SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Indianapolis, Indiana46204

(Address of principal executive offices) (Zip Code)

(Former name, former address and former fiscal year, if changed since last report)



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	ANTM	New York Stock Exchange

Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 filer	x ☒		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~~As of July 17, 2019, 255,817,204 shares ~~outstanding of each~~ of the ~~issuer’s classes of common stock, as of the latest practicable date:~~Registrant’s Common Stock were outstanding.



~~Title of Each Class~~		~~Outstanding at July 12, 2018~~
~~Common Stock, $0.01 par value~~		~~259,953,678 shares~~

Quarterly Report on Form 10-Q

For the Period Ended June 30, ~~2018~~2019

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Anthem, Inc.

Consolidated Balance Sheets


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
(In millions, except share data)	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,682.0		$	3,608.9		$	4,078		$	3,934
Fixed maturity securities, current (amortized cost of $17,152.7 and $17,054.5)	17,081.6			17,377.3
Fixed maturity securities, current (amortized cost of $18,577 and $16,894)							19,123			16,692
Equity securities, current	2,435.3			3,599.2			1,492			1,493
Other invested assets, current	23.8			17.2			14			21
Accrued investment income	161.6			162.5			168			162
Premium receivables	4,268.3			3,605.2			4,751			4,465
Self-funded receivables	2,650.0			2,579.7			2,534			2,278
Other receivables	2,182.6			2,266.5			2,633			2,558
Income taxes receivable	154.5			341.9			296			10
Securities lending collateral	624.6			455.1			565			604
Other current assets	3,106.1			2,249.3			2,151			2,104
Total current assets	37,370.4			36,262.8			37,805			34,321
Long-term investments:
Fixed maturity securities (amortized cost of $489.7 and $556.0)	487.5			560.8
Fixed maturity securities (amortized cost of $493 and $486)							509			487
Equity securities	32.9			32.8			33			33
Other invested assets	3,495.2			3,343.8			3,719			3,726
Property and equipment, net	2,392.2			2,174.9			2,837			2,735
Goodwill	20,414.5			19,231.2			20,500			20,504
Other intangible assets	9,224.3			8,368.4			8,840			9,007
Other noncurrent assets	950.4			565.3			1,608			758
Total assets	$	74,367.4		$	70,540.0		$	75,851		$	71,571

Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Policy liabilities:
Medical claims payable	$	7,545.3		$	7,991.5		$	8,758		$	7,454
Reserves for future policy benefits	72.1			69.9			77			75
Other policyholder liabilities	3,009.8			2,950.3			2,586			2,590
Total policy liabilities	10,627.2			11,011.7			11,421			10,119
Unearned income	2,089.9			860.3			900			902
Accounts payable and accrued expenses	5,931.4			5,024.4			4,028			4,959
Security trades pending payable	159.9			112.6			382			197
Securities lending payable	624.3			454.4			564			604
Short-term borrowings	1,120.0			1,275.0			1,010			1,145
Current portion of long-term debt	650.2			1,274.6			850			849
Other current liabilities	3,302.8			3,343.0			3,935			3,190
Total current liabilities	24,505.7			23,356.0			23,090			21,965
Long-term debt, less current portion	17,515.4			17,382.2			17,436			17,217
Reserves for future policy benefits, noncurrent	644.7			647.3			655			706
Deferred tax liabilities, net	1,902.2			1,726.5			2,211			1,960
Other noncurrent liabilities	1,074.4			925.1			1,666			1,182
Total liabilities	45,642.4			44,037.1			45,058			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 – 260,132,949 and 256,084,913	2.6			2.6
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding – 255,876,479 and 257,395,577							3			3
Additional paid-in capital	9,747.9			8,547.4			9,494			9,536
Retained earnings	19,757.3			18,054.4			21,679			19,988
Accumulated other comprehensive loss	(782.8		)	(101.5		)	(383		)	(986		)
Total shareholders’ equity	28,725.0			26,502.9			30,793			28,541
Total liabilities and shareholders’ equity	$	74,367.4		$	70,540.0		$	75,851		$	71,571

See accompanying notes.

Anthem, Inc.

Consolidated Statements of Income

(Unaudited)


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
(In millions, except per share data)	2018			2017			2018			2017			2019			2018			2019			2018
Revenues
Premiums	$	21,248.4		$	20,813.1		$	42,151.2		$	41,764.4		$	23,501		$	21,248		$	46,344		$	42,151
Administrative fees and other revenue	1,466.4			1,384.9			2,905.9			2,753.1			1,676			1,467			3,221			2,906
Total operating revenue	22,714.8			22,198.0			45,057.1			44,517.5			25,177			22,715			49,565			45,057
Net investment income	229.3			200.2			458.5			407.4			285			229			495			458
Net realized gains (losses) on financial instruments	4.0			16.2			(22.1		)	23.5			11			4			89			(22		)
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments	(4.4		)	(7.3		)	(12.3		)	(16.9		)	(9		)	(4		)	(22		)	(12		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income	—			0.1			—			1.6			2			—			5			—
Other-than-temporary impairment losses recognized in income	(4.4		)	(7.2		)	(12.3		)	(15.3		)	(7		)	(4		)	(17		)	(12		)
Total revenues	22,943.7			22,407.2			45,481.2			44,933.1			25,466			22,944			50,132			45,481
Expenses
Benefit expense	17,727.8			17,917.2			34,773.7			35,460.0			20,368			17,728			39,650			34,774
Selling, general and administrative expense:
Selling expense	323.6			345.5			641.8			694.1
General and administrative expense	3,104.4			2,708.3			6,214.7			5,551.0
Total selling, general and administrative expense	3,428.0			3,053.8			6,856.5			6,245.1
Cost of products sold													98			—			98			—
Selling, general and administrative expense													3,278			3,428			6,444			6,856
Interest expense	191.7			189.9			375.9			424.9			184			192			371			376
Amortization of other intangible assets	93.6			40.6			173.1			82.4			85			93			172			173
(Gain) loss on extinguishment of debt	(0.9		)	—			18.2			—			—			(1		)	(1		)	18
Total expenses	21,440.2			21,201.5			42,197.4			42,212.4			24,013			21,440			46,734			42,197
Income before income tax expense	1,503.5			1,205.7			3,283.8			2,720.7			1,453			1,504			3,398			3,284
Income tax expense	450.1			350.4			917.9			855.5			314			450			708			918
Net income	$	1,053.4		$	855.3		$	2,365.9		$	1,865.2		$	1,139		$	1,054		$	2,690		$	2,366
Net income per share
Basic	$	4.07		$	3.23		$	9.20		$	7.05		$	4.44		$	4.07		$	10.47		$	9.20
Diluted	$	3.98		$	3.16		$	8.97		$	6.89		$	4.36		$	3.98		$	10.28		$	8.97
Dividends per share	$	0.75		$	0.65		$	1.50		$	1.30		$	0.80		$	0.75		$	1.60		$	1.50

See accompanying notes.

Anthem, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
(In millions)	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	1,053.4		$	855.3		$	2,365.9		$	1,865.2		$	1,139		$	1,054		$	2,690		$	2,366
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss), net of tax:
Change in net unrealized gains/losses on investments	(72.0		)	100.9			(316.7		)	181.1			238			(72		)	595			(317		)
Change in non-credit component of other-than-temporary impairment losses on investments	—			0.9			0.2			4.5			(1		)	—			(1		)	—
Change in net unrealized losses on cash flow hedges	2.9			(79.8		)	31.7			(62.8		)	—			3			3			32
Change in net periodic pension and postretirement costs	7.7			4.2			15.4			8.1			3			8			6			15
Foreign currency translation adjustments	(0.8		)	0.7			(0.4		)	2.1			—			(1		)	—			—
Other comprehensive (loss) income	(62.2		)	26.9			(269.8		)	133.0
Other comprehensive income (loss)													240			(62		)	603			(270		)
Total comprehensive income	$	991.2		$	882.2		$	2,096.1		$	1,998.2		$	1,379		$	992		$	3,293		$	2,096

See accompanying notes.



	Three and Six Months Ended June 30, 2018
	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity
(In millions)	Number of Shares		Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity
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, 2018	256.1		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 benefits	1.1		—		28			—			—			28
Convertible debenture repurchases and conversions	—		—		(30		)	—			—			(30		)
Adoption of Accounting Standards Update No. 2018-02 (Note 2)	—		—		—			91			(91		)	—
March 31, 2018	255.5		3		8,489			19,241			(721		)	27,012
Net income	—		—		—			1,054			—			1,054
Other comprehensive loss	—		—		—			—			(62		)	(62		)
Issuance of common stock under Equity Units stock purchase contracts	6.0		—		1,250			—			—			1,250
Repurchase and retirement of common stock	(1.7	)	—		(60		)	(341		)	—			(401		)
Dividends and dividend equivalents	—		—		—			(197		)	—			(197		)
Issuance of common stock under employee stock plans, net of related tax benefits	0.3		—		69			—			—			69
June 30, 2018	260.1		$	3	$	9,748		$	19,757		$	(783	)	$	28,725

See accompanying notes.

June 30, ~~2018~~2019

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

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 ~~39.5~~approximately 41 medical members through our affiliated health plans as of June 30, ~~2018~~2019. We offer a broad spectrum of network-based managed care plans to Large Group, Small Group, Individual, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations, or PPOs; ~~health maintenance organizations,~~Health Maintenance Organizations, or HMOs; Point-of-Service, or POS, plans; traditional indemnity plans and other hybrid plans, including 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~~our Federal ~~Employee Program~~^®.Health Products & Services business.

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 (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, ~~Blue Cross and Blue Shield of Georgia,~~ and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS ~~licensees in Louisiana, South Carolina and western New York.~~licensees. Through our subsidiaries, we ~~also~~ serve customers in ~~over 25~~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. Also, beginning with the second quarter of 2019, we provide pharmacy benefits management services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.

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 ~~2017~~2018 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. For additional information on prior year reclassifications, see Note 15, “Segment Information.” 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 six months ended June 30, ~~2018~~2019 and ~~2017~~2018 have been recorded. The results of operations for the three and six months ended June 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2018~~2019, 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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K.

~~Cash and Cash Equivalents:~~ 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 and have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled ~~$217.6~~$263 and ~~$182.3~~$222 at June 30, ~~2018~~2019 and December 31, ~~2017,~~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, any amounts probable of being owed under any residual value guarantees and discount rate determined at lease commencement. As our leases do not generally provide an implicit rate, we use our incremental secured borrowing rate commensurate with the underlying lease terms to determine the present value of our lease payments. Our 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, the remaining balance of any lease incentives and unamortized initial direct costs.

The operating lease liabilities are reported in other current liabilities and other noncurrent liabilities and the related ROU assets are reported in other noncurrent assets on our consolidated balance sheet as of June 30, 2019. 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 ~~revenue includes~~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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K. In addition, see Note 15, “Segment Information,” herein for the disaggregation of revenues by segments and products.

Premium and self-funded receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $281.6 and $302.1 at June 30, 2018 and December 31, 2017, respectively. Self-funded receivables are reported net of an allowance for doubtful accounts of $52.3 and $153.2 at June 30, 2018 and December 31, 2017, respectively.

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 June 30, ~~2018.~~2019. For the three and six months ended June 30, ~~2018,~~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 ~~February 2018,~~March 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2019-01, Leases (Topic 842): Codification Improvements. In July 2018, the FASB issued Accounting Standards Update No. 2018-11, Leases (Topic 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 all 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 2018-13. 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 entirety of ASU 2018-13 or only the provisions that eliminate or modify requirements. We early adopted the provisions that eliminate and modify disclosure requirements, on a retrospective basis, effective in our 2018 Annual Report on Form 10-K. We will adopt the new disclosure requirements, on a prospective basis, effective for our interim and annual reporting periods beginning after December 15, 2019.

In February 2018, 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~~allowed 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 adopted the amendments in ASU 2018-02 for our interim and annual reporting periods beginning on January 1, 2018 and reclassified ~~$91.3~~$91 of stranded tax effects from accumulated other comprehensive loss to retained earnings on our consolidated balance sheets. The adoption of ASU 2018-02 did not have any impact on our consolidated results of operations or 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 update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. We adopted ASU 2017-09 on January 1, 2018. The guidance has been and will be applied prospectively to awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have any 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 - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, or ASU 2017-08. This update 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 the old guidance, the premium was generally amortized over the contractual life of the instrument. The 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. We adopted ASU 2017-08 on January 1, 2019, and the adoption of this standard did not 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 consolidated results of operations, cash flows or ~~consolidated~~ financial position.

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~~. Customers. 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~~versus 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.~~. 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 ~~which~~and 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 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 ~~6.0%~~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, or on our consolidated 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 Flows, to add and clarify guidance on the classification and presentation of restricted cash in the statement 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, on our consolidated 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 ~~$320.2~~$320 of unrealized gains on equity investments, net of tax, from accumulated other comprehensive loss to retained earnings on our consolidated balance ~~sheet.~~sheets. 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 ~~July 2018,~~May 2019, the FASB issued Accounting Standards Update No. ~~2018-10,~~ 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief, or ASU 2019-05. In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic ~~842, Leases, or ASU 2018-10. The amendments in ASU 2018-10~~326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB

issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. ~~2016-02, Leases~~2016-13, Financial Instruments - Credit Losses (Topic ~~842),~~326): Measurement of Credit Losses on Financial Instruments, or ASU ~~2016-02~~2016-13, and have the same effective date and transition requirements as ASU ~~2016-02. Upon~~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 ~~effective~~reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU ~~2016-02 will supersede~~2016-13 replaces the current ~~lease guidance~~incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in ~~ASC Topic 840,~~ ~~Leases. Under~~ the ~~new guidance, lessees will be required to recognize~~amortized cost of the securities and provides for all 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 will be required to recognize a right-of-use 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.additional disclosure requirements. ASU ~~2016-02~~2016-13 is effective for ~~interim and annual reporting periods beginning after December 15, 2018,~~us on January 1, 2020, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU ~~2016-02~~2016-13 will have on our consolidated financial statements, results of operations and cash flows.

In ~~July~~August 2018, the FASB issued Accounting Standards Update No. ~~2018-09, Codification Improvements,~~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 ~~2018-09. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification.~~2018-15. The ~~majority of the~~ amendments in ASU ~~2018-09 will~~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 ~~in annual periods beginning~~on January 1, 2020, with early adoption permitted. The guidance can be applied either prospectively to all implementation costs incurred after ~~December 15, 2018.~~the date of adoption or retrospectively. We are currently evaluating the effects the adoption of ASU ~~2018-09~~2018-15 will have on our consolidated financial ~~statements,~~position, results of operations and cash flows.

In ~~February~~August 2018, the FASB issued Accounting Standards Update No. ~~2018-03,~~ ~~Technical Corrections and Improvements~~2018-14, Compensation—Retirement Benefits - Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to ~~Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~the Disclosure Requirements for Defined Benefit Plans, or ASU ~~2018-03. This amendment clarifies~~2018-14. The amendments in ASU 2018-14 eliminate, add, and modify certain ~~aspects~~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 ~~new guidance (ASU 2016-01) on recognizing and measuring financial instruments and presentation requirements for certain fair value~~beginning of the earliest period presented, with an option ~~liabilities. ASU 2018-03 is effective for us~~to apply such amendments retrospectively with ~~our interim period beginning July 1, 2018. The standard requires entities to record~~ a cumulative-effect adjustment to the ~~statement~~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, atresults of operations, cash flows, and related disclosures.

In January 2017, the ~~beginning~~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 update removes Step 2 of the ~~fiscal year in~~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 ~~amendments are adopted.~~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 ~~2018-03 will~~2017-04 is not expected to have a material impact on our consolidated financial position, results of operations or cash ~~flows or consolidated financial position.~~flows.

There were no other new accounting pronouncements that were issued or became effective since the issuance of our ~~2017~~2018 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.

Pending Acquisition of Beacon

On June 6, 2019, we announced our entrance into an agreement to acquire Beacon Health Options, Inc., or Beacon, the largest independently held behavioral health organization in the country. Beacon serves approximately forty million individuals across all fifty states. This acquisition aligns with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people with complex and chronic conditions. The acquisition is expected to close in the fourth quarter of 2019 and is subject to standard closing conditions and customary approvals.

Acquisition of America’s 1st Choice

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 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. Through its Medicare Advantage plans, America’s 1st Choice currently serves approximately one hundred and thirty five thousand members in twenty-five Florida and three South Carolina counties. This acquisition aligns withUpon the conclusion of our ~~plans for continued growth in~~one-year measurement period, the ~~Medicare Advantage and Special Needs populations.~~

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of America's 1st Choice's assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the ~~preliminary~~ fair value of the net assets acquired resulted in ~~preliminary~~ goodwill of ~~$1,020.9 at June 30, 2018, all~~$1,029, of which $296 was tax deductible. All of the goodwill was allocated to our Government Business segment. Preliminary goodwill recognized from the acquisition of America's 1st Choice primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions to strengthen our position and expand operations in the government sector to service Medicare Advantage and Special Needs populations. As of June 30, 2018, the initial accounting for the acquisition has not been finalized. Any subsequent adjustments made to the assets acquired or liabilities assumed during the measurement period will be recorded as an adjustment to goodwill. During the six months ended June 30, 2018, we increased preliminary goodwill by $31.2 due to adjustments made to acquired intangible assets.

The preliminary fair value of the net assets acquired from America's 1st Choice includes $688.0 of other intangible assets, which primarily consist of finite-lived customer relationships and provider networks with amortization periods ranging from 8 to 20 years. The results of operations of ~~America's~~America’s 1st Choice are included in our consolidated financial statements within our Government Business segment for the ~~period~~periods following February 15, 2018. ~~The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.~~

~~Acquisition of HealthSun~~

On December 21, 2017, we completed our acquisition of HealthSun Health Plans, Inc., or HealthSun, which serves approximately forty thousand members in the state of Florida through its Medicare Advantage plans, and which received a five-star rating from the Centers for Medicare & Medicaid Services. This acquisition aligns with our plans for continued growth in the Medicare Advantage and dual-eligible populations.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of HealthSun's assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the preliminary fair value of net assets acquired resulted in preliminary goodwill of $1,602.8 at June 30, 2018, all of which was allocated to our Government Business segment. Preliminary goodwill recognized from the acquisition of HealthSun primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions to strengthen our position and expand operations in the government sector to service Medicare Advantage and dual-eligible enrollees. As of June 30, 2018, the initial accounting for the acquisition has not been finalized. Any subsequent adjustments made to the assets acquired or liabilities assumed during the measurement period will be recorded as an adjustment to goodwill. During the six months ended June 30, 2018, we reduced preliminary goodwill by $40.6 due to adjustments made to acquired intangible assets.

The preliminary fair value of the net assets acquired from HealthSun includes $637.0 of other intangible assets, which primarily consist of finite-lived customer relationships with amortization periods ranging from 7 to 20 years. The results of operations of HealthSun are included in our consolidated financial statements within our Government Business segment for the period following December 21, 2017. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.

Fixed Maturity Securities

We evaluate our available-for-sale fixed maturity securities for other-than-temporary declines based on qualitative and quantitative factors. There were no individually significant other-than-temporary impairment losses on investments during the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018. 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 fixed maturity securities, available-for-sale, at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:



													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		Less than 12 Months			12 Months or Greater			Estimated Fair Value
June 30, 2019
Fixed maturity securities:
United States Government securities	$	409	$	8	$	—		$	—		$	417	$	—
Government sponsored securities	171		6		—			—			177		—
States, municipalities and political subdivisions	4,400		237		—			(1		)	4,636		—
Corporate securities	8,712		263		(15		)	(31		)	8,929		(4		)
Residential mortgage-backed securities	3,646		86		(2		)	(8		)	3,722		—
Commercial mortgage-backed securities	87		3		—			(1		)	89		—
Other securities	1,645		23		(2		)	(4		)	1,662		—
Total fixed maturity securities	$	19,070	$	626	$	(19	)	$	(45	)	$	19,632	$	(4	)
December 31, 2018
Fixed maturity securities:
United States Government securities	$	414	$	3	$	—		$	(1	)	$	416	$	—
Government sponsored securities	108		1		—			(1		)	108		—
States, municipalities and political subdivisions	4,716		91		(3		)	(19		)	4,785		—
Corporate securities	8,189		33		(170		)	(115		)	7,937		(3		)
Residential mortgage-backed securities	2,769		31		(3		)	(47		)	2,750		—
Commercial mortgage-backed securities	69		—		—			(2		)	67		—
Other securities	1,115		14		(8		)	(5		)	1,116		—
Total fixed maturity securities	$	17,380	$	173	$	(184	)	$	(190	)	$	17,179	$	(3	)

Non-Credit
Component of
Other-Than-
Temporary
Impairments
Recognized in
Accumulated
Other
Comprehensive
Loss
Cost or
Amortized
Cost Gross
Unrealized
Gains Gross Unrealized Losses Estimated
Fair Value

Less than
12 Months

12 Months
or Greater

June 30, 2018
Fixed maturity securities:
United States Government securities $ 498.0
$ 0.8
$ (6.3 ) $ (0.8 ) $ 491.7
$ —
Government sponsored securities 111.1
0.1
(0.8 ) (0.5 ) 109.9
—
States, municipalities and political subdivisions, tax-exempt 5,096.5
98.0
(19.0 ) (10.5 ) 5,165.0
—
Corporate securities 7,891.3
55.2
(140.2 ) (23.8 ) 7,782.5
—
Residential mortgage-backed securities 2,832.2
29.8
(38.2 ) (23.2 ) 2,800.6
—
Commercial mortgage-backed securities 75.6
0.2
(0.5 ) (2.0 ) 73.3
—
Other securities 1,137.7
15.6
(5.8 ) (1.4 ) 1,146.1
—
Total fixed maturity securities $ 17,642.4
$ 199.7
$ (210.8 ) $ (62.2 ) $ 17,569.1
$ —
December 31, 2017
Fixed maturity securities:
United States Government securities $ 649.0
$ 2.2
$ (5.0 ) $ (0.7 ) $ 645.5
$ —
Government sponsored securities 90.3
0.3
(0.1 ) (0.4 ) 90.1
—
States, municipalities and political subdivisions, tax-exempt 5,854.6
192.6
(5.0 ) (7.3 ) 6,034.9
—
Corporate securities 7,362.8
165.8
(30.2 ) (12.6 ) 7,485.8
(0.3 )
Residential mortgage-backed securities 2,520.0
38.5
(8.0 ) (11.6 ) 2,538.9
—
Commercial mortgage-backed securities 80.1
0.7
(0.1 ) (2.0 ) 78.7
—
Other securities 1,053.7
14.4
(2.4 ) (1.5 ) 1,064.2
—
Total fixed maturity securities $ 17,610.5
$ 414.5
$ (50.8 ) $ (36.1 ) $ 17,938.1
$ (0.3 )

For fixed maturity securities in an unrealized loss position at June 30, ~~2018~~2019 and December 31, ~~2017~~2018, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position:



	Less than 12 Months						12 Months or Greater
(Securities are whole amounts)	Number of Securities	Estimated Fair Value		Gross Unrealized Loss			Number of Securities	Estimated Fair Value		Gross Unrealized Loss
June 30, 2019
Fixed maturity securities:
United States Government securities	4	$	55	$	—		8	$	20	$	—
Government sponsored securities	—	—		—			13	7		—
States, municipalities and political subdivisions	7	8		—			48	60		(1		)
Corporate securities	406	642		(15		)	564	934		(31		)
Residential mortgage-backed securities	87	227		(2		)	420	668		(8		)
Commercial mortgage-backed securities	—	—		—			4	8		(1		)
Other securities	131	468		(2		)	116	345		(4		)
Total fixed maturity securities	635	$	1,400	$	(19	)	1,173	$	2,042	$	(45	)
December 31, 2018
Fixed maturity securities:
United States Government securities	5	$	47	$	—		25	$	79	$	(1	)
Government sponsored securities	8	11		—			24	31		(1		)
States, municipalities and political subdivisions	177	295		(3		)	604	1,032		(19		)
Corporate securities	2,185	4,503		(170		)	1,220	2,072		(115		)
Residential mortgage-backed securities	259	383		(3		)	816	1,458		(47		)
Commercial mortgage-backed securities	6	11		—			19	37		(2		)
Other securities	193	599		(8		)	93	237		(5		)
Total fixed maturity securities	2,833	$	5,849	$	(184	)	2,801	$	4,946	$	(190	)

Less 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
June 30, 2018
Fixed maturity securities:
United States Government securities 33
$ 255.1
$ (6.3 ) 12
$ 84.5
$ (0.8 )
Government sponsored securities 21
40.1
(0.8 ) 16
13.9
(0.5 )
States, municipalities and political subdivisions, tax-exempt 788
1,428.1
(19.0 ) 161
254.1
(10.5 )
Corporate securities 2,446
5,284.7
(140.2 ) 303
382.4
(23.8 )
Residential mortgage-backed securities 767
1,585.5
(38.2 ) 310
492.4
(23.2 )
Commercial mortgage-backed securities 16
26.7
(0.5 ) 11
26.7
(2.0 )
Other securities 199
642.7
(5.8 ) 22
36.5
(1.4 )
Total fixed maturity securities 4,270
$ 9,262.9
$ (210.8 ) 835
$ 1,290.5
$ (62.2 )
December 31, 2017
Fixed maturity securities:
United States Government securities 36
$ 450.4
$ (5.0 ) 11
$ 56.1
$ (0.7 )
Government sponsored securities 12
16.3
(0.1 ) 16
14.8
(0.4 )
States, municipalities and political subdivisions, tax-exempt 414
641.4
(5.0 ) 189
355.5
(7.3 )
Corporate securities 1,081
2,200.1
(30.2 ) 279
329.7
(12.6 )
Residential mortgage-backed securities 445
1,050.3
(8.0 ) 287
478.0
(11.6 )
Commercial mortgage-backed securities 7
13.7
(0.1 ) 12
27.2
(2.0 )
Other securities 132
406.1
(2.4 ) 20
35.8
(1.5 )
Total fixed maturity securities 2,127
$ 4,778.3
$ (50.8 ) 814
$ 1,297.1
$ (36.1 )

The amortized cost and fair value of fixed maturity securities at June 30, ~~2018,~~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
Due in one year or less	$	605	$	604
Due after one year through five years	5,548		5,647
Due after five years through ten years	5,179		5,364
Due after ten years	4,005		4,206
Mortgage-backed securities	3,733		3,811
Total fixed maturity securities	$	19,070	$	19,632

Amortized
Cost

Estimated
Fair Value
Due in one year or less $ 564.3
$ 564.2
Due after one year through five years 4,961.5
4,941.3
Due after five years through ten years 5,256.5
5,213.3
Due after ten years 3,952.3
3,976.4
Mortgage-backed securities 2,907.8
2,873.9
Total fixed maturity securities $ 17,642.4
$ 17,569.1

Proceeds from sales, maturities, calls or redemptions of fixed maturity securities and the related gross realized gains and gross realized losses for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Proceeds	$	1,986		$	2,654		$	3,454		$	4,881
Gross realized gains	22			31			40			61
Gross realized losses	(17		)	(33		)	(34		)	(69		)

Three Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Proceeds $ 2,653.8
$ 2,744.8
$ 4,881.1
$ 6,119.3
Gross realized gains 30.9
41.2
60.6
86.7
Gross realized losses (32.6 ) (16.6 ) (69.0 ) (40.3 )

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.

A summary of current and long-term marketable equity securities at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:



	June 30, 2019		December 31, 2018
Equity securities:
Exchange traded funds	$	510	$	2
Fixed maturity mutual funds	633		557
Common equity securities	77		654
Private equity securities	305		313
Total	$	1,525	$	1,526

June 30, 2018 December 31, 2017
Equity securities:
Exchange traded funds $ 631.0
$ 1,300.3
Fixed maturity mutual funds 599.9
790.6
Common equity securities 925.2
1,253.7
Private equity securities 312.1
287.4
Total $ 2,468.2
$ 3,632.0

The gains and losses related to equity securities for the three and six months ended June 30, 2019 and 2018 are as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Net realized gains (losses) recognized on equity securities	$	13		$	(17	)	$	92		$	(60	)
Less: Net realized gains recognized on equity securities sold during the period	(29		)	(24		)	(50		)	(197		)
Unrealized (losses) gains recognized on equity securities still held at June 30, 2019	$	(16	)	$	(41	)	$	42		$	(257	)

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Net realized gains and losses recognized on equity securities sold during the period $ 24.0
$ 196.9
Unrealized gains and losses recognized on equity securities still held at June 30, 2018 (40.8 ) (256.7 )
Net realized losses recognized on equity securities $ (16.8 ) $ (59.8 )

The gross realized gains and losses recognized on sales of equity securities were $9.4 and $3.0, respectively, for the three months ended June 30, 2017. The gross realized gains and losses recognized on sales of equity securities were $23.6 and $5.0, respectively, for the six months ended June 30, 2017.

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 ~~$624.3~~$564 and ~~$454.4~~$604 at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The value of the collateral represented ~~102%~~103% and ~~104%~~102% of the market value of the securities on loan at June 30, ~~2018~~2019 and December 31, ~~2017,~~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.

The remaining contractual maturity of our securities lending agreements at June 30, ~~2018~~2019 is as follows:



	Overnight and Continuous
Securities lending transactions
United States Government securities	$	42
Corporate securities	474
Equity securities	48
Total	$	564

Overnight and Continuous
Securities lending transactions
United States Government securities $ 12.4
Corporate securities 481.4
Equity securities 130.5
Total $ 624.3

The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned ~~securities'~~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. ~~We had posted collateral of $9.0 and $11.5 related to our derivative financial instruments at June 30, 2018 and December 31, 2017, respectively.~~

~~A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at June 30, 2018 and December 31, 2017 is as follows:~~

Contractual/
Notional
Amount
Balance Sheet Location Estimated Fair Value
Asset (Liability)
June 30, 2018
Hedging instruments
Interest rate swaps - fixed to floating $ 1,200.0
Other assets/other liabilities $ 1.0
$ (15.0 )
Non-hedging instruments
Interest rate swaps 261.5
Equity securities 9.4
(0.4 )
Options 100.0
Other assets/other liabilities —
—
Futures 307.3
Equity securities 1.4
(2.4 )
Subtotal non-hedging 668.8
Subtotal non-hedging 10.8
(2.8 )
Total derivatives $ 1,868.8
Total derivatives 11.8
(17.8 )
Amounts netted (11.8 ) 11.8
Net derivatives $ —
$ (6.0 )

December 31, 2017
Hedging instruments
Interest rate swaps - fixed to floating $ 1,235.0
Other assets/other liabilities $ 2.0
$ (5.3 )
Interest rate swaps - forward starting pay fixed swaps 425.0
Other assets/other liabilities —
(8.9 )
Subtotal hedging 1,660.0
Subtotal hedging 2.0
(14.2 )
Non-hedging instruments
Interest rate swaps 171.3
Equity securities 1.0
(4.7 )
Options 100.0
Other assets/other liabilities —
(0.1 )
Futures 116.8
Equity securities 0.1
(2.5 )
Subtotal non-hedging 388.1
Subtotal non-hedging 1.1
(7.3 )
Total derivatives $ 2,048.1
Total derivatives 3.1
(21.5 )
Amounts netted (1.6 ) 1.6
Net derivatives $ 1.5
$ (19.9 )

~~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 ~~LIBOR. A summary of our outstanding fair value hedges at June 30, 2018 and December 31, 2017 is as follows:~~the London Interbank Offering Rate.

Type of Fair Value Hedges
Year
Entered
Into
Outstanding Notional Amount
Interest Rate
Received
Expiration Date
June 30, 2018 December 31, 2017
Interest rate swap 2018 $ 50.0
$ —
4.101 % September 1, 2027
Interest rate swap 2018 450.0
—
3.300
January 15, 2023
Interest rate swap 2018 90.0
—
4.350 August 15, 2020
Interest rate swap 2017 50.0
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
1.875 January 15, 2018
Total notional amount outstanding $ 1,200.0
$ 1,235.0

~~The following amounts were recorded on our consolidated balance sheets related~~Prior to ~~cumulative basis adjustments for fair value hedges at June 30, 2018 and December 31, 2017:~~

Balance Sheet Classification in Which Hedged Item is Included Carrying Amount of Hedged Liability Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Current portion of long term-debt $ 650.2
$ 1,274.6
$ 1.0
$ 2.0
Long-term debt 17,515.4
17,382.2
(15.0 ) (5.3 )

~~Cash Flow Hedges~~

~~We have~~2019, we entered into a series of forward starting pay fixed interest rate swaps with the objective of reducing the variability of cash flows in the interest payments on anticipated future financings. We had $425.0 in notional amounts outstanding under forward starting pay fixed interest rate swaps at December 31, 2017. During the six months ended June 30, 2018, swaps in the notional amount of $425.0 were terminated. We received an aggregate of $24.4 from the swap counter parties upon termination.

The unrecognized loss for all ~~outstanding,~~ expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was ~~$251.6~~$243 and ~~$233.0~~$246 at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~As of June 30, 2018,~~

For additional information relating to the ~~total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $14.2. No amounts were excluded from effectiveness testing.~~

~~A summary of the effect of cash flow hedges in accumulated other comprehensive loss for the three and six months ended June 30, 2018 and 2017 is as follows:~~

Hedge
(Loss) Income
Recognized
in Other
Comprehensive
(Loss) Income
Income Statement Location of
Loss Reclassification from
Accumulated Other Comprehensive Loss
Hedge Loss
Reclassified from
Accumulated
Other
Comprehensive
Loss
Type of Cash Flow Hedge
Three months ended June 30, 2018
Forward starting pay fixed swaps $ —
Interest expense $ (3.4 )
Three months ended June 30, 2017
Forward starting pay fixed swaps $ (118.0 ) Interest expense $ (1.5 )
Six months ended June 30, 2018
Forward starting pay fixed swaps $ 33.3
Interest expense $ (6.6 )
Six months ended June 30, 2017
Forward starting pay fixed swaps $ (99.7 ) Interest expense $ (3.0 )
Forward starting pay fixed swaps Net realized gains (losses) on financial instruments $ (12.0 )

~~Income Statement Relationship of Fair Value and Cash Flow Hedging~~

~~A summary of the relationship between the effects of~~ fair value of our derivative assets and ~~cash flow hedges on the total amount~~liabilities, see Note 6, “Fair Value,” of ~~income and expense presented in our consolidated statements of income for the three and six months ended June 30, 2018 and 2017 is as follows:~~

Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
Three Months Ended June 30, 2018 Three Months Ended June 30, 2017 Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
Net Realized Gains (Losses) on Financial Instruments Interest Expense Net Realized Gains (Losses) on Financial Instruments Interest Expense Net Realized Gains (Losses) on Financial Instruments Interest Expense Net Realized Gains (Losses) on Financial Instruments Interest Expense
Total amount of income or expense in the income statement in which the effects of fair value or cash flow hedges are recorded $ 4.0
$ (191.7 ) $ 16.2
$ (189.9 ) $ (22.1 ) $ (375.9 ) $ 23.5
$ (424.9 )
Loss (gain) on fair value hedging relationships:
Interest rate swaps
Hedged items (0.5 ) —
—
(0.1 ) (0.8 ) —
—
0.2
Derivatives designated as hedging instruments 0.5
—
—
0.1
0.8
—
—
(0.2 )
Loss on cash flow hedging relationships:
Forward starting pay fixed swaps
Amount of loss reclassified from accumulated other comprehensive loss into net income —
(3.4 ) —
(1.5 ) —
(6.6 ) —
(3.0 )
Amount of loss reclassified from accumulated other comprehensive loss into net income due to ineffectiveness and missed forecasted transactions —
—
—
—
—
—
(12.0 ) —

~~Non-Hedging Derivatives~~

~~A summary of the effect of non-hedging derivatives on our consolidated statements of income for the three and six months ended June 30, 2018 and 2017 is as follows:~~

Type of Non-hedging Derivatives Income Statement Location of Gain (Loss) Recognized
Derivative
Gain (Loss)
Recognized
Three months ended June 30, 2018
Interest rate swaps Net realized gains (losses) on financial instruments $ 16.9
Options Net realized gains (losses) on financial instruments 0.5
Futures Net realized gains (losses) on financial instruments 2.0
Total $ 19.4
Three months ended June 30, 2017
Interest rate swaps Net realized gains (losses) on financial instruments $ (2.0 )
Options Net realized gains (losses) on financial instruments (10.6 )
Futures Net realized gains (losses) on financial instruments (2.0 )
Total $ (14.6 )
Six months ended June 30, 2018
Interest rate swaps Net realized gains (losses) on financial instruments $ 14.5
Options Net realized gains (losses) on financial instruments (0.2 )
Futures Net realized gains (losses) on financial instruments 5.0
Total $ 19.3
Six months ended June 30, 2017
Interest rate swaps Net realized gains (losses) on financial instruments $ (1.4 )
Options Net realized gains (losses) on financial instruments (21.1 )
Futures Net realized gains (losses) on financial instruments (2.4 )
Total $ (24.9 )
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. 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: Fair values of equity securities with quoted market prices are ~~generally~~ designated as Level ~~I and are based on quoted market prices.~~I. 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 June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:


	Level I		Level II			Level III		Total			Level I		Level II			Level III		Total
June 30, 2018
June 30, 2019
Assets:
Cash equivalents	$	2,626.2	$	—		$	—	$	2,626.2		$	1,938	$	—		$	—	$	1,938
Fixed maturity securities, available-for-sale:
United States Government securities	—		491.7			—		491.7			—		417			—		417
Government sponsored securities	—		109.9			—		109.9			—		177			—		177
States, municipalities and political subdivisions, tax-exempt	—		5,165.0			—		5,165.0
States, municipalities and political subdivisions											—		4,636			—		4,636
Corporate securities	2.8		7,475.3			304.4		7,782.5			—		8,632			297		8,929
Residential mortgage-backed securities	—		2,796.1			4.5		2,800.6			—		3,719			3		3,722
Commercial mortgage-backed securities	—		73.3			—		73.3			—		89			—		89
Other securities	—		1,120.5			25.6		1,146.1			—		1,651			11		1,662
Total fixed maturity securities, available-for-sale	2.8		17,231.8			334.5		17,569.1			—		19,321			311		19,632
Equity securities:
Exchange traded funds	631.0		—			—		631.0			510		—			—		510
Fixed maturity mutual funds	—		599.9			—		599.9			—		633			—		633
Common equity securities	834.2		91.0			—		925.2			44		33			—		77
Private equity securities	—		—			312.1		312.1			—		—			305		305
Total equity securities	1,465.2		690.9			312.1		2,468.2			554		666			305		1,525
Other invested assets, current	23.8		—			—		23.8			14		—			—		14
Securities lending collateral	473.9		150.7			—		624.6			—		565			—		565
Derivatives	—		11.8			—		11.8			—		24			—		24
Total assets	$	4,591.9	$	18,085.2		$	646.6	$	23,323.7		$	2,506	$	20,576		$	616	$	23,698
Liabilities:
Derivatives	$	—	$	(17.8	)	$	—	$	(17.8	)	$	—	$	(15	)	$	—	$	(15	)
Total liabilities	$	—	$	(17.8	)	$	—	$	(17.8	)	$	—	$	(15	)	$	—	$	(15	)

December 31, 2017
December 31, 2018
Assets:
Cash equivalents	$	1,956.4	$	—		$	—	$	1,956.4		$	1,815	$	—		$	—	$	1,815
Fixed maturity securities, available-for-sale:
United States Government securities	—		645.5			—		645.5			—		416			—		416
Government sponsored securities	—		90.1			—		90.1			—		108			—		108
States, municipalities and political subdivisions, tax-exempt	—		6,034.9			—		6,034.9
States, municipalities and political subdivisions											—		4,785			—		4,785
Corporate securities	24.8		7,231.8			229.2		7,485.8			2		7,648			287		7,937
Residential mortgage-backed securities	—		2,533.9			5.0		2,538.9			—		2,744			6		2,750
Commercial mortgage-backed securities	—		78.7			—		78.7			—		67			—		67
Other securities	75.2		973.1			15.9		1,064.2			—		1,099			17		1,116
Total fixed maturity securities, available-for-sale	100.0		17,588.0			250.1		17,938.1			2		16,867			310		17,179
Equity securities:
Exchange traded funds	1,300.3		—			—		1,300.3			2		—			—		2
Fixed maturity mutual funds	—		790.6			—		790.6			—		557			—		557
Common equity securities	1,146.6		107.1			—		1,253.7			601		53			—		654
Private equity securities	—		—			287.4		287.4			—		—			313		313
Total equity securities	2,446.9		897.7			287.4		3,632.0			603		610			313		1,526
Other invested assets, current	17.2		—			—		17.2			21		—			—		21
Securities lending collateral	214.1		241.0			—		455.1			314		290			—		604
Derivatives	—		3.1			—		3.1			—		16			—		16
Total assets	$	4,734.6	$	18,729.8		$	537.5	$	24,001.9		$	2,755	$	17,783		$	623	$	21,161
Liabilities:
Derivatives	$	—	$	(21.5	)	$	—	$	(21.5	)	$	—	$	(17	)	$	—	$	(17	)
Total liabilities	$	—	$	(21.5	)	$	—	$	(21.5	)	$	—	$	(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 June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Corporate Securities			Residential Mortgage- backed Securities			Other Securities			Equity Securities			Total
Three Months Ended June 30, 2019
Beginning balance at April 1, 2019	$	297		$	6		$	14		$	297		$	614
Total gains (losses):
Recognized in net income	(3		)	—			—			2			(1		)
Recognized in accumulated other comprehensive loss	—			—			—			—			—
Purchases	30			—			—			14			44
Sales	(1		)	—			—			(8		)	(9		)
Settlements	(19		)	(1		)	(1		)	—			(21		)
Transfers into Level III	—			—			—			—			—
Transfers out of Level III	(7		)	(2		)	(2		)	—			(11		)
Ending balance at June 30, 2019	$	297		$	3		$	11		$	305		$	616
Change in unrealized gains included in net income related to assets still held at June 30, 2019	$	—		$	—		$	—		$	2		$	2

Three Months Ended June 30, 2018
Beginning balance at April 1, 2018	$	260		$	5		$	14		$	303		$	582
Total gains (losses):
Recognized in net income	1			—			—			7			8
Recognized in accumulated other comprehensive loss	(3		)	—			—			—			(3		)
Purchases	42			—			9			3			54
Sales	(11		)	—			—			(1		)	(12		)
Settlements	(23		)	—			—			—			(23		)
Transfers into Level III	38			—			4			—			42
Transfers out of Level III	—			—			(1		)	—			(1		)
Ending balance at June 30, 2018	$	304		$	5		$	26		$	312		$	647
Change in unrealized gains included in net income related to assets still held at June 30, 2018	$	—		$	—		$	—		$	7		$	7

Corporate
Securities

Residential
Mortgage-
backed
Securities

Other
Securities

Equity
Securities
Total
Three Months Ended June 30, 2018
Beginning balance at April 1, 2018 $ 260.5
$ 4.7
$ 13.7
$ 303.4
$ 582.3
Total gains (losses):
Recognized in net income 1.1
—
—
7.0
8.1
Recognized in accumulated other comprehensive loss (2.9 ) —
0.1
—
(2.8 )
Purchases 42.1
—
8.9
2.4
53.4
Sales (10.9 ) —
—
(0.7 ) (11.6 )
Settlements (23.6 ) (0.2 ) (0.2 ) —
(24.0 )
Transfers into Level III 38.1
—
3.7
—
41.8
Transfers out of Level III —
—
(0.6 ) —
(0.6 )
Ending balance at June 30, 2018 $ 304.4
$ 4.5
$ 25.6
$ 312.1
$ 646.6
Change in unrealized gains (losses) included in net income related to assets still held at June 30, 2018 $ —
$ —
$ —
$ 7.4
$ 7.4

Three Months Ended June 30, 2017
Beginning balance at April 1, 2017 $ 230.0
$ 7.2
$ 28.6
$ 223.3
$ 489.1
Total gains (losses):
Recognized in net income 0.9
—
—
(0.5 ) 0.4
Recognized in accumulated other comprehensive loss 0.1
—
0.1
0.4
0.6
Purchases 25.4
—
21.3
21.3
68.0
Sales (7.3 ) (3.9 ) (0.8 ) —
(12.0 )
Settlements (16.0 ) (0.1 ) (0.7 ) —
(16.8 )
Transfers into Level III 5.1
1.2
—
—
6.3
Transfers out of Level III —
(1.5 ) (13.7 ) —
(15.2 )
Ending balance at June 30, 2017 $ 238.2
$ 2.9
$ 34.8
$ 244.5
$ 520.4
Change in unrealized gains (losses) included in net income related to assets still held at June 30, 2017 $ (0.9 ) $ —
$ —
$ —
$ (0.9 )

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Corporate Securities			Residential Mortgage- backed Securities			Other Securities			Equity Securities			Total
Six Months Ended June 30, 2019
Beginning balance at January 1, 2019	$	287		$	6		$	17		$	313		$	623
Total (losses) gains:
Recognized in net income	(4		)	—			—			—			(4		)
Recognized in accumulated other comprehensive loss	2			—			—			—			2
Purchases	63			—			2			21			86
Sales	(2		)	—			—			(29		)	(31		)
Settlements	(40		)	(1		)	(2		)	—			(43		)
Transfers into Level III	—			—			3			—			3
Transfers out of Level III	(9		)	(2		)	(9		)	—			(20		)
Ending balance at June 30, 2019	$	297		$	3		$	11		$	305		$	616
Change in unrealized losses included in net income related to assets still held at June 30, 2019	$	—		$	—		$	—		$	—		$	—

Six Months Ended June 30, 2018
Beginning balance at January 1, 2018	$	229		$	5		$	16		$	287		$	537
Total (losses) gains:
Recognized in net income	1			—			—			(232		)	(231		)
Recognized in accumulated other comprehensive loss	(2		)	—			—			—			(2		)
Purchases	62			—			9			258			329
Sales	(15		)	—			—			(1		)	(16		)
Settlements	(30		)	—			(1		)	—			(31		)
Transfers into Level III	59			—			4			—			63
Transfers out of Level III	—			—			(2		)	—			(2		)
Ending balance at June 30, 2018	$	304		$	5		$	26		$	312		$	647
Change in unrealized gains included in net income related to assets still held at June 30, 2018	$	—		$	—		$	—		$	38		$	38

Corporate
Securities

Residential
Mortgage-
backed
Securities

Other
Securities

Equity
Securities
Total
Six Months Ended June 30, 2018

Beginning balance at January 1, 2018 $ 229.2
$ 5.0
$ 15.9
$ 287.4
$ 537.5
Total gains (losses):
Recognized in net income 0.8
—
—
(231.7 ) (230.9 )
Recognized in accumulated other comprehensive loss (2.4 ) —
—
—
(2.4 )
Purchases 62.0
0.1
8.9
258.0
329.0
Sales (14.5 ) —
—
(1.6 ) (16.1 )
Settlements (29.6 ) (0.6 ) (0.9 ) —
(31.1 )
Transfers into Level III 58.9
—
3.7
—
62.6
Transfers out of Level III —
—
(2.0 ) —
(2.0 )
Ending balance at June 30, 2018 $ 304.4
$ 4.5
$ 25.6
$ 312.1
$ 646.6
Change in unrealized gains (losses) included in net income related to assets still held at June 30, 2018 $ —
$ —
$ —
$ 37.6
$ 37.6

Six Months Ended June 30, 2017

Beginning balance at January 1, 2017 $ 238.8
$ 12.0
$ 42.8
$ 187.8
$ 481.4
Total (losses) gains:
Recognized in net income (0.4 ) —
—
(0.2 ) (0.6 )
Recognized in accumulated other comprehensive loss 3.7
—
0.2
—
3.9
Purchases 60.2
1.5
30.8
57.3
149.8
Sales (39.9 ) (5.4 ) (0.8 ) (0.4 ) (46.5 )
Settlements (35.6 ) (0.3 ) (1.1 ) —
(37.0 )
Transfers into Level III 13.4
1.2
1.2
—
15.8
Transfers out of Level III (2.0 ) (6.1 ) (38.3 ) —
(46.4 )
Ending balance at June 30, 2017 $ 238.2
$ 2.9
$ 34.8
$ 244.5
$ 520.4
Change in unrealized gains (losses) included in net income related to assets still held at June 30, 2017 $ (2.6 ) $ —
$ —
$ —
$ (2.6 )

~~Transfers between levels, if any, are recorded as of the beginning of the reporting period.~~ There were no individually material transfers ~~between levels~~into or out of Level III during the three and six months ended June 30, ~~2018~~2019 or ~~2017.~~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~~America’s 1st Choice on February 15, 2018. The ~~preliminary values of~~ net assets acquired in our acquisition of ~~America's~~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~~America’s 1st ~~Choice's~~Choice’s assets acquired and liabilities assumed were recorded at their carrying values as of the respective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The ~~preliminary~~ fair values of goodwill and other intangible assets acquired in our acquisition of ~~America's~~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 cash flows that the assets could be expected to generate in the future. We developed internal estimates for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of ~~America's~~America’s 1st Choice described above, there were no

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 ~~price~~prices for each security from third party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. ~~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 other~~and 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 six months ended June 30, ~~2018~~2019 or ~~2017~~2018.

In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in 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 and cash equivalents, accrued investment income, premium receivables, self-funded receivables, other receivables, income taxes receivable/payable, unearned income, accounts payable and accrued expenses, security trades pending payable, securities lending payable and certain other current liabilities approximate fair value because of the short term nature of these items. These assets and liabilities are not listed in the table below.

The following methods ~~assumptions~~ and ~~inputs~~assumptions were used to estimate the fair value of each class of financial instrument that is recorded at its carrying value in our consolidated balance sheets:

Other invested assets, 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 – 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 June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:



	Carrying Value		Estimated Fair Value
			Level I		Level II		Level III		Total
June 30, 2019
Assets:
Other invested assets, long-term	$	3,719	$	—	$	—	$	3,719	$	3,719
Liabilities:
Debt:
Short-term borrowings	1,010		—		1,010		—		1,010
Commercial paper	900		—		900		—		900
Notes	17,207		—		18,349		—		18,349
Convertible debentures	179		—		1,042		—		1,042

December 31, 2018
Assets:
Other invested assets, long-term	$	3,726	$	—	$	—	$	3,726	$	3,726
Liabilities:
Debt:
Short-term borrowings	1,145		—		1,145		—		1,145
Commercial paper	697		—		697		—		697
Notes	17,178		—		17,145		—		17,145
Convertible debentures	191		—		1,030		—		1,030

Carrying
Value
Estimated Fair Value
Level I Level II Level III Total
June 30, 2018
Assets:
Other invested assets, long-term $ 3,495.2
$ —
$ —
$ 3,495.2
$ 3,495.2
Liabilities:
Debt:
Short-term borrowings 1,120.0
—
1,120.0
—
1,120.0
Commercial paper 99.9
—
99.9
—
99.9
Notes 17,811.3
—
17,783.8
—
17,783.8
Convertible debentures 254.4
—
1,291.6
—
1,291.6

December 31, 2017
Assets:
Other invested assets, long-term $ 3,343.8
$ —
$ —
$ 3,343.8
$ 3,343.8
Liabilities:
Debt:
Short-term borrowings 1,275.0
—
1,275.0
—
1,275.0
Commercial paper 803.6
—
803.6
—
803.6
Notes 17,592.7
—
18,815.1
—
18,815.1
Convertible debentures 260.5
—
1,215.7
—
1,215.7

During the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, we recognized income tax expense of ~~$450.1~~$314 and ~~$350.4,~~$450, respectively, which represent effective tax rates of ~~29.9%~~21.6% and ~~29.1%~~29.9%, respectively. The ~~increase~~decrease in income tax expense and effective tax rate was primarily due to the ~~reinstatement~~suspension of the non-tax deductible Health Insurance Provider Fee, or HIP Fee, for 2019. For the three months ended June 30, 2018, ~~which resulted in~~we recognized additional income tax expense of ~~$83.6.~~$84 related to the HIP Fee.

During the six months ended June 30, 2019 and 2018, we recognized income tax expense of $708 and $918, respectively, which represent effective tax rates of 20.8% and 28.0%, respectively. The ~~increase~~decrease in income tax expense and effective tax rate was ~~further impacted by the tax benefits we recognized during the three months ended June 30, 2017 for prior acquisition costs incurred related~~primarily due to the ~~terminated merger agreement with Cigna Corporation, or Cigna. The increase in income tax expense and effective tax rate was partially offset by the effect~~suspension of the ~~Tax Cuts and Jobs Act, which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.~~

~~During~~non-tax deductible HIP Fee for 2019. For the six months ended June 30, 2018, ~~and 2017,~~ we recognized income tax expense of $917.9 and $855.5, respectively, which represent effective tax rates of 28.0% and 31.4%, respectively. The increase in income tax expense was primarily due to the reinstatement of the HIP Fee for 2018, which resulted in additional income tax expense of ~~$166.9. The increase in income tax expense was further impacted by the tax benefits we recognized during the six months ended June 30, 2017 for prior acquisition costs incurred~~$167 related to the terminated merger agreement with Cigna. The increase in income tax expense was partially offset by the effect of the Tax Cuts and Jobs Act. The decrease in the effective tax rate was primarily due to the lower U.S. federal corporate income tax rate, as reduced by the Tax Cuts and Jobs Act, partially offset by the reinstatement of the HIP Fee.

At June 30, 2018, we have not completed our accounting for all of the tax effects of the Tax Cuts and Jobs Act. We have made a reasonable estimate of the effects and will continue to make and refine our calculations as additional analysis is completed. Our estimates may also be affected as we gain a more thorough understanding of the Tax Cuts and Jobs Act.

The components of net periodic benefit credit included in our consolidated statements of income for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:

The components of net periodic benefit credit included in our consolidated statements of income for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:



	Pension Benefits						Other Benefits
	Six Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Service cost	$	—		$	4		$	—		$	1
Interest cost	32			27			8			7
Expected return on assets	(69		)	(73		)	(11		)	(12		)
Recognized actuarial loss	8			12			1			2
Settlement loss	4			13			—			—
Amortization of prior service credit	—			—			(6		)	(6		)
Net periodic benefit credit	$	(25	)	$	(17	)	$	(8	)	$	(8	)

Pension Benefits Other Benefits
Six Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Service cost $ 4.1
$ 5.0
$ 0.6
$ 0.7
Interest cost 27.1
33.3
7.6
10.4
Expected return on assets (73.5 ) (73.8 ) (12.1 ) (11.3 )
Recognized actuarial loss 12.0
10.9
1.7
5.7
Settlement loss 13.2
3.8
—
—
Amortization of prior service cost (credit) 0.1
(0.2 ) (6.2 ) (6.8 )
Net periodic benefit credit $ (17.0 ) $ (21.0 ) $ (8.4 ) $ (1.3 )

For the year ending December 31, ~~2018~~2019, 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. No contributions were made to our retirement benefit plans during the six months ended June 30, 2019 and 2018.

9.Medical Claims Payable

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”), for the six months ended June 30, 2019 is as follows:



	Commercial & Specialty Business			Government Business			Total
Gross medical claims payable, beginning of period	$	2,586		$	4,680		$	7,266
Ceded medical claims payable, beginning of period	(10		)	(24		)	(34		)
Net medical claims payable, beginning of period	2,576			4,656			7,232
Net incurred medical claims:
Current period	12,460			25,777			38,237
Prior periods redundancies	(182		)	(232		)	(414		)
Total net incurred medical claims	12,278			25,545			37,823
Net payments attributable to:
Current period medical claims	9,928			20,439			30,367
Prior periods medical claims	2,081			4,101			6,182
Total net payments	12,009			24,540			36,549
Net medical claims payable, end of period	2,845			5,661			8,506
Ceded medical claims payable, end of period	14			29			43
Gross medical claims payable, end of period	$	2,859		$	5,690		$	8,549

At June 30, 2019, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $45, $267 and $2,533 for the claim years 2017 and prior, 2018 and ~~2017.~~2019, respectively.

At June 30, 2019, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was $35, $289 and $5,337 for the claim years 2017 and prior, 2018 and 2019, respectively.

~~9 .Medical Claims Payable~~

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”), for the six months ended June 30, 2018 is as follows:



	Commercial & Specialty Business			Government Business			Total
Gross medical claims payable, beginning of period	$	3,383		$	4,431		$	7,814
Ceded medical claims payable, beginning of period	(78		)	(27		)	(105		)
Net medical claims payable, beginning of period	3,305			4,404			7,709
Business combinations and purchase adjustments	—			199			199
Net incurred medical claims:
Current period	11,699			22,223			33,922
Prior periods redundancies	(405		)	(390		)	(795		)
Total net incurred medical claims	11,294			21,833			33,127
Net payments attributable to:
Current period medical claims	9,367			18,135			27,502
Prior periods medical claims	2,520			3,688			6,208
Total net payments	11,887			21,823			33,710
Net medical claims payable, end of period	2,712			4,613			7,325
Ceded medical claims payable, end of period	4			31			35
Gross medical claims payable, end of period	$	2,716		$	4,644		$	7,360

Commercial
& Specialty
Business

Government
Business
Total
Gross medical claims payable, beginning of period $ 3,406.6
$ 4,584.9
$ 7,991.5
Ceded medical claims payable, beginning of period (78.0 ) (26.9 ) (104.9 )
Net medical claims payable, beginning of period 3,328.6
4,558.0
7,886.6
Business combinations and purchase adjustments —
199.2
199.2
Net incurred medical claims:
Current period 11,852.4
22,881.4
34,733.8
Prior periods redundancies (406.3 ) (398.2 ) (804.5 )
Total net incurred medical claims 11,446.1
22,483.2
33,929.3
Net payments attributable to:
Current period medical claims 9,495.6
18,650.8
28,146.4
Prior periods medical claims 2,540.4
3,817.8
6,358.2
Total net payments 12,036.0
22,468.6
34,504.6
Net medical claims payable, end of period 2,738.7
4,771.8
7,510.5
Ceded medical claims payable, end of period 4.0
30.8
34.8
Gross medical claims payable, end of period $ 2,742.7
$ 4,802.6
$ 7,545.3

At June 30, 2018, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was $28.3, $353.6 and $2,356.8 for the claim years 2016 and prior, 2017 and 2018, respectively.

At June 30, 2018, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was $36.5, $305.6 and $4,429.7 for the claim years 2016 and prior, 2017 and 2018, respectively.

~~A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”), for the six months ended June 30, 2017 is as follows:~~

Commercial
& Specialty
Business

Government
Business
Total
Gross medical claims payable, beginning of period $ 3,267.0
$ 4,625.6
$ 7,892.6
Ceded medical claims payable, beginning of period (521.3 ) (17.8 ) (539.1 )
Net medical claims payable, beginning of period 2,745.7
4,607.8
7,353.5
Net incurred medical claims:
Current period 14,423.4
21,263.1
35,686.5
Prior periods redundancies (408.9 ) (542.1 ) (951.0 )
Total net incurred medical claims 14,014.5
20,721.0
34,735.5
Net payments attributable to:
Current period medical claims 11,495.2
17,045.2
28,540.4
Prior periods medical claims 2,371.1
3,699.8
6,070.9
Total net payments 13,866.3
20,745.0
34,611.3
Net medical claims payable, end of period 2,893.9
4,583.8
7,477.7
Ceded medical claims payable, end of period 469.5
22.3
491.8
Gross medical claims payable, end of period $ 3,363.4
$ 4,606.1
$ 7,969.5

The reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income is as follows:



	Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018
Net incurred medical claims:
Commercial & Specialty Business	$	6,780	$	5,884	$	12,278	$	11,294
Government Business	12,704		11,039		25,545		21,833
Total net incurred medical claims	19,484		16,923		37,823		33,127
Quality improvement and other claims expense	884		805		1,827		1,647
Benefit expense	$	20,368	$	17,728	$	39,650	$	34,774

Three Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Net incurred medical claims:
Commercial & Specialty Business $ 5,957.9
$ 7,264.4
$ 11,446.1
$ 14,014.5
Government Business 11,345.4
10,297.2
22,483.2
20,721.0
Total net incurred medical claims 17,303.3
17,561.6
33,929.3
34,735.5
Quality improvement and other claims expense 424.5
355.6
844.4
724.5
Benefit expense $ 17,727.8
$ 17,917.2
$ 34,773.7
$ 35,460.0
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 June 30, 2019, is as follows:



	Commercial & Specialty Business		Government Business		Total
Net medical claims payable, end of period	$	2,845	$	5,661	$	8,506
Ceded medical claims payable, end of period	14		29		43
Insurance lines other than short duration	—		209		209
Gross medical claims payable, end of period	$	2,859	$	5,899	$	8,758

We generally issue senior unsecured notes for long-term borrowing purposes. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had ~~$17,786.1~~$17,182 and ~~$16,329.1,~~$17,153, respectively, outstanding under these notes.

On ~~July 16,~~May 1, 2018, we ~~repaid,~~settled each of the Equity Units stock purchase contracts at ~~maturity, the $650.0 outstanding balance~~a settlement rate of 0.2412 shares of our ~~2.300% senior unsecured notes. On January 15, 2018, we repaid, at maturity,~~common stock, using a market value formula set forth in the ~~$625.0 outstanding balance~~Equity Units purchase contracts. This resulted in the issuance of ~~our 1.875% senior unsecured notes.~~

Inapproximately 6.0 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 had a stated amount of $50 (whole dollars) and consisted of a purchase contract obligating the holder to purchase a certain number of shares of our common stock on May 1, 2018, subject to earlier termination or settlement, for a price in cash of $50 (whole dollars); and a 5% undivided beneficial ownership interest in $1,000 (whole dollars) principal amount of our 1.900% remarketable subordinated notes, or RSNs, due 2028. On May 1, 2018, we settled each of the Equity Units stock purchase contracts at a settlement rate of 0.2412 shares of our common stock, using a market value formula set forth in the Equity Units purchase contracts. This resulted in the issuance of approximately 6.0 shares.

On March 2, 2018, we remarketed the RSNs and used the proceeds to purchase U.S. Treasury securities that were pledged to secure the stock purchase obligations of the holders of the Equity Units. The purchasers of the RSNs transferred the RSNs to us in exchange for ~~$1,250.0~~$1,250 principal amount of our 4.101% senior notes due 2028, or the 2028 Notes, and a cash payment of ~~$4.4.~~$4. We cancelled the RSNs upon receipt and recognized a loss on extinguishment of debt of ~~$18.2.~~$18. At the remarketing, we also issued ~~$850.0~~$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 may redeem the 2048 Notes in whole at any time, or in part from time to time, and on or after May 1, 2020, we may redeem the 2028 Notes in whole at any time, or in part from time to time, at the applicable redemption prices. The 2028 Notes and the 2048 Notes are unsecured and unsubordinated obligations.

We have an unsecured surplus note with an outstanding principal balance of ~~$25.0 and $24.9~~$25 at both June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

We have a senior revolving credit facility, or the 5-Year Facility, with a group of lenders for general corporate purposes. ~~The~~In June 2019, we amended and restated the credit agreement for the 5-Year Facility to, among other things, extend the maturity date of the 5-Year Facility from August 2020 to June 2024 and decreased the amount of credit available under the 5-Year Facility from $3,500 to $2,500. In June 2019, we also entered into a 364-day senior revolving credit facility, or 364-Day Facility, with a group of lenders for general corporate purposes, which provides for credit ~~up to $3,500.0~~in the amount of $1,000 and matures ~~on August 25,~~in June 2020. There were no amounts outstanding under the 5-Year Facility or the 364-Day Facility at any time during the six months ended June 30, ~~2018~~2019 or under the 5-Year Facility at December 31, ~~2017.~~2018.

WeThrough certain subsidiaries, we have ~~two separate~~entered into multiple 364-day lines of credit, or the Subsidiary Credit Facilities, with separate lenders for general corporate purposes. The ~~facilities~~Subsidiary Credit Facilities provide combined credit of up to ~~$450.0. We had $450.0 outstanding under these lines of credit at~~$600. At June 30, ~~2018~~2019 and December 31, ~~2017.~~2018, $300 and $500, respectively, were outstanding under our Subsidiary Credit Facilities.

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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had ~~$99.9~~$900 and ~~$803.6,~~$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 six months ended June 30, ~~2018, $11.4~~2019, $20 aggregate principal amount of the Debentures were surrendered for conversion by certain holders in accordance with the terms and provisions of the ~~Indenture.~~indenture. We elected to settle the excess of the principal amount of the conversions with cash for total payments of ~~$38.0.~~$73. We ~~did not recognize any~~recognized a gain ~~or loss~~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 June 30, ~~2018~~2019 the related balances, conversion rate and conversion price of the Debentures:



Outstanding principal amount	$	267
Unamortized debt discount	$	86
Net debt carrying amount	$	179
Equity component carrying amount	$	97
Conversion rate (shares of common stock per $1,000 of principal amount)	13.8964
Effective conversion price (per $1,000 of principal amount)	$	71.9607

Outstanding principal amount $ 384.7
Unamortized debt discount $ 126.3
Net debt carrying amount $ 254.4
Equity component carrying amount $ 139.4
Conversion rate (shares of common stock per $1,000 of principal amount) 13.8022
Effective conversion price (per $1,000 of principal amount) $ 72.4517

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 the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. We had ~~$670.0~~$710 and ~~$825.0~~$645 in outstanding short-term borrowings from ~~various Federal Home Loan Banks, or~~ FHLBs, at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 with fixed interest rates of ~~1.959%~~2.437% and ~~1.386%~~2.458% respectively.

All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings, and the ~~364-day lines of credit.~~Subsidiary Credit Facilities.


11.	Commitments and Contingencies

Litigation and Regulatory Proceedings

In the ordinary course of business, we are defendants in, or parties to, a number of pending or threatened legal actions or proceedings. To the extent a plaintiff or plaintiffs in the following cases have specified in their complaint or in other court filings the amount of damages being sought, we have noted those alleged damages in the descriptions below. With respect to the cases described below, we contest liability and/or the amount of damages in each matter and believe we have meritorious defenses.

Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many proceedings, however, it is difficult to determine whether any loss is probable or reasonably possible. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of loss.

With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from ~~$0.0~~$0 to approximately ~~$250.0~~$250 at June 30, ~~2018.~~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 Virginiatwenty-eight states 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. ~~The defendants have filed~~In June 2018, in response to a motion ~~for certification of~~filed by the ~~April order, requesting the Court to amend its order to allow an appeal to the Eleventh Circuit Court of Appeals. In June 2018,~~defendants, the Court certified its April order for interlocutory appeal to the United States Court of Appeals for the Eleventh Circuit, ~~Court of Appeals.~~or the Eleventh Circuit. Also in June 2018, the defendants filed, with the Eleventh Circuit, ~~Court of Appeals,~~ a petition for permission to appeal the April order, which ~~Plaintiffs~~the plaintiffs opposed. ~~The defendants’ petition remains pending.~~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. In April 2019, plaintiffs filed their motions for class certification in conjunction with their supporting expert reports. Defendants filed their motions to exclude plaintiffs’ experts, as well as their opposition to plaintiffs’ motions for class certification, in July 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. ~~The~~Although the California Court of Appeal initially accepted our writ, ~~and~~it later indicated that it will not hear the issues raised by our writ until the case concludes in the Superior Court. The Superior Court has scheduled a trial setting conference for August 2019, at which time we anticipate ~~that the appeal hearing~~a trial date in mid-to-late 2020 will ~~occur in late 2018.~~be set. Because GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the ~~city~~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 ~~same~~ tax ~~periods.~~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 ~~$14,800.0~~$14,800 in damages for pharmacy pricing that is higher than competitive benchmark pricing under the ~~PBM Agreement~~agreement between the parties, or ESI PBM Agreement, over ~~$158.0~~$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 ~~PBM Agreement and that we can terminate 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; and (iii) that we do not have the right to terminate the PBM Agreement.~~faith. In the alternative, Express Scripts claims that we have been unjustly enriched by its payment of ~~$4,675.0~~$4,675 at the time ofwe entered into the ESI PBM Agreement. In March 2017, the court granted our motion to dismiss Express Scripts’ counterclaims for (i) breach of the implied covenant of good faith and fair dealing, and (ii) unjust enrichment with prejudice. The only remaining claims are for breach of contract and declaratory relief. Discovery is scheduled to be completed in September 2019. 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 ~~with Express Scripts~~ 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 ~~with Express Scripts~~

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 ~~have~~ filed a notice of appeal with the United States Court of Appeals for the Second ~~Circuit.~~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 ~~$1,850.0~~$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 ~~litigation in~~ Delaware ~~is ongoing with trial scheduled to commence in February~~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 us and our shareholders against certain current and former directors and officers alleging breaches of fiduciary duties, unjust enrichment and corporate waste associated with the Cigna Merger Agreement. This case has been stayed at the request of the parties pending 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 Regulatory 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, birth 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.

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 connection~~The investigations have all been resolved with the ~~resolution~~exception of ~~the National Association of Insurance Commissioners’ multistate targeted market conduct and financial exam in December~~

2016, we agreed to provide a customized credit protection program, equivalent to a credit freeze, for our members who were under the age of eighteen on January 27, 2015. No fines or penalties were imposed on us. Additionally, there arean ongoing ~~investigations~~investigation by ~~both the HHS Office of Civil Rights and~~ a multi-state group of ~~Attorneys General that remain~~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 and financial condition.~~

~~Civil class actions were filed in various federal and state courts by current or former members and others seeking damages that they alleged arose from~~obligations. We intend to vigorously defend the cyber-attack. In June 2015, the Judicial Panel on Multidistrict Litigation entered an order transferring the consolidated civil actions to the U.S. District Court for the Northern District of California, or the U.S. District Court in a matter captioned ~~In Re Anthem, Inc. Data Breach Litigation~~. The parties agreed to settle plaintiffs’ claims on a class-wide basis for a total settlement payment of $115.0. In August 2017, the U.S. District Court issued an order of preliminary approval of the settlement. The U.S. District Court held hearings on plaintiffs’ motion for final approval and class counsel’s fee petition in February and June 2018 and appointed a special master to review class counsel’s fee petition. A ruling on final approval remains pending. Three state court cases related to the cyber attack areremaining regulatory investigation; however, its ultimate outcome cannot be presently ~~proceeding outside of this multidistrict litigation.~~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 healthcare 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~~reimbursement of coverage claims.

In addition to the lawsuits described above, we are also involved in other pending and threatened litigation of the character incidental to our business, and are from time to time involved as a party in various governmental investigations, audits, reviews and administrative proceedings. These investigations, audits, reviews and administrative proceedings include

routine and special inquiries by state insurance departments, state attorneys general, the U.S. Attorney General and subcommittees of the U.S. Congress. Such investigations, audits, reviews and administrative proceedings could result in the imposition of civil or criminal fines, penalties, other sanctions and additional rules, regulations or other restrictions on our business operations. Any liability that may result from any one of these actions, or in the aggregate, could have a material adverse effect on our consolidated financial position or results of operations.

Contractual Obligations and Commitments

Express Scripts, through our ESI PBM Agreement, is the ~~exclusive~~ provider of certain PBM services to our ~~plans, excluding certain~~plans. 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 ~~subsidiaries that have exclusive agreements with different PBM service providers. The initial term of this~~contractual right to terminate the ESI PBM Agreement ~~expires on~~earlier 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. CVS Health began providing certain PBM services to IngenioRx pursuant to the CVS PBM Agreement in the second quarter of 2019. ~~Under~~Notwithstanding 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. 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, as well as various declarations under the PBM Agreement between the

~~parties.~~continues. For additional information regarding this lawsuit, refer to the Litigation and Regulatory ~~Proceedings~~ Proceedings-Express Scripts, Inc. Pharmacy Benefit Management Litigation section above. We believe we have appropriately recognized all rights and obligations under ~~this~~the ESI PBM Agreement ~~at June 30, 2018.~~

~~Vulnerability from Concentrations~~

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investment securities, premium receivables and instruments held through hedging activities. All investment securities are managed by professional investment managers within policies authorized by our Board of Directors. Such policies limit the amounts that may be invested in any one issuer and prescribe certain investee company criteria. Concentrations of credit risk with respect to premium receivables are limited due to the large number of employer groups that constitute our customer base in the states in which we conduct business. Asas of June 30, ~~2018, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.~~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 six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



Declaration Date	Record Date	Payment Date	Cash Dividend per Share	Total
Six Months Ended June 30, 2019
January 29, 2019	March 18, 2019	March 29, 2019	$0.80	$	206
April 23, 2019	June 10, 2019	June 25, 2019	$0.80	$	206

Six Months Ended June 30, 2018
January 30, 2018	March 9, 2018	March 23, 2018	$0.75	$	192
April 24, 2018	June 8, 2018	June 25, 2018	$0.75	$	196

Declaration Date Record Date Payment Date
Cash
Dividend
per Share
Total
Six Months Ended June 30, 2018
January 30, 2018 March 9, 2018 March 23, 2018 $0.75 $191.9
April 24, 2018 June 8, 2018 June 25, 2018 $0.75 $196.4

Six Months Ended June 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

On July ~~24, 2018,~~23, 2019, our Audit Committee declared a third quarter ~~2018~~2019 dividend to shareholders of ~~$0.75~~$0.80 per share, payable on September 25, ~~2018~~2019 to shareholders of record at the close of business on September 10, ~~2018.~~2019.

Under our Board of Directors’ authorization, we maintain a common stock repurchase program. On 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 July 1, ~~2018~~2019 through July ~~12, 2018~~17, 2019 (subsequent to June 30, ~~2018)~~2019) and for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	July 1, 2019 Through July 17, 2019		Six Months Ended June 30
	July 1, 2019 Through July 17, 2019		2019		2018
Shares repurchased	0.3		2.8		3.4
Average price per share	$	286.03	$	273.84	$	231.61
Aggregate cost	$	72	$	752	$	795
Authorization remaining at the end of the period	$	4,669	$	4,741	$	6,383

July 1, 2018
Through
July 12, 2018 Six Months Ended June 30
2018 2017
Shares repurchased 0.2
3.4
2.8
Average price per share $ 241.00
$ 231.61
$ 180.37
Aggregate cost $ 47.9
$ 795.0
$ 509.0
Authorization remaining at the end of the period $ 6,335.3
$ 6,383.2
$ 3,666.9

~~Equity Units~~

In May 2015, we issued 25.0 Equity Units in an aggregate principal amount of $1,250.0. Each Equity Unit contained 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. On May 1, 2018, we issued approximately 6.0 shares of our common stock pursuant to the purchase contract portion of the Equity Units, and we received $1,250.0 in proceeds from the holders of the Equity Units for such common stock. The number of shares purchased was determined using a market value formula set forth in the Equity Units purchase contracts. For additional information ~~relating to~~regarding the ~~Equity Units,~~use of capital for debt security repurchases, see Note 10, “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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K.

Stock Incentive Plans

A summary of stock option activity for the six months ended June 30, ~~2018~~2019 is as follows:



	Number of Shares		Weighted- Average Option Price per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	3.7		$	149.65
Granted	0.7		307.18
Exercised	(0.6	)	121.83
Forfeited or expired	(0.1	)	238.00
Outstanding at June 30, 2019	3.7		182.40		6.48	$	386
Exercisable at June 30, 2019	2.2		135.84		5.01	$	329

Number of
Shares

Weighted-
Average
Option Price
per Share

Weighted-
Average
Remaining
Contractual
Life (Years)

Aggregate
Intrinsic
Value
Outstanding at January 1, 2018 4.3
$ 124.31

Granted 0.8
231.87

Exercised (0.7 ) 104.37

Forfeited or expired (0.1 ) 182.22

Outstanding at June 30, 2018 4.3
147.09
6.64 $ 391.2
Exercisable at June 30, 2018 2.5
116.84
5.02 $ 298.3

A summary of the nonvested restricted stock activity, including restricted stock units, for the six months ended June 30, ~~2018~~2019 is as follows:



	Restricted Stock Shares and Units		Weighted- Average Grant Date Fair Value per Share
Nonvested at January 1, 2019	1.7		$	183.32
Granted	0.5		307.08
Vested	(0.8	)	151.16
Forfeited	—		241.06
Nonvested at June 30, 2019	1.4		240.31

Restricted
Stock Shares
and Units

Weighted-
Average
Grant Date
Fair Value
per Share
Nonvested at January 1, 2018 2.0
$ 152.20
Granted 0.9
231.81
Vested (1.0 ) 147.61
Forfeited (0.1 ) 185.72
Nonvested at June 30, 2018 1.8
180.90

During the six months ended June 30, ~~2018,~~2019, we granted approximately ~~0.3~~0.2 restricted stock units that are contingent upon us achieving earnings targets over the three year period from ~~2018~~2019 to ~~2020.~~2021. These grants have been included in the activity shown above, but will be subject to adjustment at the end of ~~2020~~2021 based on results in the three year period.

During the six months ended June 30, 2018, we granted an additional 0.2 restricted stock units, associated with our 2015 grants, that were earned as a result of satisfactory completion of performance measures between 2015 and 2017. These grants and vested shares have been included in the activity shown above.

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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K.

The following weighted-average assumptions were used to estimate the fair values of options granted during the six months ended June 30, ~~2018~~2019 and ~~2017~~2018:



	Six Months Ended June 30
	2019		2018
Risk-free interest rate	2.69	%	2.90	%
Volatility factor	25.00	%	30.00	%
Quarterly dividend yield	0.260	%	0.323	%
Weighted-average expected life (years)	4.40		3.70

Six Months Ended June 30
2018 2017
Risk-free interest rate 2.90 % 2.31 %
Volatility factor 30.00 % 32.00 %
Quarterly dividend yield 0.323 % 0.397 %
Weighted-average expected life (years) 3.70
4.00

The following weighted-average fair values per option or share were determined for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018:



	Six Months Ended June 30
	2019		2018
Options granted during the period	$	68.80	$	55.27
Restricted stock awards granted during the period	307.08		231.81

Six Months Ended June 30
2018 2017
Options granted during the period $ 55.27
$ 40.77
Restricted stock awards granted during the period 231.81
167.29


13.	Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss at June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	June 30
	2019			2018
Investments, excluding non-credit component of other-than-temporary impairments:
Gross unrealized gains	$	626		$	200
Gross unrealized losses	(60		)	(273		)
Net pre-tax unrealized gains (losses)	566			(73		)
Deferred tax (liability) asset	(130		)	15
Net unrealized gains (losses) on investments	436			(58		)
Non-credit components of other-than-temporary impairments on investments:
Unrealized losses	(4		)	—
Deferred tax asset	1			—
Net unrealized non-credit component of other-than-temporary impairments on investments	(3		)	—
Cash flow hedges:
Gross unrealized losses	(308		)	(318		)
Deferred tax asset	65			67
Net unrealized losses on cash flow hedges	(243		)	(251		)
Defined benefit pension plans:
Deferred net actuarial loss	(738		)	(600		)
Deferred prior service credits	(1		)	(1		)
Deferred tax asset	190			156
Net unrecognized periodic benefit costs for defined benefit pension plans	(549		)	(445		)
Postretirement benefit plans:
Deferred net actuarial loss	(57		)	(76		)
Deferred prior service costs	28			40
Deferred tax asset	7			9
Net unrecognized periodic benefit costs for postretirement benefit plans	(22		)	(27		)
Foreign currency translation adjustments:
Gross unrealized losses	(3		)	(2		)
Deferred tax asset	1			—
Net unrealized losses on foreign currency translation adjustments	(2		)	(2		)
Accumulated other comprehensive loss	$	(383	)	$	(783	)

June 30
2018 2017
Investments, excluding non-credit component of other-than-temporary impairments:
Gross unrealized gains $ 199.7
$ 941.6
Gross unrealized losses (273.0 ) (95.3 )
Net pre-tax unrealized (losses) gains (73.3 ) 846.3
Deferred tax asset (liability) 15.4
(304.0 )
Net unrealized (losses) gains on investments (57.9 ) 542.3
Non-credit components of other-than-temporary impairments on investments:
Unrealized losses —
(0.2 )
Deferred tax asset —
0.1
Net unrealized non-credit component of other-than-temporary impairments on investments —
(0.1 )
Cash flow hedges:
Gross unrealized losses (318.5 ) (355.8 )
Deferred tax asset 66.9
124.6
Net unrealized losses on cash flow hedges (251.6 ) (231.2 )
Defined benefit pension plans:
Deferred net actuarial loss (599.5 ) (641.2 )
Deferred prior service credits (1.0 ) (0.7 )
Deferred tax asset 155.5
251.6
Net unrecognized periodic benefit costs for defined benefit pension plans (445.0 ) (390.3 )
Postretirement benefit plans:
Deferred net actuarial loss (75.7 ) (140.9 )
Deferred prior service costs 39.8
52.9
Deferred tax asset 9.3
34.4
Net unrecognized periodic benefit costs for postretirement benefit plans (26.6 ) (53.6 )
Foreign currency translation adjustments:
Gross unrealized losses (2.1 ) (3.1 )
Deferred tax asset 0.4
1.1
Net unrealized losses on foreign currency translation adjustments (1.7 ) (2.0 )
Accumulated other comprehensive loss $ (782.8 ) $ (134.9 )

Other comprehensive income (loss) ~~income~~ reclassification adjustments for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:



	Three Months Ended June 30
	2019			2018
Investments:
Net holding gain (loss) on investment securities arising during the period, net of tax (expense) benefit of ($71) and $21, respectively	$	237		$	(77	)
Reclassification adjustment for net realized loss on investment securities, net of tax benefit of ($1) and ($1), respectively	1			5
Total reclassification adjustment on investments	238			(72		)
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) and ($0), respectively	(1		)	—
Cash flow hedges:
Holding gain, net of tax expense of ($0) and ($1), respectively	—			3
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($1) and ($2), respectively	3			8
Foreign currency translation adjustment, net of tax expense of ($0) and ($0), respectively	—			(1		)
Net gain (loss) recognized in other comprehensive income, net of tax (expense) benefit of ($73) and $17, respectively	$	240		$	(62	)

Three Months Ended June 30
2018 2017
Investments:
Net holding (loss) gain on investment securities arising during the period, net of tax benefit (expense) of $21.4 and ($67.0), respectively $ (76.8 ) $ 116.2
Reclassification adjustment for net realized loss (gain) on investment securities, net of tax (benefit) expense of ($1.3) and $8.3, respectively 4.8
(15.3 )
Total reclassification adjustment on investments (72.0 ) 100.9
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 ($0.0) and ($0.4), respectively —
0.9
Cash flow hedges:
Holding gain (loss), net of tax (expense) benefit of ($0.7) and $36.6, respectively 2.9
(79.8 )
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($2.7) and ($2.9), respectively 7.7
4.2
Foreign currency translation adjustment, net of tax expense of ($0.1) and ($0.4), respectively (0.8 ) 0.7
Net (loss) gain recognized in other comprehensive income, net of tax benefit (expense) of $16.6 and ($25.8), respectively $ (62.2 ) $ 26.9

Other comprehensive income (loss) ~~income~~ reclassification adjustments for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:



	Six Months Ended June 30
	2019			2018
Investments:
Net holding gain (loss) on investment securities arising during the period, net of tax (expense) benefit of ($170) and $98, respectively	$	586		$	(333	)
Reclassification adjustment for net realized loss on investment securities, net of tax benefit of ($2) and $(4), respectively	9			16
Total reclassification adjustment on investments	595			(317		)
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) and ($0), respectively	(1		)	—
Cash flow hedges:
Holding gain, net of tax expense of ($0) and ($9), respectively	3			32
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($2) and ($5), respectively	6			15
Net gain (loss) recognized in other comprehensive income, net of tax (expense) benefit of ($174) and $80, respectively	$	603		$	(270	)

Six Months Ended June 30
2018 2017
Investments:
Net holding (loss) gain on investment securities arising during the period, net of tax benefit (expense) of $98.5 and ($113.3), respectively $ (333.0 ) $ 210.4
Reclassification adjustment for net realized loss (gain) on investment securities, net of tax (benefit) expense of ($4.4) and $15.8, respectively 16.3
(29.3 )
Total reclassification adjustment on investments (316.7 ) 181.1
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 ($0.1) and ($2.5), respectively 0.2
4.5
Cash flow hedges:
Holding gain (loss), net of tax (expense) benefit of ($8.5) and $33.9, respectively 31.7
(62.8 )
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($5.3) and ($5.2), respectively 15.4
8.1
Foreign currency translation adjustment, net of tax expense of ($0.4) and ($1.1), respectively (0.4 ) 2.1
Net (loss) gain recognized in other comprehensive income, net of tax benefit (expense) of $79.8 and ($72.4), respectively $ (269.8 ) $ 133.0


14.	Earnings per Share

The denominator for basic and diluted earnings per share for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Three Months Ended June 30		Six Months Ended June 30
	2019	2018	2019	2018
Denominator for basic earnings per share – weighted-average shares	256.7	258.7	256.9	257.3
Effect of dilutive securities – employee stock options, nonvested restricted stock awards, convertible debentures and equity units	4.3	5.8	4.7	6.4
Denominator for diluted earnings per share	261.0	264.5	261.6	263.7

Three Months Ended
June 30
Six Months Ended
June 30
2018 2017 2018 2017
Denominator for basic earnings per share – weighted-average shares 258.7
264.6
257.3
264.5
Effect of dilutive securities – employee stock options, nonvested restricted stock awards, convertible debentures and equity units 5.8
6.2
6.4
6.1
Denominator for diluted earnings per share 264.5
270.8
263.7
270.6

During the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, weighted-average shares related to certain stock options of ~~0.8~~0.7 and ~~1.0,~~0.8, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. During each of the six months ended June 30, ~~2018~~2019 and ~~2017~~2018, weighted-average shares related to certain stock options of 0.5 ~~and~~ ~~0.7, respectively,~~ were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. ~~The Equity Unit purchase contracts were settled in May 2018, and approximately 6.0 shares of our common stock were issued and included in the basic earnings per share calculation.~~

During the three and six months ended June 30, ~~2018,~~2019, we issued approximately ~~0.1~~0.0 and ~~0.9~~0.5 restricted stock units under our stock incentive plans, ~~0.3~~0.2 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of ~~2018~~2019 through ~~2020.~~2021. During the three and six months ended June 30, ~~2017,~~2018, we issued approximately 0.1 and ~~0.6~~0.9 restricted stock units under our stock incentive plans, ~~0.1~~0.3 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of ~~2017~~2018 through ~~2019.~~2020. The contingent restricted stock units have been excluded from the denominator for diluted earnings per share and will 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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K.

Included in the Other segment is IngenioRx, our PBM, which began its operations during the second quarter of 2019 and the Diversified Business Group, or DBG, our integrated health services business, and unallocated corporate expenses. Based on the FASB guidance, as of June 30, 2019, IngenioRx and DBG do not collectively meet the quantitative thresholds for an operating segment; therefore, they have been included in our Other segment.

Further, during the second quarter of 2019, we reclassified DBG from our Government Business segment to the Other segment to reflect changes in how our segments are being managed. Amounts for 2018 have been reclassified to conform to the current year presentation for comparability.

Affiliated revenues represent revenues or cost for services performed by IngenioRx and DBG to our subsidiaries, are recorded at cost or management’s estimate of fair market value, and are eliminated in consolidation.

For our segment reporting, operating gains (losses) generated from IngenioRx and DBG affiliated activity have been included in our Commercial & Specialty Business and Government Business based upon their utilization of services from IngenioRx and DBG.

Financial data by reportable segment for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Commercial & Specialty Business		Government Business		Other			Eliminations			Total
Three Months Ended June 30, 2019
Operating revenue - unaffiliated	$	9,417	$	15,538	$	222		$	—		$	25,177
Operating revenue - affiliated	—		—		572			(572		)	—
Operating gain (loss)	983		478		(28		)	—			1,433
Three Months Ended June 30, 2018
Operating revenue - unaffiliated	$	9,055	$	13,619	$	41		$	—		$	22,715
Operating revenue - affiliated	—		—		309			(309		)	—
Operating gain (loss)	1,048		532		(21		)	—			1,559
Six Months Ended June 30, 2019
Operating revenue - unaffiliated	$	18,809	$	30,464	$	292		$	—		$	49,565
Operating revenue - affiliated	—		—		1,050			(1,050		)	—
Operating gain (loss)	2,581		855		(63		)	—			3,373
Six Months Ended June 30, 2018
Operating revenue - unaffiliated	$	18,006	$	26,972	$	79		$	—		$	45,057
Operating revenue - affiliated	—		—		631			(631		)	—
Operating gain (loss)	2,450		1,021		(44		)	—			3,427

Commercial
& Specialty
Business

Government
Business
Other Total
Three Months Ended June 30, 2018
Operating revenue $ 9,162.9
$ 13,543.0
$ 8.9
$ 22,714.8
Operating gain (loss) 1,052.8
537.4
(31.2 ) 1,559.0
Three Months Ended June 30, 2017
Operating revenue $ 10,308.8
$ 11,883.4
$ 5.8
$ 22,198.0
Operating gain (loss) 967.9
293.3
(34.2 ) 1,227.0
Six Months Ended June 30, 2018
Operating revenue $ 18,229.3
$ 26,805.4
$ 22.4
$ 45,057.1
Operating gain (loss) 2,461.2
1,028.3
(62.6 ) 3,426.9
Six Months Ended June 30, 2017
Operating revenue $ 20,598.4
$ 23,909.1
$ 10.0
$ 44,517.5
Operating gain (loss) 2,270.3
611.9
(69.8 ) 2,812.4

The major product revenues for each of the reportable segments for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Commercial & Specialty Business
Managed care products	$	7,646		$	7,362		$	15,264		$	14,641
Managed care services	1,353			1,304			2,719			2,581
Dental/Vision products and services	327			304			650			608
Other	91			85			176			176
Total Commercial & Specialty Business	9,417			9,055			18,809			18,006
Government Business
Managed care products	15,444			13,510			30,264			26,750
Managed care services	94			109			200			222
Total Government Business	15,538			13,619			30,464			26,972
Other
Other	794			350			1,342			710
Eliminations
Eliminations	(572		)	(309		)	(1,050		)	(631		)
Total product revenues	$	25,177		$	22,715		$	49,565		$	45,057

Three Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Commercial & Specialty Business
Managed care products $ 7,445.9
$ 8,664.4
$ 14,822.0
$ 17,324.8
Managed care services 1,302.1
1,232.4
2,584.3
2,455.0
Dental/Vision products and services 303.8
301.8
608.3
608.2
Other 111.1
110.2
214.7
210.4
Total Commercial & Specialty Business 9,162.9
10,308.8
18,229.3
20,598.4
Government Business
Managed care products 13,431.5
11,766.0
26,583.7
23,684.1
Managed care services 112.2
117.4
222.4
225.0
Total Government Business 13,543.7
11,883.4
26,806.1
23,909.1
Other
Other 8.2
5.8
21.7
10.0
Total product revenues $ 22,714.8
$ 22,198.0
$ 45,057.1
$ 44,517.5

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’ operating ~~revenues~~revenue to the amounts of total revenues included in our consolidated statements of income for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Reportable segments’ operating revenue	$	25,177		$	22,715		$	49,565		$	45,057
Net investment income	285			229			495			458
Net realized gains (losses) on financial instruments	11			4			89			(22		)
Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)
Total revenues	$	25,466		$	22,944		$	50,132		$	45,481

Three Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Reportable segments’ operating revenues $ 22,714.8
$ 22,198.0
$ 45,057.1
$ 44,517.5
Net investment income 229.3
200.2
458.5
407.4
Net realized gains (losses) on financial instruments 4.0
16.2
(22.1 ) 23.5
Other-than-temporary impairment losses recognized in income (4.4 ) (7.2 ) (12.3 ) (15.3 )
Total revenues $ 22,943.7
$ 22,407.2
$ 45,481.2
$ 44,933.1

A reconciliation of reportable segments’ operating gain to income before income tax expense included in our consolidated statements of income for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:



	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Reportable segments’ operating gain	$	1,433		$	1,559		$	3,373		$	3,427
Net investment income	285			229			495			458
Net realized gains (losses) on financial instruments	11			4			89			(22		)
Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)
Interest expense	(184		)	(192		)	(371		)	(376		)
Amortization of other intangible assets	(85		)	(93		)	(172		)	(173		)
Gain (loss) on extinguishment of debt	—			1			1			(18		)
Income before income tax expense	$	1,453		$	1,504		$	3,398		$	3,284


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.

The information related to our leases is as follows:

Three Months Ended
June 30 Six Months Ended
June 30
2018 2017 2018 2017
Reportable segments’ operating gain $ 1,559.0
$ 1,227.0
$ 3,426.9
$ 2,812.4
Net investment income 229.3
200.2
458.5
407.4
Net realized gains (losses) on financial instruments 4.0
16.2
(22.1 ) 23.5
Other-than-temporary impairment losses recognized in income (4.4 ) (7.2 ) (12.3 ) (15.3 )
Interest expense (191.7 ) (189.9 ) (375.9 ) (424.9 )
Amortization of other intangible assets (93.6 ) (40.6 ) (173.1 ) (82.4 )
Gain (loss) on extinguishment of debt 0.9
—
(18.2 ) —
Income before income tax expense $ 1,503.5
$ 1,205.7
$ 3,283.8
$ 2,720.7



	Balance Sheet Location	June 30, 2019
Operating Leases
Right-of-use assets	Other noncurrent assets	$	637
Lease liabilities, current	Other current liabilities	175
Lease liabilities, noncurrent	Other noncurrent liabilities	524



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Lease Expense
Operating lease expense	$	45		$	90
Short-term lease expense	12			24
Sublease income	(4		)	(8		)
Total lease expense	$	53		$	106

Other information
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases	$	44		$	89
Weighted average remaining lease term, operating leases	7 years			7 years
Weighted average discount rate, operating leases	3.90		%	3.90		%

At June 30, 2019, future lease payments for noncancellable operating leases with initial or remaining terms of one year or more are as follows:



2019 (excluding the six months ended June 30, 2019)	$	105
2020	159
2021	127
2022	113
2023	95
Thereafter	201
Total future minimum payments	800
Less imputed interest	(101		)
Total lease liabilities	$	699

As of June 30, 2019, we have additional operating leases for building spaces that have not yet commenced, and some building spaces are being constructed by the lessors and their agents. These leases have terms of up to 12 years and are expected to commence on various dates during 2020 and 2021 when the construction is complete and we take possession of the buildings. The undiscounted lease payments for these leases, which are not included in the tables above, aggregate $408.


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

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, or~~ 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, 2017 and the MD&A included in our 2017 Annual Report on Form 10-K, and our unaudited consolidated financial statements and accompanying notes as of and for the three and six months ended ~~June 30, 2018~~ ~~included in this Form 10-Q.~~ Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, ~~2018~~2019 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, ~~2018,~~2019, or any other period. ~~Also see Part I, Item 1A, “Risk Factors” of our 2017 Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors” of this Form 10-Q.~~

Overview

We manage our operations through three reportable segments: Commercial & Specialty Business, Government Business and Other. We regularly evaluate 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 change in the future. For additional information about our organization, see the “Overview” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 Annual Report on Form 10-K.

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 five thousand members in twenty-five Florida and three South Carolina counties. This acquisition aligns with our plans for continued growth in the Medicare Advantage and Special Needs populations.

On May 12, 2017, we announced that we were terminating the Agreement and Plan of Merger, or Merger Agreement, between us and Cigna Corporation, or Cigna. For additional information about ongoing litigation related to the Merger Agreement, see Note 11, “Commitments and Contingencies - ~~Litigation and Regulatory Proceedings - Cigna Corporation Merger Litigation,” to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.~~

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 and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management Litigation~~,” to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q. In October 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 CaremarkPCS Health, L.L.C., or CVS Health, to begin offering a full suite of PBM solutions starting on January 1, 2020, which coincides with the conclusion of our current agreement with Express Scripts.

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 changes to the U.S. health care system, which we expect will continue to impact our business model and strategy. 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 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 the ACA and the reduction or elimination of federal subsidies made available through the ACA for certain public exchange Individual products.

During 2017, we notified various state regulators of our decision to significantly reduce our participation in the Individual ACA-compliant marketplaces within their respective states. The uncertainty around, and subsequent termination of, the federal funding of the cost-sharing reduction 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, participation 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 56 of the 143 rating regions in which we operate.

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. 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 each year. 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 HIP Fee was suspended for 2017 and 2019. The total amount due from allocations to health insurers is $14,300.0 for 2018. For the three and six months ended June 30, 2018, we estimated our portion of the HIP Fee to be $398.1 and $795.0, respectively, which was recognized as general and administrative expense. There was no corresponding expense for 2017 due to the suspension of the HIP Fee for 2017.

As a result of the complexity of the ACA, its impact on health care in the United States and the continuing modification and interpretation of the ACA rules, we will continue to evaluate the impact of the ACA as additional guidance is made available. For additional discussion regarding the ACA, 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” included in our 2017 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 ~~39.5~~approximately 41 medical members through our affiliated health plans as of June 30, ~~2018.~~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, ~~Blue Cross and Blue Shield of Georgia,~~ and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS ~~licensees in Louisiana, South Carolina and western New York.~~licensees. Through our subsidiaries, we ~~also~~ serve customers in ~~over 25~~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. Also, beginning with the second quarter of 2019, we provide pharmacy benefits management services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia 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 gain, a non-GAAP measure, to further aid investors in understanding and analyzing our core operating results and 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. 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,~~information about our organization, see our “Reportable Segments Results of Operations” discussion included in this MD&A. For a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable segments’ operating gain to income before income tax expense, see Note 15, "Segment Information," to our unaudited consolidated financial statements included in Part I, Item 1, ~~of this Form 10-Q.~~

Operating revenue for the three months ended June 30, 2018 was $22,714.8, an increase of $516.8, or 2.3%, from the three months ended June 30, 2017. Operating revenue for the six months ended June 30, 2018 was $45,057.1, an increase of $539.6, or 1.2%, from the six months ended June 30, 2017. The increase in operating revenue for the three“Business” and six months ended June 30, 2018 compared to 2017 was primarily a result of higher premium revenue in our Government Business segment and, to a lesser extent, higher administrative fees and other revenue in our Commercial & Specialty Business segment. These increases were partially offset by a decrease in premium revenue in our Commercial & Specialty Business segment.

Net income for the three months ended June 30, 2018 was $1,053.4, an increase of $198.1, or 23.2%, from the three months ended June 30, 2017. Net income for the six months ended June 30, 2018 was $2,365.9, an increase of $500.7, or 26.8%, from the six months ended June 30, 2017. The increase in net income for the three and six months ended June 30, 2018 compared to 2017 was due to higher operating results in both our Government Business and Commercial & Specialty Business segments.

Our fully-diluted EPS was $3.98 for the three months ended June 30, 2018, which represented a 25.9% increase from EPS of $3.16 for the three months ended June 30, 2017. Our fully-diluted EPS was $8.97 for the six months ended June 30, 2018, which represented a 30.2% increase from fully-diluted EPS of $6.89 for the six months ended June 30, 2017. The increase in fully-diluted EPS for the three and six months ended June 30, 2018 compared to 2017 resulted from the increase in net income and, to a lesser extent, the lower number of shares outstanding in 2018.

Operating cash flow for the six months ended June 30, 2018 and 2017 was $2,757.1 and $3,081.3, respectively. The decrease in operating cash flow from 2017 of $324.2 was primarily attributable to increased spend to support growth initiatives; the impact of membership declines due to our reduced participation in ACA-compliant marketplaces in various states and declines in our fully-insured Local Group and Medicaid businesses; and higher incentive-based compensation payments. The decrease in cash provided by operating activities was partially offset by cash receipts related to rate increases across our businesses designed to cover overall cost trends and the impact of HIP Fee for 2018.

~~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 Blue Cross Blue Shield Association, or BCBSA. Non-BCBS-branded business refers to America’s 1st Choice, Amerigroup, CareMore, HealthSun, 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”~~Operations,” included in our ~~2017~~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 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. CVS Health began providing certain PBM services to IngenioRx in the second quarter of 2019

~~The following table presents~~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 medical ~~membership by customer type, funding arrangement~~ and ~~reportable segment~~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 ~~of June 30, 2018 and 2017. Also included below is other membership by product. The medical membership~~well as pricing and other ~~membership data presented are unaudited~~actions taken by existing competitors and new market entrants. Product pricing in ~~certain instances include estimates of the number of members represented by each contract at the end of the period.~~

June 30

(In thousands) 2018 2017
Change
% Change
Medical Membership

Customer Type

Local Group 15,612
15,705
(93 ) (0.6 )%
Individual 712
1,779
(1,067 ) (60.0 )%
National:
National Accounts 7,833
7,760
73
0.9 %
BlueCard^®
5,653
5,561
92
1.7 %
Total National 13,486
13,321
165
1.2 %
Medicare 1,738
1,484
254
17.1 %
Medicaid 6,391
6,529
(138 ) (2.1 )%
FEP^®
1,560
1,569
(9 ) (0.6 )%
Total Medical Membership by Customer Type 39,499
40,387
(888 ) (2.2 )%
Funding Arrangement
Self-Funded 25,273
24,938
335
1.3 %
Fully-Insured 14,226
15,449
(1,223 ) (7.9 )%
Total Medical Membership by Funding Arrangement 39,499
40,387
(888 ) (2.2 )%
Reportable Segment
Commercial & Specialty Business 29,810
30,805
(995 ) (3.2 )%
Government Business 9,689
9,582
107
1.1 %
Total Medical Membership by Reportable Segment 39,499
40,387
(888 ) (2.2 )%
Other Membership & Customers
Life and Disability Members 4,673
4,705
(32 ) (0.7 )%
Dental Members 5,788
5,818
(30 ) (0.5 )%
Dental Administration Members 5,384
5,335
49
0.9 %
Vision Members 6,760
6,791
(31 ) (0.5 )%
Medicare Advantage Part D Members 933
679
254
37.4 %
Medicare Part D Standalone Members 312
322
(10 ) (3.1 )%

~~Medical Membership(in thousands)~~

~~For the twelve months ended June 30, 2018, total medical membership decreased 888, or 2.2%, primarily due to decreases in~~our Commercial & Specialty Business segment, including our Individual and ~~Medicaid membership, partially offset by increases in our Medicare membership.~~

~~Self-funded medical membership increased 335, or 1.3%, primarily due to new sales, in-group changes and growth in our existing Large~~Small Group ~~and National Accounts.~~

~~Fully-insured membership decreased 1,223, or 7.9%, primarily due to our reduced participation in ACA-compliant marketplaces in various states.~~

~~Local Group membership decreased 93, or 0.6%, primarily as a result~~lines of ~~competitive pressures in fully-insured membership, partially offset by new sales and growth in our existing self-funded business.~~

~~Individual membership decreased 1,067, or 60.0%, primarily due to our reduced participation in ACA-compliant marketplaces in various states.~~

~~National Accounts membership increased 73, or 0.9%, primarily due to new sales and growth~~business, remains competitive. Revenues from ~~existing contracts exceeding lapses.~~

~~BlueCard~~^® ~~membership increased 92, or 1.7%, primarily due to higher membership activity at other BCBSA plans whose members reside in or travel to our licensed areas.~~

~~Medicare membership increased 254, or 17.1%, primarily due to membership acquired through~~ the ~~acquisitions of America’s 1st Choice and HealthSun and organic growth in existing markets.~~

Medicaid membership decreased 138, or 2.1%, primarily due to certain state market contractions, new market participants and membership reverification processes, partially offset by new business expansions.

~~FEP~~^® ~~membership decreased 9, or 0.6%, primarily due to reduced federal hiring to replace retirees.~~

~~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 decreased 32, or 0.7%, primarily due to higher lapses in our fully-insured Local Group business.~~

Dental membership decreased 30, or 0.5%, primarily due to our reduced participation in Individual ACA-compliant marketplaces in various states, partially offset by increased penetration in our Large Group business.

~~Dental administration membership increased 49, or 0.9%, primarily due to membership expansion under current contracts, partially offset by the loss of a large managed dental contract.~~

~~Vision membership decreased 31, or 0.5%, primarily due to our reduced participation in ACA-compliant marketplaces in various states, partially offset by growth in our~~ Medicare and ~~Large Group business.~~

~~Medicare Advantage Part D membership increased 254,~~Medicaid programs are dependent, in whole or ~~37.4%, primarily due to membership acquired through~~in part, upon annual funding from the ~~acquisitions of America’s 1st Choice and HealthSun and organic growth in existing markets.~~

~~Medicare Part D standalone membership decreased 10,~~ federal government and/or ~~3.1%, primarily due to select strategic actions in certain markets.~~

~~Cost of Care~~applicable state governments.

The ~~following discussion summarizes~~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 ~~aggregate underlying cost~~affected products to cover the impact of ~~care trends~~the HIP Fee. The HIP Fee was suspended for ~~the rolling 12 months ended June 30, 2018~~2019 and is scheduled to resume for ~~our Local Group fully-insured business only.~~2020.

Our underlying Local Group medical cost trend in 2018 reflects the “allowed amount,” or contractual rate, paid to providers. We believe that a 2018 cost of care trend estimate in the range of 5.5% to 6.5% is appropriate.

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, ~~site of service redirection,~~ condition management, program integrity and specialty pharmacy management, as well as benefit design changes. There are many drivers of medical cost ~~trend that~~trends which can cause ~~variance~~variances 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” included in 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 may 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 30^th 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 and six months ended June 30, 2018, we recognized $398 and $795, respectively, 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 2018 Annual Report on Form 10-K.

Other Significant Items

In October 2017, we established IngenioRx and entered into the 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 migrate the services from Express Scripts began on March 2, 2019. CVS Health began 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 ~~Results~~Financial Statements included in Part I, Item 1 of ~~Operations~~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. For additional information, see Note 3, “Business Acquisitions,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

On May 12, 2017, we announced that we were terminating the Agreement and Plan of Merger, or Merger Agreement, between us and Cigna Corporation. For additional information about 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 Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Selected Operating Performance

For the twelve months ended June 30, 2019, total medical membership increased 1,291, or 3.3%. Our ~~consolidated summarized results~~medical membership grew across our business segments as well as by customer type and funding arrangement. The increase in medical membership in our Government Business segment was primarily due to growth in our Medicaid and Medicare businesses. The increase in medical membership in our Commercial & Specialty Business segment was primarily due to growth in our National business.

Operating revenue for the three months ended June 30, 2019 was $25,177, an increase of ~~operations~~$2,462, or 10.8%, from the three months ended June 30, 2018. Operating revenue for the six months ended June 30, 2019 was $49,565, an increase of $4,508, or 10.0%, from the six months ended June 30, 2018. The increase in operating revenue for the three and six months ended June 30, 2019 compared to 2018 was primarily a result of higher premium revenue in our Government Business segment and, to a lesser extent, higher premium revenue in our Commercial & Specialty Business segment.

Net income for the three months ended June 30, 2019 was $1,139, an increase of $85, or 8.1%, from the three months ended June 30, 2018. The increase in net income for the three months ended June 30, 2019 compared to 2018 was driven by lower income tax expense. Net income for the six months ended June 30, 2019 was $2,690, an increase of $324, or 13.7%, from the six months ended June 30, 2018. The increase in net income for the six months ended June 30, 2019 compared to 2018 was driven by lower income tax expense and higher net realized gains on investments.

Our diluted earnings per share, or EPS, was $4.36 for the three months ended June 30, 2019, which represented an 9.5% increase from EPS of $3.98 for the three months ended June 30, 2018. Our fully-diluted EPS was $10.28 for the six months ended June 30, 2019, which represented a 14.6% increase from fully-diluted EPS of $8.97 for the six months ended June 30, 2018. The increase in EPS for the three and six months ended June 30, 2019 compared to 2018 resulted from the increase in net income in 2019, and to a lesser extent, the lower number of shares outstanding in 2019.

Operating cash flow for the six months ended June 30, 2019 and 2018 was $3,067 and $2,757, respectively. This increase was primarily due to the impact of membership increases in our Medicaid and Medicare businesses. These increases were partially offset by the timing of Medicare prepayments received in 2018 and ~~2017~~lower premium receipts as a result of the suspension of the HIP Fee for 2019.

Membership

The following table presents our medical membership by customer type, funding arrangement and reportable segment as of June 30, 2019 and 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.



	June 30
(In thousands)	2019	2018 ¹	Change		% Change
Medical Membership
Customer Type
Local Group	15,670	15,634	36		0.2	%
Individual	741	712	29		4.1	%
National:
National Accounts	7,693	7,658	35		0.5	%
BlueCard^®	6,009	5,819	190		3.3	%
Total National	13,702	13,477	225		1.7	%
Medicare:
Medicare Advantage	1,170	937	233		24.9	%
Medicare Supplement	877	827	50		6.0	%
Total Medicare	2,047	1,764	283		16.0	%
Medicaid	7,099	6,414	685		10.7	%
Federal Health Products & Services	1,593	1,560	33		2.1	%
Total Medical Membership by Customer Type	40,852	39,561	1,291		3.3	%
Funding Arrangement
Self-Funded	25,433	25,245	188		0.7	%
Fully-Insured	15,419	14,316	1,103		7.7	%
Total Medical Membership by Funding Arrangement	40,852	39,561	1,291		3.3	%
Reportable Segment
Commercial & Specialty Business	30,113	29,823	290		1.0	%
Government Business	10,739	9,738	1,001		10.3	%
Total Medical Membership by Reportable Segment	40,852	39,561	1,291		3.3	%
Other Membership
Life and Disability Members	4,906	4,673	233		5.0	%
Dental Members	5,931	5,788	143		2.5	%
Dental Administration Members	5,523	5,384	139		2.6	%
Vision Members	7,161	6,760	401		5.9	%
Medicare Part D Standalone Members	287	312	(25	)	(8.0	)%


1	During 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

Total medical membership grew across our business segments as well as by customer type and funding arrangement. Fully-insured membership increased primarily due to growth in our Medicaid and Medicare businesses. Self-funded medical membership increased primarily due to higher activity from BlueCard^® membership. Medicaid membership increased primarily due to new businesses and expansions, partially offset by the membership decrease resulting from the loss of a contract. Medicare membership increased primarily due to higher sales during open enrollment exceeding lapses. BlueCard^® membership increased due to higher membership activity at other Blue Cross and Blue Shield Association, or BCBSA, plans whose members reside in or travel to our licensed areas.

Other Membership

Our other membership can be impacted by changes in our medical membership, as our medical members often purchase our other products that are ancillary to our health business. We have experienced growth in our life and disability and dental memberships primarily due to higher sales in our Large Group business. Dental administration membership increased primarily due to in-group changes. Vision membership increased due to 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 six months ended June 30, 2019 and 2018 are as follows:


		Three Months Ended June 30						Six Months Ended June 30						Change											Three Months Ended June 30						Six Months Ended June 30						Change
														Three Months Ended June 30					Six Months Ended June 30																		Three Months Ended June 30					Six Months Ended June 30
														2018 vs. 2017					2018 vs. 2017																		2019 vs. 2018					2019 vs. 2018
		2018			2017			2018			2017			$			%		$			%			2019			2018			2019			2018			$			%		$			%
Total operating revenue	Total operating revenue	$	22,714.8		$	22,198.0		$	45,057.1		$	44,517.5		$	516.8		2.3	%	$	539.6		1.2	%	Total operating revenue	$	25,177		$	22,715		$	49,565		$	45,057		$	2,462		10.8	%	$	4,508		10.0	%
Net investment income	Net investment income	229.3			200.2			458.5			407.4			29.1			14.5	%	51.1			12.5	%	Net investment income	285			229			495			458			56			24.5	%	37			8.1	%
Net realized gains (losses) on financial instruments	Net realized gains (losses) on financial instruments	4.0			16.2			(22.1		)	23.5			(12.2		)	(75.3	)%	(45.6		)	(194.0	)%	Net realized gains (losses) on financial instruments	11			4			89			(22		)	7			175.0	%	111			(504.5	)%
Other-than-temporary impairment losses on investments		(4.4		)	(7.2		)	(12.3		)	(15.3		)	2.8			(38.9	)%	3.0			(19.6	)%
Other-than-temporary impairment losses recognized in income																								Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)	(3		)	75.0	%	(5		)	41.7	%
Total revenues	Total revenues	22,943.7			22,407.2			45,481.2			44,933.1			536.5			2.4	%	548.1			1.2	%	Total revenues	25,466			22,944			50,132			45,481			2,522			11.0	%	4,651			10.2	%
Benefit expense	Benefit expense	17,727.8			17,917.2			34,773.7			35,460.0			(189.4		)	(1.1	)%	(686.3		)	(1.9	)%	Benefit expense	20,368			17,728			39,650			34,774			2,640			14.9	%	4,876			14.0	%
Cost of products sold																								Cost of products sold	98			—			98			—			98			NM		98			NM
Selling, general and administrative expense	Selling, general and administrative expense	3,428.0			3,053.8			6,856.5			6,245.1			374.2			12.3	%	611.4			9.8	%	Selling, general and administrative expense	3,278			3,428			6,444			6,856			(150		)	(4.4	)%	(412		)	(6.0	)%
Other expense¹	Other expense¹	284.4			230.5			567.2			507.3			53.9			23.4	%	59.9			11.8	%	Other expense¹	269			284			542			567			(15		)	(5.3	)%	(25		)	(4.4	)%
Total expenses	Total expenses	21,440.2			21,201.5			42,197.4			42,212.4			238.7			1.1	%	(15.0		)	—	%	Total expenses	24,013			21,440			46,734			42,197			2,573			12.0	%	4,537			10.8	%
Income before income tax expense	Income before income tax expense	1,503.5			1,205.7			3,283.8			2,720.7			297.8			24.7	%	563.1			20.7	%	Income before income tax expense	1,453			1,504			3,398			3,284			(51		)	(3.4	)%	114			3.5	%
Income tax expense	Income tax expense	450.1			350.4			917.9			855.5			99.7			28.5	%	62.4			7.3	%	Income tax expense	314			450			708			918			(136		)	(30.2	)%	(210		)	(22.9	)%
Net income	Net income	$	1,053.4		$	855.3		$	2,365.9		$	1,865.2		$	198.1		23.2	%	$	500.7		26.8	%	Net income	$	1,139		$	1,054		$	2,690		$	2,366		$	85		8.1	%	$	324		13.7	%

Average diluted shares outstanding	Average diluted shares outstanding	264.5			270.8			263.7			270.6			(6.3		)	(2.3	)%	(6.9		)	(2.5	)%	Average diluted shares outstanding	261.0			264.5			261.6			263.7			(3.5		)	(1.3	)%	(2.1		)	(0.8	)%
Diluted net income per share	Diluted net income per share	$	3.98		$	3.16		$	8.97		$	6.89		$	0.82		25.9	%	$	2.08		30.2	%	Diluted net income per share	$	4.36		$	3.98		$	10.28		$	8.97		$	0.38		9.5	%	$	1.31		14.6	%
Effective tax rate																								Effective tax rate	21.6		%	29.9		%	20.8		%	28.0		%				(830)bp³					(720)bp³
Benefit expense ratio²	Benefit expense ratio²	83.4		%	86.1		%	82.5		%	84.9		%				(270)bp³					(240)bp³		Benefit expense ratio²	86.7		%	83.4		%	85.6		%	82.5		%				330bp³					310bp³
Selling, general and administrative expense ratio⁴	Selling, general and administrative expense ratio⁴	15.1		%	13.8		%	15.2		%	14.0		%				130bp³					120bp³		Selling, general and administrative expense ratio⁴	13.0		%	15.1		%	13.0		%	15.2		%				(210)bp³					(220)bp³
Income before income tax expense as a percentage of total revenues	Income before income tax expense as a percentage of total revenues	6.6		%	5.4		%	7.2		%	6.1		%				120bp³					110bp³		Income before income tax expense as a percentage of total revenues	5.7		%	6.6		%	6.8		%	7.2		%				(90)bp³					(40)bp³
Net income as a percentage of total revenues	Net income as a percentage of total revenues	4.6		%	3.8		%	5.2		%	4.2		%				80bp³					100bp³		Net income as a percentage of total revenues	4.5		%	4.6		%	5.4		%	5.2		%				(10)bp³					20bp³

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


NM	Not meaningful.


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

Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended June 30, 2019 and 2018 were $23,501 and ~~2017 were $21,248.4 and $20,813.1,~~$21,248, respectively. Premiums for the six months ended June 30, 2019 and 2018 were $46,344 and ~~2017 were $42,151.2 and $41,764.4,~~$42,151, respectively. Premiums are included in total operating revenue presented above.


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


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

Three Months Ended June 30, 2019Compared to theThree Months Ended June 30, 2018~~Compared to theThree Months Ended June 30, 2017~~

~~Total~~The increase in total operating revenue ~~increased $516.8, or 2.3%, to $22,714.8 in 2018,~~was primarily due to higher premium revenue resulting from membership growth and rate increases across our businesses designed to cover overall cost trends and the HIP Fee reinstatement for 2018, as well as membership growth in our Medicare business as a result of our acquisitions of America's 1st Choice and HealthSun and organic growth in existing markets. The increase was further due to new Medicaid business expansions, including in specialized service populations and an increase in administrative fees and other revenue in our Commercial & Specialty Business segment.trends. The increase in ~~administrative fees and other~~premium revenue was ~~primarily due~~further attributable to ~~membership growth and rate increases for self-funded members~~increased reimbursed benefit utilization in our ~~Local Group and National Accounts businesses.~~Federal Health Products & Services, or FHPS, business. These increases were partially offset by ~~a premium revenue decrease in our~~the impact of the HIP Fee suspension for 2019.

Commercial & Specialty Business segment resulting from our reduced participation in ACA-compliant marketplaces in various states and membership decline in our fully-insured Local Group business. Membership decline in our Medicaid business also contributed to the change.

~~Net investment income increased $29.1, or 14.5%, to $229.3 in 2018, primarily due to higher investment yields on fixed maturity securities.~~

Net realized gains on financial instruments decreased $12.2, or 75.3% to $4.0 in 2018. The decrease was due to an increase in net realized losses on sales of fixed maturity securities and the recognition of changes in the fair values of equity securities from the adoption of 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. For additional information related to the adoption of ASU 2016-01, 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. These decreases were partially offset by increases in net realized gains on derivative financial instruments and net realized gains on sales of equity securities.

Benefit expense ~~decreased $189.4, or 1.1%, to $17,727.8 in 2018,~~increased due to our reduced participation in ACA-compliant marketplaces in various states and, to a lesser extent, membership declines in our fully-insured Local Group and Medicaid businesses. These decreases were partially offset by increased expenses related to membership growth inacross our ~~Medicare business primarily as a result of our America’s 1st Choice~~businesses and ~~HealthSun acquisitions and organic growth in existing markets. The decreases were further offset by~~ higher medical ~~costs~~cost experience in our Medicaid business.

Our benefit expense ratio ~~decreased 270 basis points~~increased largely due to ~~83.4%~~the loss of revenue associated with the HIP Fee suspension for 2019. Our benefit expense ratio was further impacted by higher medical cost experience in ~~2018. The decrease~~our Medicaid business.

Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx for our self-funded customers. IngenioRx began operations during the second quarter of 2019, so there was no cost of products sold recognized in the three months ended June 30, 2018.

Our selling, general and administrative expense decreased primarily due to the suspension of the HIP Fee for 2019. This decrease was partially offset by a net increase in spend to support growth in our businesses.

Our selling, general and administrative expense ratio decreased due to the suspension of the HIP Fee for 2019 and the growth in operating revenue.

Our income tax expense and effective tax rate decreased primarily due to the suspension of the non-tax deductible HIP Fee for 2019.

Our net income as a percentage of total revenue decreased in 2019 as compared to 2018 as a result of all factors discussed above.

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

The increase in total operating revenue was ~~largely driven~~primarily due to higher premium revenue as a result of membership growth and rate increases across our businesses designed to cover overall cost trends. The increase in premium revenue was further attributable to increased reimbursed benefit utilization in our FHPS business. These increases were partially offset by the impact of the HIP Fee ~~reinstatement~~suspension for ~~2018~~2019.

We recognized net realized gains on financial instruments during the six months ended June 30, 2019 compared to net realized losses on financial instruments during the six months ended June 30, 2018. This change was primarily due to an increase in net realized gains on sales of equity securities, partially offset by an increase in net realized losses on derivative financial instruments.

Benefit expense increased due to membership growth across our businesses and ~~improved~~higher medical cost ~~performance across~~experience in our ~~business segments.~~Medicaid business.

~~Selling,~~Our benefit expense ratio increased largely due to the loss of revenue associated with the HIP Fee suspension for 2019. Our benefit expense ratio was further impacted by higher medical cost experience in our Medicaid business.

Our selling, general and administrative expense ~~increased $374.2, or 12.3%,~~decreased primarily due to ~~$3,428.0~~the suspension of the HIP Fee for 2019. This decrease was partially offset by a net increase in ~~2018.~~ spend to support growth in our businesses.

Our selling, general and administrative expense ratio ~~increased 130 basis points to 15.1% in 2018. The increase in expense and the ratio was primarily~~decreased due to the ~~reinstatement~~suspension of the HIP Fee for ~~2018~~2019 and ~~a net increase~~the growth in spend to support our growth initiatives. These increases were partially offset by the accrual recognized 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 cyber attack and related settlement, see Note 11, “~~Commitments and Contingencies~~ ~~- Litigation and Regulatory Proceedings - Cyber Attack Regulatory Proceeding and Litigation,”~~ ~~to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.~~operating revenue.

~~Other expense increased $53.9, or 23.4%, to $284.4 in 2018, primarily as a result of increased amortization of intangible assets acquired with the HealthSun and America’s 1st Choice acquisitions.~~

~~Income tax expense increased $99.7, or 28.5%, to $450.1 in 2018. The effective tax rates in 2018 and 2017 were 29.9% and 29.1%, respectively. The increase in~~Our income tax expense and effective tax rate ~~was~~decreased primarily due to the ~~reinstatement~~suspension of the non-tax deductible HIP Fee for 2018, which resulted in additional income tax expense of $83.6. The increase in income tax expense and effective tax rate was further impacted by the tax benefits we recognized in 2017, for prior acquisition costs incurred related to the terminated Merger Agreement with Cigna. The increase in income tax expense and effective tax rate was partially offset by the effect of the 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, enacted by the federal government on December 22, 2017. The Tax Cuts and Jobs Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.2019.

Our net income as a percentage of total revenue increased ~~80 basis points to 4.6%~~ in ~~2018~~2019 as compared to ~~2017~~2018 as a result of all factors discussed above.

~~Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017~~

Total operating revenue increased $539.6, or 1.2%, to $45,057.1 in 2018, primarily due to premium rate increases designed to cover overall cost trends and the HIP Fee reinstatement for 2018, as well as membership growth in our Medicare business as a result of our acquisitions of America’s 1st Choice and HealthSun and organic growth in existing markets. The increase was further due to new Medicaid business expansions, including in specialized service populations and an increase

in administrative fee and other revenue in our Commercial & Specialty Business segment. The increase in administrative fees and other revenue was primarily due to membership growth and rate increases for self-funded members in our Local Group and National Accounts businesses. These increases were partially offset by a premium revenue decrease in our Commercial & Specialty Business segment resulting from our reduced participation in ACA-compliant marketplaces in various states and membership decline in our fully-insured Local Group business. Membership decline in our Medicaid business also contributed to the change.

~~Net investment income increased $51.1, or 12.5%, to $458.5, primarily due to higher investment yields on fixed maturity securities.~~

Net realized (losses) gains on financial instruments decreased $45.6, or 194.0%. For the six months ended June 30, 2018 and 2017, we recognized net realized losses of $22.1 and net realized gains of $23.5, respectively. The change was due to the recognition of changes in the fair values of equity securities from the adoption of ASU 2016-01 and an increase in net realized losses on sales of fixed maturity securities, partially offset by increases in net realized gains on sales of equity securities, on derivative financial instruments, and on sales of alternative investments.

Benefit expense decreased $686.3, or 1.9%, to $34,773.7 in 2018, due to our reduced participation in ACA-compliant marketplaces in various states and, to a lesser extent, membership declines in our fully-insured Local Group and Medicaid businesses. These decreases were partially offset by increased expenses related to membership growth in our Medicare business primarily as a result of our America’s 1st Choice and HealthSun acquisitions and organic growth in existing markets. The decreases were further offset by higher medical costs in our Medicaid business.

Our benefit expense ratio decreased 240 basis points to 82.5% in 2018. The decrease in the ratio was largely driven by the impact of the HIP Fee reinstatement for 2018 and improved medical cost performance across our business segments.

Selling, general and administrative expense increased $611.4, or 9.8% to $6,856.5 in 2018. Our selling, general and administrative expense ratio increased 120 basis points to 15.2% in 2018. The increase in expense and the ratio was primarily due to the reinstatement of the HIP Fee for 2018 and a net increase in spend to support our growth initiatives. These increases were partially offset by the recognition of a guaranty fund assessment during the three months ended March 31, 2017 related to the liquidation order of Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company, or collectively Penn Treaty. For additional information regarding the Penn Treaty liquidation, see Note 13, “~~Commitments and Contingencies~~ ~~- Other Contingencies,”~~ in our audited consolidated financial statements as of and for the year ended December 31, 2017 included in our 2017 Annual Report on Form 10-K. The increases were further offset by the settlement accrual for the litigation related to the 2015 cyber attack recognized during the six months ended June 30, 2017.

Other expense increased $59.9, or 11.8%, to $567.2 in 2018, primarily as a result of increased amortization of intangible assets acquired with the HealthSun and America’s 1st Choice acquisitions and losses recognized on the extinguishment of our remarketable subordinated notes, as discussed below in “Liquidity and Capital Resources - ~~Debt,~~” partially offset by lower interest expense. In January 2017, to reduce and extend the availability of commitments to partially fund the now terminated Merger Agreement with Cigna, we paid $97.5 in fees which were amortized to interest expense through April 30, 2017.

Income tax expense increased $62.4, or 7.3%, to $917.9 in 2018, primarily due to the reinstatement of the HIP Fee for 2018, which resulted in additional income tax expense of $166.9. The increase in income tax expense was further due to the impact of our recognition of tax benefits in 2017 for prior acquisition costs incurred related to the terminated Merger Agreement with Cigna. The increase in income tax expense was partially offset by the effect of the Tax Cuts and Jobs Act.

The effective tax rates in 2018 and 2017 were 28.0% and 31.4%, respectively. The decrease in the effective tax rate was primarily due to the lower U.S. federal corporate income tax rate, as reduced by the Tax Cuts and Jobs Act, partially offset by the reinstatement of the HIP Fee for 2018.

~~Our net income as a percentage of total revenue increased 100 basis points to 5.2% in 2018 as compared to 2017 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 ~~use~~also calculate operating gain and operating margin, non-GAAP measures, to ~~evaluate the performance of~~further 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 ~~which is a non-GAAP measure,~~ is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense. It does not include net investment income, net realized gains (losses) on financial instruments, ~~other-than-temporary~~other 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 six months ended June 30, 2018 and 2017 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 of~~We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating ~~gain~~periods and ~~operating margin~~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 EPS, prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For ~~additional information, including~~ a reconciliation of ~~non-GAAP financial measures,~~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 statements~~Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

~~Our~~Included in the Other segment is IngenioRx, our PBM, which began its operations during the second quarter of 2019 and the Diversified Business Group, or DBG, our integrated health services business, and unallocated corporate expenses. Based on the FASB guidance, as of June 30, 2019, IngenioRx and DBG do not collectively meet the quantitative thresholds for an operating segment; therefore, they have been included in our Other segment.

The following table presents a summary of ~~operations~~the reportable segment financial information for the three and six months ended June 30, ~~2018~~2019 and ~~2017 are as follows:~~2018:

Three Months Ended
June 30 Six Months Ended
June 30 Change
Three Months Ended
June 30 Six Months Ended
June 30
2018 vs. 2017 2018 vs. 2017
2018 2017 2018 2017 $ % $ %
Commercial & Specialty Business

Operating revenue $ 9,162.9
$ 10,308.8
$ 18,229.3
$ 20,598.4
$ (1,145.9 ) (11.1 )% $ (2,369.1 ) (11.5 )%
Operating gain $ 1,052.8
$ 967.9
$ 2,461.2
$ 2,270.3
$ 84.9
8.8 % $ 190.9
8.4 %
Operating margin 11.5 % 9.4 % 13.5 % 11.0 %

210 bp

250 bp

Government Business

Operating revenue $ 13,543.0
$11,883.4 $ 26,805.4
$ 23,909.1
$ 1,659.6
14.0 % $ 2,896.3
12.1 %
Operating gain $ 537.4
$ 293.3
$ 1,028.3
$ 611.9
$ 244.1
83.2 % $ 416.4
68.1 %
Operating margin 4.0 % 2.5 % 3.8 % 2.6 %

150 bp

120 bp

Other

Operating revenue¹
$ 8.9
$ 5.8
$ 22.4
$ 10.0
$ 3.1
53.4 % $ 12.4
124.0 %
Operating loss²
$ (31.2 ) $ (34.2 ) $ (62.6 ) $ (69.8 ) $ 3.0
(8.8 )% $ 7.2
(10.3 )%



	Three Months Ended June 30						Six Months Ended June 30						Change
													Three Months Ended June 30					Six Months Ended June 30
													2019 vs. 2018					2019 vs. 2018
	2019			2018 ¹			2019			2018 ¹			$			%		$			%
Operating Revenue
Commercial & Specialty Business	$	9,417		$	9,055		$	18,809		$	18,006		$	362		4.0	%	$	803		4.5	%
Government Business	15,538			13,619			30,464			26,972			1,919			14.1	%	3,492			12.9	%
Other	794			350			1,342			710			444			126.9	%	632			89.0	%
Eliminations	(572		)	(309		)	(1,050		)	(631		)	(263		)	85.1	%	(419		)	66.4	%
Total operating revenue	$	25,177		$	22,715		$	49,565		$	45,057		$	2,462		10.8	%	$	4,508		10.0	%

Operating Gain (Loss)
Commercial & Specialty Business	$	983		$	1,048		$	2,581		$	2,450		$	(65	)	(6.2	)%	$	131		5.3	%
Government Business	478			532			855			1,021			(54		)	(10.2	)%	(166		)	(16.3	)%
Other	(28		)	(21		)	(63		)	(44		)	(7		)	33.3	%	(19		)	43.2	%

Operating Margin
Commercial & Specialty Business	10.4		%	11.6		%	13.7		%	13.6		%				(120	)bp				10	bp
Government Business	3.1		%	3.9		%	2.8		%	3.8		%				(80	)bp				(100	)bp


1	~~Fluctuations not material.~~

~~Fluctuations are primarily a result~~During the second quarter of 2019, we reclassified DBG from our Government Business segment to our Other segment to reflect changes in ~~unallocated corporate expenses.~~how our segments are being managed. Accordingly, certain amounts for the three and six months ended June 30, 2018 have been reclassified to conform to the current year presentation for comparability.

Three Months Ended June 30, 2019Compared to theThree Months Ended June 30, 2018~~Compared to theThree Months Ended June 30, 2017~~

Commercial & Specialty Business

Operating revenue ~~decreased $1,145.9, or 11.1%, to $9,162.9 in 2018,~~increased primarily due to ~~a decrease in our Individual business membership~~higher premium revenue resulting from ~~our reduced participation in ACA-compliant marketplaces in various states and, to a lesser extent, membership declines~~rate increases in our Local Group ~~fully-insured products. The decrease was partially offset by premium rate increases~~business designed to cover overall cost trends and ~~the impact of the HIP Fee reinstatement for 2018.~~

~~Operating gain increased $84.9, or 8.8%, to $1,052.8 in 2018,~~ due to ~~improved medical cost performance and the impact of the settlement accrual in 2017 for the litigation related to the 2015 cyber attack. These~~membership increases ~~were partially offset by~~

~~the impact of our reduced participation in ACA-compliant marketplaces in various states and the increase in spend to support our growth initiatives.~~

~~The operating margin in 2018 was 11.5%, a 210 basis point increase over 2017, primarily due to the factors discussed in the preceding two paragraphs.~~

~~Government Business~~

Operating revenue increased $1,659.6, or 14.0%, to $13,543.0 in 2018, due, in part, to membership growth in our Medicare business as result of our acquisitions of America’s 1st Choice and HealthSun, and organic growth in existing markets. The increase was further due to new Medicaid business expansions, including in specialized service populations, and premium rate increases designed to cover overall cost trends and the HIP Fee reinstatement for 2018.

Operating gain increased $244.1, or 83.2%, to $537.4 in 2018, primarily due to the membership growth in our Medicare business discussed above. The increase was further due to retroactive premium adjustments recognized in various Medicaid markets and the impact of the HIP Fee reinstatement.

~~The operating margin in 2018 was 4.0%, a 150 basis point increase over 2017, primarily due to the factors discussed in the preceding two paragraphs.~~

~~Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017~~

~~Commercial & Specialty Business~~

~~Operating revenue decreased $2,369.1, or 11.5%, to $18,229.3 in 2018, primarily due to a decrease~~ in our Individual ~~business membership resulting from our reduced participation in ACA-compliant marketplaces in various states~~ACA and ~~to a lesser extent, membership declines in our Local Group~~ fully-insured ~~products. The decrease was partially offset by premium rate increases designed to cover overall cost trends and the impact of the HIP Fee reinstatement for 2018.~~

Operating gain increased $190.9, or 8.4%, to $2,461.2 in 2018, primarily due to improved medical cost performance and the impact of the recognition of the Penn Treaty guaranty fund assessment and the settlement accrual for the litigation related to the 2015 cyber attack during the six months ended June 30, 2017.National Accounts businesses. These increases were partially offset by the impact of ~~our reduced participation in ACA-compliant marketplaces in various states~~the HIP Fee suspension for 2019 and ~~the increase in spend to support our growth initiatives.~~

~~The operating margin~~higher favorable adjustments recognized in 2018 ~~was 13.5%, a 250 basis point increase over 2017,~~related to estimates for the ACA risk adjustment premium stabilization program.

Operating gain decreased primarily due to the ~~factors discussed~~impact of higher favorable adjustments recognized in 2018 related to estimates for the ~~preceding two paragraphs.~~ACA risk adjustment premium stabilization program. The decrease was partially offset by higher administrative fees and other revenue in our self-funded businesses, which were driven by greater penetration of value-added services.

Government Business

Operating revenue increased ~~$2,896.3, or 12.1%,~~primarily due to ~~$26,805.4 in 2018, due, in part, to~~higher premium revenue as a result of membership growth in our Medicare business ~~as a result of our acquisitions of America’s 1st Choice~~ and ~~HealthSun,~~new Medicaid businesses and ~~organic growth in existing markets.~~expansions, including specialized service populations. The increase in premium revenue was further ~~due~~attributable to ~~premium~~ rate increases designed to cover overall cost trends in our Medicaid and ~~the HIP Fee reinstatement for 2018,~~Medicare businesses, and ~~new Medicaid business expansions, including~~increased reimbursed benefit utilization in ~~specialized service populations.~~our FHPS. These increases were partially offset by ~~membership declines~~the impact of the HIP Fee suspension for 2019.

Operating gain decreased primarily due to continued elevated medical cost experience in our Medicaid business ~~resulting from~~in certain ~~state market contractions, new market participants~~states and the impact of the HIP Fee suspension for 2019. These decreases were partially offset by the impact of retroactive revenue adjustments in various Medicaid markets that we recognized in 2019 for prior years and membership ~~reverification processes.~~growth in our Medicare business.

Other

Operating revenue increased due to higher administrative fees and other revenue from DBG and IngenioRx, which commenced operations during the second quarter of 2019.

Operating loss increased primarily as a result of changes in unallocated corporate expenses.

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

Commercial & Specialty Business

Operating revenue increased primarily due to higher premium revenue, and to a lesser extent, increased administrative fees and other revenue. Premium revenue was higher as a result of rate increases in our Local Group business designed to cover overall cost trends and membership increases in our fully-insured National Accounts and Individual businesses. These increases in premium revenue were partially offset by the impact of the HIP Fee suspension for 2019. The increase in administrative fees and other revenues was due to higher penetration of value added services for self-funded members in our Large Group and National Accounts businesses.

Operating gain increased ~~$416.4, or 68.1%,~~due to ~~$1,028.3~~higher administrative fees and other revenue in our self-funded businesses driven by greater penetration of value-added services. The increase was further due to improved medical cost performance in our Local Group business. These increases were partially offset by the impact of higher favorable adjustments recognized in 2018 related to estimates for the ACA risk adjustment premium stabilization program.

Government Business

Operating revenue increased primarily due to higher premium revenue as a result of membership growth in our Medicare business and new Medicaid businesses and expansions, including specialized service populations. The increase in premium revenue was further attributable to rate increases designed to cover overall cost trends in our Medicaid and Medicare businesses as well as increased reimbursed benefit utilization in our FHPS business. These increases were partially offset by the impact of the HIP Fee suspension for 2019.

Operating gain decreased primarily due to continued elevated medical cost experience in our Medicaid business in certain states and the impact of the HIP Fee suspension for 2019. These decreases were partially offset by the membership growth in our Medicare ~~business, discussed above. The increase was further~~business.

Other

Operating revenue increased due to higher administrative fees and other revenue from DBG and IngenioRx, which commenced operations during the ~~impact~~second quarter of ~~the HIP Fee reinstatement and retroactive premium adjustments recognized~~2019.

Operating loss increased primarily as a result of changes in ~~various Medicaid markets.~~unallocated corporate expenses.

~~The operating margin in 2018 was 3.8%, a 120 basis point increase over 2017, primarily due to the factors discussed in the preceding two paragraphs.~~

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 ~~2017~~2018 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, ~~2017,~~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 June 30, 2018, with the exception of the recognition of changes in fair value of non-consolidated equity investments that is disclosed in the “Investments” section below and in Note 2, “Basis of Presentation and Significant Accounting Policies,” of the notes to2019, our ~~consolidated financial statements included in Part I, Item 1 of this Form 10-Q, no other~~ critical accounting policies and estimates have not changed from those described in our ~~2017~~2018 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 June 30, ~~2018,~~2019, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our ~~2017~~2018 Annual Report on Form 10-K. For a reconciliation of the beginning and ending balance for medical claims payable for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, see Note 9, “Medical Claims Payable,” of the Notes to ~~our unaudited consolidated financial statements~~Consolidated 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 six months ended June 30, ~~2018~~2019 and ~~2017,~~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
	Six Months Ended June 30				Six Months Ended June 30
	2018		2017		2019		2018
Assumed trend factors	$	474.3	$	585.5	$	311	$	468
Assumed completion factors	330.2		365.5		103		327
Total	$	804.5	$	951.0	$	414	$	795

The favorable development recognized in the six months ended June 30, 2019 and 2018 ~~and 2017~~ resulted ~~primarily~~ from trend factors in late ~~2017~~2018 and late ~~2016,~~2017, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter parts of ~~2017~~2018 and ~~2016~~2017 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 ~~81.0%~~79.4% and ~~80.0%~~81.1% for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This ratio serves as an indicator of claims processing speed whereby claims were processed slightly faster during the six months ended June 30, 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 six months ended June 30, 2019, this metric was 6.1%, largely driven by favorable trend factor development at the end of 2018. For the six months ended June 30, 2018, this metric was ~~11.4%~~11.5%, largely driven by favorable trend factor development at the end of 2017. ~~For the six months ended June 30, 2017, this metric was 14.9%, largely driven by favorable trend factor development at the end of 2016.~~

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 six months ended June 30, ~~2018,~~2019, this metric was ~~1.1%~~0.6%, which was calculated using the redundancy of ~~$804.5.~~$414. For the six months ended June 30, ~~2017,~~2018, the comparable metric was ~~1.5%~~1.2%, which was calculated using the redundancy of ~~$951.0.~~$795. We believe these metrics demonstrate a generally consistent level of reserve conservatism.

~~On January 1, 2018, we adopted 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 and requires entities to use the exit price when estimating the fair value of financial instruments. Upon adoption, we reclassified $320.2 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. There were no other changes to our accounting policy for investments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017. For additional information, see Note 4 “Investments” to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

New Accounting Pronouncements

For information regarding new accounting pronouncements that were adopted and new accounting pronouncements that were issued during the six months ended June 30, ~~2018,~~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 statements~~Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Liquidity and Capital Resources

Sources and Uses of Capital

Our cash receipts result primarily from premiums, administrative fees and other ~~revenues,~~revenue, investment income, proceeds from the sale or maturity of our investment securities, proceeds from borrowings, and proceeds from the issuance of common stock ~~including through~~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 ~~2017~~2018 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three and six months ended June 30, ~~2018,~~2019, see Note 5, “Derivative Financial Instruments,” Note 10, ~~“Debt”~~“Debt,” and Note 12, “Capital Stock - Use of Capital - Dividends and Stock Repurchase Program,” of the Notes to ~~our unaudited consolidated financial statements~~Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

~~The table below indicates the change in~~A summary of our major sources and uses of cash and cash equivalents for the six months ended June 30, ~~2018~~2019 and ~~2017~~:2018 is as follows:

Six Months Ended
June 30
2018 2017
Cash flows provided by (used in):
Operating activities $ 2,757.1
$ 3,081.3
Investing activities (1,344.2 ) (2,268.8 )
Financing activities (339.4 ) (329.5 )
Effect of foreign exchange rates on cash and cash equivalents (0.4 ) 2.9
Change in cash and cash equivalents $ 1,073.1
$ 485.9



	Six Months Ended June 30						2019 vs. 2018
	2019			2018			Change
Sources of Cash:
Net cash provided by operating activities	$	3,067		$	2,757		$	310
Issuance of common stock under Equity Units stock purchase contracts	—			1,250			(1,250		)
Proceeds from sales, maturities, calls and redemptions of investments, net of purchases	—			1,066			(1,066		)
Proceeds from issuance of common stock under employee stock plans	100			95			5
Changes in bank overdrafts	84			69			15
Other sources of cash, net	40			207			(167		)
Total sources of cash	3,291			5,444			(2,153		)
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions	(1,384		)	—			(1,384		)
Purchases of subsidiaries, net of cash acquired	—			(1,722		)	1,722
Repurchase and retirement of common stock	(752		)	(795		)	43
Purchases of property and equipment	(455		)	(533		)	78
Repayments of commercial paper and short- and long-term debt, net of issuances	(5		)	(687		)	682
Cash dividends	(412		)	(388		)	(24		)
Other uses of cash, net	(139		)	(246		)	107
Total uses of cash	(3,147		)	(4,371		)	1,224
Net increase in cash and cash equivalents	$	144		$	1,073		$	(929	)

During the six months ended June 30, 2018, net cash provided by operating activities was $2,757.1, compared to $3,081.3 for the six months ended June 30, 2017, a decrease of $324.2. This decrease was primarily attributable to increased spend to support growth initiatives; the impact of membership declines due to our reduced participation in ACA-compliant marketplaces in various states and declines in our fully-insured Local Group and Medicaid businesses; and higher incentive-based compensation payments.

The ~~decrease~~increase in cash provided by operating activities was primarily due to the impact of membership increases in our Medicaid and Medicare businesses. These increases were partially offset by ~~cash~~the timing of Medicare prepayments received in 2018 and lower premium receipts ~~related to rate increases across our businesses designed to cover overall cost trends and~~as a result of the ~~impact~~suspension of the HIP Fee for ~~2018.~~2019.

~~Net~~Other significant changes in sources and uses of cash used in investing activities was $1,344.2 during the six months ended June 30, 2018, compared to $2,268.8 during the six months ended June 30, 2017. The decrease in cash used in investing activities of $924.6 was primarily due toyear-over-year included an increase in net ~~proceeds from sales of investments. This decrease was partially offset by cash paid for acquisitions in 2018, and an increase in~~ purchases of ~~property and equipment.~~

~~Net cash used in financing activities was $339.4 during the six months ended June 30, 2018, compared to $329.5 during the six months ended June 30, 2017. The increase~~investments, a decrease in cash ~~used in financing activities of $9.9 primarily resulted from an increase in net repayments of commercial paper borrowings, partially offset by the proceeds~~ received from ~~the~~ issuance of ~~our~~ common stock under ~~the~~ Equity Units stock purchase contracts and a decrease in ~~May 2018 and an increase in net proceeds from long- and short-term borrowings.~~cash paid for acquisitions.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of ~~$24,719.3~~$25,235 at June 30, ~~2018.~~2019. Since December 31, ~~2017,~~2018, total cash, cash equivalents and investments in fixed maturity and equity securities ~~decreased~~increased by ~~$459.7,~~$2,596, primarily due to cash used for acquisitions, repurchases of our common stock, net repayments of commercial paper borrowings, purchases of property and equipment and cash dividends paid to shareholders, partially offset by the proceeds received from the issuance of our common stock under the Equity Units stock purchase contracts and cash generated from 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 ~~with~~to regulatory authorities, including requirements to maintain certain capital levels in certain of our subsidiaries.

At June 30, ~~2018,~~2019, we held ~~$2,229.1~~$1,359 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.

~~On March 2, 2018~~Periodically, we ~~remarketed our 1.900% subordinated notes due 2028,~~access capital markets and issue debt, or RSNs, and used the proceeds to purchase U.S. Treasury securities that were pledged to secure the stock purchase obligations of the holders of 25.0 Equity Units we issued on May 12, 2015. The purchasers of the RSNs transferred the RSNs to us in exchange for $1,250.0 principal amount of our 4.101% senior notes due 2028, or the 2028 Notes, and a cash payment of $4.4. We cancelled the RSNs upon receipt and recognized a loss on extinguishment of debt of $18.2. At the remarketing, we also issued $850.0 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~~long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases. Certain of these Notes ~~and the 2048 Notes is payable on March 1 and September 1 of each year, commencing on September 1, 2018. We~~ may have a call feature that allows us to redeem the ~~2048~~ Notes ~~in whole~~ at any time at our option and/or ~~in part from time~~a put feature that allows a Note holder to ~~time, and on or after May 1, 2020, we may~~ redeem the ~~2028~~ Notes upon the occurrence of both a change in ~~whole at any time, or~~control event and a downgrade of the Notes below an investment grade rating. For more information on our debt, including redemptions and issuances, see Note 10, “Debt” of the Notes to Consolidated Financial Statements included in ~~part from time to time, at the applicable redemption prices. The 2028 Notes and the 2048 Notes are unsecured and unsubordinated obligations.~~

~~On July 16, 2018, we repaid, at maturity, the $650.0 outstanding balance~~Part I, Item 1 of ~~our 2.300% senior unsecured notes. On January 15, 2018, we repaid, at maturity, the $625.0 outstanding balance of our 1.875% senior unsecured notes.~~this Form 10-Q.

We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our consolidated balance sheets included in Part I, Item 1 of this Form 10-Q. Our debt-to-capital ratio is calculated as total debt divided by total debt plus total shareholders’ equity. Total debt is the sum of short-term ~~borrowings; plus~~borrowings, current portion of long-term ~~debt; plus~~debt, long-term debt, less current ~~portion; divided by the sum of short-term borrowings; plus current~~ portion, ~~of long-term debt; plus long-term debt, less current portion; plus total shareholders’ equity.~~and 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 ~~40.2%~~39.4% and ~~42.9%~~40.2% as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Our senior debt is rated “A” by S&P Global Ratings, “BBB” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc. and “bbb+” by AM Best Company, Inc. We intend to maintain our senior debt investment grade ratings. If our credit ratings are downgraded, our business, 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

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.

For additional information regarding our sources and uses of capital at June 30, ~~2018,~~2019, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 10, “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~~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 of Financial Condition and Results of Operations” in our 2017 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 2017 Annual Report on Form 10-K other than a decrease in borrowings of commercial paper, the repayment of long-term senior unsecured notes upon maturity in January and July 2018, the remarketing of the RSNs, the issuance of the 2028 Notes and the 2048 Notes, and the issuance of our common stock under the Equity Units stock purchase contracts. 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 statements included in Part I, Item 1 of this Form 10-Q.~~

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, ~~2017,~~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, ~~2017~~2018 included in our ~~2017~~2018 Annual Report on Form 10-K.



~~INDIANA~~Indiana		35-2145715
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

~~120 MONUMENT CIRCLE~~ ~~INDIANAPOLIS, INDIANA~~ ~~(Address of principal executive offices)~~		~~46204-4903~~ ~~(Zip Code)~~



		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets as of June 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	2
	Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	4
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	5
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	6
	Notes to Consolidated Financial Statements (Unaudited)	78

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4241
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5856
ITEM 4.	CONTROLS AND PROCEDURES	5856
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	5856
ITEM 1A.	RISK FACTORS	5856
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5957
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5957
ITEM 4.	MINE SAFETY DISCLOSURES	5957
ITEM 5.	OTHER INFORMATION	5957
ITEM 6.	EXHIBITS	6058
SIGNATURES		6159


	Six Months Ended June 30						Six Months Ended June 30
(In millions)	2018			2017			2019			2018
Operating activities
Net income	$	2,365.9		$	1,865.2		$	2,690		$	2,366
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses (gains) on financial instruments	22.1			(23.5		)
Net realized (gains) losses on financial instruments							(89		)	22
Other-than-temporary impairment losses recognized in income	12.3			15.3			17			12
Loss on extinguishment of debt	18.2			—
Loss on disposal of assets	0.5			0.4
(Gain) loss on extinguishment of debt							(1		)	18
Deferred income taxes	1.9			(209.9		)	79			2
Amortization, net of accretion	495.1			385.0			515			495
Depreciation expense	60.6			54.5			71			61
Share-based compensation	78.1			87.1			140			78
Changes in operating assets and liabilities:
Receivables, net	(570.1		)	(134.7		)	(589		)	(570		)
Other invested assets	(11.0		)	(22.4		)	(28		)	(11		)
Other assets	(445.2		)	(322.4		)	(258		)	(445		)
Policy liabilities	(609.9		)	254.0			1,251			(610		)
Unearned income	1,157.6			865.9			(2		)	1,158
Accounts payable and accrued expenses	28.8			(53.0		)	(1,015		)	29
Other liabilities	70.1			81.5			632			70
Income taxes	187.4			281.7			(286		)	187
Other, net	(105.3		)	(43.4		)	(60		)	(105		)
Net cash provided by operating activities	2,757.1			3,081.3			3,067			2,757
Investing activities
Purchases of fixed maturity securities	(4,885.8		)	(7,637.0		)	(5,023		)	(4,886		)
Proceeds from fixed maturity securities:
Sales	3,864.5			5,152.9			2,560			3,865
Maturities, calls and redemptions	1,016.6			966.4			894			1,017
Purchases of equity securities	(657.9		)	(506.0		)	(5,974		)	(658		)
Proceeds from sales of equity securities	1,777.1			214.7			6,059			1,777
Purchases of other invested assets	(246.7		)	(162.3		)	(116		)	(247		)
Proceeds from sales of other invested assets	197.8			121.8			216			198
Change in collateral and settlements of non-hedging derivatives	—			(2.1		)
Changes in securities lending collateral	(170.0		)	(134.8		)	40			(170		)
Purchases of subsidiaries, net of cash acquired	(1,722.5		)	—			—			(1,722		)
Purchases of property and equipment	(532.5		)	(297.5		)	(455		)	(533		)
Proceeds from sales of property and equipment	—			3.3
Other, net	15.2			11.8			(18		)	15
Net cash used in investing activities	(1,344.2		)	(2,268.8		)	(1,817		)	(1,344		)
Financing activities
Net (repayments of) proceeds from commercial paper borrowings	(703.7		)	1,347.8
Net proceeds from (repayments of) commercial paper borrowings							203			(704		)
Proceeds from long-term borrowings	834.9			—			—			835
Repayments of long-term borrowings	(663.0		)	(929.9		)	(73		)	(663		)
Proceeds from short-term borrowings	3,330.0			2,190.0			4,805			3,330
Repayments of short-term borrowings	(3,485.0		)	(2,050.0		)	(4,940		)	(3,485		)
Changes in securities lending payable	169.9			134.8			(40		)	170
Changes in bank overdrafts	69.4			(146.2		)	84			69
Proceeds from sale of put options	0.3			—
Premiums paid on equity call options							(1		)	—
Proceeds from issuance of common stock under Equity Units stock purchase contracts	1,250.0			—			—			1,250
Repurchase and retirement of common stock	(795.0		)	(509.0		)	(752		)	(795		)
Change in collateral and settlements of debt-related derivatives	21.9			(128.4		)	—			22
Cash dividends	(388.3		)	(344.0		)	(412		)	(388		)
Proceeds from issuance of common stock under employee stock plans	94.8			151.0			100			95
Taxes paid through withholding of common stock under employee stock plans	(75.6		)	(45.6		)	(80		)	(76		)
Net cash used in financing activities	(339.4		)	(329.5		)	(1,106		)	(340		)
Effect of foreign exchange rates on cash and cash equivalents	(0.4		)	2.9
Change in cash and cash equivalents	1,073.1			485.9			144			1,073
Cash and cash equivalents at beginning of period	3,608.9			4,075.3			3,934			3,609
Cash and cash equivalents at end of period	$	4,682.0		$	4,561.2		$	4,078		$	4,682



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


																	Three and Six Months Ended June 30, 2019
	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity			Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity
(In millions)	Number of Shares		Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity			Number of Shares		Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total Shareholders’ Equity
December 31, 2017 (audited)	256.1		$	2.6	$	8,547.4		$	18,054.4		$	(101.5	)	$	26,502.9
Adoption of Accounting Standards Update No 2016-01 (Note 2)	—		—		—			320.2			(320.2		)	—
January 1, 2018	256.1		2.6		8,547.4			18,374.6			(421.7		)	26,502.9
Net income	—		—		—			2,365.9			—			2,365.9
Other comprehensive loss	—		—		—			—			(269.8		)	(269.8		)
Premiums for and settlement of equity options	—		—		0.3			—			—			0.3
Issuance of common stock under Equity Units stock purchase contracts	6.0		—		1,250.0			—			—			1,250.0
Repurchase and retirement of common stock	(3.4	)	—		(116.6		)	(678.4		)	—			(795.0		)
Dividends and dividend equivalents	—		—		—			(396.1		)	—			(396.1		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.4		—		97.3			—			—			97.3
Convertible debenture repurchases and conversions	—		—		(30.5		)	—			—			(30.5		)
Adoption of Accounting Standards Update No 2018-02 (Note 2)	—		—		—			91.3			(91.3		)	—
June 30, 2018	260.1		$	2.6	$	9,747.9		$	19,757.3		$	(782.8	)	$	28,725.0

January 1, 2017	263.7		$	2.6	$	8,805.1		$	16,560.6		$	(267.9	)	$	25,100.4
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, 2019																	257.4		3		9,536			20,014			(986		)	28,567
Net income	—		—		—			1,865.2			—			1,865.2			—		—		—			1,551			—			1,551
Other comprehensive income	—		—		—			—			133.0			133.0			—		—		—			—			363			363
Repurchase and retirement of common stock	(2.8	)	—		(95.0		)	(414.0		)	—			(509.0		)	(1.1	)	—		(71		)	(223		)	—			(294		)
Dividends and dividend equivalents	—		—		—			(344.8		)	—			(344.8		)	—		—		—			(206		)	—			(206		)
Issuance of common stock under employee stock plans, net of related tax benefits	2.2		—		188.0			—			—			188.0			1.1		—		69			—			—			69
Convertible debenture repurchases and conversions	—		—		(1.1		)	—			—			(1.1		)	—		—		(52		)	—			—			(52		)
June 30, 2017	263.1		$	2.6	$	8,897.0		$	17,667.0		$	(134.9	)	$	26,431.7
March 31, 2019																	257.4		3		9,482			21,136			(623		)	29,998
Net income																	—		—		—			1,139			—			1,139
Other comprehensive income																	—		—		—			—			240			240
Repurchase and retirement of common stock																	(1.7	)	—		(70		)	(388		)	—			(458		)
Dividends and dividend equivalents																	—		—		—			(208		)	—			(208		)
Issuance of common stock under employee stock plans, net of related tax benefits																	0.2		—		91			—			—			91
Convertible debenture repurchases and conversions																	—		—		(9		)	—			—			(9		)
June 30, 2019																	255.9		$	3	$	9,494		$	21,679		$	(383	)	$	30,793



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Net realized gains and losses recognized on equity securities sold during the period	$	24.0		$	196.9
Unrealized gains and losses recognized on equity securities still held at June 30, 2018	(40.8		)	(256.7		)
Net realized losses recognized on equity securities	$	(16.8	)	$	(59.8	)



	Contractual/ Notional Amount		Balance Sheet Location	Estimated Fair Value
	Contractual/ Notional Amount		Balance Sheet Location	Asset			(Liability)
June 30, 2018
Hedging instruments
Interest rate swaps - fixed to floating	$	1,200.0	Other assets/other liabilities	$	1.0		$	(15.0	)
Non-hedging instruments
Interest rate swaps	261.5		Equity securities	9.4			(0.4		)
Options	100.0		Other assets/other liabilities	—			—
Futures	307.3		Equity securities	1.4			(2.4		)
Subtotal non-hedging	668.8		Subtotal non-hedging	10.8			(2.8		)
Total derivatives	$	1,868.8	Total derivatives	11.8			(17.8		)
			Amounts netted	(11.8		)	11.8
			Net derivatives	$	—		$	(6.0	)

December 31, 2017
Hedging instruments
Interest rate swaps - fixed to floating	$	1,235.0	Other assets/other liabilities	$	2.0		$	(5.3	)
Interest rate swaps - forward starting pay fixed swaps	425.0		Other assets/other liabilities	—			(8.9		)
Subtotal hedging	1,660.0		Subtotal hedging	2.0			(14.2		)
Non-hedging instruments
Interest rate swaps	171.3		Equity securities	1.0			(4.7		)
Options	100.0		Other assets/other liabilities	—			(0.1		)
Futures	116.8		Equity securities	0.1			(2.5		)
Subtotal non-hedging	388.1		Subtotal non-hedging	1.1			(7.3		)
Total derivatives	$	2,048.1	Total derivatives	3.1			(21.5		)
			Amounts netted	(1.6		)	1.6
			Net derivatives	$	1.5		$	(19.9	)



Type of Fair Value Hedges	Year Entered Into	Outstanding Notional Amount				Interest Rate Received		Expiration Date
Type of Fair Value Hedges	Year Entered Into	June 30, 2018		December 31, 2017		Interest Rate Received		Expiration Date
Interest rate swap	2018	$	50.0	$	—	4.101	%	September 1, 2027
Interest rate swap	2018	450.0		—		3.300		January 15, 2023
Interest rate swap	2018	90.0		—		4.350		August 15, 2020
Interest rate swap	2017	50.0		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		1.875		January 15, 2018
Total notional amount outstanding		$	1,200.0	$	1,235.0



Balance Sheet Classification in Which Hedged Item is Included	Carrying Amount of Hedged Liability				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
	June 30, 2018		December 31, 2017		June 30, 2018			December 31, 2017
Current portion of long term-debt	$	650.2	$	1,274.6	$	1.0		$	2.0
Long-term debt	17,515.4		17,382.2		(15.0		)	(5.3		)



	Hedge (Loss) Income Recognized in Other Comprehensive (Loss) Income			Income Statement Location of Loss Reclassification from Accumulated Other Comprehensive Loss	Hedge Loss Reclassified from Accumulated Other Comprehensive Loss
Type of Cash Flow Hedge
Three months ended June 30, 2018
Forward starting pay fixed swaps	$	—		Interest expense	$	(3.4	)
Three months ended June 30, 2017
Forward starting pay fixed swaps	$	(118.0	)	Interest expense	$	(1.5	)
Six months ended June 30, 2018
Forward starting pay fixed swaps	$	33.3		Interest expense	$	(6.6	)
Six months ended June 30, 2017
Forward starting pay fixed swaps	$	(99.7	)	Interest expense	$	(3.0	)
Forward starting pay fixed swaps				Net realized gains (losses) on financial instruments	$	(12.0	)



Type of Non-hedging Derivatives	Income Statement Location of Gain (Loss) Recognized	Derivative Gain (Loss) Recognized
Three months ended June 30, 2018
Interest rate swaps	Net realized gains (losses) on financial instruments	$	16.9
Options	Net realized gains (losses) on financial instruments	0.5
Futures	Net realized gains (losses) on financial instruments	2.0
Total		$	19.4
Three months ended June 30, 2017
Interest rate swaps	Net realized gains (losses) on financial instruments	$	(2.0	)
Options	Net realized gains (losses) on financial instruments	(10.6		)
Futures	Net realized gains (losses) on financial instruments	(2.0		)
Total		$	(14.6	)
Six months ended June 30, 2018
Interest rate swaps	Net realized gains (losses) on financial instruments	$	14.5
Options	Net realized gains (losses) on financial instruments	(0.2		)
Futures	Net realized gains (losses) on financial instruments	5.0
Total		$	19.3
Six months ended June 30, 2017
Interest rate swaps	Net realized gains (losses) on financial instruments	$	(1.4	)
Options	Net realized gains (losses) on financial instruments	(21.1		)
Futures	Net realized gains (losses) on financial instruments	(2.4		)
Total		$	(24.9	)



Outstanding principal amount	$	384.7
Unamortized debt discount	$	126.3
Net debt carrying amount	$	254.4
Equity component carrying amount	$	139.4
Conversion rate (shares of common stock per $1,000 of principal amount)	13.8022
Effective conversion price (per $1,000 of principal amount)	$	72.4517


1.	Organization


3.	Business Acquisitions



	July 1, 2018 Through July 12, 2018		Six Months Ended June 30
	July 1, 2018 Through July 12, 2018		2018		2017
Shares repurchased	0.2		3.4		2.8
Average price per share	$	241.00	$	231.61	$	180.37
Aggregate cost	$	47.9	$	795.0	$	509.0
Authorization remaining at the end of the period	$	6,335.3	$	6,383.2	$	3,666.9



	Restricted Stock Shares and Units		Weighted- Average Grant Date Fair Value per Share
Nonvested at January 1, 2018	2.0		$	152.20
Granted	0.9		231.81
Vested	(1.0	)	147.61
Forfeited	(0.1	)	185.72
Nonvested at June 30, 2018	1.8		180.90



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)
April 1, 2018 to April 30, 2018	764,065	$	225.61	760,600	$	6,611.8
May 1, 2018 to May 31, 2018	502,883	230.89		501,653	6,496.0
June 1, 2018 to June 30, 2018	484,865	234.98		479,800	6,383.2
	1,751,813			1,742,053


1	Total number of shares purchased includes ~~9,760~~9,011 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.



Exhibit Number		Exhibit

3.1		Amended and Restated Articles of Incorporation of the Company, as amended and restated effective May ~~16, 2018,~~15, 2019, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May ~~16, 2018.~~15, 2019.

3.2		Bylaws of the Company, as amended effective May ~~16, 2018,~~15, 2019, incorporated by reference to Exhibit 3.2 to the ~~Company's~~Company’s Current Report on Form ~~8-K~~8-K/A filed on ~~May 16, 2018.~~June 5, 2019.

~~4.8~~4.7		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.

~~10.2~~10.7	*	~~(h)~~		~~Form~~Anthem, Inc. Board of ~~Incentive~~Directors Compensation ~~Plan Nonqualified Stock Option Award Agreement commencing July 2018.~~

	*	~~(i)~~	~~Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement commencing July 2018.~~

	*	~~(j)~~	~~Form of Incentive Compensation Plan Performance Stock Unit Award Agreement commencing July 2018.~~

~~10.9~~	*	~~(d)~~	~~Form of Employment Agreement between the Company and Felicia F. Norwood.~~Program, as amended effective May 15, 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 June 30, ~~2018,~~2019, formatted in ~~XBRL (Extensible~~iXBRL (Inline 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. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


*		Indicates management contracts or compensatory plans or arrangements.




	ANTHEM, INC. Registrant



Date: July ~~25, 2018~~24, 2019	By:	/S/ JOHN E. GALLINA
		John E. Gallina Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)


Date: July ~~25, 2018~~24, 2019	By:	/S/ RONALD W. PENCZEK
		Ronald W. Penczek Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)