive momentum in the first quarter to persist through the balance of the year, driven by our commitment to delivering affordable healthcare and innovative solutions for those we serve. At Anthem, we are modernizing our business while transforming into a digitally-enabled platform for health. Our solid performance demonstrates the value we bring to the market and I am confident that we are well positioned to capitalize on future opportunities for growth.”

*Refer to GAAP reconciliation tables on page 14.

 

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The following information was filed by Anthem, Inc. (ANTM) on Wednesday, April 21, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-16751
ANTHEM, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-2145715
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
220 Virginia Avenue
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (800) 331-1476
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueANTMNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer  Accelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of April 15, 2021, 244,840,654 shares of the Registrant’s Common Stock were outstanding.



Anthem, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2021
Table of Contents
 
  Page
PART I. FINANCIAL INFORMATION
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II. OTHER INFORMATION
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
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PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Anthem, Inc.
Consolidated Balance Sheets
March 31,
2021
December 31,
2020
(In millions, except share data)(Unaudited) 
Assets
Current assets:
Cash and cash equivalents$9,326 $5,741 
Fixed maturity securities (amortized cost of $23,808 and $22,222; allowance for credit losses of $8 and $7)24,555 23,433 
Equity securities3,630 1,559 
Premium receivables6,111 5,279 
Self-funded receivables3,109 2,849 
Other receivables3,071 2,830 
Other current assets4,693 4,060 
Total current assets54,495 45,751 
Long-term investments:
Fixed maturity securities (amortized cost of $537 and $532; allowance for credit losses of $0 and $0)558 562 
Other invested assets4,474 4,285 
Property and equipment, net3,533 3,483 
Goodwill21,708 21,691 
Other intangible assets9,352 9,405 
Other noncurrent assets1,563 1,438 
Total assets$95,683 $86,615 
Liabilities and equity
Liabilities
Current liabilities:
Medical claims payable$12,347 $11,359 
Other policyholder liabilities5,075 4,590 
Unearned income1,139 1,259 
Accounts payable and accrued expenses5,329 5,493 
Current portion of long-term debt700 700 
Other current liabilities10,159 6,052 
Total current liabilities34,749 29,453 
Long-term debt, less current portion22,534 19,335 
Reserves for future policy benefits776 794 
Deferred tax liabilities, net1,961 2,019 
Other noncurrent liabilities1,745 1,815 
Total liabilities61,765 53,416 
Commitments and contingencies – Note 11
Shareholders’ equity
Preferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – none— — 
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding –
244,938,635 and 245,401,430
Additional paid-in capital9,253 9,244 
Retained earnings24,793 23,802 
Accumulated other comprehensive (loss) income(195)150 
Total shareholders’ equity33,853 33,199 
Noncontrolling interests65 — 
Total equity33,918 33,199 
Total liabilities and equity$95,683 $86,615 









See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Income
(Unaudited) 
 Three Months Ended 
 March 31
(In millions, except per share data)20212020
Revenues
Premiums$27,676 $25,517 
Product revenue2,737 2,344 
Administrative fees and other revenue1,685 1,587 
Total operating revenue32,098 29,448 
Net investment income291 254 
Net realized losses on financial instruments(4)(81)
Total revenues32,385 29,621 
Expenses
Benefit expense23,699 21,489 
Cost of products sold2,313 1,984 
Selling, general and administrative expense3,925 3,781 
Interest expense192 194 
Amortization of other intangible assets80 83 
Loss on extinguishment of debt— 
Total expenses30,209 27,532 
Income before income tax expense
2,176 2,089 
Income tax expense509 566 
Net income1,667 1,523 
Net income attributable to noncontrolling interests(2)— 
Shareholders’ net income$1,665 $1,523 
Shareholders’ net income per share
Basic $6.80 $6.03 
Diluted $6.71 $5.94 
Dividends per share$1.13 $0.95 
















See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited) 
 Three Months Ended 
 March 31
(In millions)20212020
Net income$1,667 $1,523 
Other comprehensive loss, net of tax:
Change in net unrealized losses/gains on investments(362)(689)
Change in non-credit component of impairment losses on investments
(32)
Change in net unrealized gains/losses on cash flow hedges
Change in net periodic pension and postretirement costs10 
Foreign currency translation adjustments— (1)
Other comprehensive loss(347)(712)
Net income attributable to noncontrolling interests(2)— 
Other comprehensive loss attributable to noncontrolling interests— 
Total shareholders’ comprehensive income$1,320 $811 
































See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended 
 March 31
(In millions)20212020
Operating activities
Net income$1,667 $1,523 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses on financial instruments81 
Depreciation and amortization282 270 
Deferred income taxes31 57 
Share-based compensation64 67 
Changes in operating assets and liabilities:
Receivables, net(1,258)(639)
Other invested assets(20)63 
Other assets(288)(525)
Policy liabilities1,455 692 
Unearned income(119)(109)
Accounts payable and other liabilities358 588 
Income taxes438 491 
Other, net(109)(44)
Net cash provided by operating activities2,505 2,515 
Investing activities
Purchases of investments(6,978)(3,896)
Proceeds from sale of investments4,650 2,728 
Maturities, calls and redemptions from investments998 597 
Changes in securities lending collateral(731)(77)
Purchases of subsidiaries, net of cash acquired(27)(1,908)
Purchases of property and equipment(204)(204)
Other, net(15)(24)
Net cash used in investing activities(2,307)(2,784)
Financing activities
Net (repayments of) proceeds from commercial paper borrowings(250)905 
Proceeds from long-term borrowings3,462 300 
Repayments of long-term borrowings— (52)
Proceeds from short-term borrowings— 1,075 
Repayments of short-term borrowings— (700)
Changes in securities lending payable731 77 
Repurchase and retirement of common stock(447)(529)
Cash dividends(277)(240)
Proceeds from issuance of common stock under employee stock plans89 44 
Taxes paid through withholding of common stock under employee stock plans(91)(107)
Other, net171 (94)
Net cash provided by financing activities3,388 679 
Effect of foreign exchange rates on cash and cash equivalents(1)(2)
Change in cash and cash equivalents3,585 408 
Cash and cash equivalents at beginning of period5,741 4,937 
Cash and cash equivalents at end of period$9,326 $5,345 










See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling InterestsTotal
Equity
(In millions)Number of
Shares
Par
Value
January 1, 2021245.4 $$9,244 $23,802 $150 $— $33,199 
Net income— — — 1,665 — 1,667 
Other comprehensive loss— — — — (345)(2)(347)
Noncontrolling interests adjustment— — — — — 65 65 
Repurchase and retirement of common stock(1.4)(1)(53)(393)— — (447)
Dividends and dividend equivalents— — — (281)— — (281)
Issuance of common stock under employee stock plans, net of related tax benefits0.9 — 62 — — — 62 
March 31, 2021244.9 $$9,253 $24,793 $(195)$65 $33,918 
December 31, 2019 (audited)252.9 $$9,448 $22,573 $(296)$— $31,728 
Adoption of Accounting Standards Update No. 2016-13— — — (35)— — (35)
January 1, 2020252.9 9,448 22,538 (296)— 31,693 
Net income— — — 1,523 — — 1,523 
Other comprehensive loss— — — — (712)— (712)
Repurchase and retirement of common stock(1.9)— (71)(458)— — (529)
Dividends and dividend equivalents— — — (243)— — (243)
Issuance of common stock under employee stock plans, net of related tax benefits1.0 — — — — 
Convertible debenture repurchases and conversions— — (42)— — — (42)
March 31, 2020252.0 $$9,338 $23,360 $(1,008)$— $31,693 














See accompanying notes.
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Anthem, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2021
(In Millions, Except Per Share Data or As Otherwise Stated Herein)
 
1.     Organization
References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states” include the District of Columbia, unless the context otherwise requires.
We are one of the largest health benefits companies in the United States in terms of medical membership, serving nearly 44 medical members through our affiliated health plans as of March 31, 2021. We offer a broad spectrum of network-based managed care plans to Individual, Group, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations (“PPOs”); Health Maintenance Organizations (“HMOs”); Point-of-Service plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to fee-based customers, including claims processing, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management (“PBM”), dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare. We also provide services to the federal government in connection with our Federal Health Products & Services business, which administers the Federal Employees Health Benefits (“FEHB”) Program.
We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield (“BCBS”) licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare. Also, we provide PBM services through our IngenioRx, Inc. (“IngenioRx”) subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.
2.     Basis of Presentation and Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. We have omitted certain footnote disclosures that would substantially duplicate the disclosures in our 2020 Annual Report on Form 10-K, unless the information contained in those disclosures materially changed or is required by GAAP. Certain prior year amounts have been reclassified to conform to the current year presentation. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the consolidated financial statements as of and for the three months ended March 31, 2021 and 2020 have been recorded. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021, or any other period. These unaudited consolidated financial statements should be read in conjunction with 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.
Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar (“USD”). We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during
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the period. The net effect of these translation adjustments is included in “Foreign currency translation adjustments” in our consolidated statements of comprehensive income.
Cash and Cash Equivalents: We control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits, and we have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled $205 and $170 at March 31, 2021 and December 31, 2020, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.
Investments: We classify fixed maturity securities in our investment portfolio as “available-for-sale” and report those securities at fair value. Certain fixed maturity securities are available to support current operations and, accordingly, we classify such investments as current assets without regard to their contractual maturity. Investments used to satisfy contractual, regulatory or other requirements are classified as long-term, without regard to contractual maturity.
If a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity security’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost basis, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive loss. Furthermore, unrealized losses entirely caused by non-credit-related factors related to fixed maturity securities for which we expect to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive (loss) income.
The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.
For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the purchase date of the securities. Such adjustments are reported within net investment income.
The changes in fair value of our marketable equity securities are recognized in our results of operations within net realized gains and losses on financial instruments.
We have corporate-owned life insurance policies on certain participants in our deferred compensation plans and other members of management. The cash surrender value of the corporate-owned life insurance policies is reported under the caption “Other invested assets” in our consolidated balance sheets.
We use the equity method of accounting for investments in companies in which our ownership interest may enable us to influence the operating or financial decisions of the investee company. Our proportionate share of equity in net income of these unconsolidated affiliates is reported within net investment income. The equity method investments are reported under the caption “Other invested assets” in our consolidated balance sheets.
Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
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We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. We recognize the collateral as an asset, which is reported under the caption “Other current assets” in our consolidated balance sheets, and we record a corresponding liability for the obligation to return the collateral to the borrower, which is reported under the caption “Other current liabilities” in our consolidated balance sheets. The securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending collateral are included in accumulated other comprehensive (loss) income as a separate component of shareholders’ equity. The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or depreciates slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.
Receivables: Receivables are reported net of amounts for expected credit losses. The allowance for doubtful accounts is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.
Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $146 at each of March 31, 2021 and December 31, 2020.
Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers. Self-funded receivables are reported net of an allowance for doubtful accounts of $51 and $54 at March 31, 2021 and December 31, 2020, respectively.
Other receivables include pharmacy rebates, provider advances, claims recoveries, reinsurance receivables, proceeds due from brokers on investment trades, accrued investment income, and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts of $406 and $374 at March 31, 2021 and December 31, 2020, respectively.
Revenue Recognition: For our fee-based contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at March 31, 2021. For the three months ended March 31, 2021, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.
Recently Adopted Accounting Guidance: In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic, or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. We adopted ASU 2021-01 on January 7, 2021 and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.
In October 2020, the FASB issued Accounting Standards Update No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs (“ASU 2020-08”). The amendments in ASU 2020-08 clarify when an entity should assess whether a callable debt security is within the scope of accounting guidance, which impacts the amortization period for nonrefundable fees and other costs. ASU 2020-08 became effective for interim and annual reporting periods beginning after December 15, 2020. The amendments are to be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. We adopted ASU 2020-08 on January 1, 2021, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 remove certain exceptions to the
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general principles in Accounting Standards Codification Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments became effective for our annual reporting periods beginning after December 15, 2020. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.
Recent Accounting Guidance Not Yet Adopted: In November 2020, the FASB issued Accounting Standards Update No. 2020-11, Financial Services—Insurance (Topic 944): Effective Date and Early Application (“ASU 2020-11”). The amendments in ASU 2020-11 make changes to the effective date and early application of Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”), which was issued in November 2018. The amendments in ASU 2020-11 have extended the original effective date by one year and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2020-11 and ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments eliminate two of the three accounting models that require separate accounting for convertible features of debt securities, simplify the contract settlement assessment for equity classification, require the use of the if-converted method for all convertible instruments in the diluted earnings per share calculation and expand disclosure requirements. The amendments are effective for our annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. We are currently evaluating the effects the adoption of ASU 2020-06 will have on our consolidated financial statements and disclosures.
There were no other new accounting pronouncements that were issued or became effective since the issuance of our 2020 Annual Report on Form 10-K that had, or are expected to have, a material impact on our consolidated financial position, results of operations or cash flows.

3.    Business Acquisitions
Pending Acquisition of myNEXUS, Inc.
On March 24, 2021, we announced our entrance into an agreement with WindRose Health Investors to acquire myNEXUS, Inc. (“myNEXUS”). myNEXUS is a comprehensive home-based nursing management company for payors and delivers 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. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
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Pending Acquisition of MMM Holdings LLC and Affiliates
On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries, including MMM Holdings, LLC (“MMM”), its Medicare Advantage plan, Medicaid plan and other affiliated companies. MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
Beacon Health Options, Inc.
On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc. (“Beacon”) which was the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition aligned with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people with complex and chronic conditions.
In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the fair value of Beacon’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the fair value of net assets acquired resulted in preliminary goodwill of $1,072 at December 31, 2020, all of which was allocated to our Other segment. Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions and strategy. Goodwill was adjusted by $9 through the end of the measurement period in February 2021 related to finalization of income tax considerations, resulting in final goodwill of $1,081 as of March 31, 2021.
The fair value of the net assets acquired from Beacon includes $752 of other intangible assets at March 31, 2021, which primarily consist of finite-lived customer relationships with amortization periods ranging from 8 to 25 years. The results of operations of Beacon are included in our consolidated financial statements within our Other segment for the period following February 28, 2020. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.
4.    Business Optimization Initiatives
During 2020, management introduced enterprise-wide initiatives to optimize our business, including process automation and a reduction in our office space footprint and, as a result, we recognized a liability in 2020 for future payments for employee termination costs in connection with the repositioning and reskilling of our workforce. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization.
A summary of the activity related to the liability for the employee termination costs during the three months ended March 31, 2021, by reportable segment, is as follows:
Commercial & Specialty BusinessGovernment BusinessIngenioRxOtherTotal
2020 Business Optimization Initiatives
Employee termination costs:
Liability for employee termination costs at January 1, 2021$92 $88 $$$187 
Payments(5)(5)— (1)(11)
Liability for employee termination costs at March 31, 2021$87 $83 $$$176 
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5.     Investments
Fixed Maturity Securities
We evaluate our available-for-sale fixed maturity securities for declines based on qualitative and quantitative factors. We have established an allowance for credit loss and recorded credit loss expense as a reflection of our expected impairment losses. We continue to review our investment portfolios under our impairment review policy. Given the inherent uncertainty of changes in market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and additional material impairment losses on investments may be recorded in future periods.
A summary of current and long-term fixed maturity securities, available-for-sale, at March 31, 2021 and December 31, 2020 is as follows:
 Cost or
Amortized
Cost
Non-Credit
Component of
Impairment Recognized in
Accumulated
Other
Comprehensive
Loss
Gross
Unrealized
Gains
Gross Unrealized LossesAllowance For Credit LossesEstimated
Fair Value
 Less than
12 Months
12 Months
or Greater
March 31, 2021
Fixed maturity securities:
United States Government securities$898 $$(22)$— $— $880 $— 
Government sponsored securities71 — — — 75 — 
Foreign government securities341 (9)(1)— 336 — 
States, municipalities and political subdivisions5,253 327 (13)(1)— 5,566 — 
Corporate securities11,228 466 (76)(13)(6)11,599 (1)
Residential mortgage-backed securities4,258 117 (25)(9)(2)4,339 — 
Commercial mortgage-backed securities70 — (3)— 70 — 
Other securities2,226 30 (2)(6)— 2,248 — 
Total fixed maturity securities$24,345 $956 $(147)$(33)$(8)$25,113 $(1)
December 31, 2020
Fixed maturity securities:
United States Government securities$765 $11 $(2)$— $— $774 $— 
Government sponsored securities63 — — — 69 — 
Foreign government securities290 17 (2)— — 305 — 
States, municipalities and political subdivisions5,185 395 (1)— — 5,579 — 
Corporate securities10,233 697 (20)(11)(7)10,892 (1)
Residential mortgage-backed securities4,208 154 (8)(9)— 4,345 (2)
Commercial mortgage-backed securities73 (1)(3)— 72 — 
Other securities1,937 33 (5)(6)— 1,959 — 
Total fixed maturity securities$22,754 $1,316 $(39)$(29)$(7)$23,995 $(3)

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For fixed maturity securities in an unrealized loss position at March 31, 2021 and December 31, 2020, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position: 
 Less than 12 Months12 Months or Greater
(Securities are whole amounts)Number of
Securities
Estimated
Fair Value
Gross
Unrealized
Loss
Number of
Securities
Estimated
Fair Value
Gross
Unrealized
Loss
March 31, 2021
Fixed maturity securities:
United States Government securities51 $654 $(22)— $— $— 
Government sponsored securities— — — — 
Foreign government securities
202 177 (9)26 17 (1)
States, municipalities and political subdivisions
242 495 (13)13 (1)
Corporate securities1,735 2,707 (76)241 291 (13)
Residential mortgage-backed securities363 1,489 (25)125 156 (9)
Commercial mortgage-backed securities— 13 (3)
Other securities160 456 (2)70 149 (6)
Total fixed maturity securities2,756 $5,982 $(147)475 $639 $(33)
December 31, 2020
Fixed maturity securities:
United States Government securities
27 $301 $(2)— $— $— 
Government sponsored securities
— — — — — 
Foreign government securities
55 35 (2)— 
States, municipalities and political subdivisions
36 57 (1)— 
Corporate securities
646 765 (20)150 169 (11)
Residential mortgage-backed securities
224 442 (8)90 110 (9)
Commercial mortgage-backed securities
16 (1)(3)
Other securities
207 509 (5)79 179 (6)
Total fixed maturity securities1,201 $2,125 $(39)333 $469 $(29)
Below are discussions by security type for unrealized losses and credit losses as of March 31, 2021:
Corporate securities: An allowance for credit losses on certain retail, travel and entertainment and energy sector fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, decline in fair value and industry condition along with other available market data. With multiple risk factors present, these securities were reviewed for expected future cash flow to determine the portion of unrealized losses that were credit related and to record an allowance for credit losses. Unrealized losses on our other corporate securities were largely due to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of March 31, 2021. We do not intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.
Residential mortgage-backed securities: An allowance for credit loss was established on certain residential mortgage-backed securities. Notification of maturity and coupon default, as well as a significant and sustained decline in fair value, were factors to indicate a credit loss. No other mortgage securities had material unrealized losses or qualitative factors to indicate a credit loss. We do not intend to sell these investments and it is likely we will not be required to sell these investments prior to maturity or recovery of amortized cost.
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As for the remaining securities shown in the table above, unrealized losses on these securities have not been recognized into income because we do not intend to sell these investments and it is likely that we will not be required to sell these investments prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated these securities for any change in credit rating and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31, 2021:Corporate SecuritiesResidential mortgage-backed securitiesTotal
Allowance for credit losses:
Beginning balance$$— $
Additions for securities for which no previous expected credit losses were recognized— 
(Decreases) increases to the allowance for credit losses on securities(2)— 
Total allowance for credit losses, ending balance$$$
Three Months Ended March 31, 2020:Corporate SecuritiesResidential mortgage-backed securitiesTotal
Allowance for credit losses:
Beginning balance$— $— $— 
Additions for securities for which no previous expected credit losses were recognized51 — 51 
Total allowance for credit losses, ending balance$51 $— $51 
The amortized cost and fair value of fixed maturity securities at March 31, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.
Amortized
Cost
Estimated
Fair Value
Due in one year or less$617 $622 
Due after one year through five years6,057 6,293 
Due after five years through ten years8,009 8,225 
Due after ten years5,334 5,564 
Mortgage-backed securities4,328 4,409 
Total fixed maturity securities$24,345 $25,113 
During the three months ended March 31, 2021 and 2020 we received proceeds from sales, maturities, calls or redemptions of fixed maturity securities of $5,323 and $1,931, respectively.
In the ordinary course of business, we may sell securities at a loss for a number of reasons, including, but not limited to: (i) changes in the investment environment; (ii) expectation that the fair value could deteriorate further; (iii) desire to reduce exposure to an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected cash flow.
All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
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Equity Securities
A summary of marketable equity securities at March 31, 2021 and December 31, 2020 is as follows:
 March 31, 2021December 31, 2020
Equity securities:
Exchange traded funds$3,409 $1,154 
Fixed maturity mutual funds— 144 
Common equity securities156 201 
Private equity securities65 60 
Total$3,630 $1,559 
Other Invested Assets
Other invested assets include primarily our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. Financial information for certain of these investments are reported on a one or three month lag due to the timing of when we receive financial information from the companies.
Investment Losses
Net realized investment losses for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31
20212020
Net realized gains (losses):
Fixed maturity securities:
Gross realized gains from sales$56 $43 
Gross realized losses from sales(12)(20)
Impairment losses recognized in income(1)(51)
Net realized gains (losses) from sales of fixed maturity securities43 (28)
Equity securities:
Gross realized gains12 23 
Gross realized losses(78)(73)
Net realized losses on equity securities(66)(50)
Other invested assets:
Gross realized gains from sales
Gross realized losses from sales— (1)
Impairment losses recognized in income(8)(6)
Net realized losses from sales of other investments(3)— 
Net realized losses on investments$(26)$(78)
The gains and losses related to equity securities for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31
 20212020
Net realized losses recognized on equity securities$(66)$(50)
Less: Net realized gains (losses) recognized on equity securities sold during the period26 (18)
Unrealized losses recognized on equity securities still held at the end of the period$(40)$(68)
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Accrued Investment Income
At March 31, 2021 and December 31, 2020, accrued investment income totaled $185 and $188, respectively. We recognize accrued investment income under the caption “Other receivables” on our consolidated balance sheets.
Securities Lending Programs
We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. The fair value of the collateral received at the time of the transactions amounted to $1,930 and $1,199 at March 31, 2021 and December 31, 2020, respectively. The value of the collateral represented 102% of the market value of the securities on loan at each of March 31, 2021 and December 31, 2020. We recognize the collateral as an asset under the caption “Other current assets” in our consolidated balance sheets, and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption “Other current liabilities.” The securities on loan are reported in the applicable investment category on our consolidated balance sheets.
The remaining contractual maturity of our securities lending agreements at March 31, 2021 is as follows:
Overnight and Continuous
Securities lending collateral
Cash$1,695 
United States Government securities234 
Other securities
Total$1,930 

6.    Derivative Financial Instruments
We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements, which reduce credit risk by permitting net settlement of transactions.
We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to LIBOR. Any amounts recognized for changes in fair value of these derivatives are included in the captions “Other current or noncurrent assets” or “Other current or noncurrent liabilities” in our consolidated balance sheets.
We have previously entered into a series of forward starting pay fixed interest rate swaps with the objective of reducing the variability of cash flows in the interest payments on future financings that were anticipated at the time of entering into the swaps. All swaps were expired or terminated as of March 31, 2021.
The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $246 and $250 at March 31, 2021 and December 31, 2020, respectively.
During the three months ended March 31, 2021, we recognized net realized gains on non-hedging derivatives of $22. During the three months ended March 31, 2020, we recognized net realized losses on non-hedging derivatives of $3.
For additional information relating to the fair value of our derivative assets and liabilities, see Note 7, “Fair Value,” of this Form 10-Q.

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7.    Fair Value
Assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows:
Level InputInput Definition
Level IInputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level IIInputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level IIIUnobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in our consolidated balance sheets:
Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I.
Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where available. These fair values are obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value to facilitate fair value measurements and disclosures. Level II securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities, United States Government securities, foreign government securities, and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt securities, which are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets.
Equity securities: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available, and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.
Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value measurements and disclosures.
Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We independently verify prices provided by the counterparties using valuation models that incorporate observable market inputs for similar derivative transactions. Derivatives are designated as Level II securities. Derivatives presented within the fair value hierarchy table below are presented on a gross basis and not on a master netting basis by counterparty.

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A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 is as follows:
Level ILevel IILevel IIITotal
March 31, 2021
Assets:
Cash equivalents$5,914 $— $— $5,914 
Fixed maturity securities, available-for-sale:
United States Government securities— 880 — 880 
Government sponsored securities— 75 — 75 
Foreign government securities— 336 — 336 
States, municipalities and political subdivisions, tax-exempt— 5,566 — 5,566 
Corporate securities— 11,275 324 11,599 
Residential mortgage-backed securities— 4,337 4,339 
Commercial mortgage-backed securities— 70 — 70 
Other securities— 2,243 2,248 
Total fixed maturity securities, available-for-sale— 24,782 331 25,113 
Equity securities:
Exchange traded funds3,409 — — 3,409 
Common equity securities125 31 — 156 
Private equity securities— — 65 65 
Total equity securities3,534 31 65 3,630 
Securities lending collateral— 1,930 — 1,930 
Derivatives— 42 — 42 
Total assets$9,448 $26,785 $396 $36,629 
Liabilities:
Derivatives
$— $(11)$— $(11)
Total liabilities$— $(11)$— $(11)
December 31, 2020
Assets:
Cash equivalents$3,163 $— $— $3,163 
Fixed maturity securities, available-for-sale:
United States Government securities— 774 — 774 
Government sponsored securities— 69 — 69 
Foreign government securities— 305 — 305 
States, municipalities and political subdivisions, tax-exempt— 5,579 — 5,579 
Corporate securities— 10,567 325 10,892 
Residential mortgage-backed securities— 4,343 4,345 
Commercial mortgage-backed securities— 72 — 72 
Other securities— 1,954 1,959 
Total fixed maturity securities, available-for-sale— 23,663 332 23,995 
Equity securities:
Exchange traded funds1,154 — — 1,154 
Fixed maturity mutual funds— 144 — 144 
Common equity securities171 30 — 201 
Private equity securities— — 60 60 
Total equity securities1,325 174 60 1,559 
Securities lending collateral— 1,199 — 1,199 
Derivatives— 43 — 43 
Total assets$4,488 $25,079 $392 $29,959 
Liabilities:
Derivatives
$— $(5)$— $(5)
Total liabilities$— $(5)$— $(5)
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A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the three months ended March 31, 2021 and 2020 is as follows:
Corporate
Securities
Residential
Mortgage-
backed
Securities
Other 
Securities
Equity
Securities
Total
Three Months Ended March 31, 2021
Beginning balance at January 1, 2021$325 $$$60 $392 
Total gains:
Recognized in net income— — — 
Recognized in accumulated other comprehensive loss
— — — 
Purchases39 — — — 39 
Sales(2)— — (3)(5)
Settlements(41)— — — (41)
Ending balance at March 31, 2021$324 $$$65 $396 
Change in unrealized losses included in net income related to assets still held at March 31, 2021$— $— $— $$
Three Months Ended March 31, 2020
Beginning balance at January 1, 2020$303 $$$85 $397 
Total losses:
Recognized in net income(2)— — (6)(8)
Recognized in accumulated other comprehensive loss
(10)— — — (10)
Purchases26 — — 12 38 
Sales(3)— — (9)(12)
Settlements(11)— (2)— (13)
Transfers into Level III13 — — — 13 
Ending balance at March 31, 2020$316 $$$82 $405 
Change in unrealized losses included in net income related to assets still held at March 31, 2020$— $— $— $(7)$(7)
There were no individually material transfers into or out of Level III during the three months ended March 31, 2021 or 2020.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business Acquisitions,” we completed our acquisition of Beacon on February 28, 2020. The net assets acquired in our acquisition of Beacon and resulting goodwill and other intangible assets were recorded at fair value primarily using Level III inputs. The majority of Beacon’s assets acquired and liabilities assumed were recorded at their carrying values as of the respective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in our acquisition of Beacon were internally estimated based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets could be expected to generate in the future. We developed internal estimates for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of Beacon described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2021 or 2020.
Our valuation policy is determined by members of our treasury and accounting departments. Whenever possible, our policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes.
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Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, unobservable inputs or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. The use of assumptions for unobservable inputs for the determination of fair value involves a level of judgment and uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of cash flows.
Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain quoted prices for each security from third-party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. As we are responsible for the determination of fair value, we perform analysis on the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. This analysis is performed by our internal treasury personnel who are familiar with our investment portfolios, the pricing services engaged and the valuation techniques and inputs used. Our analysis includes procedures such as a review of month-to-month price fluctuations and price comparisons to secondary pricing services. There were no adjustments to quoted market prices obtained from the pricing services during the three months ended March 31, 2021 or 2020.
In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in our consolidated balance sheets.
Non-financial instruments such as real estate, property and equipment, other current or noncurrent assets, deferred income taxes, intangible assets and certain financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.
The carrying amounts for cash, premium receivables, self-funded receivables, other receivables, unearned income, accounts payable and accrued expenses, and certain other current liabilities approximate fair value because of the short term nature of these items. These assets and liabilities are not listed in the table below.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument that is recorded at its carrying value in our consolidated balance sheets:
Other invested assets: Other invested assets include primarily our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. The carrying value of corporate-owned life insurance policies represents the cash surrender value as reported by the respective insurer, which approximates fair value.
Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices were available, on the current market interest rates estimated to be available to us for debt of similar terms and remaining maturities.
Long-term debt – commercial paper: The carrying amount for commercial paper approximates fair value, as the underlying instruments have variable interest rates at market value.
Long-term debt – senior unsecured notes and surplus notes: The fair values of our notes are based on quoted market prices in active markets for the same or similar debt, or, if no quoted market prices are available, on the current market observable rates estimated to be available to us for debt of similar terms and remaining maturities.
Long-term debt – convertible debentures: The fair value of our convertible debentures is based on the quoted market price in the active private market in which the convertible debentures trade.
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A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance sheets at March 31, 2021 and December 31, 2020 is as follows:
 Carrying
Value
Estimated Fair Value
 Level ILevel IILevel IIITotal
March 31, 2021
Assets:
Other invested assets$4,474 $— $— $4,474 $4,474 
Liabilities:
Debt:
Notes23,125 — 25,289 — 25,289 
Convertible debentures109 — 797 — 797 
December 31, 2020
Assets:
Other invested assets$4,285 $— $— $4,285 $4,285 
Liabilities:
Debt:
Commercial paper250 — 250 — 250 
Notes19,677 — 23,307 — 23,307 
Convertible debentures108 — 712 — 712 

8.     Income Taxes
During the three months ended March 31, 2021 and 2020, we recognized income tax expense of $509 and $566, respectively, which represent effective income tax rates of 23.4% and 27.1%, respectively. The decrease in our effective income tax rate was primarily due to the repeal of the non-tax deductible HIP Fee effective beginning in 2021.

Income taxes payable totaled $176 at March 31, 2021. Income taxes receivable totaled $262 at December 31, 2020. We recognize the income tax payable as a liability under the caption “Other current liabilities” and the income tax receivable as an asset under the caption “Other current assets” in our consolidated balance sheets.
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9. Medical Claims Payable
A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”), for the three months ended March 31, 2021 is as follows:
Commercial
& Specialty
Business
Government
Business
OtherTotal
Gross medical claims payable, beginning of period$3,294 $7,646 $195 $11,135 
Ceded medical claims payable, beginning of period(13)(33)— (46)
Net medical claims payable, beginning of period3,281 7,613 195 11,089 
Net incurred medical claims:
Current period6,575 17,289 351 24,215 
Prior periods redundancies(503)(970)(15)(1,488)
Total net incurred medical claims6,072 16,319 336 22,727 
Net payments attributable to:
Current period medical claims4,164 10,650 217 15,031 
Prior periods medical claims1,746 4,856 146 6,748 
Total net payments5,910 15,506 363 21,779 
Net medical claims payable, end of period3,443 8,426 168 12,037 
Ceded medical claims payable, end of period30 — 39 
Gross medical claims payable, end of period$3,452 $8,456 $168 $12,076 
At March 31, 2021, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $101, $931 and $2,411 for the claim years 2019 and prior, 2020 and 2021, respectively.
At March 31, 2021, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was $344, $1,442 and $6,640 for the claim years 2019 and prior, 2020 and 2021, respectively.
At March 31, 2021, the total of net incurred but not reported liabilities plus expected development on reported claims for Other was $0, $34 and $134 for the claim years 2019 and prior, 2020 and 2021, respectively.
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A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”), for the three months ended March 31, 2020 is as follows:
Commercial
& Specialty
Business
Government
Business
OtherTotal
Gross medical claims payable, beginning of period$3,039 $5,608 $— $8,647 
Ceded medical claims payable, beginning of period(14)(19)— (33)
Net medical claims payable, beginning of period3,025 5,589 — 8,614 
Business combinations and purchase adjustments— 141 198 339 
Net incurred medical claims:
Current period6,090 15,010 130 21,230 
Prior periods redundancies(293)(407)— (700)
Total net incurred medical claims5,797 14,603 130 20,530 
Net payments attributable to:
Current period medical claims3,908 9,698 138 13,744 
Prior periods medical claims1,875 4,234 — 6,109 
Total net payments5,783 13,932 138 19,853 
Net medical claims payable, end of period3,039 6,401 190 9,630 
Ceded medical claims payable, end of period37 23 — 60 
Gross medical claims payable, end of period$3,076 $6,424 $190 $9,690 
The favorable development recognized in the three months ended March 31, 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 reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income is as follows:
Three Months Ended
March 31, 2021March 31, 2020
Net incurred medical claims:
Commercial & Specialty Business$6,072 $5,797 
Government Business16,319 14,603 
Other336 130 
Total net incurred medical claims22,727 20,530 
Quality improvement and other claims expense972 959 
Benefit expense$23,699 $21,489 

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The reconciliation of the medical claims payable reflected in the tables above to the consolidated ending balance for medical claims payable included in the consolidated balance sheet, as of March 31, 2021, is as follows:
Commercial
& Specialty
Business
Government
Business
OtherTotal
Net medical claims payable, end of period$3,443 $8,426 $168 $12,037 
Ceded medical claims payable, end of period30 — 39 
Insurance lines other than short duration— 271 — 271 
Gross medical claims payable, end of period$3,452 $8,727 $168 $12,347 

10.     Debt
We generally issue senior unsecured notes for long-term borrowing purposes. At March 31, 2021 and December 31, 2020, we had $23,100 and $19,652, respectively, outstanding under these notes.
On April 15, 2021, we provided notice to the holders of our outstanding 3.700% Notes due August 15, 2021 that we will be redeeming the $700 outstanding principal balance of such notes on May 15, 2021 at a redemption price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest.
On March 17, 2021, we issued $500 aggregate principal amount of 0.450% Notes due 2023 (the “2023 Notes”), $750 aggregate principal amount of 1.500% Notes due 2026 (the “2026 Notes”), $1,000 aggregate principal amount of 2.550% Notes due 2031 (the “2031 Notes”) and $1,250 aggregate principal amount of 3.600% Notes due 2051 (the “2051 Notes”) under our shelf registration statement. Interest on the 2023 Notes, 2026 Notes, 2031 Notes and 2051 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2021. We intend to use the net proceeds for working capital and general corporate purposes, including, but not limited to, the funding of acquisitions, repayment of short-term and long-term debt and the repurchase of our common stock pursuant to our share repurchase program.
We have an unsecured surplus note with an outstanding principal balance of $25 at both March 31, 2021 and December 31, 2020.
We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes. The 5-Year Facility provides credit up to $2,500 and matures in June 2024. We also have a 364-day senior revolving credit facility (“364-Day Facility”) with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000 and matures in June 2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of March 31, 2021, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 40.7%. We do not believe the restrictions contained in any of our credit facility covenants materially affect our financial or operating flexibility. As of March 31, 2021, we were in compliance with all of the debt covenants under these credit facilities. There were no amounts outstanding under the 364-Day Facility at any time during the three months ended March 31, 2021 or the year ended December 31, 2020. At March 31, 2021 and December 31, 2020, there were no amounts outstanding under our 5-Year Facility.
Through certain subsidiaries, we have entered into multiple 364-day lines of credit (the “Subsidiary Credit Facilities”) with separate lenders for general corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to $300. At March 31, 2021 and December 31, 2020, there were no amounts outstanding under our Subsidiary Credit Facilities.
We have an authorized commercial paper program of up to $3,500, the proceeds of which may be used for general corporate purposes. At March 31, 2021 and December 31, 2020, we had $0 and $250, respectively, outstanding under this program.
We have outstanding senior unsecured convertible debentures due 2042 (the “Debentures”) which are governed by an indenture (the “indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee. We have
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accounted for the Debentures in accordance with the FASB cash conversion guidance for debt with conversion and other options. As a result, the value of the embedded conversion option (net of deferred taxes and equity issuance costs) has been bifurcated from its debt host and recorded as a component of additional paid-in capital in our consolidated balance sheets.
The following table summarizes at March 31, 2021 the related balances, conversion rate and conversion price of the Debentures:
Outstanding principal amount$159 
Unamortized debt discount$49 
Net debt carrying amount$109 
Equity component carrying amount$58 
Conversion rate (shares of common stock per $1,000 of principal amount)14.1158 
Effective conversion price (per $1,000 of principal amount)$70.8426 
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 no outstanding short-term borrowings from the FHLBs at March 31, 2021 and December 31, 2020.
All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings, and the Subsidiary Credit Facilities.

11.     Commitments and Contingencies
Litigation and Regulatory Proceedings
In the ordinary course of business, we are defendants in, or parties to, a number of pending or threatened legal actions or proceedings. To the extent a plaintiff or plaintiffs in the following cases have specified in their complaint or in other court filings the amount of damages being sought, we have noted those alleged damages in the descriptions below. With respect to the cases described below, we contest liability and/or the amount of damages in each matter and believe we have meritorious defenses.
Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many proceedings, however, it is difficult to determine whether any loss is probable or reasonably possible. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of loss.
With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from $0 to approximately $250 at March 31, 2021. This estimated aggregate range of reasonably possible losses is based upon currently available information taking into account our best estimate of such losses for which such an estimate can be made.
Blue Cross Blue Shield Antitrust Litigation
We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees (the “Blue plans”) across the country. Cases filed in twenty-eight states were consolidated into a single,
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multi-district proceeding captioned In re Blue Cross Blue Shield Antitrust Litigation that is pending in the United States District Court for the Northern District of Alabama (the “Court”). Generally, the suits allege that the BCBSA and the Blue plans have conspired to horizontally allocate geographic markets through license agreements, best efforts rules that limit the percentage of non-Blue revenue of each plan, restrictions on acquisitions, rules governing the BlueCard® and National Accounts programs and other arrangements in violation of the Sherman Antitrust Act (“Sherman Act”) and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers.

In response to cross motions for partial summary judgment by plaintiffs and defendants, the Court issued an order in April 2018 determining that the defendants’ aggregation of geographic market allocations and output restrictions are to be analyzed under a per se standard of review, and the BlueCard® program and other alleged Section 1 Sherman Act violations are to be analyzed under the rule of reason standard of review. The Court also found that there remain genuine issues of material fact as to whether the defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield trademarks. In April 2019, the plaintiffs filed motions for class certification in conjunction with their supporting expert reports, and the defendants filed motions to exclude plaintiffs’ experts, and to oppose plaintiffs’ motions for class certification.
The BCBSA and Blue plans have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the subscriber plaintiffs. If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $594, and will contain certain non-monetary terms including (i) eliminating the “national best efforts” rule in the BCBSA license agreements (which rule limits the percentage of non-Blue revenue permitted for each Blue plan) and (ii) allowing for some large national employers with self-funded benefit plans to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. As of March 31, 2021, the liability balance accrued for our estimated remaining payment obligation was $507, net of payments made.
On November 30, 2020, the Court issued an order preliminarily approving the Subscriber Settlement Agreement, following which members of the subscriber class were provided notice of the Subscriber Settlement Agreement and an opportunity to opt out of the class. All terms of the Subscriber Settlement Agreement are subject to final approval by the Court before they become effective. Objections to the settlement, as well as the deadline for those who wish to opt-out from the settlement, must be submitted by July 28, 2021. Claims must be filed by November 5, 2021. A final approval hearing has been scheduled for October 20, 2021. If the Court grants approval of the Subscriber Settlement Agreement, and after all appellate rights have expired or have been exhausted in a manner that affirms the Court’s final order and judgment, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective.
In October 2020, after the Court lifted the stay as to the provider litigation, provider plaintiffs filed a renewed motion for class certification, and defendants filed an opposition to that motion. In March 2021, the Court issued an order terminating the pending motion for class certification until after a ruling on the standard of review applicable to providers’ claims. Standard of review motions for the provider litigation are due on May 21, 2021, and certain other potentially dispositive motions on issues of liability are due on June 18, 2021. We intend to continue to vigorously defend the provider suit; however, its ultimate outcome cannot be presently determined.
Blue Cross of California Taxation Litigation
In July 2013, our California affiliate Blue Cross of California (doing business as Anthem Blue Cross) (“BCC”) was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court (the “Superior Court”) captioned Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax (“GPT”) calculated as 2.35% on gross premiums. As a licensed Health Care Service Plan, BCC has paid the California Corporate Franchise Tax (“CFT”), the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the filing of the complaint.
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Because the GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles, the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC eventually be determined to be subject to the GPT for the tax periods at issue in the litigation.
In March 2018, the Superior Court denied BCC's motion for judgment on the pleadings and similar motions brought by other entities. BCC filed a motion for summary judgment with the Superior Court, which was heard in October 2020. In December 2020, the Superior Court granted BCC's motion for summary judgment, dismissing the plaintiff's lawsuit. Plaintiff has appealed the order granting summary judgment. We intend to vigorously defend the appeal of this lawsuit.
Express Scripts, Inc. Pharmacy Benefit Management Litigation
In March 2016, we filed a lawsuit against Express Scripts, Inc. (“Express Scripts”), our vendor at the time for PBM services, captioned Anthem, Inc. v. Express Sc