UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017March 31, 2019
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)
  
120 MONUMENT CIRCLE220 VIRGINIA AVENUE
INDIANAPOLIS, INDIANA
(Address of principal executive offices)
 
46204-490346204
(Zip Code)
Registrant’s telephone number, including area code: (317) 488-6000(800) 331-1476
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrantregistrant: (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 x No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    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 filerx   Accelerated filer¨
Non-accelerated filer¨ (Do not check if a smaller reporting company)  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  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Title of Each Class Outstanding at October 12, 2017April 15, 2019
Common Stock, $0.01 par value 256,760,521257,195,705 shares
   

Anthem, Inc.
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2017March 31, 2019
Table of Contents
 
  Page
PART I. FINANCIAL INFORMATION 
   
ITEM 1.
FINANCIAL STATEMENTS
 
   
 
Consolidated Balance Sheets as of September 30, 2017March 31, 2019 (Unaudited) and December 31, 20162018
2
 
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2017March 31, 2019 and 20162018
3
 
Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2017March 31, 2019 and 20162018
4
 
Consolidated Statements of Cash Flows (Unaudited) for the NineThree Months Ended September 30, 2017March 31, 2019 and 20162018
5
 
Consolidated Statements of Shareholders’ Equity (Unaudited) for the NineThree Months Ended September 30, 2017March 31, 2019 and 20162018
6
 
Notes to Consolidated Financial Statements (Unaudited)
7
   
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4038
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
5852
ITEM 4.
CONTROLS AND PROCEDURES
5852
PART II. OTHER INFORMATION 
ITEM 1.
LEGAL PROCEEDINGS
5852
ITEM 1A.
RISK FACTORS
5852
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
5953
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
5953
ITEM 4.
MINE SAFETY DISCLOSURES
5953
ITEM 5.
OTHER INFORMATION
5953
ITEM 6.
EXHIBITS
6054
SIGNATURES
6155


PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Anthem, Inc.
Consolidated Balance Sheets
September 30,
2017		 December 31,
2016		March 31,
2019		 December 31,
2018
(In millions, except share data)(Unaudited)  (Unaudited)  
Assets      
Current assets:      
Cash and cash equivalents$6,097.2
 $4,075.3
$4,482
 $3,934
Investments available-for-sale, at fair value:   
Fixed maturity securities (amortized cost of $18,269.0 and $16,991.8)18,697.3
 17,163.1
Equity securities (cost of $1,033.7 and $1,076.1)1,452.6
 1,468.5
Fixed maturity securities, current (amortized cost of $17,550 and $16,894)17,795
 16,692
Equity securities, current1,211
 1,493
Other invested assets, current16.9
 15.8
20
 21
Accrued investment income158.3
 164.5
161
 162
Premium and self-funded receivables5,692.0
 5,860.8
Premium receivables5,049
 4,465
Self-funded receivables2,491
 2,278
Other receivables2,130.2
 2,536.6
2,639
 2,558
Income taxes receivable—
 168.7
—
 10
Securities lending collateral907.2
 1,079.8
591
 604
Other current assets1,822.0
 1,781.8
2,172
 2,104
Total current assets36,973.7
 34,314.9
36,611
 34,321
Long-term investments available-for-sale, at fair value:   
Fixed maturity securities (amortized cost of $524.7 and $524.6)533.3
 524.4
Equity securities (cost of $27.3 and $27.2)32.3
 31.4
Other invested assets, long-term2,442.1
 2,240.5
Long-term investments:   
Fixed maturity securities (amortized cost of $482 and $486)492
 487
Equity securities33
 33
Other invested assets3,710
 3,726
Property and equipment, net2,049.2
 1,977.9
2,799
 2,735
Goodwill17,587.8
 17,561.2
20,500
 20,504
Other intangible assets7,840.6
 7,964.9
8,925
 9,007
Other noncurrent assets850.9
 467.9
1,453
 758
Total assets$68,309.9
 $65,083.1
$74,523
 $71,571
      
Liabilities and shareholders’ equity      
Liabilities      
Current liabilities:      
Policy liabilities:      
Medical claims payable$7,963.9
 $7,892.6
$8,242
 $7,454
Reserves for future policy benefits72.1
 71.8
78
 75
Other policyholder liabilities2,471.7
 2,221.1
2,577
 2,590
Total policy liabilities10,507.7
 10,185.5
10,897
 10,119
Unearned income1,950.2
 971.9
998
 902
Accounts payable and accrued expenses4,454.2
 4,014.9
3,951
 4,959
Income taxes payable187.5
 —
105
 —
Security trades pending payable164.7
 93.5
158
 197
Securities lending payable906.4
 1,078.9
590
 604
Short-term borrowings1,180.0
 440.0
1,095
 1,145
Current portion of long-term debt1,273.4
 928.4
851
 849
Other current liabilities3,788.4
 3,581.3
4,037
 3,190
Total current liabilities24,412.5
 21,294.4
22,682
 21,965
Long-term debt, less current portion13,777.3
 14,358.5
17,396
 17,217
Reserves for future policy benefits, noncurrent618.5
 666.1
719
 706
Deferred tax liabilities, net2,609.3
 2,779.9
2,116
 1,960
Other noncurrent liabilities944.0
 883.8
1,612
 1,182
Total liabilities42,361.6
 39,982.7
44,525
 43,030
      
Commitment 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 –
257,404,755 and 263,747,395
2.6
 2.6
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding –
257,354,383 and 257,395,577
3
 3
Additional paid-in capital8,765.1
 8,805.1
9,482
 9,536
Retained earnings17,306.6
 16,560.6
21,136
 19,988
Accumulated other comprehensive loss(126.0) (267.9)(623) (986)
Total shareholders’ equity25,948.3
 25,100.4
29,998
 28,541
Total liabilities and shareholders’ equity$68,309.9
 $65,083.1
$74,523
 $71,571

See accompanying notes.


Anthem, Inc.
Consolidated Statements of Income
(Unaudited) 
Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		Three Months Ended 
 March 31
(In millions, except per share data)2017 2016 2017 20162019 2018
Revenues          
Premiums$20,797.0
 $19,786.1
 $62,561.4
 $58,723.0
$22,843
 $20,903
Administrative fees1,289.2
 1,330.0
 4,031.3
 3,956.8
Other revenue10.5
 9.1
 21.5
 29.3
Administrative fees and other revenue1,545
 1,439
Total operating revenue22,096.7
 21,125.2
 66,614.2
 62,709.1
24,388
 22,342
Net investment income220.2
 200.9
 627.6
 566.9
210
 229
Net realized gains (losses) on financial instruments114.7
 88.8
 138.2
 (23.8)78
 (26)
Other-than-temporary impairment losses on investments:          
Total other-than-temporary impairment losses on investments(5.6) (15.1) (22.5) (134.1)(13) (8)
Portion of other-than-temporary impairment losses recognized in other comprehensive income—
 4.1
 1.6
 30.5
3
 —
Other-than-temporary impairment losses recognized in income(5.6) (11.0) (20.9) (103.6)(10) (8)
Total revenues22,426.0
 21,403.9
 67,359.1
 63,148.6
24,666
 22,537
Expenses          
Benefit expense18,103.6
 16,922.5
 53,563.6
 49,266.5
19,282
 17,046
Selling, general and administrative expense:       
Selling expense347.9
 338.5
 1,042.0
 1,039.9
General and administrative expense2,663.2
 2,786.1
 8,214.2
 8,254.0
Total selling, general and administrative expense3,011.1
 3,124.6
 9,256.2
 9,293.9
Selling, general and administrative expense3,166
 3,428
Interest expense150.5
 172.9
 575.4
 545.7
187
 184
Amortization of other intangible assets41.9
 47.4
 124.3
 145.7
87
 80
(Gain) loss on extinguishment of debt(1) 19
Total expenses21,307.1
 20,267.4
 63,519.5
 59,251.8
22,721
 20,757
Income before income tax expense1,118.9
 1,136.5
 3,839.6
 3,896.8
1,945
 1,780
Income tax expense372.0
 518.7
 1,227.5
 1,795.4
394
 468
Net income$746.9
 $617.8
 $2,612.1
 $2,101.4
$1,551
 $1,312
Net income per share          
Basic$2.87
 $2.35
 $9.92
 $8.00
$6.03
 $5.13
Diluted$2.80
 $2.30
 $9.70
 $7.84
$5.91
 $4.99
Dividends per share$0.70
 $0.65
 $2.00
 $1.95
$0.80
 $0.75















See accompanying notes.


Anthem, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited) 
Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		 Three Months Ended 
 March 31
(In millions)2017 2016 2017 2016 2019 2018
Net income$746.9
 $617.8
 $2,612.1
 $2,101.4
 $1,551
 $1,312
Other comprehensive income (loss), net of tax:           
Change in net unrealized gains/losses on investments8.6
 5.3
 189.7
 387.4
 357
 (245)
Change in non-credit component of other-than-temporary impairment losses on investments—
 9.3
 4.5
 2.2
Change in net unrealized losses on cash flow hedges(4.9) (17.2) (67.7) (472.7) 3
 29
Change in net periodic pension and postretirement costs4.7
 3.2
 12.8
 10.8
 3
 7
Foreign currency translation adjustments0.5
 0.4
 2.6
 1.0
Other comprehensive income (loss)8.9
 1.0
 141.9
 (71.3) 363
 (209)
Total comprehensive income$755.8
 $618.8
 $2,754.0
 $2,030.1
 $1,914
 $1,103

































See accompanying notes.

Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended 
 September 30		Three Months Ended 
 March 31
(In millions)2017 20162019 2018
Operating activities      
Net income$2,612.1
 $2,101.4
$1,551
 $1,312
Adjustments to reconcile net income to net cash provided by operating activities:      
Net realized (gains) losses on financial instruments(138.2) 23.8
(78) 26
Other-than-temporary impairment losses recognized in income20.9
 103.6
10
 8
Loss on disposal of assets3.5
 3.5
(Gain) loss on extinguishment of debt(1) 19
Deferred income taxes(237.5) 81.6
55
 (51)
Amortization, net of accretion581.2
 601.7
255
 240
Depreciation expense81.7
 77.7
34
 30
Share-based compensation130.7
 124.3
70
 42
Excess tax benefits from share-based compensation—
 (48.7)
Changes in operating assets and liabilities:      
Receivables, net611.6
 (176.2)(753) 37
Other invested assets(26.2) (17.7)(21) (7)
Other assets(517.0) (925.2)(125) (392)
Policy liabilities274.6
 (249.5)791
 (561)
Unearned income969.8
 467.9
96
 1,182
Accounts payable and accrued expenses563.7
 86.9
(1,029) (300)
Other liabilities251.0
 381.6
675
 147
Income taxes356.2
 410.6
115
 537
Other, net(52.1) (53.9)(15) (54)
Net cash provided by operating activities5,486.0
 2,993.4
1,630
 2,215
Investing activities      
Purchases of fixed maturity securities(10,270.5) (7,624.0)(2,300) (2,236)
Proceeds from fixed maturity securities:      
Sales7,668.3
 6,001.0
1,075
 1,864
Maturities, calls and redemptions1,387.6
 979.3
393
 363
Purchases of equity securities(481.3) (1,178.3)(3,691) (566)
Proceeds from sales of equity securities620.8
 1,210.4
4,048
 1,776
Purchases of other invested assets(252.8) (348.3)(78) (72)
Proceeds from sales of other invested assets163.7
 273.1
113
 23
Change in collateral and settlements of non-hedging derivatives64.9
 (21.0)
Changes in securities lending collateral172.5
 (58.4)14
 (158)
Purchases of subsidiaries, net of cash acquired(33.9) —
—
 (1,346)
Purchases of property and equipment(516.2) (415.6)(234) (218)
Proceeds from sales of property and equipment3.3
 —
Other, net11.9
 (3.0)8
 4
Net cash used in investing activities(1,461.7) (1,184.8)(652) (566)
Financing activities      
Net proceeds from (repayments of) commercial paper borrowings686.5
 (177.5)178
 (108)
Proceeds from long-term borrowings2
 836
Repayments of long-term borrowings(929.9) —
(63) (663)
Proceeds from short-term borrowings3,850.0
 1,860.0
2,710
 1,505
Repayments of short-term borrowings(3,110.0) (1,960.0)(2,760) (1,655)
Changes in securities lending payable(172.5) 58.4
(14) 158
Changes in bank overdrafts(126.5) 311.5
20
 (124)
Proceeds from sale of put options0.9
 —
Repurchase and retirement of common stock(1,635.4) —
(294) (395)
Change in collateral and settlements of debt-related derivatives(175.6) (1,034.0)—
 24
Cash dividends(525.4) (512.7)(206) (192)
Proceeds from issuance of common stock under employee stock plans177.6
 91.2
76
 60
Taxes paid through withholding of common stock under employee stock plans(46.0) (63.6)(78) (73)
Excess tax benefits from share-based compensation—
 48.7
Net cash used in financing activities(2,006.3) (1,378.0)(429) (627)
Effect of foreign exchange rates on cash and cash equivalents3.9
 1.9
(1) —
Change in cash and cash equivalents2,021.9
 432.5
548
 1,022
Cash and cash equivalents at beginning of period4,075.3
 2,113.5
3,934
 3,609
Cash and cash equivalents at end of period$6,097.2
 $2,546.0
$4,482
 $4,631

See accompanying notes.

Anthem, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
(In millions)
Number of
Shares
 
Par
Value
 
January 1, 2017263.7
 $2.6
 $8,805.1
 $16,560.6
 $(267.9) $25,100.4
Net income—
 —
 —
 2,612.1
 —
 2,612.1
Other comprehensive income—
 —
 —
 —
 141.9
 141.9
Premiums for and settlement of equity options—
 —
 0.9
 —
 —
 0.9
Repurchase and retirement of common stock(8.7) —
 (296.1) (1,339.3) —
 (1,635.4)
Dividends and dividend equivalents—
 —
 —
 (526.8) —
 (526.8)
Issuance of common stock under employee stock plans, net of related tax benefits2.4
 —
 256.3
 —
 —
 256.3
Convertible debenture repurchases and conversions—
 —
 (1.1) —
 —
 (1.1)
September 30, 2017257.4
 $2.6
 $8,765.1
 $17,306.6
 $(126.0) $25,948.3
            
January 1, 2016261.2
 $2.6
 $8,555.6
 $14,778.5
 $(292.6) $23,044.1
Net income—
 —
 —
 2,101.4
 —
 2,101.4
Other comprehensive loss—
 —
 —
 —
 (71.3) (71.3)
Dividends and dividend equivalents—
 —
 —
 (515.8) —
 (515.8)
Issuance of common stock under employee stock plans, net of related tax benefits2.2
 —
 185.5
 —
 —
 185.5
Equity Units issuance costs adjustment—
 —
 0.3
 —
 —
 0.3
September 30, 2016263.4
 $2.6
 $8,741.4
 $16,364.1
 $(363.9) $24,744.2














 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
(In millions)
Number of
Shares
 
Par
Value
 
December 31, 2018 (audited)257.4
 $3
 $9,536
 $19,988
 $(986) $28,541
Adoption of Accounting Standards Update No. 2016-02 (Note 2)—
 —
 —
 26
 —
 26
January 1, 2019257.4
 3
 9,536
 20,014
 (986) 28,567
Net income—
 —
 —
 1,551
 —
 1,551
Other comprehensive income—
 —
 —
 —
 363
 363
Repurchase and retirement of common stock(1.1) —
 (71) (223) —
 (294)
Dividends and dividend equivalents—
 —
 —
 (206) —
 (206)
Issuance of common stock under employee stock plans, net of related tax benefits1.1
 —
 69
 —
 —
 69
Convertible debenture repurchases and conversions—
 —
 (52) —
 —
 (52)
March 31, 2019257.4
 $3
 $9,482
 $21,136
 $(623) $29,998
            
December 31, 2017 (audited)256.1
 $3
 $8,547
 $18,054
 $(101) $26,503
Adoption of Accounting Standards Update No. 2016-01 (Note 2)—
 —
 —
 320
 (320) —
January 1, 2018256.1
 3
 8,547
 18,374
 (421) 26,503
Net income—
 —
 —
 1,312
 —
 1,312
Other comprehensive loss—
 —
 —
 —
 (209) (209)
Repurchase and retirement of common stock(1.7) —
 (56) (338) —
 (394)
Dividends and dividend equivalents—
 —
 —
 (198) —
 (198)
Issuance of common stock under employee stock plans, net of related tax benefits1.1
 —
 28
 —
 —
 28
Convertible debenture repurchases and conversions—
 —
 (30) —
 —
 (30)
Adoption of Accounting Standards Update No. 2018-02 (Note 2)—
 —
 —
 91
 (91) —
March 31, 2018255.5
 $3
 $8,489
 $19,241
 $(721) $27,012





See accompanying notes.

Anthem, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2017March 31, 2019
(In Millions, Except Per Share Data or As Otherwise Stated Herein)
 
1.Organization
References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. 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 approximately 40.341 medical members through our affiliated health plans as of September 30, 2017March 31, 2019. We offer a broad spectrum of network-based managed care plans to large and small employer, individual,Large Group, Small Group, Individual, Medicaid and Medicare markets. Our managed care plans include: preferred provider organizations,Preferred Provider Organizations, or PPOs; health maintenance organizations,Health Maintenance Organizations, or HMOs; point-of-service,Point-of-Service, or POS, plans; traditional indemnity plans and other hybrid plans, including consumer-driven health plans,Consumer-Driven Health Plans, or CDHPs; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-funded customers, including claims processing, underwriting, 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 dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal health care. We also provide services to the federal government in connection with the Federal Employee Program®.
We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as BCBS in 10(in the New York City metropolitan area and surrounding counties, and as Blue Cross or BCBS in selected upstate counties)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, Blue Cross and Blue Shield of Georgia, and Empire Blue Cross Blue Shield or Empire Blue Cross (in our New York service areas).Cross. We also conduct business through arrangements with other BCBS licensees in South Carolina and western New York.licensees. Through our AMERIGROUP Corporation subsidiary and other subsidiaries, we conduct business in Florida, Georgia, Iowa, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Tennessee, Texas, Washington and Washington, D.C. In addition, we conduct business through our Simply Healthcare Holdings, Inc. subsidiary in Florida. We also serve customers throughoutin numerous states across the country as America’s 1st Choice, Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, UniCare, and in certain Arizona, California, Nevada, Tennessee and Virginia markets through our CareMore Health Group, Inc., HealthSun, Optimum HealthCare, Simply Healthcare, and/or CareMore, subsidiary.Unicare. 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, or 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 20162018 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.presentation or adjusted to conform to the current year rounding convention of reporting financial data in whole millions of dollars, except as otherwise noted. 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 and nine months ended September 30, 2017March 31, 2019 and 20162018 have been recorded. The results of operations for the three and nine months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 20172019., 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, 20162018 included in our 20162018 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, or USD. We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the

period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during


the period. The net effect of these translation adjustments is included in “Foreign currency translation adjustments” in our consolidated statements of comprehensive income. Additionally, we
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. At September 30, 2017benefits and have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled $262 and $222 at March 31, 2019 and December 31, 2016,2018, respectively and are included in the cash and cash equivalents line on our consolidated balance sheets.
Leases:We lease office space and certain computer and related equipment under noncancelable operating leases. We determine whether an arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid by using the lease term and discount rate determined at lease commencement. As our leases do not provide an implicit rate, we held $110.8use our incremental secured borrowing rate commensurate with the underlying lease terms to determine the present value of our lease payments. Our leases may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option. We recognize the operating right-of-use, or ROU, assets at an amount equal to the lease liability adjusted for prepaid or accrued rent, remaining balance of any lease incentives and $157.0, respectively, of customer funds with an offsetting liabilityunamortized initial direct costs.
The operating lease liabilities are reported in other current liabilities.liabilities and other noncurrent liabilities and the related ROU assets are reported in other noncurrent assets on our consolidated balance sheet. Lease expense for our operating leases is calculated on a straight-line basis over the lease term and is reported in selling, general and administrative expense on our consolidated statements of income. For our office space leases, we account for the lease and non-lease components (such as common area maintenance) as a single lease component. We also do not recognize a lease liability or ROU asset for our office space leases whose lease terms, at commencement, are twelve months or less and that do not include a purchase option or option to extend that we are reasonably certain to exercise.
Revenue Recognition: Premiums for fully-insured contracts are recognized as revenue over the period insurance coverage is provided, and, if applicable, net of amounts recognized for the minimum medical loss ratio rebates or contractual or government-mandated premium stabilization programs. Administrative fees and other revenues include revenue from certain group contracts that provide for the group to be at risk for all, or with supplemental insurance arrangements, a portion of their claims experience. We charge these self-funded groups an administrative fee, which is based on the number of members in a group or the group’s claim experience. Under our self-funded arrangements, revenue is recognized as administrative services are performed, and benefit payments under these programs are excluded from benefit expense. For additional information about our revenues, see Note 2, “Basis of Presentation and Significant Accounting Policies” and Note 19, “Segment Information,” to our audited consolidated financial statements as of and for the year ended December 31, 2018 included in our 2018 Annual Report on Form 10-K. In addition, see Note 15, “Segment Information,” herein for the disaggregation of revenues by segments and products.
For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at March 31, 2019. For the three months ended March 31, 2019, 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 March 2016,2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2016-09,2019-01, Compensation - Stock CompensationLeases (Topic 718)842): Codification Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. The amendments in this update simplify several aspects of accounting for and reporting on share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted the amendments in ASU 2016-09 on January 1, 2017. We prospectively recognized tax benefits of $2.1, or $0.01 per diluted share, for the three months ended September 30, 2017 and $27.3, or $0.10 per diluted share, for the nine months ended September 30, 2017 in our consolidated statements of income, which previously would have been recorded to additional paid-in capital.. In addition, we prospectively recognized excess tax benefits as an operating activity within our consolidated statement of cash flows for the nine months ended September 30, 2017. Finally, we retrospectively recognized taxes paid on our employees' behalf through the withholding of common stock as a financing activity within our consolidated statements of cash flow for the nine months ended September 30, 2017 and 2016.
Recent Accounting Guidance Not Yet Adopted: In August 2017,July 2018, the FASB issued Accounting Standards Update No. 2017-12,2018-11, Derivatives and HedgingLeases (Topic 815)842): Targeted Improvements and Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases. These updates provide additional clarification, an optional transition method, a practical expedient and implementation guidance on the previously issued Accounting Standards Update No. 2016-02, Leases (Topic 842). Collectively, these updates supersede the lease guidance in Accounting Standards Codification, or ASC, Topic 840 and require lessees to recognize for Hedging Activitiesall leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize an ROU asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted this standard on January 1, 2019 by applying the optional transition method on the adoption date and did not adjust comparative periods. We also elected the package of practical


expedients permitted, which among other things, allowed us to carry forward the lease classification for our existing leases. In preparation for the adoption of this standard and to enable preparation of the required financial information, we implemented a new lease accounting software solution as well as new internal controls. The adoption of this standard impacted our 2019 opening consolidated balance sheet as we recorded operating lease liabilities of $728 and ROU assets of $637, which equals the lease liabilities net of accrued rent, lease incentives and the carrying amount of ceased-use liabilities previously recorded on our balance sheet under the old guidance. We also recognized a cumulative-effect adjustment of $26 to our opening retained earnings for deferred gains on our previous sale-leaseback transactions. The adoption of this standard did not have an impact on our consolidated statements of income or cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, , Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2017-12, which amends2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for either the hedge accounting recognitionentire ASU or only the provisions that eliminate or modify requirements. We early adopted the provisions that eliminate and presentationmodify disclosure requirements, on a retrospective basis, effective in Topic 815 withour 2018 Annual Report on Form 10-K. We will adopt the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The amendment also makes certain targeted improvements to simplify the application of the hedge accounting guidance and provides several transition elections. ASU 2017-12 isnew disclosure requirements, on a prospective basis, effective for our interim and annual reporting periods beginning after December 15, 2019.
In February 2018, with early adoption permitted.the FASB issued Accounting Standards Update No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, or ASU 2018-02. On December 22, 2017, the federal government enacted a tax bill, H.R.1, An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, or the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act contains significant changes to corporate taxation, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21% and modifying or limiting many business deductions. Current FASB guidance requires adjustments of deferred taxes due to a change in the federal corporate income tax rate to be included in income from operations. As a result, the tax effects of items within accumulated other comprehensive loss did not reflect the appropriate tax rate. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the change in the federal corporate income tax rate. We are currently evaluatingadopted the amendments in ASU 2018-02 for our interim and annual reporting periods beginning on January 1, 2018 and reclassified $91 of stranded tax effects thefrom accumulated other comprehensive loss to retained earnings on our consolidated balance sheet. The adoption of ASU 2017-12 will2018-02 did not have uponany impact on our consolidated financial position, results of operations andor cash flows.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. This amendmentupdate provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. We adopted ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted.on January 1, 2018. The guidance is tohas been and will be applied prospectively to an awardawards modified on or after the adoption date. The adoption of ASU 2017-09 isdid not expected to have a materialany impact on our consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables—Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, or ASU 2017-08. This amendmentupdate changes the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. Under current guidance, the premium is generally amortized over the contractual life of the instrument. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Upon adoption, theThe amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. TheWe adopted ASU 2017-08 on January 1, 2019, and the adoption of ASU 2017-08 isthis standard did not expected to have a material impact on our beginning retained earnings or on our consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. This amendment requires entities to disaggregate the service cost component from the other components of the benefit cost and present the service cost component in the same income statement line item as other employee compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Certain of our defined benefit plans have previously been frozen, resulting in no annual service


costs, and the remaining service costs for our non-frozen plan are not material. We adopted ASU 2017-07 on January 1, 2018, and it did not have a material impact on our results of operations, cash flows or consolidated financial position.
In addition,December 2016, the amendment allows onlyFASB issued Accounting Standards Update No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. In May 2016, the service cost component to be eligible for asset capitalization. Upon adoption,FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross verses Net). These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Collectively, these updates require a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These updates supersede almost all existing revenue recognition guidance under GAAP, with certain exceptions, including an exception for our premium revenues, which are recorded on the Premiums line item on our consolidated statements of income and will continue to be accounted for in accordance with the provisions of ASC Topic 944, Financial Services - Insurance. Our administrative service and other contracts that are subject to these Accounting Standards Updates are recorded in the Administrative fees and other revenue line item on our consolidated statements of income and represents approximately 6% of our consolidated total operating revenue. We adopted these standards on January 1, 2018 using the modified retrospective approach. The adoption of these standards did not have a material impact on our beginning retained earnings, results of operations, cash flows or consolidated financial position.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, or ASU 2016-18. This update amends ASC Topic 230, Statement of Cash Flow, to add and clarify guidance on the classification and presentation of the components of net periodic benefit costrestricted cash in the incomestatement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. We adopted ASU 2016-18 on January 1, 2018 using a retrospective approach. The adoption of ASU 2016-18 did not have a material impact on our consolidated statements of cash flows and did not impact our results of operations or consolidated financial position.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15. This update addresses the presentation and classification on the statement of cash flows for eight specific items, with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented and classified. We adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our consolidated statements of cash flows, results of operations or consolidated financial position.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 change the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. We adopted ASU 2016-01 on January 1, 2018 as a cumulative-effect adjustment and reclassified $320 of unrealized gains on equity investments, net of tax, from accumulated other comprehensive loss to retained earnings on our consolidated balance sheet. Effective January 1, 2018, our results of operations include the changes in fair value of these financial instruments.
Recent Accounting Guidance Not Yet Adopted: In November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, or ASU 2018-19. The amendments in ASU 2018-19 provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable

statement is
supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be applied retrospectivelyrecognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities and the guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component is to be applied prospectively.provides for additional disclosure requirements. ASU 2017-072016-13 is effective for interim and annual reporting periods beginning after December 15, 2017,us on January 1, 2020, with early adoption permitted. We are currently evaluating the effects the adoption of ASU 2017-072016-13 will have uponon our consolidated financial statements, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, or ASU 2018-15. The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows. ASU 2018-15 is effective for us on January 1, 2020, with early adoption permitted. The guidance can be applied either prospectively to all implementation costs incurred after the date of adoption or retrospectively. We are currently evaluating the effects the adoption of ASU 2018-15 will have on our consolidated financial position, results of operations and cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation—Retirement Benefits - Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14. The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The guidance is to be applied on a retrospective basis to all periods presented. We are currently evaluating the effects the adoption of ASU 2018-14 will have on our disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, or ASU 2018-12. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments in ASU 2018-12 will be effective for our interim and annual reporting periods beginning after December 15, 2020. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This amendmentupdate removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. Upon adoption, the guidance is to be applied prospectively. ASU 2017-04 is effective for us on January 1, 2020, with early adoption permitted. The adoption of ASU 2017-04 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In December 2016, the FASB issued Accounting Standards Update No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, or ASU 2016-12. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross verses Net), or ASU 2016-08. These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The amendments in ASU 2016-20 provide technical corrections to various implementation examples and clarifying guidance on the treatment of capitalized advertising costs, impairment testing of capitalized contract costs, performance obligation disclosures and scope exceptions. The amendments in ASU 2016-12 provide clarifying guidance on assessing collectability; noncash consideration; presentation of sales taxes; and transition. The amendments in ASU 2016-10 provide clarifying guidance on the materiality and evaluation of performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. Collectively, these updates will require a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The adoption of ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. Upon the effective date, these updates will supersede almost all existing revenue recognition guidance under GAAP, with certain exceptions, including an exception for our premium revenues, recorded on the Premiums line item on our consolidated statements of income, which will continue to be accounted for in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 944, Financial Services - Insurance. Our administrative service and other contracts that will be subject to these Accounting Standards Updates are recorded in the Administrative fees and Other revenue line items on our consolidated statements of income and represent approximately 6.0% of our consolidated total operating revenue. The new guidance permits adoption through either a full retrospective approach or a modified retrospective approach with a cumulative effect adjustment to retained earnings. We intend to use the modified retrospective approach upon adoption and are still in the process of evaluating the impact that these updates will have on our results of operations, cash flows, consolidated financial position and related disclosures.
There were no other new accounting pronouncements that were issued or became effective since the issuance of our 20162018 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 America’s 1st Choice
On October 24, 2017,February 15, 2018, we announced that we entered into an agreement to acquirecompleted our acquisition of Freedom Health, Inc., Optimum HealthCare, Inc., America’s 1st Choice of South Carolina, Inc. and related entities, or collectively, America’s 1st Choice, a Medicare Advantage organization that offers HMO products, including Chronic Special Needs Plans and Dual-Eligible Special Needs Plans under its Freedom Health and Optimum HealthCare brands in Florida and its America’s 1st Choice of South Carolina brand in South Carolina. ThroughAt the time of acquisition, through its Medicare Advantage plans, America’s 1st Choice currently servesserved approximately one hundred and thirtythirty-five thousand members in twenty-five Florida and three South Carolina counties. TheThis acquisition of America's 1st Choice aligns with our plans for continued growth in the Medicare Advantage and Special Needs populations.
In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the fair value of America’s 1st Choice’s assets acquired and liabilities assumed, including identifiable intangible assets. The America'sexcess of the consideration transferred over the fair value of net assets acquired resulted in goodwill of $1,029 at March 31, 2019, of which $296 was tax deductible. All of the goodwill was allocated to our Government Business segment. Goodwill recognized from the acquisition of America’s 1st Choice acquisitionprimarily relates to the future economic benefits arising from the assets acquired and is expectedconsistent with our stated intentions to closestrengthen our position and expand operations in the first quarter of 2018 and is subjectgovernment sector to approvals from state and federal regulatory authorities, standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act.
Pending Acquisition of HealthSun Health Plans, Inc.
On September 20, 2017, we announced that we entered into an agreement to acquire HealthSun Health Plans, Inc., or HealthSun, which serves approximately forty thousand members through its Medicare Advantage plans in the state of Florida. The HealthSun acquisition aligns with our plans for continued growth in theservice Medicare Advantage and dual-eligibleSpecial Needs populations.
The HealthSunfair value of the net assets acquired from America’s 1st Choice includes $711 of other intangible assets at March 31, 2019, which primarily consist of finite-lived customer relationships with amortization periods ranging from 9 to 13 years. The results of operations of America’s 1st Choice are included in our consolidated financial statements within our Government Business segment for the periods following February 15, 2018. The pro forma effects of this acquisition is expectedfor prior periods were not material to close by the endour consolidated results of 2017 and is subject to approvals from state and federal regulatory authorities, standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act.
Termination of Agreement and Plan of Merger with Cigna Corporation
On July 24, 2015, we and Cigna Corporation, or Cigna, announced that we entered into an Agreement and Plan of Merger, or Merger Agreement, dated as of July 23, 2015, to acquire all outstanding shares of Cigna. On May 12, 2017, we delivered to Cigna a notice terminating the Merger Agreement. For additional information, see the “Litigation” section of Note 11, “Commitments and Contingencies.”operations.
4.Investments
Fixed Maturity Securities
We evaluate our investmentavailable-for-sale fixed maturity securities for other-than-temporary declines based on qualitative and quantitative factors. Other-than-temporary impairment losses recognized in income totaled $5.6 and $11.0 for the three months ended September 30, 2017 and 2016, respectively. Other-than-temporary impairment losses recognized in income totaled $20.9 and $103.6 for the nine months ended September 30, 2017 and 2016, respectively. There were no individually significant other-than-temporary impairment losses on investments during the three and nine months ended September 30, 2017March 31, 2019 and 20162018. 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 further declines in fair value may occur and additional material other-than-temporary impairment, or OTTI, losses on investments may be recorded in future periods.


A summary of current and long-term investments,fixed maturity securities, available-for-sale, at September 30, 2017March 31, 2019 and December 31, 20162018 is as follows:
        
Non-Credit
Component of
Other-Than-
Temporary
Impairments
Recognized in
AOCI
        
Non-Credit
Component of
OTTIs
Recognized in
Accumulated
Other
Comprehensive
Loss
Cost or
Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized Losses Estimated
Fair Value		 Cost or
Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized Losses Estimated
Fair Value		 
 
Less than
12 Months
 
12 Months
or Greater
  
Less than
12 Months
 
12 Months
or Greater
 
September 30, 2017           
March 31, 2019           
Fixed maturity securities:                      
United States Government securities$578.4
 $1.2
 $(2.7) $(0.4) $576.5
 $—
$388
 $6
 $—
 $(1) $393
 $—
Government sponsored securities71.3
 0.3
 (0.2) (0.1) 71.3
 —
139
 2
 —
 (1) 140
 —
States, municipalities and political subdivisions, tax-exempt5,675.4
 207.5
 (2.4) (8.0) 5,872.5
 —
4,523
 173
 —
 (3) 4,693
 —
Corporate securities8,967.2
 234.3
 (18.4) (15.2) 9,167.9
 (0.2)8,594
 132
 (24) (60) 8,642
 (3)
Residential mortgage-backed securities2,488.0
 42.7
 (7.0) (5.5) 2,518.2
 —
3,034
 48
 (1) (24) 3,057
 —
Commercial mortgage-backed securities79.1
 0.9
 —
 (2.1) 77.9
 —
79
 1
 —
 (1) 79
 —
Other securities934.3
 14.1
 (0.7) (1.4) 946.3
 —
1,275
 17
 (3) (6) 1,283
 —
Total fixed maturity securities18,793.7
 501.0
 (31.4) (32.7) 19,230.6
 $(0.2)$18,032
 $379
 $(28) $(96) $18,287
 $(3)
Equity securities1,061.0
 439.9
 (16.0) —
 1,484.9
  
Total investments, available-for-sale$19,854.7
 $940.9
 $(47.4) $(32.7) $20,715.5
  
December 31, 2016           
December 31, 2018           
Fixed maturity securities:                      
United States Government securities$561.7
 $2.5
 $(5.7) $—
 $558.5
 $—
$414
 $3
 $—
 $(1) $416
 $—
Government sponsored securities40.1
 0.3
 (0.3) (0.1) 40.0
 —
108
 1
 —
 (1) 108
 —
States, municipalities and political subdivisions, tax-exempt6,024.6
 139.1
 (55.2) (3.2) 6,105.3
 (3.8)4,716
 91
 (3) (19) 4,785
 —
Corporate securities8,011.7
 159.5
 (49.5) (27.1) 8,094.6
 (3.4)8,189
 33
 (170) (115) 7,937
 (3)
Residential mortgage-backed securities1,916.9
 32.3
 (15.3) (4.6) 1,929.3
 —
2,769
 31
 (3) (47) 2,750
 —
Commercial mortgage-backed securities216.8
 1.2
 (0.3) (3.4) 214.3
 —
69
 —
 —
 (2) 67
 —
Other securities744.6
 6.4
 (1.5) (4.0) 745.5
 —
1,115
 14
 (8) (5) 1,116
 —
Total fixed maturity securities17,516.4
 341.3
 (127.8) (42.4) 17,687.5
 $(7.2)$17,380
 $173
 $(184) $(190) $17,179
 $(3)
Equity securities1,103.3
 407.3
 (10.7) —
 1,499.9
  
Total investments, available-for-sale$18,619.7
 $748.6
 $(138.5) $(42.4) $19,187.4
  



For available-for-salefixed maturity securities in an unrealized loss position at September 30, 2017March 31, 2019 and December 31, 20162018, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position: 
Less than 12 Months 12 Months or GreaterLess than 12 Months 12 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
Number of
Securities
 
Estimated
Fair Value
 
Gross
Unrealized
Loss
 
Number of
Securities
 
Estimated
Fair Value
 
Gross
Unrealized
Loss
September 30, 2017           
March 31, 2019           
Fixed maturity securities:                      
United States Government securities43
 $462.3
 $(2.7) 4
 $21.0
 $(0.4)8
 $39
 $—
 16
 $65
 $(1)
Government sponsored securities17
 21.7
 (0.2) 6
 4.6
 (0.1)7
 6
 —
 28
 29
 (1)
States, municipalities and political subdivisions, tax-exempt257
 417.2
 (2.4) 194
 362.9
 (8.0)13
 17
 —
 199
 288
 (3)
Corporate securities751
 1,454.1
 (18.4) 259
 467.0
 (15.2)586
 1,068
 (24) 1,295
 2,273
 (60)
Residential mortgage-backed securities369
 969.9
 (7.0) 153
 213.5
 (5.5)87
 157
 (1) 764
 1,372
 (24)
Commercial mortgage-backed securities7
 9.5
 —
 11
 25.6
 (2.1)—
 —
 —
 12
 23
 (1)
Other securities66
 199.7
 (0.7) 21
 33.3
 (1.4)125
 413
 (3) 142
 368
 (6)
Total fixed maturity securities1,510
 3,534.4
 (31.4) 648
 1,127.9
 (32.7)826
 $1,700
 $(28) 2,456
 $4,418
 $(96)
Equity securities458
 128.5
 (16.0) —
 —
 —
Total investments, available-for-sale1,968
 $3,662.9
 $(47.4) 648
 $1,127.9
 $(32.7)
December 31, 2016           
December 31, 2018           
Fixed maturity securities:                      
United States Government securities51
 $359.9
 $(5.7) —
 $—
 $—
5
 $47
 $—
 25
 $79
 $(1)
Government sponsored securities18
 26.4
 (0.3) 1
 1.0
 (0.1)8
 11
 —
 24
 31
 (1)
States, municipalities and political subdivisions, tax-exempt1,022
 1,849.0
 (55.2) 28
 60.7
 (3.2)177
 295
 (3) 604
 1,032
 (19)
Corporate securities1,272
 2,640.6
 (49.5) 203
 422.8
 (27.1)2,185
 4,503
 (170) 1,220
 2,072
 (115)
Residential mortgage-backed securities430
 905.8
 (15.3) 114
 136.9
 (4.6)259
 383
 (3) 816
 1,458
 (47)
Commercial mortgage-backed securities19
 61.2
 (0.3) 24
 60.8
 (3.4)6
 11
 —
 19
 37
 (2)
Other securities66
 144.3
 (1.5) 55
 133.8
 (4.0)193
 599
 (8) 93
 237
 (5)
Total fixed maturity securities2,878
 5,987.2
 (127.8) 425
 816.0
 (42.4)2,833
 $5,849
 $(184) 2,801
 $4,946
 $(190)
Equity securities452
 233.1
 (10.7) —
 —
 —
Total investments, available-for-sale3,330
 $6,220.3
 $(138.5) 425
 $816.0
 $(42.4)
The amortized cost and fair value of available-for-sale fixed maturity securities at September 30, 2017,March 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.
Amortized
Cost
 
Estimated
Fair Value
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less$409.6
 $410.7
$541
 $542
Due after one year through five years4,950.9
 5,043.5
5,431
 5,466
Due after five years through ten years5,326.3
 5,476.7
5,068
 5,153
Due after ten years5,539.8
 5,703.6
3,879
 3,990
Mortgage-backed securities2,567.1
 2,596.1
3,113
 3,136
Total available-for-sale fixed maturity securities$18,793.7
 $19,230.6
Total fixed maturity securities$18,032
 $18,287


Proceeds from sales, maturities, calls or redemptions of fixed maturity securities equity securities and other invested assets and the related gross realized gains and gross realized losses for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		Three Months Ended 
 March 31
2017 2016 2017 20162019 2018
Proceeds$3,384.6
 $2,921.2
 $9,840.4
 $8,463.8
$1,468
 $2,227
Gross realized gains144.4
 113.4
 255.1
 343.2
18
 30
Gross realized losses(17.2) (13.0) (67.5) (136.7)(17) (36)
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.
Equity Securities
A summary of current and long-term marketable equity securities at March 31, 2019 and December 31, 2018 is as follows:
 March 31, 2019 December 31, 2018
Equity securities:   
Exchange traded funds$2
 $2
Fixed maturity mutual funds589
 557
Common equity securities356
 654
Private equity securities297
 313
Total$1,244
 $1,526
The gains and losses related to equity securities for the three months ended March 31, 2019 and 2018 are as follows:
 Three Months Ended 
 March 31
 2019 2018
Net realized gains (losses) recognized on equity securities$79
 $(43)
Less: Net realized gains recognized on equity securities sold during the period(21) (173)
Unrealized gains (losses) recognized on equity securities still held at March 31, 2019$58
 $(216)
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 $906.4$590 and $1,078.9$604 at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. The value of the collateral represented 103% and 102% of the market value of the securities on loan at September 30, 2017March 31, 2019 and December 31, 2016.2018, respectively. We recognize the collateral as an asset under the caption “Securities lending collateral” on our consolidated balance sheets and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption “Securities lending payable.” The securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending collateral are included in accumulated other comprehensive loss within shareholders’ equity.


The remaining contractual maturity of our securities lending agreements at September 30, 2017March 31, 2019 is as follows:
Overnight and Continuous Less than 30 days TotalOvernight and Continuous
Securities lending transactions      
United States Government securities$26.1
 $8.7
 $34.8
$25
Corporate securities720.7
 —
 720.7
545
Equity securities150.9
 —
 150.9
20
Total$897.7
 $8.7
 $906.4
$590
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 minimum 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.


5.Derivative Financial Instruments
We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements which reduce credit risk by permitting net settlement of transactions. From time to time, we may have cash on deposit to meet certain regulatory requirements, which are included in cash and cash equivalents on our consolidated balance sheets. At September 30, 2017 and December 31, 2016, we had cash on deposit of $201.4 and $405.3, respectively.
A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at September 30, 2017 and December 31, 2016 is as follows:
 
Contractual/
Notional
Amount
 Balance Sheet Location Estimated Fair Value
 Asset (Liability)
September 30, 2017       
Hedging instruments       
Interest rate swaps - fixed to floating$1,235.0
 Other assets/other liabilities $0.8
 $(3.6)
Interest rate swaps - forward starting pay fixed4,375.0
 Other assets/other liabilities 4.0
 (75.7)
Subtotal hedging5,610.0
 Subtotal hedging 4.8
 (79.3)
Non-hedging instruments       
Interest rate swaps342.5
 Equity securities  0.9
 (0.3)
Options200.0
 Other assets/other liabilities —
 —
Futures110.6
 Equity securities  1.5
 (0.3)
Subtotal non-hedging653.1
 Subtotal non-hedging 2.4
 (0.6)
Total derivatives$6,263.1
 Total derivatives 7.2
 (79.9)
   Amounts netted (7.2) 79.9
   Net derivatives $—
 $—
        
December 31, 2016       
Hedging instruments       
Interest rate swaps - fixed to floating$1,385.0
 Other assets/other liabilities $4.0
 $(0.7)
Interest rate swaps - forward starting pay fixed4,775.0
 Other assets/other liabilities 528.8
 (6.0)
Subtotal hedging6,160.0
 Subtotal hedging 532.8
 (6.7)
Non-hedging instruments       
Interest rate swaps209.4
 Equity securities  4.7
 (0.2)
Options10,280.2
 Other assets/other liabilities 220.7
 (233.9)
Futures185.3
 Equity securities  0.5
 (1.1)
Subtotal non-hedging10,674.9
 Subtotal non-hedging 225.9
 (235.2)
Total derivatives$16,834.9
 Total derivatives 758.7
 (241.9)
   Amounts netted (92.8) 92.8
   Net derivatives $665.9
 $(149.1)

Fair Value Hedges
We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to the London Interbank Offering Rate, or LIBOR. A summary of our outstanding fair value hedges at September 30, 2017 and December 31, 2016 is as follows:
Type of Fair Value Hedges 
Year
Entered
Into
 Outstanding Notional Amount 
Interest Rate
Received
 Expiration Date
 September 30, 2017 December 31, 2016 
Interest rate swap 2017 $50.0
 $—
 4.350% August 15, 2020
Interest rate swap 2015 200.0
 200.0
 4.350  August 15, 2020
Interest rate swap 2014 150.0
 150.0
 4.350  August 15, 2020
Interest rate swap 2013 10.0
 10.0
 4.350  August 15, 2020
Interest rate swap 2012 200.0
 200.0
 4.350  August 15, 2020
Interest rate swap 2012 625.0
 625.0
 1.875  January 15, 2018
Interest rate swap 2012 —
 200.0
 2.375  February 15, 2017
Total notional amount outstanding   $1,235.0
 $1,385.0
     
A summary of the effect of fair value hedges on our consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 is as follows:
Type of Fair Value Hedges 
Income Statement
Location of Hedge
Gain (Loss)
 
Hedge
Gain (Loss)
Recognized
 Hedged Item 
Income Statement
Location of
Hedged Item
Gain (Loss)
 
Hedged 
Item
Gain (Loss)
Recognized
Three months ended September 30, 2017          
Interest rate swaps Interest expense $—
 Fixed rate debt Interest expense $—
Three months ended September 30, 2016          
Interest rate swaps Interest expense $2.0
 Fixed rate debt Interest expense $(2.0)
Nine months ended September 30, 2017          
Interest rate swaps Interest expense $(0.2) Fixed rate debt Interest expense $0.2
Nine months ended September 30, 2016          
Interest rate swaps Interest expense $6.6
 Fixed rate debt Interest expense $(6.6)
Cash Flow Hedges
We havePrior to 2019, we entered into a series of forward starting pay fixed interest rate swaps with the objective of eliminatingreducing the variability of cash flows in the interest payments on anticipated future financings. During the nine months ended September 30, 2017, swaps in the notional amount of $5,875.0 were terminated. We received an aggregate of $473.9 from the swap counterparties upon termination. Following the termination of these swaps, we entered into a new series of forward starting pay fixed interest rate swaps to replace the terminated swaps. We had $4,375.0 and $4,775.0 in notional amounts outstanding under forward starting pay fixed interest rate swaps at September 30, 2017 and December 31, 2016, respectively.
For the nine months ended September 30, 2017, following a final effectiveness test upon the terminated swaps, we recorded a net realized loss on financial instruments of $12.0 related to ineffectiveness and missed forecasted transactions. The unrecognized loss for all outstanding, expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $236.1$243 and $168.4$246 at September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively. As of September 30, 2017, the total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $15.4.

A summary of the effect of cash flow hedges on our consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 is as follows:
  Effective Portion  
  
Pretax
Hedge Loss
Recognized
in Other
Comprehensive
Income (Loss)
 Income Statement
Location of
Loss
Reclassification
from Accumulated
Other
Comprehensive
Loss		 Hedge Loss
Reclassified from
Accumulated
Other
Comprehensive
Loss		 Ineffective Portion
Type of Cash Flow Hedge    
Income Statement Location of
Loss Recognized
 
Hedge Loss
Recognized
Three months ended September 30, 2017          
Forward starting pay fixed interest rate swaps $(8.9) Interest expense $(1.5) None $—
Three months ended September 30, 2016          
Forward starting pay fixed interest rate swaps $(27.9) Interest expense $(1.4) Net realized gains (losses) on financial instruments $(7.7)
Nine months ended September 30, 2017          
Forward starting pay fixed interest rate swaps $(108.6) Interest expense $(4.5) Net realized gains (losses) on financial instruments $(12.0)
Nine months ended September 30, 2016          
Forward starting pay fixed interest rate swaps $(731.6) Interest expense $(4.3) Net realized gains (losses) on financial instruments $(7.7)
We test for cash flow hedge effectiveness at hedge inception and re-assess at the end of each reporting period. No amounts were excluded from the assessment of hedge effectiveness, and no ineffectiveness was recognized, except for the amounts described above relatedFor additional information relating to the expired interest rate swaps.

Non-Hedging Derivatives
A summaryfair value of the effectour derivative assets and liabilities, see Note 6, “Fair Value,” of non-hedging derivatives on our consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 is as follows:
Type of Non-hedging Derivatives Income Statement Location of Loss Recognized 
Derivative
Gain (Loss)
Recognized
Three months ended September 30, 2017    
Interest rate swaps Net realized gains (losses) on financial instruments $—
Options Net realized gains (losses) on financial instruments (12.4)
Futures Net realized gains (losses) on financial instruments (0.1)
Total   $(12.5)
Three months ended September 30, 2016    
Interest rate swaps Net realized gains (losses) on financial instruments $2.8
Options Net realized gains (losses) on financial instruments (7.7)
Futures Net realized gains (losses) on financial instruments 1.0
Total   $(3.9)
Nine months ended September 30, 2017    
Interest rate swaps Net realized gains (losses) on financial instruments $(1.4)
Options Net realized gains (losses) on financial instruments (33.5)
Futures Net realized gains (losses) on financial instruments (2.5)
Total   $(37.4)
Nine months ended September 30, 2016    
Interest rate swaps Net realized gains (losses) on financial instruments $(23.5)
Options Net realized gains (losses) on financial instruments (197.8)
Futures Net realized gains (losses) on financial instruments (1.3)
Total   $(222.6)
this Form 10-Q.
6.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 Input Input Definition
Level I Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in 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. United States Government securities represent Level I securities, while Level II securities primarily include United States Government securities, corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed 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, available-for-sale:securities: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II.


We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.
Other invested assets, current: Other invested assets, current include securities held in rabbi trusts that are classified as trading. These securities are designated Level I securities, as fair values are based on quoted market prices.
Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value measurements and disclosures.
Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We independently verify prices provided by the counterparties using valuation models that incorporate 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.


A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at September 30, 2017March 31, 2019 and December 31, 20162018 is as follows:
Level I Level II Level III TotalLevel I Level II Level III Total
September 30, 2017       
March 31, 2019       
Assets:              
Cash equivalents$4,126.4
 $—
 $—
 $4,126.4
$2,551
 $—
 $—
 $2,551
Investments available-for-sale:       
Fixed maturity securities:       
Fixed maturity securities, available-for-sale:       
United States Government securities576.5
 —
 —
 576.5
—
 393
 —
 393
Government sponsored securities—
 71.3
 —
 71.3
—
 140
 —
 140
States, municipalities and political subdivisions, tax-exempt—
 5,872.5
 —
 5,872.5
—
 4,693
 —
 4,693
Corporate securities483.6
 8,454.0
 230.3
 9,167.9
—
 8,345
 297
 8,642
Residential mortgage-backed securities—
 2,513.3
 4.9
 2,518.2
—
 3,051
 6
 3,057
Commercial mortgage-backed securities—
 77.9
 —
 77.9
—
 79
 —
 79
Other securities59.0
 875.5
 11.8
 946.3
—
 1,269
 14
 1,283
Total fixed maturity securities1,119.1
 17,864.5
 247.0
 19,230.6
Equity securities1,094.6
 110.3
 280.0
 1,484.9
Total fixed maturity securities, available-for-sale—
 17,970
 317
 18,287
Equity securities:

 

 

 

Exchange traded funds2
 —
 —
 2
Fixed maturity mutual funds—
 589
 —
 589
Common equity securities315
 41
 —
 356
Private equity securities—
 —
 297
 297
Total equity securities317
 630
 297
 1,244
Other invested assets, current16.9
 —
 —
 16.9
20
 —
 —
 20
Securities lending collateral575.7
 331.5
 —
 907.2
—
 591
 —
 591
Derivatives—
 7.2
 —
 7.2
—
 15
 —
 15
Total assets$6,932.7
 $18,313.5
 $527.0
 $25,773.2
$2,888
 $19,206
 $614
 $22,708
Liabilities:              
Derivatives$—
 $(79.9) $—
 $(79.9)$—
 $(12) $—
 $(12)
Total liabilities$—
 $(79.9) $—
 $(79.9)$—
 $(12) $—
 $(12)
              
December 31, 2016       
December 31, 2018       
Assets:              
Cash equivalents$1,546.0
 $—
 $—
 $1,546.0
$1,815
 $—
 $—
 $1,815
Investments available-for-sale:       
Fixed maturity securities:       
Fixed maturity securities, available-for-sale:       
United States Government securities558.5
 —
 —
 558.5
—
 416
 —
 416
Government sponsored securities—
 40.0
 —
 40.0
—
 108
 —
 108
States, municipalities and political subdivisions, tax-exempt—
 6,105.3
 —
 6,105.3
—
 4,785
 —
 4,785
Corporate securities79.9
 7,775.9
 238.8
 8,094.6
2
 7,648
 287
 7,937
Residential mortgage-backed securities—
 1,917.3
 12.0
 1,929.3
—
 2,744
 6
 2,750
Commercial mortgage-backed securities—
 214.3
 —
 214.3
—
 67
 —
 67
Other securities53.4
 649.3
 42.8
 745.5
—
 1,099
 17
 1,116
Total fixed maturity securities691.8
 16,702.1
 293.6
 17,687.5
Equity securities1,200.2
 111.9
 187.8
 1,499.9
Total fixed maturity securities, available-for-sale2
 16,867
 310
 17,179
Equity securities:

 

 

 

Exchange traded funds2
 —
 —
 2
Fixed maturity mutual funds—
 557
 —
 557
Common equity securities601
 53
 —
 654
Private equity securities—
 —
 313
 313
Total equity securities603
 610
 313
 1,526
Other invested assets, current15.8
 —
 —
 15.8
21
 —
 —
 21
Securities lending collateral726.0
 353.8
 —
 1,079.8
314
 290
 —
 604
Derivatives—
 758.7
 —
 758.7
—
 16
 —
 16
Total assets$4,179.8
 $17,926.5
 $481.4
 $22,587.7
$2,755
 $17,783
 $623
 $21,161
Liabilities:              
Derivatives$—
 $(241.9) $—
 $(241.9)$—
 $(17) $—
 $(17)
Total liabilities$—
 $(241.9) $—
 $(241.9)$—
 $(17) $—
 $(17)

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 September 30, 2017 and 2016 is as follows:
 
Corporate
Securities
 
Residential
Mortgage-
backed
Securities
 
Other 
Securities
 
Equity
Securities
 Total
Three months ended September 30, 2017         
Beginning balance at July 1, 2017$238.2
 $2.9
 $34.8
 $244.5
 $520.4
Total (losses) gains:         
Recognized in net income(0.4) —
 (0.1) —
 (0.5)
Recognized in accumulated other comprehensive loss(1.4) —
 0.1
 6.1
 4.8
Purchases11.5
 2.1
 4.8
 29.5
 47.9
Sales(2.8) —
 (0.4) (0.1) (3.3)
Settlements(14.3) (0.1) (4.2) —
 (18.6)
Transfers into Level III—
 —
 4.1
 —
 4.1
Transfers out of Level III(0.5) —
 (27.3) —
 (27.8)
Ending balance at September 30, 2017$230.3
 $4.9
 $11.8
 $280.0
 $527.0
Change in unrealized losses included in net income related to assets still held for the three months ended September 30, 2017$(0.6) $—
 $—
 $—
 $(0.6)
          
Three months ended September 30, 2016         
Beginning balance at July 1, 2016$208.1
 $1.6
 $32.3
 $165.7
 $407.7
Total (losses) gains:         
Recognized in net income—
 —
 —
 (0.5) (0.5)
Recognized in accumulated other comprehensive loss0.2
 —
 (0.1) (0.7) (0.6)
Purchases46.7
 3.6
 —
 19.4
 69.7
Sales(3.3) —
 —
 (8.1) (11.4)
Settlements(6.0) —
 (0.5) (0.1) (6.6)
Transfers into Level III2.2
 —
 11.6
 —
 13.8
Transfers out of Level III—
 —
 —
 —
 —
Ending balance at September 30, 2016$247.9
 $5.2
 $43.3
 $175.7
 $472.1
Change in unrealized losses included in net income related to assets still held for the three months ended September 30, 2016$(0.1) $—
 $—
 $—
 $(0.1)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 is as follows:
Corporate
Securities
 
Residential
Mortgage-
backed
Securities
 
Commercial
Mortgage-
backed
Securities
 
Other 
Securities
 
Equity
Securities
 Total
Corporate
Securities
 
Residential
Mortgage-
backed
Securities
 
Other 
Securities
 
Equity
Securities
 Total
Nine Months Ended September 30, 2017        
  
Beginning balance at January 1, 2017$238.8
 $12.0
 $—
 $42.8
 $187.8
 $481.4
Three Months Ended March 31, 2019      
  
Beginning balance at January 1, 2019$287
 $6
 $17
 $313
 $623
Total (losses) gains:                    
Recognized in net income(0.8) —
 —
 (0.1) (0.2) (1.1)(1) —
 —
 (2) (3)
Recognized in accumulated other comprehensive loss2.3
 —
 —
 0.3
 6.1
 8.7
2
 —
 —
 —
 2
Purchases71.7
 3.6
 —
 35.6
 86.8
 197.7
33
 —
 2
 7
 42
Sales(42.7) (5.4) —
 (1.2) (0.5) (49.8)(1) —
 —
 (21) (22)
Settlements(49.9) (0.4) —
 (5.3) —
 (55.6)(21) —
 (1) —
 (22)
Transfers into Level III13.4
 1.2
 —
 5.3
 —
 19.9
—
 —
 3
 —
 3
Transfers out of Level III(2.5) (6.1) —
 (65.6) —
 (74.2)(2) —
 (7) —
 (9)
Ending balance at September 30, 2017$230.3
 $4.9
 $—
 $11.8
 $280.0
 $527.0
Change in unrealized losses included in net income related to assets still held for the nine months ended September 30, 2017$(3.2) $—
 $—
 $—
 $—
 $(3.2)
Ending balance at March 31, 2019$297
 $6
 $14
 $297
 $614
Change in unrealized losses included in net income related to assets still held at March 31, 2019$—
 $—
 $—
 $(2) $(2)
                    
Nine Months Ended September 30, 2016        
  
Beginning balance at January 1, 2016$186.2
 $—
 $1.9
 $25.6
 $102.1
 $315.8
Total (losses) gains:           
Recognized in net income(1.6) —
 —
 —
 1.7
 0.1
Recognized in accumulated other comprehensive loss(1.1) —
 —
 (0.4) (1.1) (2.6)
Three Months Ended March 31, 2018      
  
Beginning balance at January 1, 2018$229
 $5
 $16
 $287
 $537
Total losses recognized in net income—
 —
 —
 (239) (239)
Purchases138.6
 3.6
 —
 —
 91.7
 233.9
20
 —
 —
 256
 276
Sales(5.1) —
 —
 —
 (18.6) (23.7)(4) —
 —
 (1) (5)
Settlements(27.2) —
 —
 (0.5) (0.1) (27.8)(6) —
 (1) —
 (7)
Transfers into Level III5.1
 1.6
 —
 28.8
 —
 35.5
21
 —
 —
 —
 21
Transfers out of Level III(47.0) —
 (1.9) (10.2) —
 (59.1)—
 —
 (1) —
 (1)
Ending balance at September 30, 2016$247.9
 $5.2
 $—
 $43.3
 $175.7
 $472.1
Change in unrealized losses included in net income related to assets still held for the nine months ended September 30, 2016$(1.9) $—
 $—
 $—
 $—
 $(1.9)
Ending balance at March 31, 2018$260
 $5
 $14
 $303
 $582
Change in unrealized losses included in net income related to assets still held at March 31, 2018$(1) $—
 $—
 $—
 $(1)
Transfers between levels, if any,There were no individually material transfers into or out of Level III during the three months ended March 31, 2019 or 2018.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business Acquisitions,” we completed our acquisition of America's 1st Choice on February 15, 2018. The net assets acquired in our acquisition of America's 1st Choice and resulting goodwill and other intangible assets were recorded at fair value primarily using Level III inputs. The majority of America's 1st Choice's assets acquired and liabilities assumed were recorded at their carrying values as of the beginningrespective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in our acquisition of America's 1st Choice were internally estimated based on the income approach. The income approach estimates fair value based on the present value of the reporting period. There were no material transfers between levels duringcash flows that the threeassets could be expected to generate in the future. We developed internal estimates for the expected cash flows and nine months ended September 30, 2017 or 2016.
Therediscount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of America's 1st Choice described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the three and nine months ended September 30, 2017March 31, 2019 or 2016.2018.


Our valuation policy is determined by members of our treasury and accounting departments. Whenever possible, our policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain only one quoted priceprices 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. When broker quotes are used, we generally

obtain only one broker quote per security. As we are responsible for the determination of fair value, we perform a monthly 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. If unusual fluctuations are noted in this review, we may obtain additional information from otherand price comparisons to secondary pricing services to validate the quoted price.services. There were no adjustments to quoted market prices obtained from the pricing services during the three and nine months ended September 30, 2017March 31, 2019 or 20162018.
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 assets, deferred income taxes, intangible assets and certain financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.
The carrying amounts reported in our consolidated balance sheets for cash, accrued investment income, premium andreceivables, self-funded receivables, other receivables, income taxes receivable/payable, unearned income, accounts payable and accrued expenses, income taxes receivable/payable, security trades pending payable, securities lending payable and certain other current liabilities approximate fair value because of the short term nature of these items. These assets and liabilities are not listed in the table below.
The following methods assumptions and inputsassumptions 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, long-term: Other invested assets, long-term 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 remarketable subordinated 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 market rates estimated to be available to us for debt of similar terms and remaining maturities.
Long-term debt – senior unsecured convertible debentures: The fair value of our convertible debentures is based on the quoted market price in the active private market in which the convertible debentures trade.


A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance sheets at September 30, 2017March 31, 2019 and December 31, 20162018 is as follows:
Carrying
Value
 Estimated Fair Value
Carrying
Value
 Estimated Fair Value
 Level I Level II Level III Total Level I Level II Level III Total
September 30, 2017         
March 31, 2019         
Assets:                  
Other invested assets, long-term$2,442.1
 $—
 $—
 $2,442.1
 $2,442.1
$3,710
 $—
 $—
 $3,710
 $3,710
Liabilities:                  
Debt:                  
Short-term borrowings1,180.0
 —
 1,180.0
 —
 1,180.0
1,095
 —
 1,095
 —
 1,095
Commercial paper1,315.5
 —
 1,315.5
 —
 1,315.5
875
 —
 875
 —
 875
Notes13,399.0
 —
 14,596.6
 —
 14,596.6
17,191
 —
 17,752
 —
 17,752
Convertible debentures336.2
 —
 1,330.2
 —
 1,330.2
181
 —
 1,071
 —
 1,071
                  
December 31, 2016         
December 31, 2018         
Assets:                  
Other invested assets, long-term$2,240.5
 $—
 $—
 $2,240.5
 $2,240.5
$3,726
 $—
 $—
 $3,726
 $3,726
Liabilities:                  
Debt:                  
Short-term borrowings440.0
 —
 440.0
 —
 440.0
1,145
 —
 1,145
 —
 1,145
Commercial paper629.0
 —
 629.0
 —
 629.0
697
 —
 697
 —
 697
Notes14,323.8
 —
 14,858.4
 —
 14,858.4
17,178
 —
 17,145
 —
 17,145
Convertible debentures334.1
 —
 1,020.2
 —
 1,020.2
191
 —
 1,030
 —
 1,030
7.Income Taxes
During the three months ended September 30, 2017March 31, 2019 and 2016,2018, we recognized income tax expense of $372.0$394 and $518.7,$468, respectively, which represent effective tax rates of 33.2%20.3% and 45.6%26.3%, respectively. The decrease in income tax expense and the effective tax rate was primarily due to the suspension of the non-tax deductible Health Insurance Provider Fee, or HIP Fee, for 2017. For the three months ended September 30, 2016, we recognized additional2019, which resulted in a decrease of income tax expense of $100.5 related to the HIP Fee.$83.
During the nine months ended September 30, 2017 and 2016, we recognized income tax expense of $1,227.5 and $1,795.4, respectively, which represent effective tax rates of 32.0% and 46.1%, respectively. The decrease in income tax expense was primarily due to the suspension of the non-tax deductible HIP Fee for 2017 and the favorable impact of our recognition of tax benefits during the second quarter of 2017 for prior acquisition costs incurred related to the terminated Merger Agreement with Cigna. For the nine months ended September 30, 2016, we recognized additional income tax expense of $308.8 related to the HIP Fee. The decrease in income tax expense was further due to the recognition of excess tax benefits during the nine months ended September 30, 2017 from the adoption of ASU 2016-09, as discussed in Note 2, "Basis of Presentation and Significant Accounting Policies - Recently Adopted Accounting Guidance." Additionally, during the nine months ended September 30, 2016, we recognized additional California deferred state tax expense resulting from specific California legislation related to Managed Care Organizations that did not recur in 2017. The decrease in the effective tax rate was primarily due to the suspension of the HIP Fee, the deduction of the prior acquisition costs incurred related to the terminated Merger Agreement with Cigna, the excess tax benefits from the adoption of ASU 2016-09 and the additional California deferred state tax expense, discussed above.

8.Retirement Benefits
The components of net periodic benefit credit included in our consolidated statements of income for the three months ended September 30, 2017 and 2016 are as follows:
 Pension Benefits Other Benefits
 Three Months Ended 
 September 30		 Three Months Ended 
 September 30
 2017 2016 2017 2016
Service cost$2.6
 $2.9
 $0.3
 $0.3
Interest cost16.6
 17.3
 5.2
 5.6
Expected return on assets(36.9) (36.7) (5.7) (5.6)
Recognized actuarial loss5.4
 4.5
 2.9
 3.1
Settlement loss2.9
 1.1
 —
 —
Amortization of prior service credit(0.1) (0.2) (3.4) (3.4)
Net periodic benefit credit$(9.5) $(11.1) $(0.7) $—
The components of net periodic (benefit credit) benefit cost included in our consolidated statements of income for the nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
Pension Benefits Other BenefitsPension Benefits Other Benefits
Nine Months Ended 
 September 30		 Nine Months Ended 
 September 30		Three Months Ended 
 March 31		 Three Months Ended 
 March 31
2017 2016 2017 20162019 2018 2019 2018
Service cost$7.6
 $8.6
 $1.0
 $1.1
$—
 $2
 $—
 $—
Interest cost49.9
 51.9
 15.6
 16.8
16
 14
 4
 4
Expected return on assets(110.7) (110.1) (17.0) (16.8)(34) (37) (5) (6)
Recognized actuarial loss16.3
 13.2
 8.6
 9.3
4
 6
 —
 1
Settlement loss6.7
 6.7
 —
 —
2
 6
 —
 —
Amortization of prior service credit(0.3) (0.4) (10.2) (10.3)—
 —
 (3) (3)
Net periodic (benefit credit) benefit cost$(30.5) $(30.1) $(2.0) $0.1
Net periodic benefit credit$(12) $(9) $(4) $(4)


For the year ending December 31, 20172019, no material contributions are expected to be necessary to meet the Employee Retirement Income Security Act of 1974, as amended, or ERISA, required funding levels; however, we may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. Contributions of $0.2No contributions were made to our retirement benefit plans during the three and nine months ended September 30, 2017. Contributions of $0.3 were made to our retirement benefit plans during the threeMarch 31, 2019 and nine months ended September 30, 2016.2018.

9. Medical Claims Payable
A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, "Segment Information"“Segment Information”), for the ninethree months ended September 30, 2017March 31, 2019 is as follows:
Commercial
& Specialty
Business
 
Government
Business
 Total
Commercial
& Specialty
Business
 
Government
Business
 Total
Gross medical claims payable, beginning of period$3,267.0
 $4,625.6
 $7,892.6
$2,586
 $4,680
 $7,266
Ceded medical claims payable, beginning of period(521.3) (17.8) (539.1)(10) (24) (34)
Net medical claims payable, beginning of period2,745.7
 4,607.8
 7,353.5
2,576
 4,656
 7,232
Net incurred medical claims:          
Current period21,871.1
 31,634.5
 53,505.6
5,695
 13,099
 18,794
Prior periods redundancies(415.6) (650.7) (1,066.3)(197) (258) (455)
Total net incurred medical claims21,455.5
 30,983.8
 52,439.3
5,498
 12,841
 18,339
Net payments attributable to:          
Current period medical claims18,723.9
 27,274.3
 45,998.2
3,540
 8,623
 12,163
Prior periods medical claims2,132.0
 3,800.1
 5,932.1
1,766
 3,648
 5,414
Total net payments20,855.9
 31,074.4
 51,930.3
5,306
 12,271
 17,577
Net medical claims payable, end of period3,345.3
 4,517.2
 7,862.5
2,768
 5,226
 7,994
Ceded medical claims payable, end of period79.5
 21.9
 101.4
8
 26
 34
Gross medical claims payable, end of period$3,424.8
 $4,539.1
 $7,963.9
$2,776
 $5,252
 $8,028
At September 30, 2017,March 31, 2019, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $56.4, $141.6$87, $526 and $3,147.3$2,155 for the claim years 20152017 and prior, 20162018 and 2017,2019, respectively.
At September 30, 2017,March 31, 2019, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was $20.2, $136.9$51, $699 and $4,360.1$4,476 for the claim years 20152017 and prior, 20162018 and 2017,2019, respectively.


A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, "Segment Information"“Segment Information”), for the ninethree months ended September 30, 2016March 31, 2018 is as follows:
Commercial
& Specialty
Business
 
Government
Business
 Total
Commercial
& Specialty
Business
 
Government
Business
 Total
Gross medical claims payable, beginning of period$3,396.1
 $4,173.7
 $7,569.8
$3,383
 $4,431
 $7,814
Ceded medical claims payable, beginning of period(635.7) (9.9) (645.6)(78) (27) (105)
Net medical claims payable, beginning of period2,760.4
 4,163.8
 6,924.2
3,305
 4,404
 7,709
Business combinations and purchase adjustments—
 199
 199
Net incurred medical claims:          
Current period20,392.7
 28,698.7
 49,091.4
5,745
 11,092
 16,837
Prior periods redundancies(427.7) (345.1) (772.8)(335) (298) (633)
Total net incurred medical claims19,965.0
 28,353.6
 48,318.6
5,410
 10,794
 16,204
Net payments attributable to:          
Current period medical claims17,864.0
 24,467.9
 42,331.9
3,739
 7,465
 11,204
Prior periods medical claims2,132.4
 3,703.1
 5,835.5
2,204
 3,285
 5,489
Total net payments19,996.4
 28,171.0
 48,167.4
5,943
 10,750
 16,693
Net medical claims payable, end of period2,729.0
 4,346.4
 7,075.4
2,772
 4,647
 7,419
Ceded medical claims payable, end of period375.8
 21.7
 397.5
2
 32
 34
Gross medical claims payable, end of period$3,104.8
 $4,368.1
 $7,472.9
$2,774
 $4,679
 $7,453
The reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income is as follows:
 Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		 Three Months Ended 
 March 31
 2017 2016 2017 2016 2019 2018
Net incurred medical claims:            
Commercial & Specialty Business $7,441.0
 $6,990.7
 $21,455.5
 $19,965.0
 $5,498
 $5,410
Government Business 10,262.8
 9,602.0
 30,983.8
 28,353.6
 12,841
 10,794
Total net incurred medical claims 17,703.8
 16,592.7
 52,439.3
 48,318.6
 18,339
 16,204
Quality improvement and other claims expense 399.8
 329.8
 1,124.3
 947.9
 943
 842
Benefit expense $18,103.6
 $16,922.5
 $53,563.6
 $49,266.5
 $19,282
 $17,046
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, 2019, is as follows:
 
Commercial
& Specialty
Business
 
Government
Business
 Total
Net medical claims payable, end of period$2,768
 $5,226
 $7,994
Ceded medical claims payable, end of period8
 26
 34
Insurance lines other than short duration—
 214
 214
Gross medical claims payable, end of period$2,776
 $5,466
 $8,242


10.Debt
    
We generally issue senior unsecured notes for long-term borrowing purposes. At September 30, 2017March 31, 2019 and December 31, 2016,2018, we had $12,135.7$17,166 and $13,061.3,$17,153, respectively, outstanding under these notes.
Upon maturity on June 15, 2017 and February 15, 2017,On May 1, 2018, we repaidsettled each of the $528.8 outstanding balanceEquity Units stock purchase contracts at a settlement rate of 0.2412 shares of our 5.875% senior unsecured notes andcommon stock, using a market value formula set forth in the $400.0 outstanding balanceEquity Units purchase contracts. This resulted in the issuance of our 2.375% senior unsecured notes, respectively.
Onapproximately 6 shares. We had issued 25 Equity Units on May 12, 2015, we issued 25.0 Equity Units, pursuant to an underwriting agreement dated May 6, 2015, in an aggregate principal amount of $1,250.0.$1,250. Each Equity Unit hashad a stated amount of $50 (whole dollars) and consistsconsisted of a purchase contract obligating the holder to purchase a certain number of shares of our common stock on May 1, 2018, subject to earlier termination or settlement, for a price in cash of $50 (whole dollars); and a 5% undivided beneficial ownership interest in $1,000 (whole dollars) principal amount of our 1.900% remarketable subordinated notes, or RSNs, due 2028. On May 1,March 2, 2018, ifwe remarketed the applicable market valueRSNs and used the proceeds to purchase U.S. Treasury securities that were pledged to secure the stock purchase obligations of our common stock is equal to or greater than $207.5898 per share, the settlement rate will be 0.2406 shares of our common stock. If the applicable market value of our common stock is less than $207.5898 per share but greater than $143.7160 per share, the settlement rate will be a number of shares of our common

stock equal to $50 (whole dollars) divided by the applicable market value of our common stock. If the applicable market value of common stock is less than or equal to $143.7160, the settlement rate will be 0.3480 shares of our common stock. Holdersholders of the Equity Units may elect early settlement at a minimum settlement rate of 0.2406 shares of our common stock for each purchase contract being settled.Units. The RSNs are pledged as collateral to secure the purchase of common stock under the related stock purchase contracts. Quarterly interest payments on the RSNs commenced on August 1, 2015. The RSNs are scheduled to be remarketed during the five business day period ending on April 26, 2018 and may be remarketed earlier, at our election, during the period from January 30, 2018 through April 12, 2018. Following the re-marketing, the interest rate on the RSNs will be set to current market rates and interest will be payable semi-annually. At September 30, 2017, the present value of the stock purchase contract liability was $31.2 and is included in other current liabilities and other noncurrent liabilities with a corresponding offset to additional paid-in capital in our consolidated balance sheet. Contract adjustment payments commenced on August 1, 2015 at a rate of 3.350% per annum on the stated amount per Equity Unit. Subject to certain specified terms and conditions, we have the right to defer payments on all or part of the contract adjustment payments but not beyond the purchase contract settlement date, and we have the right to defer payment of interest on the RSNs but not beyond the purchase contract settlement date or maturity date. At September 30, 2017 and December 31, 2016, the carrying amountpurchasers of the RSNs was $1,238.4transferred the RSNs to us in exchange for $1,250 principal amount of our 4.101% senior notes due 2028, or the 2028 Notes, and $1,237.6, respectively.a cash payment of $4. We cancelled the RSNs upon receipt and recognized a loss on extinguishment of debt of $19. At the remarketing, we also issued $850 aggregate principal amount of 4.550% notes due 2048, or the 2048 Notes, under our shelf registration statement. We used the proceeds from the 2048 Notes for working capital and general corporate purposes. Interest on the 2028 Notes and the 2048 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2018.
We have an unsecured surplus note with an outstanding principal balance of $24.9$25 at September 30, 2017both March 31, 2019 and December 31, 2016.2018.
We have a senior revolving credit facility, or the Facility, with a group of lenders for general corporate purposes. The Facility provides credit up to $3,500.0$3,500 and matures on August 25, 2020. There were no amounts outstanding under the Facility at any time during the ninethree months ended September 30, 2017March 31, 2019 or at December 31, 2016.2018.
In August 2017,Through certain subsidiaries, we have entered into two separatemultiple 364-day lines of credit with separate lenders for general corporate purposes. The facilities provide combined credit up to $450.0. The interest rate on each line of credit is based on the LIBOR rate plus a predetermined rate. Our ability to borrow$600. At March 31, 2019 and December 31, 2018, $400 and $500, respectively were outstanding under theour 364-day lines of credit is subject to compliance with certain covenants. We had $450.0 outstanding under the lines of credit at September 30, 2017.credit.
We have an authorized commercial paper program of up to $2,500.0,$2,500, the proceeds of which may be used for general corporate purposes. At September 30, 2017March 31, 2019 and December 31, 2016,2018, we had $1,315.5$875 and $629.0,$697, respectively, outstanding under this program.
We have outstanding senior unsecured convertible debentures due 2042, or the Debentures, which are governed by an indenture between us and The Bank of New York Mellon Trust Company, N.A., as trustee.trustee, or the indenture. We have accounted for the Debentures in accordance with the FASB cash conversion guidance in FASB guidance for debt with conversion and other options. As a result, the value of the embedded conversion option (net of deferred taxes and equity issuance costs) has been bifurcated from its debt host and recorded as a component of additional paid-in capital (net of deferred taxes and equity issuance costs) in our consolidated balance sheets. During the three months ended March 31, 2019, $17 aggregate principal amount of the Debentures were surrendered for conversion by certain holders in accordance with the terms and provisions of the indenture. We elected to settle the excess of the principal amount of the conversions with cash for total payments of $63. We recognized a gain of $1 on the extinguishment of debt related to the Debentures, based on the fair values of the debt on the conversion settlement dates.


The following table summarizes at September 30, 2017March 31, 2019 the related balances, conversion rate and conversion price of the Debentures:
Outstanding principal amount$512.6
$270
Unamortized debt discount$170.9
$87
Net debt carrying amount$336.2
$181
Equity component carrying amount$185.8
$98
Conversion rate (shares of common stock per $1,000 of principal amount)13.7223
13.8707
Effective conversion price (per $1,000 of principal amount)$72.8735
$72.0939
We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati and the Federal Home Loan Bank of Atlanta, or collectively, the FHLBs. As a member we have $730.0the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. We had $695 and $645 in outstanding short-term borrowings from various Federal Home Loan Banks, or FHLBs, at September 30, 2017March 31, 2019 and December 31, 2018 with fixed interest rates of 1.183%.
During the year ended December 31, 2015, we entered into a bridge facility commitment letter2.563% and a joinder agreement, and a term loan facility, to finance a portion of the consideration under the now terminated Merger Agreement with Cigna. We paid $106.6 in fees in connection with the bridge facility, which were capitalized in other current assets and amortized as interest expense. In January 2017, we reduced the size of the bridge facility from $22,500.0 to $19,500.0 and extended the

termination date under the Merger Agreement, as well as the availability of commitments under the bridge facility and term loan facility, to April 30, 2017. In connection with the extension of the bridge facility, we paid $97.5 in fees, which were amortized through April 30, 2017. We recorded $107.9 of interest expense related to the amortization of the bridge loan facility and other related fees in 2017. We recorded $19.0 and $82.1 of interest expense related to the amortization of the bridge loan facility and other related fees during the three and nine months ended September 30, 2016,2.458% respectively. The commitment of the lenders to provide the bridge facility and term loan facility expired on April 30, 2017.
All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings, and the 364-day lines of credit.
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.
We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA as well as Blue Cross and/or Blue Shield licensees across the country. The cases were consolidated into a single multi-district lawsuit called In re Blue Cross Blue Shield Antitrust Litigation that is pending in the United States District Court for the Northern District of Alabama, or the Court. Generally, the suits allege that the BCBSA and the Blue plans have engaged in a conspiracy to horizontally allocate geographic markets through license agreements, best efforts rules (which 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 and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers. Subscriber and provider plaintiffs each filed consolidated amended complaints in July 2013. The consolidated amended subscriber complaint was also brought on behalf of putative state classes of health plan subscribers in Alabama, Arkansas, California, Florida, Hawaii, Illinois, Louisiana, Michigan, Mississippi, Missouri, New Hampshire, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, and Texas. Defendants filed motions to dismiss in September 2013. In June 2014, the Court denied the majority of the motions, ruling that plaintiffs had alleged sufficient facts at that stage of the litigation to avoid dismissal of their claims. Following the subsequent filing of amended complaints by each of the subscriber and provider plaintiffs, we filed our answer and asserted our affirmative defenses in December 2014. Since January 2016, subscribers have filed additional actions asserting damage claims in Indiana, Kansas, Kansas City, Minnesota, Montana, Nebraska, North Dakota, Oklahoma, South Dakota, Vermont, and Virginia, all of which have been consolidated into the multi-district lawsuit. In November 2016 and April 2017, subscriber plaintiffs and provider plaintiffs filed new consolidated amended complaints adding new named plaintiffs and new factual allegations. We filed answers to the amended complaints in May 2017. In February 2017, the Court granted in part defendants' motion for summary judgment based on the filed rate doctrine finding that the damages claims of certain named Alabama subscribers are barred under federal law. Subscribers filed a motion to reconsider the Court's order, which was denied without prejudice to plaintiffs’ right to raise the issue at a later date. In April 2017, the Court of Appeals for the Eleventh Circuit affirmed a lower court ruling in a related declaratory judgment action, Musselman v. Blue Cross and Blue Shield of Alabama, et al., that the antitrust conspiracy claims being asserted by a subset of putative provider class members were released a decade ago by class action settlements in the In re Managed Care Litigation. In June 2017, the Court denied defendants’ motion to dismiss certain of the claims in provider plaintiffs’ latest consolidated complaint. Briefing on the relevant standard of review for the claims asserted under the Sherman Antitrust Act commenced in July 2017. Cross motions for partial summary judgment on the relevant standard of review were heard by the Court in October 2017, and they remain pending. In August 2017, provider plaintiffs moved for partial summary judgment against Anthem on the basis of collateral estoppel on several issues discussed in United States v. Anthem, Inc., 236 F. Supp. 3d 171 (D.D.C. 2017). That motion was heard in October 2017, and is pending. No dates have been set for either the pretrial conference or trials in these actions. We intend to vigorously defend these suits; however, their ultimate outcome cannot be presently determined.
In July 2013, our California affiliate Blue Cross of California doing business as Anthem Blue Cross, or BCC, was named as a defendant, along with an unaffiliated entity, in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that

permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, or HCSP, is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax, or GPT, calculated as 2.35% on gross premiums. As a licensed HCSP, BCC has paid the California Corporate Franchise Tax, or CFT, the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the taxing agencies to collect the GPT, and seeks an order requiring BCC to pay GPT back taxes, interest, and penalties, for a period dating to eight years prior to the July 2013 filing of the complaint. In February 2014, the Superior Court sustained BCC’s demurrer to the complaint, without leave to amend, ruling that BCC is not an “insurer” for purposes of taxation. Plaintiff appealed. In September 2015, the Court of Appeal reversed the Superior Court’s ruling, and remanded. The Court of Appeal held that HCSP could be an insurer for purposes of taxation if it wrote predominantly “indemnity” products. In October 2015, BCC filed a petition for rehearing in the Court of Appeal, which was denied. In November 2015, BCC filed a petition for review with the California Supreme Court, which was denied in December 2015. This lawsuit is being coordinated with similar lawsuits filed against other entities. The lawsuits were assigned to a new judge, and an initial status conference occurred in June 2017. Because GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed or is in the process of filing 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 GPT for the same tax periods. BCC intends to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.
In March 2016, we filed a lawsuit against Express Scripts, Inc., or Express Scripts, our vendor for pharmacy benefit management, or PBM, services, captioned Anthem, Inc. v. Express Scripts, Inc., in the U.S. District Court for the Southern District of New York. The lawsuit seeks to recover damages for pharmacy pricing that is higher than competitive benchmark pricing, damages related to operational breaches and seeks various declarations under the pharmacy benefit management agreement, or PBM Agreement, between the parties. Our suit asserts that Express Scripts' pricing exceeds the competitive benchmark pricing required by the PBM Agreement by approximately $13,000.0 over the remaining term of the PBM Agreement, and by approximately $1,800.0 through the post-termination transition period. Further, we assert that Express Scripts’ excessive pricing has caused us to lose existing customers and prevented us from gaining new business. In addition to the amounts associated with competitive benchmark pricing, we are seeking over $158.0 in damages associated with operational breaches incurred, together with a declaratory judgment that Express Scripts: (i) breached its obligation to negotiate in good faith and to agree in writing to new pricing terms; (ii) is required to provide competitive benchmark pricing to us through the term of the PBM Agreement; (iii) has breached the PBM Agreement, and that we can terminate the PBM Agreement either due to Express Scripts’ breaches or because we have determined that Express Scripts’ performance with respect to the delegated Medicare Part D functions has been unsatisfactory; and (iv) is required under the PBM Agreement to provide post-termination services, at competitive benchmark pricing, for one year following any termination. In April 2016, Express Scripts filed an answer to the lawsuit disputing our contractual claims and alleging various defenses and counterclaims. Express Scripts contends that we breached the PBM Agreement by failing to negotiate proposed new pricing terms in good faith and that we breached the implied covenant of good faith and fair dealing by disregarding the terms of the transaction. In addition, Express Scripts is seeking declaratory judgments: (i) regarding the timing of the periodic pricing review under the PBM Agreement; (ii) that it has no obligation to ensure that we receive any specific level of pricing, that we have no contractual right to any change in pricing under the PBM Agreement and that its sole obligation is to negotiate proposed pricing terms in good faith; and (iii) that we do not have the right to terminate the PBM Agreement. In the alternative, Express Scripts claims that we have been unjustly enriched by its payment of $4,675.0 at the time of the PBM Agreement. We believe that Express Scripts’ defenses and counterclaims are without merit. We filed a motion to dismiss Express Scripts' counterclaims. In March 2017, the court granted our motion to dismiss Express Scripts’ counterclaims for (i) breach of the implied covenant of good faith and fair dealing, and (ii) unjust enrichment with prejudice. We intend to vigorously pursue our claims and defend against any counterclaims; however, the ultimate outcome cannot be presently determined.
Anthem, Inc. and Express Scripts were named as defendants in a purported class action lawsuit filed in June 2016 in the Southern District of New York by three members of ERISA plans alleging ERISA violations captioned Karen Burnett, Brendan Farrell, and Robert Shullich, individually and on behalf of all others similarly situated v. Express Scripts, Inc. and Anthem, Inc. The lawsuit was then consolidated with a similar lawsuit that was previously filed against Express Scripts. A first amended consolidated complaint was filed in the consolidated lawsuit, which is captioned In Re Express Scripts/Anthem ERISA Litigation. The first amended consolidated complaint was filed by six individual plaintiffs against Anthem and

Express Scripts on behalf of all persons who are participants in or beneficiaries of any ERISA or non-ERISA health care plan from December 1, 2009 to the present in which Anthem provided prescription drug benefits through a PBM Agreement with Express Scripts and who paid a percentage based co-insurance payment in the course of using that prescription drug benefit. As to the ERISA members, the plaintiffs allege that Anthem breached its duties under ERISA (i) by failing to adequately monitor Express Scripts’ pricing under the PBM Agreement and (ii) by placing its own pecuniary interest above the best interests of Anthem insureds by allegedly agreeing to higher pricing in the PBM Agreement in exchange for the $4,675.0 purchase price for our NextRx PBM business. As to the non-ERISA members, the plaintiffs assert that Anthem breached the implied covenant of good faith and fair dealing implied in the health plans under which the non-ERISA members are covered by (i) negotiating and entering into the PBM Agreement with Express Scripts that was detrimental to the interests of such non-ERISA members, (ii) failing to adequately monitor the activities of Express Scripts, including failing to timely monitor and correct the prices charged by Express Scripts for prescription medications, and (iii) acting in Anthem’s self-interests instead of the interests of the non-ERISA members when it accepted the $4,675.0 purchase price for NextRx. Plaintiffs seek to hold Anthem and Express Scripts jointly and severally liable and to recover all losses suffered by the proposed class, equitable relief, disgorgement of alleged ill-gotten gains, injunctive relief, attorney’s fees and costs and interest. In November 2016, we filed a motion to dismiss all of the claims brought against Anthem. In response, in March 2017, the plaintiffs filed a second amended consolidated complaint adding two self-insured accounts as plaintiffs and asserting an additional purported class of self-insured accounts. In April 2017, we filed a motion to dismiss the claims brought against Anthem. Our motion remains pending. In January 2017, Express Scripts filed a motion to transfer the case to a federal court in Missouri, which the court denied. We intend to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.
In July 2015, we and Cigna announced that we entered into a Merger Agreement, pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice, or DOJ, along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, or District Court, seeking to block the merger. In February 2017, Cigna purported to terminate the Merger Agreement and commenced litigation against us in the Delaware Court of Chancery, or Delaware Court, seeking damages, including the $1,850.0 termination fee pursuant to the terms of the Merger Agreement, and a declaratory judgment that its purported termination of the Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc. Also in February 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from terminating the Merger Agreement, specific performance compelling Cigna to comply with the Merger Agreement and damages, which is captioned Anthem Inc. v. Cigna Corp. In April 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District Court, which blocked the merger. In May 2017, after the Delaware Court denied our motion to enjoin Cigna from terminating the Merger Agreement, we delivered to Cigna a notice terminating the Merger Agreement. The litigation in Delaware is ongoing. We believe Cigna’s allegations are without merit and we intend to vigorously pursue our claims and defend against Cigna's allegations; however, the ultimate outcome of our litigation with Cigna cannot be presently determined.
In December 2016, the DOJ issued a civil investigative demand to Anthem, Inc. to discover information about our chart review and risk adjustment programs under Parts C and D of the Medicare Program. We understand the DOJ is investigating the programs of other Medicare Advantage health plans, along with providers and vendors. We continue to cooperate with the DOJ’s investigation.
Where available information indicates that it is probable that a loss has been incurred as of the date of ourthe 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 for all of those proceedings is, in the aggregate, from $0.0$0 to approximately $250.0$250 at September 30, 2017.March 31, 2019. This estimated aggregate range of reasonably possible losses is based upon currently available information taking into account our best estimate of such losses for which such an estimate can be made.
Blue Cross Blue Shield Antitrust Litigation
We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees, or Blue plans, across the country. The cases were consolidated into a single multi-district proceeding captioned In re Blue Cross Blue Shield Antitrust Litigation that is pending in the United States District Court for the Northern District of Alabama, or the Court. Generally, the suits allege that the BCBSA and the Blue plans have conspired to


horizontally allocate geographic markets through license agreements, best efforts rules that limit the percentage of non-Blue revenue of each plan, restrictions on acquisitions rules governing the BlueCard and National Accounts programs and other arrangements in violation of the Sherman Antitrust Act, or Sherman Act, and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and actions filed in Alabama, Arkansas, California, Florida, Hawaii, Illinois, Indiana, Kansas, Kansas City, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, Rhode Island, South Carolina, Tennessee, Texas, Vermont and Virginia have been consolidated into the multi-district proceeding.
In response to cross motions for partial summary judgment by plaintiffs and defendants, the Court issued an order in April 2018 determining that the defendants’ aggregation of geographic market allocations and output restrictions are to be analyzed under a per se standard of review, and the BlueCard program and other alleged Section 1 Sherman Act violations are to be analyzed under the rule of reason standard of review. The Court also found that there remain genuine issues of material fact as to whether defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield trademarks. In June 2018, in response to a motion filed by the defendants, the Court certified its April order for interlocutory appeal to the United States Court of Appeals for the Eleventh Circuit, or the Eleventh Circuit. Also in June 2018, the defendants filed, with the Eleventh Circuit, a petition for permission to appeal the April order, which the plaintiffs opposed. In December 2018, the Eleventh Circuit denied the petition. No dates have been set for either the final pretrial conferences or trials in these actions. In March 2019, the Court issued a Fourth Amended Scheduling Order requiring that briefing on motions for class certification and related expert reports, merits and damages expert reports, and certain dispositive motions occur in 2019. We intend to vigorously defend these suits; however, their ultimate outcome cannot be presently determined.
Blue Cross of California Taxation Litigation
In July 2013, our California affiliate Blue Cross of California (doing business as Anthem Blue Cross), or BCC, was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, or HCSP, is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax, or GPT, calculated as 2.35% on gross premiums. As a licensed HCSP, BCC has paid the California Corporate Franchise Tax, or CFT, the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the filing of the complaint.
In March 2018, the Superior Court denied BCC’s motion for judgment on the pleadings and similar motions brought by other entities. We filed a writ of mandate in the California Court of Appeal. Although the California Court of Appeal initially accepted our writ, it later indicated that it will not hear the issues raised by our writ until the case concludes in the Superior Court. Because GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles, the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC eventually be determined to be subject to the GPT for the tax periods at issue in the litigation. BCC intends to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.
Express Scripts, Inc. Pharmacy Benefit Management Litigation
In March 2016, we filed a lawsuit against Express Scripts, Inc., or Express Scripts, our vendor for pharmacy benefit management, or PBM, services, captioned Anthem, Inc. v. Express Scripts, Inc., in the U.S. District Court for the Southern District of New York. The lawsuit seeks to recover over $14,800 in damages for pharmacy pricing that is higher than competitive benchmark pricing under the agreement between the parties, or ESI PBM Agreement, over $158 in damages related to operational breaches, as well as various declarations under the ESI PBM Agreement between the parties, including that Express Scripts: (i) breached its obligation to negotiate in good faith and to agree in writing to new pricing terms; (ii) is required to provide competitive benchmark pricing to us through the term of the ESI PBM Agreement; (iii) has breached the ESI PBM Agreement; and (iv) is required under the ESI PBM Agreement to provide post-termination services, at competitive benchmark pricing, for one year following any termination.


Express Scripts has disputed our contractual claims and is seeking declaratory judgments: (i) regarding the timing of the periodic pricing review under the ESI PBM Agreement; and (ii) that it has no obligation to ensure that we receive any specific level of pricing, that we have no contractual right to any change in pricing under the ESI PBM Agreement and that its sole obligation is to negotiate proposed pricing terms in good faith. In the alternative, Express Scripts claims that we have been unjustly enriched by its payment of $4,675 at the time of the ESI PBM Agreement. In March 2017, the court granted our motion to dismiss Express Scripts’ counterclaims for (i) breach of the implied covenant of good faith and fair dealing, and (ii) unjust enrichment with prejudice. The only remaining claims are for breach of contract and declaratory relief. We intend to vigorously pursue our claims and defend against any counterclaims, which we believe are without merit; however, the ultimate outcome cannot be presently determined.
In re Express Scripts/Anthem ERISA Litigation
We are a defendant in a class action lawsuit that was initially filed in June 2016 against Anthem, Inc. and Express Scripts, which has been consolidated into a single multi-district lawsuit captioned In Re Express Scripts/Anthem ERISA Litigation, in the U.S. District Court for the Southern District of New York. The consolidated complaint was filed by plaintiffs against Express Scripts and us on behalf of all persons who are participants in or beneficiaries of any ERISA or non-ERISA healthcare plan from December 1, 2009 to the present in which we provided prescription drug benefits through the ESI PBM Agreement and paid a percentage based co-insurance payment in the course of using that prescription drug benefit. The plaintiffs allege that we breached our duties, either under ERISA or with respect to the implied covenant of good faith and fair dealing implied in the health plans, (i) by failing to adequately monitor Express Scripts’ pricing under the ESI PBM Agreement and (ii) by placing our own pecuniary interest above the best interests of our insureds by allegedly agreeing to higher pricing in the ESI PBM Agreement in exchange for the purchase price for our NextRx PBM business, and (iii) with respect to the non-ERISA members, by negotiating and entering into the ESI PBM Agreement that was allegedly detrimental to the interests of such non-ERISA members. Plaintiffs seek to hold us and Express Scripts jointly and severally liable and to recover all losses suffered by the proposed class, equitable relief, disgorgement of alleged ill-gotten gains, injunctive relief, attorney’s fees and costs and interest.
In April 2017, we filed a motion to dismiss the claims brought against us, and it was granted, without prejudice, in January 2018. Plaintiffs filed a notice of appeal with the United States Court of Appeals for the Second Circuit, which was heard in October 2018. We intend to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.
Cigna Corporation Merger Litigation
In July 2015, we and Cigna Corporation, or Cigna, announced that we entered into the Agreement and Plan of Merger, or Cigna Merger Agreement, pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice, or DOJ, along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, or District Court, seeking to block the merger. In February 2017, Cigna purported to terminate the Cigna Merger Agreement and commenced litigation against us in the Delaware Court of Chancery, or Delaware Court, seeking damages, including the $1,850 termination fee pursuant to the terms of the Cigna Merger Agreement, and a declaratory judgment that its purported termination of the Cigna Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc.
Also in February 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from terminating the Cigna Merger Agreement, specific performance compelling Cigna to comply with the Cigna Merger Agreement and damages, which is captioned Anthem Inc. v. Cigna Corp. In April 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District Court, which blocked the merger. In May 2017, after the Delaware Court denied our motion to enjoin Cigna from terminating the Cigna Merger Agreement, we delivered to Cigna a notice terminating the Cigna Merger Agreement.
In the Delaware Court litigation, trial commenced in late February 2019 and concluded in March 2019. The Delaware Court has set closing argument for September 11, 2019. We believe Cigna’s allegations are without merit and we intend to vigorously pursue our claims and defend against Cigna’s allegations; however, the ultimate outcome of our litigation with Cigna cannot be presently determined. In October 2018, a shareholder filed a derivative lawsuit in the State of Indiana Marion County Superior Court, captioned Henry Bittmann, Derivatively, et al. v. Joseph R Swedish, et al., purportedly on behalf of Anthem and its shareholders against certain current and former directors and officers alleging breaches of fiduciary


duties, unjust enrichment and corporate waste associated with the Cigna Merger Agreement. This case has been stayed at the request of the parties pending the outcome of our litigation with Cigna in the Delaware Court. This lawsuit’s ultimate outcome cannot be presently determined.
U.S. Department of Justice (DOJ) Civil Investigative Demands
Beginning in December 2016, the DOJ has issued civil investigative demands to us to discover information about our chart review and risk adjustment programs under Parts C and D of the Medicare Program. We understand the DOJ is investigating the programs of other Medicare Advantage health plans, along with providers and vendors. We continue to cooperate with the DOJ’s investigation, and the ultimate outcome cannot presently be determined.
Cyber Attack IncidentRegulatory Proceedings and Litigation
In February 2015, we reported that we were the target of a sophisticated external cyber attack. The attackers gained unauthorized access to certain of our information technology systems and obtained personal information related to many individuals and employees, such as names, birthdays, health carebirth dates, healthcare identification/social security numbers, street addresses, email addresses, phone numbers and employment information, including income data. To date, there is no evidence that credit card or medical information, such as claims, test results or diagnostic codes, were targeted, accessed or obtained, although no assurance can be given that we will not identify additional information that was accessed or obtained.
Upon discovery of the cyber attack, we took immediate action to remediate the security vulnerability and retained a cybersecurity firm to evaluate our systems and identify solutions based on the evolving landscape. We have provided credit monitoring and identity protection services to those who have been affected by this cyber attack. We have continued to implement security enhancements since this incident. We have incurred expenses subsequent to the cyber attack to investigate and remediate this matter and expect to continue to incur expenses of this nature in the foreseeable future. We recognize these expenses in the periods in which they are incurred.
Actions have been filed in various federal and state courts and other claims have been or may be asserted against us on behalf of current or former members, current or former employees, other individuals, shareholders or others seeking damages or other related relief, allegedly arising out of the cyber attack. Federal and state agencies, including state insurance regulators, state attorneys general, the Health and Human Services Office of Civil Rights and the Federal Bureau of Investigation, are investigating, or have investigated, events related to the cyber attack, including how it occurred, its consequences and our responses. In December 2016, the National Association of Insurance Commissioners, or NAIC, concluded its multistate targeted market conduct and financial exam. In connectionThe investigations have all been resolved with the resolutionexception of the matter, the NAIC requested we provide, and we agreed to provide,an ongoing investigation by a customized credit protection program, equivalent to a credit freeze, for our members who were under the agemulti-state group of eighteen on January 27, 2015. No fines or penalties were imposed on us.Attorneys General, which remains outstanding. Although we are cooperating in these investigations,this investigation, we may be subject to additional fines or other obligations, which may have an adverse effect on how we operate our business and an adverse effect on our results of operations. With respectoperations and financial condition. We intend to the civil actions, a motion to transfer was filed with the Judicial Panel on Multidistrict Litigation, or the Panel, in February 2015 and was subsequently heard by the Panel in May 2015. In June 2015, the Panel entered its order transferring the consolidated matter to the U.S. District Court for the Northern District of California, or the U.S. District Court. The U.S. District Court entered its case management order in September 2015. We filed a motion to dismiss ten of the counts that were before the U.S. District Court. In February 2016, the court issued an order granting in part and denying in part our motion, dismissing three counts with prejudice, four counts without prejudice and allowing three counts to proceed. Plaintiffs filed a second amended complaint in March 2016, and we subsequently filed a second motion to dismiss. In May 2016, the court issued an order granting in part and denying in part our motion, dismissing one count with prejudice, dismissing certain counts asserted by specific named plaintiffs with or without prejudice depending on their individualized facts, and allowingvigorously defend the remaining counts to proceed. In July 2016, plaintiffs filed a third amended complaint, which we answered in August 2016. Fact discovery was completed in December 2016. Plaintiffs filed their motion for class certification and trial plan in March 2017. We filed our opposition to class certification, motions to strike the testimony of three of the plaintiffs' experts and trial plan in April 2017. Prior to those motions being heard, the parties agreed to settle plaintiffs' claims on a class-wide basis for a total settlement payment of $115.0 and certain non-monetary relief. In June 2017, plaintiffs filed a motion for preliminary approval of the settlement and a motion to continue all case deadlines. In July 2017, the court granted the motion to continue all case deadlines. The court issued an order of preliminary approval in August 2017. The court will consider the plaintiffs' motion for final approval in February 2018. Three state court cases related to the cyber attack areregulatory investigation; however, its ultimate outcome cannot be presently proceeding outside of this multidistrict litigation. Two of those cases have been stayed. There remain open regulatory investigations into the incident that are not directly impacted by the multidistrict litigation settlement.determined.
We have contingency plans and insurance coverage for certain expenses and potential liabilities of this nature and will pursue coverage for all applicable losses; however, the ultimate outcome of our pursuit of insurance coverage cannot be

presently determined. We intend to vigorously defend the remaining state court cases and regulatory actions related to the cyber attack; however, their ultimate outcome cannot be presently determined.
Other Contingencies
From time to time, we and certain of our subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in the ordinary course of business. We, like HMOs and health insurers generally, exclude certain health carehealthcare and other services from coverage under our HMO, PPO and other plans. We are, in the ordinary course of business, subject to the claims of our enrollees arising out of decisions to restrict or deny reimbursement for uncovered services. The loss of even one such claim, if it results in a significant punitive damage award, could have a material adverse effect on us. In addition, the risk of potential liability under punitive damage theories may increase significantly the difficulty of obtaining reasonable settlements of coverage claims.
In addition to the lawsuits described above, we are also involved in other pending and threatened litigation of the character incidental to our business, and are from time to time involved as a party in various governmental investigations, audits, reviews and administrative proceedings. These investigations, audits, reviews and administrative proceedings include routine and special inquiries by state insurance departments, state attorneys general, the U.S. Attorney General and subcommittees of the U.S. Congress. Such investigations, audits, reviews and administrative proceedings could result in the imposition of civil or criminal fines, penalties, other sanctions and additional rules, regulations or other restrictions on our


business operations. Any liability that may result from any one of these actions, or in the aggregate, could have a material adverse effect on our consolidated financial position or results of operations.
The National Organization of Life & Health Insurance Guaranty Associations, or NOLHGA, is a voluntary organization consisting of the state life and health insurance guaranty associations located throughout the U.S. Such associations, working together with NOLHGA, provide a safety net for their state’s policyholders, ensuring that they continue to receive coverage, subject to state maximum limits, even if their insurer is declared insolvent. In March 2017, long term care insurance writers Penn Treaty Network America Insurance Company and its subsidiary, American Network Insurance Company (collectively, Penn Treaty), were ordered to be liquidated by the Pennsylvania state court, which had jurisdiction over the Penn Treaty rehabilitation proceeding. We and other insurers will be obligated to pay a portion of their policyholder claims through state guaranty association assessments in future periods. We estimated our portion of these net assessments for the Penn Treaty insolvency to approximate $253.8 and recorded the estimate as a general and administrative expense during the three months ended March 31, 2017. Payment of the assessments will be largely recovered through premium billing surcharges and premium tax credits over future years.
Contractual Obligations and Commitments
Express Scripts, through our ESI PBM Agreement, is the exclusive provider of certain PBM services to our plans, excludingplans. In October 2017, we established a new pharmacy benefits manager, called IngenioRx, and entered into a five-year agreement with CaremarkPCS Health, L.L.C., or CVS Health, which is a subsidiary of CVS Health Corporation, to begin offering PBM solutions, or the CVS PBM Agreement. In January 2019, we exercised our CareMore subsidiary and certain self-insured members, who have exclusive agreements with different PBM service providers. The initial term of thiscontractual right to terminate the ESI PBM Agreement expires onearlier than the original expiration date of December 31, 2019 due to the recent acquisition of Express Scripts by Cigna. As a result of exercising our early termination right, the ESI PBM Agreement terminated on March 1, 2019, and on March 2, 2019, the twelve-month transition period to migrate the services from Express Scripts began. We expect CVS Health to begin providing certain PBM services to IngenioRx pursuant to the CVS PBM Agreement in the second quarter of 2019. UnderNotwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts PBM services include, but are not limited to, pharmacy network management, mail order and specialty drug fulfillment, claims processing, rebate management and specialty pharmaceutical management services. Accordingly,regarding the ESI PBM Agreement contains certain financial and operational requirements obligating both Express Scripts and us. Express Scripts’ primary obligations relate to the performance of such services in a compliant manner and meeting certain pricing guarantees and performance standards. Our primary responsibilities relate to formulary management, product and benefit design, provision of data, payment for services, certain minimum volume requirements and oversight. The failure by either party to meet the respective requirements could potentially serve as a basis for financial penalties or early termination of the PBM Agreement.continues. In March 2016, we filed a lawsuit against Express Scripts seeking to recover damages for pharmacy pricing that is higher than competitive benchmark pricing, damages related to operational breaches, and seekingas well as various declarations under the ESI PBM Agreement between the parties. For additional information regarding this lawsuit, refer to the Litigation and Regulatory Proceedings-Express Scripts, Inc. Pharmacy Benefit Management Litigation section above. We believe we have appropriately recognized all rights and obligations under thisthe ESI PBM Agreement at September 30, 2017.

Vulnerability from Concentrations
Financial instruments that potentially subject us to concentrationsas of credit risk consist primarily of cash equivalents, investment securities, premium receivables and instruments held through hedging activities. All investment securities are managed by professional investment managers within policies authorized by our Board of Directors. Such policies limit the amounts that may be invested in any one issuer and prescribe certain investee company criteria. Concentrations of credit risk with respect to premium receivables are limited due to the large number of employer groups that constitute our customer base in the states in which we conduct business. As of September 30, 2017, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.March 31, 2019.
12.Capital Stock
Use of Capital – Dividends and Stock Repurchase Program
We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders. The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.
A summary of the cash dividend activity for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 is as follows: 
Declaration Date Record Date Payment Date 
Cash
Dividend
per Share
 Total
Nine Months Ended September 30, 2017        
February 22, 2017 March 10, 2017 March 24, 2017 $0.65 $172.2
April 27, 2017 June 9, 2017 June 23, 2017 $0.65 $171.8
July 25, 2017 September 8, 2017 September 25, 2017 $0.70 $181.4
         
Nine Months Ended September 30, 2016        
February 18, 2016 March 10, 2016 March 25, 2016 $0.65 $170.7
April 26, 2016 June 10, 2016 June 24, 2016 $0.65 $170.9
July 26, 2016 September 9, 2016 September 26, 2016 $0.65 $171.1
Declaration Date Record Date Payment Date 
Cash
Dividend
per Share
 Total
Three Months Ended March 31, 2019        
January 29, 2019 March 18, 2019 March 29, 2019 $0.80 $206
         
Three Months Ended March 31, 2018        
January 30, 2018 March 9, 2018 March 23, 2018 $0.75 $192
On October 24, 2017,April 23, 2019, our Audit Committee of the Board of Directors declared a fourthsecond quarter 20172019 dividend to shareholders of $0.70$0.80 per share, payable on December 21, 2017June 25, 2019 to shareholders of record at the close of business on December 5, 2017.June 10, 2019.
Under our Board of Directors’ authorization, we maintain a common stock repurchase program. On October 2, 2014,December 7, 2017, the Board of Directors authorized a $5,000.0$5,000 increase to the common stock repurchase program. Repurchases may be made from time to time at prevailing market prices, subject to certain restrictions on volume, pricing and timing. The repurchases are effected from time to time in the open market, through negotiated transactions, including accelerated share repurchase agreements, and through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Our stock repurchase program is discretionary, as we are under no obligation to repurchase shares. We repurchase shares under the program when we believe it is a prudent use of capital. The excess cost of the repurchased shares over par value is charged on a pro rata basis to additional paid-in capital and retained earnings.


A summary of common stock repurchases from OctoberApril 1, 20172019 through October 12, 2017April 15, 2019 (subsequent to September 30, 2017)March 31, 2019) and for the ninethree months ended September 30, 2017March 31, 2019 and 2018 is as follows:
April 1, 2019 
 Through 
 April 15, 2019		 Three Months Ended March 31
October 1, 2017 
 Through 
 October 12, 2017		 Nine Months Ended 
 September 30, 2017		 2019 2018
Shares repurchased0.7
 8.7
0.2
 1.1
 1.7
Average price per share$191.35
 $186.80
$287.16
 $275.23
 $233.51
Aggregate cost$130.5
 $1,635.4
$51
 $294
 $394
Authorization remaining at the end of the period$2,410.0
 $2,540.5
$5,148
 $5,199
 $6,783
There were no common stock repurchases during the nine months ended September 30, 2016.
Equity Units
We have 25.0 Equity Units with an aggregate principal amount of $1,250.0. For additional information relating toregarding the Equity Units,use of capital for debt security repurchases, see Note 10, “Debt.“Debt” of this Form 10-Q and Note 12, “Debt,” to our audited consolidated financial statements as of and for the year ended December 31, 2018 included in our 2018 Annual Report on Form 10-K.
Stock Incentive Plans
A summary of stock option activity for the ninethree months ended September 30, 2017March 31, 2019 is as follows:
Number of
Shares
 
Weighted-
Average
Option Price
per Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Number of
Shares
 
Weighted-
Average
Option Price
per Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 20175.6
 $102.80
  
Outstanding at January 1, 20193.7
 $149.65
  
Granted1.1
 167.38
  0.7
 307.66
  
Exercised(1.8) 87.22
  (0.5) 121.08
  
Forfeited or expired(0.2) 136.02
  —
 204.80
  
Outstanding at September 30, 20174.7
 122.55
 6.27 $318.3
Exercisable at September 30, 20173.0
 106.20
 4.89 $253.8
Outstanding at March 31, 20193.9
 181.02
 6.71 $423
Exercisable at March 31, 20192.4
 135.06
 5.24 $360
A summary of the status of nonvested restricted stock activity, including restricted stock units, for the ninethree months ended September 30, 2017March 31, 2019 is as follows:
Restricted
Stock Shares
and Units
 
Weighted-
Average
Grant Date
Fair Value
per Share
Restricted
Stock Shares
and Units
 
Weighted-
Average
Grant Date
Fair Value
per Share
Nonvested at January 1, 20172.1
 $127.68
Nonvested at January 1, 20191.7
 $183.32
Granted0.8
 173.62
0.5
 307.59
Vested(0.8) 110.12
(0.7) 150.13
Forfeited(0.1) 147.04
—
 212.54
Nonvested at September 30, 20172.0
 151.64
Nonvested at March 31, 20191.5
 239.40
During the three months ended March 31, 2019, we granted approximately 0.2 restricted stock units that are contingent upon us achieving earnings targets over the three year period from 2019 to 2021. These grants have been included in the activity shown above, but will be subject to adjustment at the end of 2021 based on results in the three year period.
Fair Value
We use a binomial lattice valuation model to estimate the fair value of all stock options granted. For a more detailed discussion of our stock incentive plan fair value methodology, see Note 14, “Capital Stock,” to our audited consolidated financial statements as of and for the year ended December 31, 20162018 included in our 20162018 Annual Report on Form 10-K.


The following weighted-average assumptions were used to estimate the fair values of options granted during the ninethree months ended September 30, 2017March 31, 2019 and 20162018:
Nine Months Ended September 30Three Months Ended March 31
2017 20162019 2018
Risk-free interest rate2.31% 1.76%2.69% 2.90%
Volatility factor32.00% 32.00%25.00% 30.00%
Quarterly dividend yield0.397% 0.491%0.260% 0.323%
Weighted-average expected life (years)4.00
 4.10
4.40
 3.70
The following weighted-average fair values per option or share were determined for the ninethree months ended September 30, 2017March 31, 2019 and 20162018: 
Nine Months Ended September 30Three Months Ended March 31
2017 20162019 2018
Options granted during the period$40.84
 $30.57
$68.92
 $55.31
Restricted stock awards granted during the period173.62
 131.88
307.59
 232.15


13.Accumulated Other Comprehensive Loss
A reconciliation of the components of accumulated other comprehensive loss at September 30, 2017March 31, 2019 and 20162018 is as follows:
September 30March 31
2017 20162019 2018
Investments, excluding non-credit component of other-than-temporary impairments:      
Gross unrealized gains$940.9
 $1,068.9
$379
 $239
Gross unrealized losses(80.1) (74.2)(121) (220)
Net pre-tax unrealized gains860.8
 994.7
258
 19
Deferred tax liability(309.9) (364.0)(61) (5)
Net unrealized gains on investments550.9
 630.7
197
 14
Non-credit components of other-than-temporary impairments on investments:      
Unrealized losses(0.2) (12.1)(3) —
Deferred tax asset0.1
 4.3
1
 —
Net unrealized non-credit component of other-than-temporary impairments on investments(0.1) (7.8)(2) —
Cash flow hedges:      
Gross unrealized losses(363.2) (852.0)(308) (322)
Deferred tax asset127.1
 298.2
65
 67
Net unrealized losses on cash flow hedges(236.1) (553.8)(243) (255)
Defined benefit pension plans:      
Deferred net actuarial loss(632.9) (615.8)(744) (612)
Deferred prior service credits(0.8) (0.3)(1) (1)
Deferred tax asset248.4
 243.0
191
 159
Net unrecognized periodic benefit costs for defined benefit pension plans(385.3) (373.1)(554) (454)
Postretirement benefit plans:      
Deferred net actuarial loss(138.0) (153.4)(57) (77)
Deferred prior service costs49.5
 63.2
31
 43
Deferred tax asset34.6
 35.5
7
 9
Net unrecognized periodic benefit costs for postretirement benefit plans(53.9) (54.7)(19) (25)
Foreign currency translation adjustments:      
Gross unrealized losses(2.4) (7.9)(3) (2)
Deferred tax asset0.9
 2.7
1
 1
Net unrealized losses on foreign currency translation adjustments(1.5) (5.2)(2) (1)
Accumulated other comprehensive loss$(126.0) $(363.9)$(623) $(721)


Other comprehensive income (loss) reclassification adjustments for the three months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
 Three Months Ended September 30
 2017 2016
Investments:   
Net holding gain on investment securities arising during the period, net of tax expense of (48.5) and ($36.7), respectively$87.6
 $63.4
Reclassification adjustment for net realized gain on investment securities, net of tax expense of $42.6 and $31.3, respectively(79.0) (58.1)
Total reclassification adjustment on investments8.6
 5.3
Non-credit component of other-than-temporary impairments on investments:   
Non-credit component of other-than-temporary impairments on investments, net of tax expense of ($0.2) and ($4.9), respectively—
 9.3
Cash flow hedges:   
Holding loss, net of tax benefit of $2.5 and $9.2, respectively(4.9) (17.2)
Other:   
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($3.0) and ($1.7), respectively4.7
 3.2
Foreign currency translation adjustment, net of tax expense of ($0.2) and ($0.3), respectively0.5
 0.4
Net gain recognized in other comprehensive income, net of tax expense of ($6.8) and ($3.1), respectively$8.9
 $1.0
 Three Months Ended March 31
 2019 2018
Investments:   
Net holding gain (loss) on investment securities arising during the period, net of tax (expense) benefit of $(98) and $77, respectively$350
 $(256)
Reclassification adjustment for net realized loss on investment securities, net of tax benefit of $2 and $3, respectively7
 11
Total reclassification adjustment on investments357
 (245)
Non-credit component of other-than-temporary impairments on investments:   
Cash flow hedges:   
Holding gain, net of tax expense of ($0) and ($8), respectively3
 29
Other:   
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($1) and ($3), respectively3
 7
Net gain (loss) recognized in other comprehensive income, net of tax (expense) benefit of ($101) and $63, respectively$363
 $(209)
Other comprehensive income (loss) reclassification adjustments for the nine months ended September 30, 2017 and 2016 are as follows:
 Nine Months Ended September 30
 2017 2016
Investments:   
Net holding gain on investment securities arising during the period, net of tax expense of ($161.2) and ($275.8), respectively$297.0
 $454.3
Reclassification adjustment for net realized gain on investment securities, net of tax expense of $57.8 and $36.0, respectively(107.3) (66.9)
Total reclassification adjustment on investments189.7
 387.4
Non-credit component of other-than-temporary impairments on investments:   
Non-credit component of other-than-temporary impairments on investments, net of tax expense of ($2.7) and ($1.0), respectively4.5
 2.2
Cash flow hedges:   
Holding loss, net of tax benefit of $36.4 and $254.5, respectively(67.7) (472.7)
Other:   
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($8.2) and ($7.0), respectively12.8
 10.8
Foreign currency translation adjustment, net of tax expense of ($1.3) and ($0.5), respectively2.6
 1.0
Net gain (loss) recognized in other comprehensive income, net of tax (expense) benefit of ($79.2) and $6.2, respectively$141.9
 $(71.3)

14.Earnings per Share
The denominator for basic and diluted earnings per share for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 is as follows:
Three Months Ended 
 September 30
Nine Months Ended 
 September 30		Three Months Ended 
 March 31
2017 2016 2017 20162019 2018
Denominator for basic earnings per share – weighted-average shares260.5
 263.2
 263.2
 262.7
257.1
 255.8
Effect of dilutive securities – employee stock options, nonvested restricted stock awards and convertible debentures6.5
 4.9
 6.2
 5.2
Effect of dilutive securities – employee stock options, nonvested restricted stock awards, convertible debentures and equity units5.2
 7.0
Denominator for diluted earnings per share267.0
 268.1
 269.4
 267.9
262.3
 262.8
During the three months ended September 30, 2016, weighted-average shares related to certain stock options of 2.5 were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. During the nine months ended September 30, 2017March 31, 2019 and 20162018, weighted-average shares related to certain stock options of 0.50.2 and 2.30.3, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. The Equity Units are potentially dilutive securities but were excluded from the denominator for diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 as the dilutive stock price threshold was not met.
During the three and nine months ended September 30, 2017,March 31, 2019, we issued approximately 0.2 and 0.80.5 restricted stock units under our stock incentive plans, 0.40.2 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of 20172019 through 2019.2021. During the ninethree months ended September 30, 2016,March 31, 2018, we issued approximately 1.00.8 restricted stock units under our stock incentive plans, 0.50.3 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of 20162018 through 2018. We did not issue any material amounts of restricted stock units under our stock incentive plans during the three months ended September 30, 2016.2020. The contingent restricted stock units have been excluded from the denominator for diluted earnings per share and arewill be included only if and when the contingency is met.
15.Segment Information
The results of our operations are described through three reportable segments: Commercial & Specialty Business, Government Business and Other, as further described in Note 19, “Segment Information,” to our audited consolidated financial statements as of and for the year ended December 31, 20162018 included in our 20162018 Annual Report on Form 10-K.
During the fourth quarter of 2018, we reclassified certain ancillary businesses to reflect changes in how our segments are being managed. Amounts for 2018 have been reclassified for comparability.


Financial data by reportable segment for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 is as follows:
Commercial
& Specialty
Business
 
Government
Business
 Other Total
Commercial
& Specialty
Business
 
Government
Business
 Other Total
Three months ended September 30, 2017       
Three Months Ended March 31, 2019       
Operating revenue$10,052.1
 $12,037.3
 $7.3
 $22,096.7
$9,392
 $14,993
 $3
 $24,388
Operating gain (loss)534.6
 457.5
 (10.1) 982.0
1,587
 383
 (30) 1,940
Three months ended September 30, 2016       
Three Months Ended March 31, 2018       
Operating revenue$9,656.8
 $11,462.4
 $6.0
 $21,125.2
$8,951
 $13,390
 $1
 $22,342
Operating gain (loss)637.7
 478.9
 (38.5) 1,078.1
1,409
 481
 (22) 1,868
Nine Months Ended September 30, 2017       
Operating revenue$30,650.5
 $35,946.4
 $17.3
 $66,614.2
Operating gain (loss)2,804.9
 1,069.4
 (79.9) 3,794.4
Nine Months Ended September 30, 2016       
Operating revenue$29,064.9
 $33,627.4
 $16.8
 $62,709.1
Operating gain (loss)3,006.0
 1,254.4
 (111.7) 4,148.7

The major product revenues for each of the reportable segments for the three months ended March 31, 2019 and 2018 are as follows:
 Three Months Ended 
 March 31
 2019 2018
Commercial & Specialty Business   
Managed care products$7,618
 $7,278
Managed care services1,366
 1,278
Dental/Vision products and services323
 305
Other85
 90
Total Commercial & Specialty Business9,392
 8,951
Government Business   
Managed care products14,819
 13,237
Managed care services174
 153
Total Government Business14,993
 13,390
Other   
Other3
 1
Total product revenues$24,388
 $22,342
The classification between managed care products and managed care services in the above table primarily distinguishes between the levels of risk assumed. Managed care products represent insurance products where we bear the insurance risk, whereas managed care services represent product offerings where we provide claims adjudication and other administrative services to the customer, but the customer principally bears the insurance risk. 
A reconciliation of reportable segments'segments’ operating revenuesrevenue to the amounts of total revenues included in our consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 is as follows:
Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		Three Months Ended 
 March 31
2017 2016 2017 20162019 2018
Reportable segments' operating revenues$22,096.7
 $21,125.2
 $66,614.2
 $62,709.1
Reportable segments’ operating revenue$24,388
 $22,342
Net investment income220.2
 200.9
 627.6
 566.9
210
 229
Net realized gains (losses) on financial instruments114.7
 88.8
 138.2
 (23.8)78
 (26)
Other-than-temporary impairment losses recognized in income(5.6) (11.0) (20.9) (103.6)(10) (8)
Total revenues$22,426.0
 $21,403.9
 $67,359.1
 $63,148.6
$24,666
 $22,537


A reconciliation of reportable segments'segments’ operating gain to income before income tax expense included in our consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 is as follows:
Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		Three Months Ended 
 March 31
2017 2016 2017 20162019 2018
Reportable segments' operating gain$982.0
 $1,078.1
 $3,794.4
 $4,148.7
Reportable segments’ operating gain$1,940
 $1,868
Net investment income220.2
 200.9
 627.6
 566.9
210
 229
Net realized gains (losses) on financial instruments114.7
 88.8
 138.2
 (23.8)78
 (26)
Other-than-temporary impairment losses recognized in income(5.6) (11.0) (20.9) (103.6)(10) (8)
Interest expense(150.5) (172.9) (575.4) (545.7)(187) (184)
Amortization of other intangible assets(41.9) (47.4) (124.3) (145.7)(87) (80)
Gain (loss) on extinguishment of debt1
 (19)
Income before income tax expense$1,118.9
 $1,136.5
 $3,839.6
 $3,896.8
$1,945
 $1,780
16.Leases
We lease office space and certain computer and related equipment using noncancelable operating leases. Our leases have remaining lease terms of 1 year to 15 years, one of which includes an option to extend the lease for 10 years.
The information related to our leases is as follows:
 Balance Sheet Location March 31, 2019
Operating Leases   
Right-of-use assetsOther noncurrent assets $606
Lease liabilities, currentOther current liabilities 175
Lease liabilities, noncurrentOther noncurrent liabilities 519
  Three Months Ended 
 March 31, 2019
Lease Expense 
Operating lease expense$45
Short-term lease expense12
Sublease income(4)
Total lease expense$53
   
Other information 
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases$44
Weighted average remaining lease term, operating leases6.5 years
Weighted average discount rate, operating leases3.97%


At March 31, 2019, future lease payments for noncancellable operating leases with initial or remaining terms of one year or more are as follows:
2019 (excluding the three months ended March 31, 2019)$134
2020145
2021116
2022102
202384
Thereafter240
Total future minimum payments821
Less imputed interest(127)
Total lease liabilities$694
As of March 31, 2019, we have an additional operating lease with undiscounted lease payments of $104 for a building space that the lessor and its agents are currently building. The lease has a lease term of 12 years and is expected to commence in 2020 when the construction is completed and we take possession of the building.



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)
References to the terms “we,” “our,” “us” or "Anthem" used throughout thisThis Management’s Discussion and Analysis of Financial Condition and Results of Operations, or 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, 2018 and the MD&A included in our 2018 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, unless the context otherwise requires.
This MD&A should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2016 and the MD&A included in our 2016 Annual Report on Form 10-K, and our unaudited consolidated financial statements and accompanying notes as of and for the three and nine months ended September 30, 2017 included in this Form 10-Q. Results of operations, cost of care trends, investment yields and other measures for the three and nine months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2017. Also see Part I, Item 1A, “Risk Factors” of our 2016 Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors” of this Form 10-Q.2019, or any other period.
Overview
We manage our operations through three reportable segments: Commercial & Specialty Business, Government Business and Other. We regularly evaluateare one of the appropriateness of our reportable segments, particularly in light of organizational changes, merger and acquisition activity and changing laws and regulations. As a result, these reportable segments may changelargest health benefits companies in the future. United States in terms of medical membership, serving approximately 41 medical members through our affiliated health plans as of March 31, 2019. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees. Through our subsidiaries, we also serve customers in numerous states across the country as America’s 1st Choice, Amerigroup, Aspire Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare. We are licensed to conduct insurance operations in all 50 states and the District of Columbia 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 2018 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 “Overview”Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Business Trends
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively, the ACA, has changed and may continue to make broad-based changes to the U.S. health care system, which we expect will continue to impact our business model and strategy. Also, the legal challenges regarding the ACA, including the ultimate outcome of the December 2018 decision of the U.S. District Court for the Northern District of Texas, Fort Worth Division invalidating the ACA, or the 2018 Texas District Court ACA Decision, which judgment has been stayed pending appeal, could significantly disrupt our business. During 2018, we strategically reduced our participation in the Individual ACA-compliant market. Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such as expected financial performance, regulatory environment, and underlying market characteristics. We currently offer Individual ACA-compliant products in 73 of the 143 rating regions in which we operate.
In October 2017, we established a new pharmacy benefits manager, or PBM, called IngenioRx, and entered into a five-year agreement with CaremarkPCS Health, L.L.C., or CVS Health, which is a subsidiary of CVS Health Corporation, to begin offering PBM solutions (the “CVS PBM Agreement”) upon the conclusion of our PBM agreement with Express Scripts Inc., or Express Scripts (the “ESI PBM Agreement”). As a result of exercising our early termination right, the ESI PBM Agreement terminated on March 1, 2019, and on March 2, 2019, the twelve-month transition period to migrate the services from Express Scripts began. We expect CVS Health to begin providing certain PBM services to IngenioRx in the second quarter of 2019 pursuant to the CVS PBM Agreement. We expect IngenioRx to provide our members with more cost-


effective solutions and improve our ability to integrate pharmacy benefits within our already strong medical and specialty platform.
Pricing Trends: We strive to price our healthcare benefit products consistent with anticipated underlying medical trends. 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. The ACA imposed an annual Health Insurance Provider Fee, or HIP Fee, on health insurers that write certain types of health insurance on U.S. risks. We price our affected products to cover the impact of the HIP Fee. The HIP Fee was suspended for 2019 and is scheduled to resume for 2020.
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 utilization management, condition management, program integrity and specialty pharmacy management, as well as benefit design changes. There are many drivers of medical cost trends which 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, advances in medical technology, new high cost prescription drugs, and healthcare provider or member fraud. Our underlying Local Group medical cost trends reflect the “allowed amount,” or contractual rate, paid to providers. We estimate that the 2019 Local Group medical cost trend will be in the range of 5.5% to 6.5%.
For additional discussion regarding business trends, see Part I, Item 1 “Business” section of our 2018 Annual Report on Form 10-K.
Regulatory Trends and Uncertainties
The ACA presented us with new growth opportunities, but also introduced new risks, regulatory challenges and uncertainties, and required changes in the way products are designed, underwritten, priced, distributed and administered. Changes to our business environment are likely to continue for the next several years as elected officials at the national and state levels continue to propose significant modifications to existing laws and regulations, including the reduction of the individual mandate penalty to zero effective January 1, 2019, elimination of funding for cost-sharing subsidies made available for qualified individuals, and changes to taxes and fees. In addition, the legal challenges regarding the ACA, including the ultimate outcome of the 2018 Texas District Court ACA Decision, continue to contribute to this uncertainty. We will continue to evaluate the impact of the ACA as additional guidance is made available and any further developments or judicial rulings occur.
The annual HIP Fee is allocated to health insurers based on the ratio of the amount of an insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S. health risk for those certain lines of business written during the preceding calendar year. We record our estimated liability for the HIP Fee in full at the beginning of the year with a corresponding deferred asset that is amortized on a straight-line basis to selling, general and administrative expense. The final calculation and payment of the annual HIP Fee is due by September 30th of each fee year. The HIP Fee is non-deductible for federal income tax purposes. We price our affected products to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee. The total amount due from allocations to health insurers was $14,300 for 2018. For the three months ended March 31, 2018, we recognized $397 as general and administrative expense related to the HIP Fee. There was no corresponding expense for 2019 due to the suspension of the HIP Fee for 2019. The HIP Fee is scheduled to resume for 2020.
For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1 “Business - Regulation” and 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 20162018 Annual Report on Form 10-K.
On

Other Significant Items
In October 24, 2017, we announced that weestablished IngenioRx and entered into an agreementthe CVS PBM Agreement, which coincides with the conclusion of the ESI PBM Agreement. We exercised our contractual right and terminated the ESI PBM Agreement on March 1, 2019. The twelve-month transition period to acquiremigrate the services began on March 2, 2019. We expect CVS Health to begin providing certain PBM services to IngenioRx in the second quarter of 2019 pursuant to the CVS PBM Agreement. Notwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues. For additional information regarding this lawsuit, see Note 11, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
On February 15, 2018, we completed our acquisition of Freedom Health, Inc., Optimum HealthCare, Inc., America’s 1st Choice of South Carolina, Inc. and related entities, or collectively, America’s 1st Choice, a Medicare Advantage organization that offers health maintenance organization products, including Chronic Special Needs Plans and Dual-Eligible Special Needs Plans under its Freedom Health and Optimum HealthCare brands in Florida and its America’s 1st Choice of South Carolina brand in South Carolina. Through its Medicare Advantage plans, America’s 1st Choice currently serves approximately one hundred and thirty thousand members in twenty-five Florida and three South Carolina counties. The acquisition of America's 1st Choice aligns with our plans for continued growth in the Medicare Advantage and Special Needs populations. The America's 1st Choice acquisition is expected to close in the first quarter of 2018 and is subject to approvals from state and federal regulatory authorities, standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act. The acquisition is expected to be slightly accretive to earnings in 2018.
On September 20, 2017, we announced that we entered into an agreement to acquire HealthSun Health Plans, Inc., or HealthSun, which serves approximately forty thousand members through its Medicare Advantage plans in the state of Florida. The HealthSun acquisition aligns with our plans for continued growth in the Medicare Advantage and dual-eligible populations. The HealthSun acquisition is expected to close by the end of 2017 and is subject to approvals from state and federal regulatory authorities, standard closing conditions and customary approvals required under the Hart-Scott-Rodino Antitrust Improvements Act. The acquisition is expected to be slightly accretive to earnings in 2018.
In March 2016, we filed a lawsuit against our vendor for pharmacy benefit management services, Express Scripts, Inc., or Express Scripts, seeking to recover damages for pharmacy pricing that is higher than competitive benchmark pricing and damages related to operational breaches, and seeking various declarations under the agreement between the parties. In April 2016, Express Scripts filed an answer to the lawsuit disputing our contractual claims and alleging various defenses and counterclaims. For additional information, regarding this lawsuit, see Note 11, “Commitments and Contingencies - Litigation,3, “Business Acquisitions,” of the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. In October
On May 12, 2017, we announced that we are establishing a new pharmacy benefits manager, or PBM, called IngenioRx, and have entered into a five-year agreement with CVS Health Corporation to begin offering a full suite of PBM solutions starting on January 1, 2020, which coincides withwere terminating the conclusion of our current PBM agreement with Express Scripts.


On July 24, 2015, we and Cigna Corporation, or Cigna, announced that we entered into an Agreement and Plan of Merger, or Merger Agreement, dated as of July 23, 2015, to acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice, along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, or District Court, seeking to block the merger. On February 14, 2017,between us and Cigna purported to terminate the Merger Agreement and commenced litigation against us in the Delaware Court of Chancery, or Delaware Court, seeking damages, including the $1,850.0 termination fee pursuant to the terms of the Merger Agreement, and a declaratory judgment that its purported termination of the Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc. We believe Cigna’s allegations are without merit. Also on February 14, 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from terminating the Merger Agreement, specific performance compelling Cigna to comply with the Merger Agreement and damages, which is captioned Anthem Inc. v. Cigna Corp. On April 28, 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District Court, which blocked the merger. On May 11, 2017, the Delaware Court denied our motion to enjoin Cigna from terminating the Merger Agreement. On May 12, 2017, we delivered to Cigna a notice terminating the Merger Agreement.Corporation. For additional information about these lawsuits,ongoing litigation related to the Merger Agreement, see Note 11, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Cigna Corporation Merger Litigation,” of the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
The Patient Protection and Affordable Care Act,Selected Operating Performance
For the twelve months ended March 31, 2019, total medical membership increased 1,156, or ACA, and the Health Care and Education Reconciliation Act of 2010, or collectively, Health Care Reform, has changed and may continue to make broad-based changes to the U.S. health care system, which we expect will continue to significantly impact2.9%. Our medical membership grew across our business modelsegments as well as by customer type and results of operations. Health Care Reform presented us with new growth opportunities, but also introduced new risks, regulatory challenges and uncertainties, and required changesfunding arrangement. The increase in the way products are designed, underwritten, priced, distributed and administered. Changesmedical membership in our Government Business segment was primarily due to our business are likely to continue for the next several years as elected officials at the national and state levels have proposed significant modifications to existing laws and regulations, including the potential repeal or replacement of Health Care Reform and the reduction or elimination of federal premium subsidies made available through the ACA for certain public exchange Individual products, including the cost-sharing reduction premium subsidy.
During 2017, we notified various state regulators of our decision to dramatically reduce our participation in the Individual ACA-compliant marketplaces within their respective states. The uncertainty around federal funding of the cost-sharing reduction premium subsidy available through the ACA was an important factor as we evaluated the appropriate level of our marketplace participation. Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such as expected financial performance, regulatory environment, and underlying market characteristics. We currently offer Individual ACA-compliant products in 137 of the 143 rating regions in which we operate within the fourteen states in which we are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We will continue to offer Individual ACA-compliant products in 56 of the 143 rating regions in 2018.
Health Care Reform imposed an annual Health Insurance Provider Fee, or HIP Fee, on health insurers that write certain types of health insurance on U.S. risks. The annual HIP Fee is allocated to health insurers based on the ratio of the amount of an insurer's net premium revenues written during the preceding calendar year to an adjusted amount of health insurance for all U.S. health risk for those certain lines of business written during the preceding calendar year. We record our estimated liability for the HIP Fee in full at the beginning of the year with a corresponding deferred asset that is amortized on a straight-line basis to general and administrative expense. The final calculation and payment of the annual HIP Fee occurs in the third quarter. The HIP Fee is non-deductible for federal income tax purposes. We price our affected products to cover the increased general and administrative and tax expenses associated with the HIP Fee. The total amount due from allocations to health insurers was $11,300.0 for 2016, has been suspended for 2017, and is scheduled to resume and be increased to $14,300.0 for 2018, unless otherwise changed by subsequent legislative or regulatory action. For 2019 and beyond, the annual HIP Fee will equal the amount for the preceding year increased by the rate of premium growth for the preceding year less the rate of growth in the consumer price index for the preceding calendar year, unless the fee is otherwise changed by subsequent legislative or regulatory action. For the threeour Medicaid and nine months ended September 30, 2016, we recognized $287.2 and $882.2, respectively, as general and administrative expense related to the HIP Fee. There is no corresponding expense for 2017Medicare businesses. The increase in medical membership in our Commercial & Specialty Business segment was primarily due to the current year suspension of the HIP Fee.
As a result of the complexity of Health Care Reform, its impact on health care in the United States and the continuing modification and interpretation of Health Care Reform rules, we will continue to evaluate the impact of Health Care Reform


as additional guidance is made available. For additional discussion regarding Health Care Reform, see Part I, Item 1 “Business – Regulation”, Part I, Item 1A “Risk Factors” and the “Overview” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includedgrowth in our 2016 Annual Report on Form 10-K.
Executive Summary
We are one of the largest health benefits companies in the United States in terms of medical membership, serving 40.3 medical members through our affiliated health plans as of September 30, 2017. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as BCBS in 10 New York City metropolitan and surrounding counties, and as Blue Cross or BCBS in selected upstate counties), 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, Blue Cross and Blue Shield of Georgia, and Empire Blue Cross Blue Shield or Empire Blue Cross (in our New York service areas). We also conduct business through arrangements with other BCBS licensees in South Carolina and western New York. Through our AMERIGROUP Corporation, or Amerigroup, subsidiary and other subsidiaries, we conduct business in Florida, Georgia, Iowa, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Tennessee, Texas, Washington and Washington, D.C. In addition, we conduct business through our Simply Healthcare Holdings, Inc., or Simply Healthcare, subsidiary in Florida. We also serve customers throughout the country as HealthLink, UniCare, and in certain Arizona, California, Nevada, Tennessee and Virginia markets through our CareMore Health Group, Inc., or CareMore, subsidiary. We are licensed to conduct insurance operations in all 50 states through our subsidiaries.
Our results of operations discussed throughout this MD&A are determined in accordance with U.S. generally accepted accounting principles, or GAAP. We also calculate operating revenue and operating gain to further aid investors in understanding and analyzing our core operating results and comparing them among periods. We define operating revenue as premium income, administrative fees and other revenues. Operating gain is calculated as total operating revenue less benefit expense, and selling, general and administrative expense. 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, net income or earnings per share, or EPS, prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For additional details on operating gain, see our “Reportable Segments Results of Operations” discussion included in this MD&A. For a reconciliation of reportable segments' operating revenues to the amounts of total revenue included in our consolidated statements of income and a reconciliation of reportable segments' operating gain to income before income tax expense, see Note 15, "Segment Information," to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.National business.
Operating revenue for the three months ended September 30, 2017March 31, 2019 was $22,096.7,$24,388, an increase of $971.5,$2,046, or 4.6%9.2%, from the three months ended September 30, 2016. TheMarch 31, 2018. This increase in operating revenue for the three months ended September 30, 2017 compared to 2016 was primarily a result of higher premium revenue in both our Government Business and Commercial & Specialty Business segments.
Operating revenue for the nine months ended September 30, 2017 was $66,614.2, an increase of $3,905.1, or 6.2%, from the nine months ended September 30, 2016. The increase in operating revenue for the nine months ended September 30, 2017 compared to 2016 was primarily a result of higher premium revenue in both our Government Business and Commercial & Specialty Business segmentssegment and, to a lesser extent, higher administrative feespremium revenue in our Commercial & Specialty Business segment.
Net income for the three months ended September 30, 2017March 31, 2019 was $746.9,$1,551, an increase of $129.1,$239, or 20.9%18.2%, from the three months ended September 30, 2016. TheMarch 31, 2018. This increase was due to higher operating results in net incomeour Commercial & Specialty Business segment.
Our diluted earnings per share, or EPS, was $5.91 for the three months ended September 30, 2017 compared to 2016 was primarily a resultMarch 31, 2019, which represented an 18.4% increase from EPS of lower income tax expense, an increase in net earnings from investment activities and lower interest expense. The increase in net income was partially offset by lower operating results in both our Commercial & Specialty Business and Government Business segments.


Net income for the nine months ended September 30, 2017 was $2,612.1, an increase of $510.7, or 24.3%, from the nine months ended September 30, 2016. The increase in net income for the nine months ended September 30, 2017 compared to 2016 was primarily a result of lower income tax expense, an increase in net earnings from investment activities and lower amortization expense on intangible assets. The increase in net income was partially offset by lower operating results in both our Commercial & Specialty Business and Government Business segments and higher interest expense.
Our fully-diluted EPS was $2.80$4.99 for the three months ended September 30, 2017, which represented a 21.7%March 31, 2018. This increase from EPS of $2.30 for the three months ended September 30, 2016. The increase in EPS for the three months ended September 30, 2017 compared to 2016primarily resulted from the increase in net income and the impact of a lower weighted-average number of shares outstanding duringin 2019.
Operating cash flow for the three months ended September 30, 2017.
Our fully-diluted EPSMarch 31, 2019 and 2018 was $9.70$1,630 and $2,215, respectively. This decrease was primarily due to the timing of Medicare prepayments received in 2018 and lower premium receipts as a result of the suspension of the HIP Fee for the nine months ended September 30, 2017, which represented a 23.7% increase from EPS of $7.84 for the nine months ended September 30, 2016. The increase in EPS for the nine months ended September 30, 2017 compared to 2016 resulted from the increase in net income,2019. These decreases were partially offset by the impact of a higher weighted-average number of shares outstanding during the nine months ended September 30, 2017.
Operating cash flow for the nine months ended September 30, 2017 and 2016 was $5,486.0 and $2,993.4, respectively. The increasemembership increases in operating cash flow from 2016 of $2,492.6 was primarily attributable to an increase in premium receipts as a result of rate increases across our businesses designed to cover overall cost trends, growth in membership, and the timing of provider capitation payments for pass through funding under the California Medicaid contract. These increases were partially offset by an increase in claims payments due to higher medical cost experience and growth in membership. The increases were further offset by the timing of certain state Medicaid payments.
Membership
Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard®, Medicare, Medicaid and Federal Employee Program®, or FEP®. BCBS-branded business generally refers to members in our service areas licensed by the BCBSA. Non-BCBS-branded business refers to Amerigroup, CareMore and Simply Healthcare members as well as HealthLink and UniCare members predominantly outside of our BCBSA service areas. 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 2016 Annual Report on Form 10-K.Medicare businesses.



Membership
The following table presents our medical membership by customer type, funding arrangement and reportable segment as of September 30, 2017March 31, 2019 and 2016.2018. 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 2018 Annual Report on Form 10-K.
September 30
 
  March 31
 
 
(In thousands)2017 2016
Change
% Change(In thousands)2019 
2018 1

Change
% Change
Medical Membership






Medical Membership






Customer Type






Customer Type






Local Group15,857
 15,363
 494
 3.2 %Local Group15,697
 15,670
 27
 0.2 %
Individual1,696
 1,757
 (61) (3.5)%Individual773
 755
 18
 2.4 %
National:       National:       
National Accounts7,718
 7,768
 (50) (0.6)%National Accounts7,757
 7,684
 73
 1.0 %
BlueCard®
5,491
 5,596
 (105) (1.9)%
BlueCard®
5,981
 5,820
 161
 2.8 %
Total National13,209
 13,364
 (155) (1.2)%Total National13,738
 13,504
 234
 1.7 %
Medicare1,498
 1,437
 61
 4.2 %
Medicare:Medicare:       
Medicare AdvantageMedicare Advantage1,144
 916
 228
 24.9 %
Medicare SupplementMedicare Supplement867
 823
 44
 5.3 %
Total MedicareTotal Medicare2,011
 1,739
 272
 15.6 %
Medicaid6,433
 6,417
 16
 0.2 %Medicaid7,033
 6,457
 576
 8.9 %
FEP®
1,564
 1,572
 (8) (0.5)%
Federal Employee Program®
Federal Employee Program®
1,591
 1,562
 29
 1.9 %
Total Medical Membership by Customer Type40,257
 39,910
 347
 0.9 %Total Medical Membership by Customer Type40,843
 39,687
 1,156
 2.9 %
Funding Arrangement       Funding Arrangement       
Self-Funded24,945
 24,671
 274
 1.1 %Self-Funded25,495
 25,282
 213
 0.8 %
Fully-Insured15,312
 15,239
 73
 0.5 %Fully-Insured15,348
 14,405
 943
 6.5 %
Total Medical Membership by Funding Arrangement40,257
 39,910
 347
 0.9 %Total Medical Membership by Funding Arrangement40,843
 39,687
 1,156
 2.9 %
Reportable Segment       Reportable Segment       
Commercial & Specialty Business30,762
 30,484
 278
 0.9 %Commercial & Specialty Business30,208
 29,929
 279
 0.9 %
Government Business9,495
 9,426
 69
 0.7 %Government Business10,635
 9,758
 877
 9.0 %
Total Medical Membership by Reportable Segment40,257
 39,910
 347
 0.9 %Total Medical Membership by Reportable Segment40,843
 39,687
 1,156
 2.9 %
Other Membership & Customers       
Other MembershipOther Membership       
Life and Disability Members4,717
 4,689
 28
 0.6 %Life and Disability Members4,849
 4,641
 208
 4.5 %
Dental Members5,803
 5,454
 349
 6.4 %Dental Members5,955
 5,786
 169
 2.9 %
Dental Administration Members5,351
 5,377
 (26) (0.5)%Dental Administration Members5,491
 5,357
 134
 2.5 %
Vision Members6,905
 6,111
 794
 13.0 %Vision Members7,169
 6,781
 388
 5.7 %
Medicare Advantage Part D Members693
 619
 74
 12.0 %
Medicare Part D Standalone Members320
 353
 (33) (9.3)%Medicare Part D Standalone Members289
 316
 (27) (8.5)%
        
1During the fourth quarter of 2018, we made a number of changes to our membership reporting to better align our reported membership to the appropriate type, funding arrangement and segment. Accordingly, certain types of membership have been reclassified to conform to the current year presentation.




Medical Membership
Medical Membership(in thousands)
For the twelve months ended September 30, 2017, totalTotal medical membership grew across our business segments as well as by customer type and funding arrangement. Fully-insured membership increased 347, or 0.9%, primarily due to increasesgrowth in our Local GroupMedicaid and Medicare membership, partially offset by decreases in our BlueCard®, Individual and National Accounts membership.
businesses. Self-funded medical membership increased 274, or 1.1%, primarily due to new sales and growth in our existing Large Group accounts, partially offset by lowerhigher activity from BlueCard® membership.
Fully-insured Medicaid membership increased 73, or 0.5%, primarily due to new sales in Large Group accountsbusinesses and higher sales during Medicare open enrollment,expansions, partially offset by attrition in non-ACA-compliant Individual product offerings.
Local Groupthe membership increased 494, or 3.2%, due to new sales and growth in our existing Large Group accounts.


Individual membership decreased 61, or 3.5%, primarily due to attrition in non-ACA-compliant product offerings.
National Accounts membership decreased 50, or 0.6%, primarily due todecrease resulting from the loss of a large multi-state employer group contract, partially offset by newcontract. Medicare membership increased primarily due to higher sales and expansion in existing employer group accounts.
during open enrollment. BlueCard® membership decreased 105, or 1.9%, primarilyincreased due to lowerhigher membership activity at other Blue Cross and Blue Shield Association, or BCBSA, plans whose members reside in or travel to our licensed areas.
Medicare National Accounts membership increased 61, or 4.2%, primarily due to higher sales during open enrollment and growth in certain existing Medicare Advantage markets.
Medicaid membership increased 16, or 0.2%, primarily due to new business expansions and organic growth in existing markets, partially offset by declines resulting from membership reverification processes and the impact of a new entrant in an existing market.
Other Membership(in thousands)
Our Other products are often ancillary to our health business and can therefore be impacted by corresponding changes in our medical membership.
Life and disability membership increased 28, or 0.6%, primarily due to new sales in our Large Group business and in-group change.
Dental membership increased 349, or 6.4%, primarily due to new sales and increased penetrationin-group changes exceeding lapses.
Other Membership
Our other membership can be impacted by changes in our Local Group and National Account businesses.
Dental administrationmedical membership, decreased 26, or 0.5%, primarily dueas our medical members often purchase our other products that are ancillary to the loss of a large managed dental contract.
Vision membership increased 794, or 13.0%, primarily due to new sales and increased penetrationour health business. We have experienced growth in our Local Group, National Accountslife and Medicare product offerings.
Medicare Advantage Part D membership increased 74, or 12.0%,disability and dental memberships primarily due to higher sales during open enrollment and growth in certain existing markets.
Medicare Part D standaloneour Large Group business. Dental administration membership decreased 33, or 9.3%,increased primarily due to our product repositioning strategies in certain markets.
Cost of Care
The following discussion summarizes our aggregate underlying cost of care trends for the rolling 12 months ended September 30, 2017 for our Local Group fully-insured business only.
Our cost of care trends are calculated by comparing the year-over-year change in average per member per month claim costs. While our cost of care trend varies by geographic location, based on underlying medical cost trends, we believe that a 2017 cost of care trend estimate in the range of 6.5% to 7.0% is appropriate.
Inpatient utilization trend has been higher than in prior periods, increasing to 0%. Outpatient and professional utilization trends have been higher than in prior periods, increasing toward 1%. Pharmacy days supply utilization trends have also been higher than in prior periods, increasing to 1%. Consistent with prior periods, provider rate increases are a primary driver of medical cost trends. We continually negotiate with hospitals and physicians to manage these cost trends. We commonly negotiate multi-year contracts with hospitals and physicians, minimizing annual fluctuations in medical cost trend. We remain committed to optimizing our reimbursement rates and strategies to help address the cost pressures faced by employers and consumers. Unit cost increases were also a driver of pharmacy cost trends as well as expected increases for new drugs launching in the marketplace. Hepatitis C drugs had put upward pressure on drug trends in 2015-2016, but utilization for Hepatitis C drugs has decreased compared to high levels in the past, helping to offset some of the drivers forin-group changes. Vision membership increased pharmacy trends. Other high cost specialty drugs continue to put upward pressure on pharmacy costs.


In response to cost trends, we continue to pursue contracting and plan design changes, promote and implement performance-based contracts that reward clinical outcomes and quality, and expand care management programs. We are taking a leadership role in the area of payment reform as evidenced by our Enhanced Personal Health Care program. By establishing the primary care doctor as central to the coordination of a patient’s health care needs, the initiative builds on the success of current patient-centered medical home programs in helping to improve patient care while lowering costs.
Across the enterprise, we aim to reduce cost trends with Program Integrity initiatives that detect and eliminate fraud, waste, and abuse in the health care delivery system. Program Integrity initiatives reduce the cost of care by recovering claims that should not have been paid and by eliminating aberrant billing practices. The following is an example of one of our many Program Integrity initiatives:
Special Investigations Unit - Toxicology & Sober Living Homes - This initiative identifies and resolves issues related to non-participating providers (toxicology labs, sober living homes/drug rehab centers) that are billing an unusually high volume of drug testing procedures and other substance abuse treatment services.
A number of clinical management initiatives are in place to help mitigate inpatient utilization trends. Focused review efforts continue in key areas, including targeting outlier facilities for length of stay and readmission, and high risk maternity and neonatal intensive care unit cases. Additionally, we continue to refine our programs related to readmission management, focused behavioral health readmission reduction and post-discharge follow-up care. The following example program was developed to mitigate inpatient utilization trends:
Bed Days Management Focused Review - This initiative was designed to reduce the number of days approved on initial inpatient review. Cases where we would have approved two or more days initially, we will now approve one day less. This allows us to review cases more often and successfully discharge some patients earlier when it is no longer medically necessary for them to remain in the hospital.
Outpatient costs are a collection of different types of expenses, such as outpatient facilities, labs, x-rays, emergency room, occupational and physical therapy and many others. Example programs developed to mitigate outpatient costs include the following:
Cancer Care Quality Program - This program, developed in collaboration with our subsidiary AIM Specialty Health, identifies certain cancer treatment pathways selected based upon current medical evidence, peer-reviewed published literature, consensus guidelines and our clinical policies to support oncologists in identifying cancer treatment therapies that are highly effective and provide greater value.
Avoidable Emergency Room Visits - This program seeks to help educate members and providers about potentially avoidable emergency room visits. Phone calls and mailings are used to inform members of alternate sites of care, such as primary care physicians, urgent care facilities, and walk-in doctor’s offices that can replace visits to the emergency room in certain situations.
Specialty Drug Site of Care - This program, when clinically appropriate and safe, uses clinical site of care review to encourage utilization of certain specialty drugs in more effective settings such as physician offices, ambulatory infusion suites and in the home using home infusion therapy.
Increasing pharmacy costs have been a big component of higher overall health trends in recent years. A number of clinical management initiatives are in place to help mitigate pharmacy trend. Programs exist to optimize our drug formularies in order to meet our customers’ pharmaceutical needs while also shifting utilization to lower priced alternatives and maximizing drug rebate potential. The following is an example of one of our programs developed to mitigate pharmacy costs:
Hepatitis C Drug Formulary Optimization - This program places preference on a new Hepatitis C agent for patients with certain chronic Hepatitis C virus genotypes. Preferred utilization of this alternative drug, when appropriate, over other drugs will result in pharmacy cost savings due to lower regimen treatment cost.
higher sales in our Large Group and Medicare businesses.


Consolidated Results of Operations
Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows: 
 Three Months Ended 
 September 30		 Nine Months Ended 
 September 30
Change
 Three Months Ended 
 September 30
Nine Months Ended 
 September 30
 2017 vs. 2016 2017 vs. 2016 Three Months Ended 
 March 31		  
 2017 2016 2017 2016
$      
%      
$
% 2019 2018 $ Change
% Change
Total operating revenueTotal operating revenue$22,096.7

$21,125.2

$66,614.2

$62,709.1

$971.5
 4.6 % $3,905.1
 6.2 %Total operating revenue$24,388

$22,342

$2,046
 9.2 %
Net investment incomeNet investment income220.2

200.9

627.6

566.9

19.3
 9.6 % 60.7
 10.7 %Net investment income210

229

(19) (8.3)%
Net realized gains (losses) on financial instrumentsNet realized gains (losses) on financial instruments114.7

88.8

138.2

(23.8)
25.9
 29.2 % 162.0
 680.7 %Net realized gains (losses) on financial instruments78

(26)
104
 (400.0)%
Other-than-temporary impairment losses on investments(5.6)
(11.0)
(20.9)
(103.6)
5.4
 (49.1)% 82.7
 (79.8)%
Other-than-temporary impairment losses recognized in incomeOther-than-temporary impairment losses recognized in income(10)
(8)
(2) 25.0 %
Total revenuesTotal revenues22,426.0

21,403.9

67,359.1

63,148.6

1,022.1
 4.8 % 4,210.5
 6.7 %Total revenues24,666

22,537

2,129
 9.4 %
Benefit expenseBenefit expense18,103.6

16,922.5

53,563.6

49,266.5

1,181.1
 7.0 % 4,297.1
 8.7 %Benefit expense19,282

17,046

2,236
 13.1 %
Selling, general and administrative expenseSelling, general and administrative expense3,011.1

3,124.6

9,256.2

9,293.9

(113.5) (3.6)% (37.7) (0.4)%Selling, general and administrative expense3,166

3,428

(262) (7.6)%
Other expense1
Other expense1
192.4

220.3

699.7

691.4

(27.9) (12.7)% 8.3
 1.2 %
Other expense1
273

283

(10) (3.5)%
Total expensesTotal expenses21,307.1

20,267.4

63,519.5

59,251.8

1,039.7
 5.1 % 4,267.7
 7.2 %Total expenses22,721

20,757

1,964
 9.5 %
Income before income tax expenseIncome before income tax expense1,118.9

1,136.5

3,839.6

3,896.8

(17.6) (1.5)% (57.2) (1.5)%Income before income tax expense1,945

1,780

165
 9.3 %
Income tax expenseIncome tax expense372.0

518.7

1,227.5

1,795.4

(146.7) (28.3)% (567.9) (31.6)%Income tax expense394

468

(74) (15.8)%
Net incomeNet income$746.9
 $617.8
 $2,612.1
 $2,101.4
 $129.1
 20.9 % $510.7
 24.3 %Net income$1,551
 $1,312
 $239
 18.2 %
                       
Average diluted shares outstandingAverage diluted shares outstanding267.0

268.1

269.4

267.9

(1.1) (0.4)% 1.5
 0.6 %Average diluted shares outstanding262.3

262.8

(0.5) (0.2)%
Diluted net income per shareDiluted net income per share$2.80
 $2.30
 $9.70
 $7.84
 $0.50
 21.7 % $1.86
 23.7 %Diluted net income per share$5.91
 $4.99
 $0.92
 18.4 %
Effective tax rateEffective tax rate20.3% 26.3%   
(600)bp3

Benefit expense ratio2
Benefit expense ratio2
87.0%
85.5%
85.6%
83.9%


150bp3




170bp3

Benefit expense ratio2
84.4%
81.5%


290bp3

Selling, general and administrative expense ratio4
Selling, general and administrative expense ratio4
13.6%
14.8%
13.9%
14.8%


(120)bp3




(90)bp3

Selling, general and administrative expense ratio4
13.0%
15.3%


(230)bp3

Income before income tax expense as a percentage of total revenuesIncome before income tax expense as a percentage of total revenues5.0%
5.3%
5.7%
6.2%


(30)bp3




(50)bp3

Income before income tax expense as a percentage of total revenues7.9%
7.9%


0bp3

Net income as a percentage of total revenuesNet income as a percentage of total revenues3.3%
2.9%
3.9%
3.3%


40bp3




60bp3

Net income as a percentage of total revenues6.3%
5.8%


50bp3

                        
Certain of the following definitions are also applicable to all other results of operations tables in this discussion:
1Includes interest expense, and amortization of other intangible assets.assets and (gain) loss on extinguishment of debt.
2Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended September 30, 2017March 31, 2019 and 20162018 were $20,797.0$22,843 and $19,786.1, respectively. Premiums for the nine months ended September 30, 2017 and 2016 were $62,561.4 and $58,723.0,$20,903, respectively. Premiums are included in total operating revenue presented above.
3bp = basis point; one hundred basis points = 1%.
4Selling, general and administrative expense ratio represents selling, general and administrative expense as a percentage of total operating revenue.
Three Months Ended September 30, 2017March 31, 2019 Compared to the Three Months Ended September 30, 2016March 31, 2018
Total operating revenue increased $971.5, or 4.6%, to $22,096.7 in 2017, resulting primarily from higher premiums. The increase in premiumstotal operating revenue was largelyprimarily due to higher premium revenue resulting from membership growth and rate increases across our businesses designed to cover overall cost trends. The increase was further attributable to membershipThese increases in our Medicare and Large Group product offerings and retroactive premium adjustments recognized in our Medicaid business. The increase in premiums waswere partially offset by the impact of


lower Health Care Reform fees, primarily due to the HIP Fee suspension for 2017,2019, as we did not price affected products in 2019 to cover any HIP Fee related expense in the current year, as well as lowerthis fee.
We recognized net favorable adjustments to estimates for the Health Care Reform risk adjustment premium stabilization program. Additionally, declines in membership in our non-ACA-compliant Individual business partially offset the overall increase in premiums.
Net investment income increased $19.3, or 9.6%, to $220.2 in 2017, primarily due to higher investment yields on fixed maturity securities and higher income from alternative investments, partially offset by lower dividend yields on equity securities.
Net realized gains on financial instruments increased $25.9, or 29.2%,in the first quarter of 2019 compared to $114.7net realized losses on financial instruments in 2017,the first quarter of 2018. This change was primarily due to an increase in net realized gains on sales of equity securities, partially offset by a decrease in net realized gains on fixed maturity securities.
Other-than-temporary impairment losses on investments decreased $5.4, or 49.1%, to $5.6 in 2017, primarily due to a decrease in impairment losses on fixed maturity securities.
Benefit expense increased $1,181.1, or 7.0%, to $18,103.6 in 2017, primarily due to increased costs as a result of overall cost trends across our businesses. The increase was further attributable to membership growth across our businesses and higher medical costs in our Medicare and Large Group business product offerings. These increases were partially offset by the impact of membership declines in our non-ACA-compliant Individual product offerings.Medicaid business.


Our benefit expense ratio increased 150 basis pointslargely due to 87.0% in 2017. The increase in the ratio was primarily driven by the loss of revenue associated with the HIP Fee suspension for 2017. The increase2019. Our benefit expense ratio was further due to higher medical cost experience in our Medicare business. The increase in the ratio was partially offsetimpacted by the impact of retroactive premiumrevenue adjustments in various Medicaid markets that we recognized in our Medicaid business and improved medical cost experience in our Large Group and Individual businesses.2018 for the periods covering through 2017.
Selling,Our selling, general and administrative expense decreased $113.5, or 3.6%,primarily due to $3,011.1 in 2017. the suspension of the HIP Fee for 2019.
Our selling, general and administrative expense ratio decreased 120 basis points to 13.6% in 2017. The decrease in the expense and ratio wasprimarily due to lower Health Care Reform fees, primarily as a result of the suspension of the HIP Fee for 20172019 and to a lesser extent, the expiration of the fees for the Health Care Reform temporary reinsurance premium stabilization program that ended on December 31, 2016. These decreases were partially offset by an increase in spend to support our growth initiatives. The decrease in the ratio was further attributable to the growth in operating revenue.revenue, as well as overall expense management.
Other expense decreased $27.9, or 12.7%, to $192.4 in 2017, primarily as a result of a decrease in interest expense due to lower outstanding debt balances and a decrease in amortization of intangible assets.
Income tax expense decreased $146.7, or 28.3%, to $372.0 in 2017. The effective tax rates in 2017 and 2016 were 33.2% and 45.6%, respectively. The decrease inOur income tax expense and the effective tax rate wasdecreased primarily due to the suspension of the non-tax deductible HIP Fee for 2017. For the three months ended September 30, 2016, we recognized additional income tax expense of $100.5 related to the HIP Fee.2019.
Our net income as a percentage of total revenue increased 40 basis points to 3.3% in 20172019 as compared to 2016 as a result of all factors discussed above.
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Total operating revenue increased $3,905.1, or 6.2%, to $66,614.2 in 2017, resulting primarily from higher premiums, and, to a lesser extent, increased administrative fees. Higher premiums were due in part to rate increases across our businesses designed to cover overall cost trends. The increase was further attributable to membership increases in our Medicaid, Medicare Advantage and fully-insured Large Group product offerings. The increase in premiums was partially offset by the impact of the HIP Fee suspension for 2017, as we did not price affected products to cover any HIP Fee related expense in the current year. Additionally, declines in membership in our fully-insured Small Group, non-ACA-compliant Individual and National Accounts businesses partially offset the overall increase in premiums. The increase in administrative fees primarily resulted from membership growth for self-funded members in our Large Group business and rate increases in our National Accounts and Large Group businesses.


Net investment income increased $60.7, or 10.7%, to $627.6, primarily due to higher income from alternative investments and higher investment yields on fixed maturity securities, partially offset by lower dividend yields on equity securities.
Net realized gains (losses) on financial instruments increased $162.0, or 680.7%. For the nine months ended September 30, 2017 and 2016, we recognized net realized gains of $138.2 and net realized losses of $23.8, respectively. The change was primarily due to a decrease in net realized losses on derivative financial instruments and an increase in net realized gains on sales of fixed maturity securities, partially offset by a decrease in net realized gains on sales of equity securities.
Other-than-temporary impairment losses on investments decreased $82.7, or 79.8%, to $20.9 in 2017, primarily due to a decrease in impairment losses on fixed maturity and equity securities.
Benefit expense increased $4,297.1, or 8.7%, to $53,563.6 in 2017, primarily due to increased costs as a result of overall cost trends across our businesses. The increase was further attributable to membership growth in our Medicaid, Medicare and Large Group business product offerings. These increases were partially offset by the impact of membership declines in our non-ACA-compliant Individual product offerings, fully-insured Small Group and National Accounts businesses.
Our benefit expense ratio increased 170 basis points to 85.6% in 2017. The increase in the ratio was largely driven by the loss of revenue associated with the HIP Fee suspension for 2017 and adjustments to prior year estimates for the Health Care Reform risk adjustment premium stabilization program. The increase in the ratio was partially offset by improved medical cost experience in our Individual business.
Selling, general and administrative expense decreased $37.7, or 0.4% to $9,256.2 in 2017. Our selling, general and administrative expense ratio decreased 90 basis points to 13.9% in 2017. The decrease in the expense and ratio were due, in part, to lower selling, general and administrative costs related to expense efficiency initiatives. The decreases were further due to lower Health Care Reform fees, primarily as a result of the suspension of the HIP Fee for 2017 and, to a lesser extent, the expiration of the fees for the Health Care Reform temporary reinsurance premium stabilization program that ended on December 31, 2016. The decrease in the ratio was further attributable to the growth in operating revenue. These decreases were partially offset by an increase in performance-based incentive compensation, an increase in spend to support our growth initiatives and the recognition of a guaranty association assessment in the first quarter of 2017 related to the liquidation order of Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company, or collectively Penn Treaty. The decreases were further offset by the accrual of $115.0 during the three months ended June 30, 2017 related to the settlement of class action lawsuits that stemmed from the 2015 cyber attack. For additional information regarding the Penn Treaty liquidation and the cyber attack and related settlement, see Note 11, “Commitments and Contingencies - Other Contingencies,” and “Commitments and Contingencies - Cyber Attack Incident,” respectively, to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Other expense increased $8.3, or 1.2%, to $699.7 in 2017. This increase was primarily due to $97.5 in fees incurred in January 2017 to reduce and extend, through April 30, 2017, the availability of commitments under the bridge facility and term loan facility, originally entered into in 2015, to partially fund the Merger Agreement with Cigna. The fees were amortized to interest expense through April 30, 2017. This increase was partially offset by a decrease in interest expense due to lower outstanding debt balances and a decrease in amortization of intangible assets.
Income tax expense decreased $567.9, or 31.6%, to $1,227.5 in 2017, primarily due to the suspension of the non-tax deductible HIP Fee for 2017 and the favorable impact of our recognition of tax benefits during the second quarter of 2017 for prior acquisition costs incurred related to the terminated Merger Agreement with Cigna. For the nine months ended September 30, 2016, we recognized additional income tax expense of $308.8 related to the HIP Fee. The decrease in income tax expense was further due to the recognition of excess tax benefits during the nine months ended September 30, 2017 from the adoption of Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. For additional information related to the adoption of ASU 2016-09, see Note 2, "Basis of Presentation and Significant Accounting Policies - Recently Adopted Accounting Guidance," to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Additionally, during the nine months ended September 30, 2016, we recognized additional California deferred state tax expense resulting from specific California legislation related to Managed Care Organizations that did not recur in 2017.


The effective tax rates in 2017 and 2016 were 32.0% and 46.1%, respectively. The decrease in the effective tax rate was primarily due to the suspension of the HIP Fee, the deduction of the prior acquisition costs incurred related to the terminated Merger Agreement with Cigna, the excess tax benefits from the adoption of ASU 2016-09 and the additional California deferred state tax expense, discussed above.
Our net income as a percentage of total revenue increased 60 basis points to 3.9% in 2017 as compared to 20162018 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, or GAAP. We usealso calculate operating gain and operating margin, non-GAAP measures, to evaluate the performance offurther aid investors in understanding and analyzing our reportable segments, which are Commercial & Specialty Business; Government Business;core operating results and Other.comparing them among periods. We define operating revenue as premium income and administrative fees and other revenue. Operating gain is calculated as total operating revenue less benefit expense and selling, general and administrative expense. It does not include net investment income, net realized gains (losses) on financial instruments, other-than-temporaryother than temporary impairment losses recognized in income, interest expense, amortization of other intangible assets, (gain) loss on extinguishment of debt or income taxes, as these items are managed in aour corporate shared service environment and are not the responsibility of operating segment management.
The discussion of segment results for the three and nine months ended September 30, 2017 and 2016 presented below is based on operating gain, as described above, and operating Operating margin which is calculated as operating gain divided by operating revenue. Our definitions ofWe use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating gainperiods and operating marginsetting incentive compensation targets. This information is not intended to be considered in isolation or as a substitute for income before income tax expense, net income or EPS, prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For additional information,a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable segments’ operating gain to income before income tax expense, see Note 15, “Segment Information,” of the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.


Our Commercial & Specialty Business, Government Business and Other segments’ summarized results of operations for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
 Three Months Ended 
 September 30		 Nine Months Ended 
 September 30		 Change
 Three Months Ended 
 September 30		 Nine Months Ended 
 September 30
 2017 vs. 2016 2017 vs. 2016 Three Months Ended 
 March 31		  
 2017 2016 2017 2016 $       %       $ % 2019 
2018 1
 $ Change % Change
Commercial & Specialty BusinessCommercial & Specialty Business














Commercial & Specialty Business






Operating revenueOperating revenue$10,052.1
 $9,656.8
 $30,650.5
 $29,064.9
 $395.3
 4.1 % $1,585.6
 5.5 %Operating revenue$9,392
 $8,951
 $441
 4.9 %
Operating gainOperating gain$534.6
 $637.7
 $2,804.9
 $3,006.0
 $(103.1) (16.2)% $(201.1) (6.7)%Operating gain$1,587
 $1,409
 $178
 12.6 %
Operating marginOperating margin5.3% 6.6% 9.2% 10.3%



(130)bp



(110)bpOperating margin16.9% 15.7% 


120 bp
                       
Government BusinessGovernment Business














Government Business






Operating revenueOperating revenue$12,037.3
 $11,462.4 $35,946.4
 $33,627.4
 $574.9
 5.0 % $2,319.0
 6.9 %Operating revenue$14,993
 $13,390
 $1,603
 12.0 %
Operating gainOperating gain$457.5
 $478.9
 $1,069.4
 $1,254.4
 $(21.4) (4.5)% $(185.0) (14.7)%Operating gain$383
 $481
 $(98) (20.4)%
Operating marginOperating margin3.8% 4.2% 3.0% 3.7%



(40)bp



(70)bpOperating margin2.6% 3.6% 


(100)bp
                       
OtherOther














Other






Operating revenue1
$7.3
 $6.0
 $17.3
 $16.8
 $1.3
 21.7 % $0.5
 3.0 %
Operating loss2
$(10.1) $(38.5) $(79.9) $(111.7) $28.4
 (73.8)% $31.8
 (28.5)%
Operating revenue2
Operating revenue2
$3
 $1
 $2
 200.0 %
Operating loss3
Operating loss3
$(30) $(22) $(8) 36.4 %
                        
1FluctuationsDuring the fourth quarter of 2018, we reclassified certain ancillary businesses to align how our segments are being managed. Accordingly, certain amounts for the three months ended March 31, 2018 have been reclassified for comparability.
2$ changes not material.
23Fluctuations primarilyPrimarily a result of changes in unallocated corporate expenses.


Three Months Ended September 30, 2017March 31, 2019 Compared to the Three Months Ended September 30, 2016March 31, 2018
Commercial & Specialty Business
Operating revenue increased $395.3, or 4.1%, to $10,052.1 in 2017, primarily due to higher premium revenue resulting from rate increases in our Local Group business designed to cover overall cost trends and membership increases in our Individual ACA and fully-insured National Accounts businesses. The increase was further due to higher administrative fees and other revenue resulting from rate increases for self-funded members in our Large Group and National Accounts businesses.
Operating gain increased primarily due to improved medical cost performance in our Local Group business and higher administrative fees and other revenue in our self-funded businesses driven by greater penetration of value-added services.
Government Business
Operating revenue increased primarily due to higher premium revenue resulting from membership growth in our Medicare business as a result of higher sales during open enrollment. The increase was further attributable to rate increases to cover overall cost trends in our IndividualMedicare and Local Group businesses. The increase was further attributable to membership growthMedicaid businesses as well as increased premium revenue in our Large Group business. The increase in operating revenue was partially offset by the impact of the HIP Fee suspension for 2017 and lower favorable adjustmentsFEP business due to current year estimates for the Health Care Reform risk adjustment premium stabilization program recognized during the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The increase was further offset by declines in membership in our non-ACA-compliant Individual business.increased reimbursed benefit utilization.
Operating gain decreased $103.1, or 16.2%, to $534.6 in 2017, primarily due to the impact of the HIP Fee suspension for 2017 and an increase in spend to support our growth initiatives. These decreases were partially offset by the impact of fixed costs leverage from higher operatingretroactive revenue and improved medical cost experience in our Large Group and Individual businesses.
The operating margin in 2017 was 5.3%, a 130 basis point decrease from 2016, primarily due to the factors discussed in the preceding two paragraphs.
Government Business
Operating revenue increased $574.9, or 5.0%, to $12,037.3 in 2017, primarily due to premium rate increases designed to cover overall cost trends in our Medicaid and Medicare businesses. The increase in operating revenue was further due to net membership growth in our Medicaid business as a result of new business expansions and organic growth in existing markets, and membership growth in our Medicare Advantage business. Additionally, retroactive premium adjustments in ourvarious Medicaid business contributed to the increasemarkets that we recognized in operating revenue. These increases were partially offset by the impact of the HIP Fee suspension for 2017 and Medicaid membership declines resulting from membership reverification processes and the impact of a new entrant in an existing market.
Operating gain decreased $21.4, or 4.5%, to $457.5 in 2017, primarily due to the impact of the HIP Fee suspension for 2017, higher medical cost experience in our Medicare business and an increase in spend to support our growth initiatives. These decreases were partially offset by the impact of fixed costs leverage from higher operating revenue.
The operating margin in 2017 was 3.8%, a 40 basis point decrease from 2016, primarily due to the factors discussed in the preceding two paragraphs.
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Commercial & Specialty Business
Operating revenue increased $1,585.6, or 5.5%, to $30,650.5 in 2017, primarily due to premium rate increases designed to cover overall cost trends in our Individual and Local Group businesses. The increase was further attributable to membership growth in our fully-insured Large Group business and an increase in administrative fees. The increase in administrative fees was primarily due to membership growth in our self-insured Large Group business and rate increases in our National Accounts and self-insured Large Group businesses. The increase in operating revenue was partially offset by the impact of the HIP Fee suspension for 2017, declines in membership in our fully-insured Small Group and non-ACA-compliant Individual businesses, lower favorable adjustments to prior year estimates2018 for the Health Care Reform risk adjustment premium stabilization program and declines in membership in our National Accounts business.
Operating gain decreased $201.1, or 6.7%, to $2,804.9 in 2017, primarily due to the recognition of the guaranty association assessment related to the Penn Treaty liquidation, an increase in performance-based incentive compensation and an increase in spend to support our growth initiatives.periods covering through 2017. The decrease in operating gain was further dueattributable to the impact of the HIP Fee suspension for 2017, adjustments to prior year estimates for the Health Care Reform risk adjustment premium stabilization program and the settlement accrual for the litigation related to the 2015 cyber attack. These decreases were partially offset by lower selling, general and administrative costs related to expense efficiency initiatives and fixed costs


leverage from higher operating revenue. The decrease in operating gain was further offset by improvedcontinued elevated medical cost experience in our Individual and Large Group businesses.
The operating marginMedicaid business in 2017 was 9.2%, a 110 basis point decrease from 2016, primarily due to the factors discussed in the preceding two paragraphs.
Government Business
Operating revenue increased $2,319.0, or 6.9%, to $35,946.4 in 2017, primarily due to premium rate increases designed to cover overall cost trends in our Medicaid and Medicare businesses. The increasecertain states. These decreases in operating revenue was further due to net membership growth in our Medicaid business as a result of new business expansions and organic growth in existing markets, and membership growth in our Medicare Advantage business. Additionally, premium increases in our FEP® business due to increased reimbursed benefit utilization contributed to the increase in operating revenue. These increasesgain were partially offset by the impact of the HIP Fee suspension for 2017 and Medicaid membership declines resulting from membership reverification processes and the impact of a new entrant in an existing market.
Operating gain decreased $185.0, or 14.7%, to $1,069.4 in 2017, primarily due to the impact of the HIP Fee suspension for 2017 and higher medical cost experience in our Medicare business. The decrease in operating gain was further due to an increase in performance-based incentive compensation and an increase in labor costs to support our growth in operations. These decreases were partially offset by lowerreduced selling, general and administrative costs related to expense efficiency initiatives and fixed costs leverage from higher operating revenue.
The operating marginexpenses in 2017 was 3.0%, a 70 basis point decrease from 2016, primarily due to the factors discussed in the preceding two paragraphs.2019.
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 20162018 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, 2016,2018, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2017,March 31, 2019, our critical accounting policies and estimates have not changed from those described in our 20162018 Annual Report on Form 10-K.
Medical Claims Payable
The most subjective accounting estimate in our consolidated financial statements is our liability for medical claims payable. Our accounting policies related to medical claims payable are discussed in the references cited above. As of September 30, 2017,March 31, 2019, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 20162018 Annual Report on Form 10-K. For a reconciliation of the beginning and ending balance for medical claims payable for the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, see Note 9, "Medical“Medical Claims Payable,"” of the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.


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 ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, 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. 
 Favorable Developments by 
Changes in Key Assumptions
 Favorable Developments by 
Changes in Key Assumptions		 Three Months Ended 
 March 31
 2017 2016 2019 2018
Assumed trend factors $628.9
 $542.8
 $345
 $406
Assumed completion factors 437.4
 230.0
 110
 227
Total $1,066.3
 $772.8
 $455
 $633
    
The favorable development recognized in the ninethree months ended September 30, 2017March 31, 2019 and 20162018 resulted primarily from trend factors in late 20162018 and late 2015,2017, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter parts of 20162018 and 20152017 developing faster than expected also contributed to the favorability.
The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 86.0%64.7% and 86.2%66.5% for the ninethree months ended September 30, 2017March 31, 2019 and 2016,2018, respectively. This ratio serves as an indicator of claims processing speed whereby claims were processed slightly faster during the ninethree months ended 2016.March 31, 2018.
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 the prior year reserves. For the ninethree months ended September 30, 2017,March 31, 2019, this metric was 17.0%6.7%, largely driven by favorable trend factor development at the end of 2016.2018. For the ninethree months ended September 30, 2016,March 31, 2018, this metric was 12.6%8.9%, largely driven by favorable trend factor development at the end of 2015.2017.
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 ninethree months ended September 30, 2017,March 31, 2019, this metric was 1.6%0.7%, which was calculated using the redundancy of $1,066.3.$455. For the ninethree months ended September 30, 2016,March 31, 2018, the comparable metric was 1.3%


0.9%, which was calculated using the redundancy of $772.8. These$633. We believe these metrics demonstrate a generally consistent 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 ninethree months ended September 30, 2017,March 31, 2019, 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 our unaudited consolidated financial statementsConsolidated 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, administrative fees and other revenue, investment income, other revenue, proceeds from the sale or maturity of our investment securities, proceeds from borrowings, and proceeds from the issuance of common stock under our employee stock plans. Cash disbursements result mainly from claims payments, administrative expenses, taxes, purchases of investment securities, interest expense, payments on borrowings, acquisitions, capital expenditures, repurchases of our debt securities and common stock and the payment of cash dividends. Cash outflows fluctuate with the amount and timing of settlement of these transactions. Any future decline in our profitability would likely have an unfavorable impact on our liquidity.


For a more detailed overview of our liquidity and capital resources management, see the “Introduction” section included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 20162018 Annual Report on Form 10-K.
For additional information regarding our usesources and uses of capital during the three and nine months ended September 30, 2017,March 31, 2019, see Note 5, "Derivative“Derivative Financial Instruments,"” Note 10, "Debt"“Debt,” and the “Note 12, “Capital Stock - Use of Capital –- Dividends and Stock Repurchase Program,” section of Note 12, “Capital Stock,”the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.


Liquidity
The table below indicates the change inA summary of our major sources and uses of cash and cash equivalents for the ninethree months ended September 30, 2017March 31, 2019 and 20162018: is as follows:
 Nine Months Ended 
 September 30
 2017 2016
Cash flows provided by (used in):   
Operating activities$5,486.0
 $2,993.4
Investing activities(1,461.7) (1,184.8)
Financing activities(2,006.3) (1,378.0)
Effect of foreign exchange rates on cash and cash equivalents3.9
 1.9
Change in cash and cash equivalents$2,021.9
 $432.5
 Three Months Ended 
 March 31		 2019 vs. 2018
 2019 2018 Change
Sources of Cash:     
Net cash provided by operating activities$1,630
 $2,215
 $(585)
Proceeds from sales, maturities, calls and redemptions of investments, net of purchases—
 1,152
 (1,152)
Issuances of common stock under employee stock plans76
 60
 16
Issuances of commercial paper and short- and long-term debt, net of repayments67
 —
 67
Other sources of cash, net42
 186
 (144)
Total Sources of Cash1,815
 3,613
 (1,798)
Uses of Cash:     
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions(440) —
 (440)
Purchases of subsidiaries, net of cash acquired—
 (1,346) 1,346
Repurchase and retirement of common stock(294) (395) 101
Purchases of property and equipment(234) (218) (16)
Repayments of commercial paper and short- and long-term debt, net of issuances
—
 (85) 85
Cash dividends(206) (192) (14)
Changes in bank overdrafts—
 (124) 124
Other uses of cash, net(92) (231) 139
Total uses of cash(1,266) (2,591) 1,325
Effect of foreign exchange rates on cash and cash equivalents(1) —
 (1)
Net increase in cash and cash equivalents$548
 $1,022
 $(474)
During the nine months ended September 30, 2017, netThe decrease in cash provided by operating activities was $5,486.0, comparedprimarily due to $2,993.4 for the nine months ended September 30, 2016, an increasetiming of $2,492.6. This increase was primarily attributable to an increaseMedicare prepayments received in 2018 and lower premium receipts as a result of rate increases across our businesses designed to cover overall cost trends, growth in membership, and the timingsuspension of provider capitation paymentsthe HIP Fee for pass through funding under the California Medicaid contract.2019. These increasesdecreases were partially offset by an increasethe impact of membership increases in claims payments due to higher medical cost experienceour Medicaid and growthMedicare businesses.
Other significant changes in membership. The increases were further offset by the timingsources and uses of certain state Medicaid payments.
Net cash used in investing activities was $1,461.7 during the nine months ended September 30, 2017, compared to $1,184.8 during the nine months ended September 30, 2016. The increase in cash used in investing activities of $276.9 was primarily due toyear-over-year included an increase in net purchases of investments and an increase in purchases of property and equipment, partially offset by a decrease in collateral held under our securities lending programs.
Net cash used in financing activities was $2,006.3 during the nine months ended September 30, 2017, compared to $1,378.0 during the nine months ended September 30, 2016. The increase in cash used in financing activities of $628.3 primarily resulted from repurchases of common stock during the nine months ended September 30, 2017, changes in bank overdrafts, changes in securities lending payable and an increase in net repayments of short- and long-term borrowings. These uses of cash were partially offset by an increase in commercial paper borrowings, lower payments on debt-related derivatives and an increase in proceeds from the issuance of common stock under our employee stock plans.paid for acquisitions.
Financial Condition
We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments including long-term investments,in fixed maturity and equity securities of $29,271.7$24,013 at September 30, 2017.March 31, 2019. Since December 31, 2016,2018, total cash, cash equivalents and investments including long-term investments,in fixed maturity and equity securities increased by $3,752.7,$1,374, primarily due to cash generated from operations, proceeds from commercial paper borrowings, proceeds from the issuance of common stock under our employee stock plans and cash generated from changes in collateral requirements and settlements of non-hedging derivatives. These increases were partially offset by repurchases of common stock during the nine months ended September 30, 2017, cash dividends paid to shareholders, purchases of property and equipment, net repayments of short- and long-term borrowings, changes in collateral payments and settlements of debt-related derivatives and a decrease in bank overdrafts.


operations.
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, or regulatory capital requirements, if any, could impact our subsidiaries’ future dividend capacity. In addition, we have agreed to certain undertakings withto regulatory authorities, including requirements to maintain certain capital levels in certain of our subsidiaries.
At September 30, 2017,March 31, 2019, we held $2,007.1$1,077 of cash, and cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.


Debt
In August 2017,Periodically, we entered into two separate 364-day linesaccess capital markets and issue debt, or Notes, for long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases. Certain of credit with separate lenders for general corporate purposes. The facilities provide combined credit upthese Notes may have a call feature that allows us to $450.0. The interest rateredeem 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 each lineour debt, including redemptions and issuances, see Note 10, “Debt” of credit is based on the LIBOR rate plus a predetermined rate. Our abilityNotes to borrow under the linesConsolidated Financial Statements included in Part I, Item 1 of credit is subject to compliance with certain covenants. We had $450.0 outstanding under the lines of credit at September 30, 2017.
Upon maturity on June 15, 2017 and February 15, 2017, we repaid the $528.8 outstanding balance of our 5.875% senior unsecured notes and the $400.0 outstanding balance of our 2.375% senior unsecured notes, respectively.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 (i) short-term borrowings, (ii) current portion of long-term debt, and (iii) long-term debt, less current portion; divided by the sum of (i) short-term borrowings, (ii) current portion of long-term debt, (iii) long-term debt, less current portion, and (iv) total shareholders’ equity.beginning January 1, 2019, lease liabilities. We believe our debt-to-capital ratio assists investors and rating agencies in measuring our overall leverage and additional borrowing capacity. In addition, our bank covenants include a maximum debt-to-capital ratio that we cannot and did not exceed. Our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies. Our consolidated debt-to-capital ratio was 38.5%40.0% and 40.2% as of September 30, 2017March 31, 2019 and December 31, 2016.2018, respectively.
Our senior debt is rated “A” by Standard & Poor’s,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, financial condition and results of operations could be adversely impacted by limitations on future borrowings and a potential increase in our borrowing costs.
For additional information relating to our borrowing activities, see Note 10, “Debt” to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Future Sources and Uses of Liquidity
On September 20, 2017, we announced that we entered into an agreement to acquire HealthSun, which serves approximately forty thousand members through its Medicare Advantage plans in the state of Florida. The acquisition is expected to close by the end of 2017.
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 and the financing of possible acquisitions or business expansions.
We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders. The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.


For additional information regarding our sources and uses of capital at September 30, 2017,March 31, 2019, see Note 4, “Investments,” Note 5, "Derivative“Derivative Financial Instruments,"” Note 10, "Debt"“Debt” and the “Note 12, “Capital Stock - Use of Capital—Capital - Dividends and Stock Repurchase Program” section of Note 12, “Capital Stock”the Notes to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
For additional information regarding our future sources and uses of liquidity, see “Future Sources and Uses of Liquidity” included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis ofConsolidated Financial Condition and Results of Operations” in our 2016 Annual Report on Form 10-K.
Contractual Obligations and Commitments
We believe that funds from future operating cash flows, cash and investments and funds available under our senior revolving credit facility, lines of credit and/or from public or private financing sources, will be sufficient for future operations and commitments, and for capital acquisitions and other strategic transactions.
There have been no material changes to our Contractual Obligations and Commitments disclosure in our 2016 Annual Report on Form 10-K other than an increase in borrowings of commercial paper, borrowings from the two new credit facilities and repayment of long-term senior unsecured notes upon maturity. For additional information regarding our estimated contractual obligations and commitments, see Note 5, "Derivative Financial Instruments;" Note 10, “Debt;” and the “Other Contingencies” and “Contractual Obligations and Commitments” sections of Note 11, “Commitments and Contingencies,” to our unaudited consolidated financial statementsStatements included in Part I, Item 1 of this Form 10-Q.
Risk-Based Capital
Our regulated subsidiaries’ states of domicile have statutory risk-based capital, or RBC, requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners, or NAIC, 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, 2016,2018, which was the most recent date for which reporting was required, were in excess of all mandatory RBC requirements. In addition to exceeding the RBC requirements, we are in compliance with the liquidity and capital requirements for a licensee of the BCBSA and with the tangible net equity requirements applicable to certain of our California subsidiaries.
For additional information, see Note 21, “Statutory Information,"” in our audited consolidated financial statements as of and for the year ended December 31, 20162018 included in our 20162018 Annual Report on Form 10-K.


Contractual Obligations and Commitments
We believe that funds from future operating cash flows, cash and investments and funds available under our senior revolving credit 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.
There have been no material changes to our Contractual Obligations and Commitments disclosure in our 2018 Annual Report on Form 10-K other than an increase in borrowings of commercial paper. For additional information regarding our estimated contractual obligations and commitments, see Note 5, “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.




Forward-Looking StatementsFORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information about us that is intended to be covered bystatements within the safe harbor for “forward-looking statements” provided bymeaning 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. TheseYou 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 uncertainties include: thoseother disclosures discussed and identified in our public filingsreports 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 SEC; increased government participation in, or regulation or taxation of, health benefitscircumstances after the date hereof. These risks and managed care operations, including,uncertainties include, but are not limited to,to: the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or Health Care Reform,collectively, the ACA, and the impactultimate outcome of any future modification, repeal or replacement of Health Care Reform;legal challenges to the ACA; trends in health carehealthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability to secure sufficient premium rates, including regulatory approval for and implementation of such rates; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquiries, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon; our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in federalour healthcare product mix; costs and state health insurance exchanges under Health Care Reform, which have experienced and continue to experience challenges due to implementation of Health Care Reform, and which entail uncertaintiesother liabilities associated with the mix and volume of business, particularly in our Individual and Small Group markets, that could negatively impact the adequacy of our premium rates and which may not be sufficiently offset by the risk apportionment provisions of Health Care Reform;litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, (“Cigna”)or Cigna, and us related to the merger agreement between the parties, including our claim for damages against Cigna, Cigna’s claim for payment of a termination fee and other damages against us, and the potential for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and financial positions; our ability to contractcondition; non-compliance by any party with providers on cost-effectivethe pharmacy benefit management services agreements between us and competitive terms; competitor pricing below market trendseach of increasing costs; reduced enrollment,Express Scripts, Inc., or Express Scripts, and CaremarkPCS Health, L.L.C., or CVS Health, as well as a negative changeany agreements governing the transition of pharmacy benefit management services provided to us from Express Scripts to CVS Health, which could result in financial penalties, our health care product mix; risksinability to meet customer demands, and uncertainties regarding Medicare and Medicaid programs,sanctions imposed by governmental entities, including those related to non-compliance with the complex regulations imposed thereon and funding risks with respect to revenue received from participation therein; a downgrade in our financial strength ratings; increases in costs and other liabilities associated with increased litigation, government investigations, audits or reviews;CMS; medical malpractice or professional liability claims or other risks related to health carehealthcare services and pharmacy benefit management services provided by our subsidiaries; 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; non-compliance bythe potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could result in financial penalties; our inability to meet customer demands, and sanctions imposed by governmental entities, including the Centers for Medicare and Medicaid Services; events that result in negative publicity for us orrelated to the health benefits industry;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; state guaranty fund assessments for insolvent insurers;large scale medical emergencies, such as future public health epidemics and catastrophes; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of investigations, inquiries, claims and litigation related to the cyber attack we reported in February 2015; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfoliosportfolios; changes in U.S. tax laws; intense competition to attract and liquidity; possible restrictions in the payment of dividends by our subsidiariesretain employees; and increases in required minimum levels of capital and the potential negative effect from our substantial amount of outstanding indebtedness; general risks associated with mergers, acquisitions and strategic alliances; various laws and provisions in our governing documents that may prevent or discourage takeovers and business combinations; future public health epidemics and catastrophes; and general economic downturns. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. We do not undertake to update or revise any forward-looking statements, except as required by applicable securities laws. Investors are also advised to carefully review and consider the various risks and other disclosures discussed in our SEC reports.combinations.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 20162018 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, 20162018.
ITEM 4.CONTROLS AND PROCEDURES
We carried out an evaluation as of September 30, 2017March 31, 2019, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934.1934, as amended, or the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed in our reports under the Securities Exchange Act of 1934.Act. In addition, based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2017March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
For information regarding legal proceedings at September 30, 2017March 31, 2019, see the “Litigation” “Cyber Attack Incident and Regulatory Proceedings,” and “Other Contingencies” sections of Note 11, “Commitments and Contingencies” of the Notes to our unaudited consolidated financial statementsConsolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
ITEM 1A.RISK FACTORS
Except for the updated risk factors set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, thereThere have been no material changes to the risk factors disclosed in our 20162018 Annual Report on Form 10-K.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information related to our repurchases of common stock for the periods indicated:
Period
Total Number
of Shares
Purchased1 
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased
as Part
of Publicly
Announced
Programs2
 
Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under the
Programs
(in millions, except share and per share data)       
July 1, 2017 to July 31, 20171,546,830
 $190.33
 1,545,568
 $3,372.7
August 1, 2017 to August 31, 20172,161,786
 190.91
 2,160,856
 2,960.1
September 1, 2017 to September 30, 20172,226,656
 188.48
 2,226,211
 2,540.5
 5,935,272
   5,932,635
  
Period
Total Number
of Shares
Purchased1 
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased
as Part
of Publicly
Announced
Programs2
 
Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under the
Programs
(in millions, except share and per share data)       
January 1, 2019 to January 31, 2019582,336
 $257.64
 580,943
 $5,344
February 1, 2019 to February 28, 2019254,025
 296.02
 252,930
 5,269
March 1, 2019 to March 31, 2019487,055
 302.16
 235,371
 5,199
 1,323,416
   1,069,244
  
1Total number of shares purchased includes 254,172 shares delivered to or withheld by us in connection with employee payroll tax withholding upon exercise or vesting of stock awards. Stock grants to employees and directors and stock issued for stock option plans and stock purchase plans in the consolidated statements of shareholders’ equity are shown net of these shares purchased.
2
Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board of Directors evaluates periodically. During the three months ended September 30, 2017March 31, 2019, we repurchased 5,932,6351,069,244 shares at a cost of $1,126.3$294 under the program.program, including the cost of options to purchase shares. The Board of Directors has authorized our common stock repurchase program since 2003. The Board'sBoard of Director's most recent authorized increase to the program was $5,000.0$5,000 on October 2, 2014.December 7, 2017. Between OctoberApril 1, 20172019 and October 12, 2017,April 15, 2019, we repurchased 682,000179,200 shares at a cost of $130.5,$51, bringing our current availability to $2,410.0$5,148 at October 12, 2017.April 15, 2019. No duration has been placed on our common stock repurchase program, and we reserve the right to discontinue the program at any time.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
None.
ITEM 5.OTHER INFORMATION
None.

ITEM 6.EXHIBITS
Exhibit
Number
 Exhibit
    
3.1

  
Amended and Restated Articles of Incorporation of the Company, as amended and restated effective May 18, 2017,16, 2018, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 18, 2017.16, 2018.
    
3.2

  
Bylaws of the Company, as amended effective May 18, 2017,16, 2018, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 18, 2017.16, 2018.
    
4.64.7
 Upon the request of the U.S. Securities and Exchange Commission, the Company will furnish copies of any other instruments defining the rights of holders of long-term debt of the Company or its subsidiaries.
    
10.1
10.2
*(l)
(r)Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2019.
10.2
*(m)
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement for 2019.
10.2
*(n)
Form of Incentive Compensation Plan Performance Stock Unit Award Agreement for 2017.2019.
31.1
  
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    
31.2

  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act Rules, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    
32.1

  
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
32.2

  
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
101
  The following material from Anthem, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Shareholders’ Equity; and (vi) Notes to Consolidated Financial Statements.
    
    
*
 Indicates management contracts or compensatory plans or arrangements.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    
 
ANTHEM, INC.
Registrant
   
    
    
Date: October 25, 2017April 24, 2019By: 
/S/  JOHN E. GALLINA
   
John E. Gallina
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
    
    
Date: October 25, 2017April 24, 2019By: 
/S/  RONALD W. PENCZEK
   
Ronald W. Penczek
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

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