UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended June 30, ~~2019~~2020



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

For the transition period from to

Commission file number: 001-16751

ANTHEM, INC.

(Exact name of registrant as specified in its charter)



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

220 Virginia Avenue

Indianapolis, Indiana 46204

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (800) 331-1476

Not Applicable

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading ~~symbol~~symbol(s)	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: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~17, 2019, 255,817,204~~22, 2020, 251,506,458 shares of the Registrant’s Common Stock were outstanding.

Anthem, Inc.

Quarterly Report on Form 10-Q

For the Period Ended June 30, ~~2019~~2020

Table of Contents



		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets as of June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	2
	Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	4
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	5
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the ~~Three and~~ Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	6
	Notes to Consolidated Financial Statements (Unaudited)	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4142
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5661
ITEM 4.	CONTROLS AND PROCEDURES	5661
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	5661
ITEM 1A.	RISK FACTORS	5661
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5762
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5762
ITEM 4.	MINE SAFETY DISCLOSURES	5762
ITEM 5.	OTHER INFORMATION	5762
ITEM 6.	EXHIBITS	5863
SIGNATURES		5964

PART I. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Anthem, Inc.

Consolidated Balance Sheets


	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
(In millions, except share data)	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,078		$	3,934		$	6,028		$	4,937
Fixed maturity securities, current (amortized cost of $18,577 and $16,894)	19,123			16,692
Equity securities, current	1,492			1,493
Other invested assets, current	14			21
Accrued investment income	168			162
Fixed maturity securities (amortized cost of $21,358 and $19,021; allowance for credit losses of $24 and $0)							22,018			19,676
Equity securities							3,470			1,009
Premium receivables	4,751			4,465			5,456			5,014
Self-funded receivables	2,534			2,278			2,460			2,570
Other receivables	2,633			2,558			3,072			2,807
Income taxes receivable	296			10
Securities lending collateral	565			604
Other current assets	2,151			2,104			4,260			3,020
Total current assets	37,805			34,321			46,764			39,033
Long-term investments:
Fixed maturity securities (amortized cost of $493 and $486)	509			487
Equity securities	33			33
Fixed maturity securities (amortized cost of $491 and $487; allowance for credit losses of $0 and $0)							520			505
Other invested assets	3,719			3,726			4,097			4,258
Property and equipment, net	2,837			2,735			3,427			3,133
Goodwill	20,500			20,504			21,641			20,500
Other intangible assets	8,840			9,007			9,577			8,674
Other noncurrent assets	1,608			758			1,950			1,350
Total assets	$	75,851		$	71,571		$	87,976		$	77,453

Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Policy liabilities:
Medical claims payable	$	8,758		$	7,454		$	9,878		$	8,842
Reserves for future policy benefits	77			75
Other policyholder liabilities	2,586			2,590			3,586			3,050
Total policy liabilities	11,421			10,119
Unearned income	900			902			946			1,017
Accounts payable and accrued expenses	4,028			4,959			5,257			4,198
Security trades pending payable	382			197
Securities lending payable	564			604
Short-term borrowings	1,010			1,145			—			700
Current portion of long-term debt	850			849			1,603			1,598
Other current liabilities	3,935			3,190			7,252			4,127
Total current liabilities	23,090			21,965			28,522			23,532
Long-term debt, less current portion	17,436			17,217			19,873			17,787
Reserves for future policy benefits, noncurrent	655			706
Reserves for future policy benefits							776			759
Deferred tax liabilities, net	2,211			1,960			2,497			2,227
Other noncurrent liabilities	1,666			1,182			1,853			1,420
Total liabilities	45,058			43,030			53,521			45,725
Commitment and contingencies – Note 11
Commitments and contingencies – Note 11
Shareholders’ equity
Preferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – none	—			—			—			—
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding – 255,876,479 and 257,395,577	3			3
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding – 252,122,363 and 252,922,161							3			3
Additional paid-in capital	9,494			9,536			9,360			9,448
Retained earnings	21,679			19,988			25,346			22,573
Accumulated other comprehensive loss	(383		)	(986		)	(254		)	(296		)
Total shareholders’ equity	30,793			28,541			34,455			31,728
Total liabilities and shareholders’ equity	$	75,851		$	71,571		$	87,976		$	77,453

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)	2019			2018			2019			2018			2020		2019			2020			2019
Revenues
Premiums	$	23,501		$	21,248		$	46,344		$	42,151		$	25,092	$	23,501		$	50,609		$	46,344
Product revenue													2,543		144			4,887			144
Administrative fees and other revenue	1,676			1,467			3,221			2,906			1,543		1,532			3,130			3,077
Total operating revenue	25,177			22,715			49,565			45,057			29,178		25,177			58,626			49,565
Net investment income	285			229			495			458			57		285			311			495
Net realized gains (losses) on financial instruments	11			4			89			(22		)	18		11			(6		)	89
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments	(9		)	(4		)	(22		)	(12		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income	2			—			5			—
Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)
Impairment recoveries (losses) on investments:
Total impairment recoveries (losses) on investments													6		(9		)	(95		)	(22		)
Portion of impairment losses recognized in other comprehensive income													5		2			49			5
Impairment recoveries (losses) recognized in income													11		(7		)	(46		)	(17		)
Total revenues	25,466			22,944			50,132			45,481			29,264		25,466			58,885			50,132
Expenses
Benefit expense	20,368			17,728			39,650			34,774			19,547		20,368			41,036			39,650
Cost of products sold	98			—			98			—			2,225		98			4,209			98
Selling, general and administrative expense	3,278			3,428			6,444			6,856			4,046		3,278			7,827			6,444
Interest expense	184			192			371			376			201		184			395			371
Amortization of other intangible assets	85			93			172			173			93		85			176			172
(Gain) loss on extinguishment of debt	—			(1		)	(1		)	18
Loss (gain) on extinguishment of debt													3		—			4			(1		)
Total expenses	24,013			21,440			46,734			42,197			26,115		24,013			53,647			46,734
Income before income tax expense	1,453			1,504			3,398			3,284			3,149		1,453			5,238			3,398
Income tax expense	314			450			708			918			873		314			1,439			708
Net income	$	1,139		$	1,054		$	2,690		$	2,366		$	2,276	$	1,139		$	3,799		$	2,690
Net income per share
Basic	$	4.44		$	4.07		$	10.47		$	9.20		$	9.02	$	4.44		$	15.06		$	10.47
Diluted	$	4.36		$	3.98		$	10.28		$	8.97		$	8.91	$	4.36		$	14.85		$	10.28
Dividends per share	$	0.80		$	0.75		$	1.60		$	1.50		$	0.95	$	0.80		$	1.90		$	1.60

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)	2019			2018			2019			2018			2020		2019			2020			2019
Net income	$	1,139		$	1,054		$	2,690		$	2,366		$	2,276	$	1,139		$	3,799		$	2,690
Other comprehensive income (loss), net of tax:
Change in net unrealized gains/losses on investments	238			(72		)	595			(317		)
Change in non-credit component of other-than-temporary impairment losses on investments	(1		)	—			(1		)	—
Change in net unrealized losses on cash flow hedges	—			3			3			32
Other comprehensive income, net of tax:
Change in net unrealized losses/gains on investments													730		238			41			595
Change in non-credit component of impairment losses on investments													10		(1		)	(22		)	(1		)
Change in net unrealized gains/losses on cash flow hedges													3		—			6			3
Change in net periodic pension and postretirement costs	3			8			6			15			10		3			17			6
Foreign currency translation adjustments	—			(1		)	—			—			1		—			—			—
Other comprehensive income (loss)	240			(62		)	603			(270		)
Other comprehensive income													754		240			42			603
Total comprehensive income	$	1,379		$	992		$	3,293		$	2,096		$	3,030	$	1,379		$	3,841		$	3,293

See accompanying notes.

Anthem, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30						Six Months Ended June 30
(In millions)	2019			2018			2020			2019
Operating activities
Net income	$	2,690		$	2,366		$	3,799		$	2,690
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses on financial instruments	(89		)	22
Other-than-temporary impairment losses recognized in income	17			12
(Gain) loss on extinguishment of debt	(1		)	18
Net realized losses (gains) on financial instruments							6			(89		)
Depreciation and amortization							556			586
Deferred income taxes	79			2			60			79
Amortization, net of accretion	515			495
Depreciation expense	71			61
Share-based compensation	140			78			134			140
Changes in operating assets and liabilities:
Receivables, net	(589		)	(570		)	(313		)	(589		)
Other invested assets	(28		)	(11		)	24			(28		)
Other assets	(258		)	(445		)	(486		)	(258		)
Policy liabilities	1,251			(610		)	1,024			1,251
Unearned income	(2		)	1,158			(110		)	(2		)
Accounts payable and accrued expenses	(1,015		)	29
Other liabilities	632			70
Accounts payable and other liabilities							1,868			(383		)
Income taxes	(286		)	187			1,313			(286		)
Other, net	(60		)	(105		)	150			(44		)
Net cash provided by operating activities	3,067			2,757			8,025			3,067
Investing activities
Purchases of fixed maturity securities	(5,023		)	(4,886		)
Proceeds from fixed maturity securities:
Sales	2,560			3,865
Maturities, calls and redemptions	894			1,017
Purchases of equity securities	(5,974		)	(658		)
Proceeds from sales of equity securities	6,059			1,777
Purchases of other invested assets	(116		)	(247		)
Proceeds from sales of other invested assets	216			198
Changes in securities lending collateral	40			(170		)
Purchases of investments							(11,135		)	(11,113		)
Proceeds from sale of investments							4,724			8,835
Maturities, calls and redemptions from investments							1,836			894
Purchases of subsidiaries, net of cash acquired	—			(1,722		)	(1,906		)	—
Purchases of property and equipment	(455		)	(533		)	(437		)	(455		)
Other, net	(18		)	15			(800		)	22
Net cash used in investing activities	(1,817		)	(1,344		)	(7,718		)	(1,817		)
Financing activities
Net proceeds from (repayments of) commercial paper borrowings	203			(704		)
Net (repayments of) proceeds from commercial paper borrowings							(400		)	203
Proceeds from long-term borrowings	—			835			2,484			—
Repayments of long-term borrowings	(73		)	(663		)	(155		)	(73		)
Proceeds from short-term borrowings	4,805			3,330			820			4,805
Repayments of short-term borrowings	(4,940		)	(3,485		)	(1,520		)	(4,940		)
Changes in securities lending payable	(40		)	170
Changes in bank overdrafts	84			69
Premiums paid on equity call options	(1		)	—
Proceeds from issuance of common stock under Equity Units stock purchase contracts	—			1,250
Repurchase and retirement of common stock	(752		)	(795		)	(584		)	(752		)
Change in collateral and settlements of debt-related derivatives	—			22
Cash dividends	(412		)	(388		)	(482		)	(412		)
Proceeds from issuance of common stock under employee stock plans	100			95			92			100
Taxes paid through withholding of common stock under employee stock plans	(80		)	(76		)	(111		)	(80		)
Net cash used in financing activities	(1,106		)	(340		)
Other, net							640			43
Net cash provided by (used in) financing activities							784			(1,106		)
Change in cash and cash equivalents	144			1,073			1,091			144
Cash and cash equivalents at beginning of period	3,934			3,609			4,937			3,934
Cash and cash equivalents at end of period	$	4,078		$	4,682		$	6,028		$	4,078

See accompanying notes.

Anthem, Inc.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

Three and Six Months Ended June 30, 2019
Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Total
Shareholders’
Equity
(In millions)
Number of
Shares

Par
Value

December 31, 2018 (audited) 257.4
$ 3
$ 9,536
$ 19,988
$ (986 ) $ 28,541
Adoption of Accounting Standards Update No. 2016-02 (Note 2) —
—
—
26
—
26
January 1, 2019 257.4
3
9,536
20,014
(986 ) 28,567
Net income —
—
—
1,551
—
1,551
Other comprehensive income —
—
—
—
363
363
Repurchase and retirement of common stock (1.1 ) —
(71 ) (223 ) —
(294 )
Dividends and dividend equivalents —
—
—
(206 ) —
(206 )
Issuance of common stock under employee stock plans, net of related tax benefits 1.1
—
69
—
—
69
Convertible debenture repurchases and conversions —
—
(52 ) —
—
(52 )
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



	Six Months Ended June 30, 2020
	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
(In millions)	Number of Shares		Par Value		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
December 31, 2019 (audited)	252.9		$	3	$	9,448		$	22,573		$	(296	)	$	31,728
Adoption of Accounting Standards Update No. 2016-13 (Note 2)	—		—		—			(35		)	—			(35		)
January 1, 2020	252.9		3		9,448			22,538			(296		)	31,693
Net income	—		—		—			1,523			—			1,523
Other comprehensive loss	—		—		—			—			(712		)	(712		)
Repurchase and retirement of common stock	(1.9	)	—		(71		)	(458		)	—			(529		)
Dividends and dividend equivalents	—		—		—			(243		)	—			(243		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.0		—		3			—			—			3
Convertible debenture repurchases and conversions	—		—		(42		)	—			—			(42		)
March 31, 2020	252.0		3		9,338			23,360			(1,008		)	31,693
Net income	—		—		—			2,276			—			2,276
Other comprehensive income	—		—		—			—			754			754
Repurchase and retirement of common stock	(0.2	)	—		(9		)	(46		)	—			(55		)
Dividends and dividend equivalents	—		—		—			(244		)	—			(244		)
Issuance of common stock under employee stock plans, net of related tax benefits	0.3		—		113			—			—			113
Convertible debenture repurchases and conversions	—		—		(82		)	—			—			(82		)
June 30, 2020	252.1		$	3	$	9,360		$	25,346		$	(254	)	$	34,455

See accompanying notes.

~~Anthem, Inc.~~

~~Consolidated Statements of Shareholders’ Equity (continued)~~

~~(Unaudited)~~


Anthem, Inc. Consolidated Statements of Shareholders’ Equity (continued) (Unaudited)																	Anthem, Inc. Consolidated Statements of Shareholders’ Equity (continued) (Unaudited)

	Three and Six Months Ended June 30, 2018																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			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			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
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	—		—		—			1,312			—			1,312			—		—		—			1,551			—			1,551
Other comprehensive loss	—		—		—			—			(209		)	(209		)
Other comprehensive income																	—		—		—			—			363			363
Repurchase and retirement of common stock	(1.7	)	—		(56		)	(338		)	—			(394		)	(1.1	)	—		(71		)	(223		)	—			(294		)
Dividends and dividend equivalents	—		—		—			(198		)	—			(198		)	—		—		—			(206		)	—			(206		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.1		—		28			—			—			28			1.1		—		69			—			—			69
Convertible debenture repurchases and conversions	—		—		(30		)	—			—			(30		)	—		—		(52		)	—			—			(52		)
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
March 31, 2019																	257.4		3		9,482			21,136			(623		)	29,998
Net income	—		—		—			1,054			—			1,054			—		—		—			1,139			—			1,139
Other comprehensive loss	—		—		—			—			(62		)	(62		)
Issuance of common stock under Equity Units stock purchase contracts	6.0		—		1,250			—			—			1,250
Other comprehensive income																	—		—		—			—			240			240
Repurchase and retirement of common stock	(1.7	)	—		(60		)	(341		)	—			(401		)	(1.7	)	—		(70		)	(388		)	—			(458		)
Dividends and dividend equivalents	—		—		—			(197		)	—			(197		)	—		—		—			(208		)	—			(208		)
Issuance of common stock under employee stock plans, net of related tax benefits	0.3		—		69			—			—			69			0.2		—		91			—			—			91
June 30, 2018	260.1		$	3	$	9,748		$	19,757		$	(783	)	$	28,725
Convertible debenture repurchases and conversions																	—		—		(9		)	—			—			(9		)
June 30, 2019																	255.9		$	3	$	9,494		$	21,679		$	(383	)	$	30,793

See accompanying notes.

Anthem, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

June 30, ~~2019~~2020

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


1.	Organization

References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states” include the District of Columbia, unless the context otherwise requires.

We are one of the largest health benefits companies in the United States in terms of medical membership, serving ~~approximately~~greater than 4142 million medical members through our affiliated health plans as of June 30, ~~2019~~2020. 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, or HMOs; Point-of-Service ~~or POS,~~ plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health ~~Plans, or CDHPs;~~Plans; 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, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management, or PBM, dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal ~~health care.~~healthcare. We also provide services to the federal government in connection with our Federal Health Products & Services ~~business.~~business, which administers the Federal Employees Health Benefits, or FEHB, Program.

We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS ~~licensees.~~licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as ~~America’s 1st Choice,~~AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare. Also, ~~beginning with~~in the second quarter of 2019, we ~~provide pharmacy benefits management~~began providing PBM services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.


2.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, 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 ~~2018~~2019 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 or adjusted to conform to the current year rounding convention of reporting financial data in whole millions of dollars, except as otherwise noted.~~presentation. 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, ~~2019~~2020 and ~~2018~~2019 have been recorded. The results of operations for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2019~~2020, 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, ~~2018~~2019 included in our ~~2018~~2019 Annual Report on Form 10-K.

Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar, or USD. We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the

period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during the period. The net effect of these translation adjustments is included in “Foreign currency translation adjustments” in our consolidated statements of comprehensive income.

Cash and Cash Equivalents: We control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits, and we have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled ~~$263~~$231 and ~~$222~~$215 at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.

~~Leases:~~Investments: ~~We lease office space~~Prior to 2020, our fixed maturities were evaluated for other-than-temporary impairment where credit-related impairments were presented within the other-than-temporary impairment losses recognized in our consolidated statements of income with an adjustment to the security’s amortized cost basis. Effective January 1, 2020, if a fixed maturity security is in an unrealized loss position and ~~certain computer and related equipment under noncancelable operating leases. We determine whether an arrangement is~~we have the intent to sell the fixed maturity security, 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~~more likely than not that we will ~~exercise that option. We recognize~~have to sell the ~~operating right-of-use, or ROU, assets at~~fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity security’s cost basis to fair value and record an ~~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~~impairment loss 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 impaired fixed maturity securities that we do not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost basis, we recognize the credit component of the impairment as an allowance for credit loss in our ~~office space leases,~~consolidated balance sheets and record an impairment loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive loss. Furthermore, unrealized losses entirely caused by non-credit-related factors related to fixed maturity securities for which we ~~account~~expect to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive loss.

The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.

For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the purchase date of the securities. Such adjustments are reported within net investment income.

In accordance with the Financial Accounting Standards Board, or FASB, guidance, the changes in fair value of our marketable equity securities are recognized in our results of operations within net realized gains and losses on financial instruments.

We have corporate-owned life insurance policies on certain participants in our deferred compensation plans and other members of management. The cash surrender value of the corporate-owned life insurance policies is reported under the caption “Other invested assets” in our consolidated balance sheets.

We use the equity method of accounting for investments in companies in which our ownership interest may enable us to influence the operating or financial decisions of the investee company. Our proportionate share of equity in net income of these unconsolidated affiliates is reported within net investment income. The equity method investments are reported under the caption “Other invested assets” in our consolidated balance sheets.

Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.

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. Under FASB guidance related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, we recognize the collateral as an asset, which is reported under the caption “Other current assets” in our consolidated balance sheets, and we record a corresponding liability for the ~~lease and non-lease components (such as common area maintenance)~~obligation to return the collateral to the borrower, which is reported under the caption “Other current liabilities” in our consolidated balance sheets. The securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending collateral are included in accumulated other comprehensive loss 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~~separate component of shareholders’ equity. The market value of loaned securities and that ~~do not include a purchase option~~of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or ~~option to extend that~~depreciates slower than the value of the collateral pledged, we are ~~reasonably certain~~exposed to ~~exercise.~~the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.

Receivables: Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $259 and $237 at June 30, 2020 and December 31, 2019, respectively. Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers.

Self-funded receivables are reported net of an allowance for doubtful accounts of $52 and $46 at June 30, 2020 and December 31, 2019, respectively. The allowance for doubtful accounts is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.

Other receivables include pharmacy rebates, provider advances, claims recoveries, reinsurance receivables, proceeds due from brokers on investment trades, other government receivables and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts of $321 and $242 at June 30, 2020 and December 31, 2019, respectively, which is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.

Revenue Recognition: Premiums for fully-insured contracts are recognized as revenue over the period insurance coverage is provided, and, if applicable, net of amounts recognized for the minimum medical loss ratio rebates or contractual or government-mandated premium stabilization programs. Administrative fees and other revenues include revenue from certain group contracts that provide for the group to be at risk for all, or with supplemental insurance arrangements, a portion of their claims experience. We charge these self-funded groups an administrative fee, which is based on the number of members in a group or the group’s claim experience. Under our self-funded arrangements, revenue is recognized as administrative services are performed, and benefit payments under these programs are excluded from benefit expense. For additional information about our revenues, see Note 2, “Basis of Presentation and Significant Accounting Policies” and Note 19, “Segment Information,” to our audited consolidated financial statements as of and for the year ended December 31, 2018 included in our 2018 Annual Report on Form 10-K. In addition, see Note 15, “Segment Information,” herein for the disaggregation of revenues by segments and products.

For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at June 30, ~~2019.~~2020. For the three and six months ended June 30, ~~2019,~~2020, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.

Recently Adopted Accounting Guidance: In ~~March~~November 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,~~2019-11, 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 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 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 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.~~ ~~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. In April 2016, the FASB issued Accounting Standards Update No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. In March 2016, the FASB issued Accounting Standards Update No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. Collectively, these updates require a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These updates supersede almost all existing revenue recognition guidance under GAAP, with certain exceptions, including an exception for our premium revenues, which are recorded on the Premiums line item on our consolidated statements of income and will continue to be accounted for in accordance with the provisions of ASC Topic 944, ~~Financial Services - Insurance~~. Our administrative service and other contracts that are subject to these Accounting Standards Updates are recorded in the Administrative fees and other revenue line item on our consolidated statements of income and represents approximately 6% of our consolidated total operating revenue. We adopted these standards on January 1, 2018 using the modified retrospective approach. The adoption of these standards did not have a material impact on our beginning retained earnings, or on our consolidated results of operations, cash flows or 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 financial position.

~~In January 2016, the FASB issued Accounting Standards Update No. 2016-01,~~ 326, Financial Instruments - ~~Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~Credit Losses, or ASU 2016-01. The amendments in ASU 2016-01 change the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. We adopted ASU 2016-01 on January 1, 2018 as a cumulative-effect adjustment and reclassified $320 of unrealized gains on equity investments, net of tax, from accumulated other comprehensive loss to retained earnings on our consolidated balance 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 May 2019, the FASB issued Accounting Standards Update No. 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 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. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities and provides for additional disclosure requirements. ASU 2016-13 requires a cumulative-effect adjustment to the opening balance of retained earnings on the statement of financial position at the date of adoption and a prospective transition approach for debt securities for which an other-than-temporary impairment had been recognized before the adoption date. The effect of a prospective transition approach is ~~effective for us~~to maintain the

same amortized cost basis before and after the date of adoption. We adopted ASU 2016-13 on January 1, 2020, ~~with early~~and recognized a cumulative-effect adjustment of $35 to our opening retained earnings for credit related allowances on receivables. The adoption ~~permitted. We are currently evaluating the effects the adoption of ASU 2016-13 will~~did not have an impact on our consolidated ~~financial~~ statements ~~results~~ of ~~operations and~~income or cash flows.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, or ASU 2018-15. The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows. We adopted ASU 2018-15 ~~is effective for us~~ on January 1, 2020 ~~with early adoption permitted. The guidance can be applied either prospectively to~~using a prospective approach for all implementation costs incurred after the date of adoption, and the adoption did not have an impact on our consolidated financial position, results of operations or ~~retrospectively.~~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 disclosure 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 adopted the new disclosure requirements on January 1, 2020, on a prospective basis.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This update removes Step 2 of the goodwill impairment test under current guidance, which required a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. We adopted ASU 2017-04 on January 1, 2020, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

Recent Accounting Guidance Not Yet Adopted: In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU 2020-04. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic, or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. The provisions within ASU 2020-04 are available until December 31, 2022, when the reference rate replacement activity is expected to have been completed. We are currently evaluating the provisions within ASU 2020-04.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. The amendments in ASU 2019-12 remove certain exceptions to the general principles in Accounting Standards Codification Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We are currently evaluating the effects the adoption of ASU ~~2018-15~~2019-12 will have on our consolidated financial ~~position, results of operations and cash flows.~~statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation—Retirement Benefits - Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14. The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The guidance is to be applied on a retrospective basis to all periods presented. We are currently evaluating the effects the adoption of ASU 2018-14 will have on our disclosures.

In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, or ASU 2018-12. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments in ASU 2018-12 will be effective for our interim and annual reporting periods beginning after December 15, ~~2020.~~2021. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, or ASU 2017-04. This update removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Upon adoption, the guidance is to be applied prospectively. ASU 2017-04 is effective for us on January 1, 2020, with early adoption permitted. The adoption of ASU 2017-04 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

There were no other new accounting pronouncements that were issued or became effective since the issuance of our ~~2018~~2019 Annual Report on Form 10-K that had, or are expected to have, a material impact on our consolidated financial position, results of operations or cash flows.


3.	Business ~~Acquisitions~~Acquisition

~~Pending Acquisition~~Beacon Health Options, Inc.

On February 28, 2020, we completed our 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. At the time of acquisition, Beacon ~~serves approximately forty~~served more than thirty-four 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.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of Beacon’s assets acquired and liabilities assumed, including identifiable intangible assets. 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. Upon the conclusion of our one-year measurement period, the excess of the consideration transferred over the preliminary fair value of net assets acquired resulted in preliminary goodwill of $1,070 at June 30, 2020, all of which was allocated to our Other segment. Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions and strategy. As of June 30, 2020, the initial accounting for the acquisition has not been finalized. Any additional payments or receipts of cash resulting from contractual purchase price adjustments or any subsequent adjustments made to the assets acquired or liabilities assumed during the measurement period will continue to be recorded as an adjustment to goodwill.

The preliminary fair value of the net assets acquired ~~resulted in goodwill~~from Beacon includes $752 of ~~$1,029,~~other intangible assets at June 30, 2020, which primarily consist of ~~which $296 was tax deductible. All of the goodwill was allocated~~finite-lived customer relationships with amortization periods ranging from 9 to ~~our Government Business segment.~~21 years. The results of operations of ~~America’s 1st Choice~~Beacon are included in our consolidated financial statements within our ~~Government Business~~Other segment for the ~~periods~~period following February ~~15, 2018.~~28, 2020. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.


4.	Investments

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~~The effects of the COVID-19 global health pandemic, or COVID-19, and other market related changes have impacted our fixed maturity securities. We have established an allowance for credit loss and recorded credit loss expense as a reflection of our expected impairment ~~losses on investments during the three and six months ended June 30, 2019 and~~ ~~2018~~.losses. We continue to review our investment portfolios under our impairment review policy. Given the inherent uncertainty of changes in market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and additional material ~~other-than-temporary~~ impairment ~~or OTTI,~~ losses on investments may be recorded in future periods.

Our fixed maturity securities were in a net unrealized gain position of $713 and $673 at June 30, 2020 and December 31, 2019, respectively.

A summary of current and long-term fixed maturity securities, available-for-sale, at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 is as follows:


															Non-Credit Component of OTTIs Recognized in Accumulated Other Comprehensive Loss			Cost or Amortized Cost																Non-Credit Component of Impairment Recognized in Accumulated Other Comprehensive Loss
	Cost or Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses							Estimated Fair Value								Gross Unrealized Gains		Gross Unrealized Losses						Allowance For Credit Losses			Estimated Fair Value
					Less than 12 Months				12 Months or Greater											Less than 12 Months			12 Months or Greater
June 30, 2019
June 30, 2020
Fixed maturity securities:
United States Government securities																		$	1,250		$	17	$	(1	)	$	—		$	—		$	1,266	$	—
Government sponsored securities																		96			7		(1		)	—			—			102		—
Foreign government securities																		288			7		(15		)	—			(1		)	279		—
States, municipalities and political subdivisions																		4,840			315		(5		)	—			—			5,150		—
Corporate securities																		9,855			469		(125		)	(28		)	(23		)	10,148		(32		)
Residential mortgage-backed securities																		3,696			137		(26		)	(11		)	—			3,796		—
Commercial mortgage-backed securities																		80			2		(2		)	(4		)	—			76		—
Other securities																		1,744			20		(34		)	(9		)	—			1,721		—
Total fixed maturity securities																		$	21,849		$	974	$	(209	)	$	(52	)	$	(24	)	$	22,538	$	(32	)
December 31, 2019
Fixed maturity securities:
United States Government securities	$	409	$	8		$	—			$	—		$	417	$	—		$	524		$	4	$	(3	)	$	—		$	—		$	525	$	—
Government sponsored securities	171		6			—				—			177		—			136			5		—			—			—			141		—
States, municipalities and political subdivisions	4,400		237			—				(1		)	4,636		—			4,592			262		(3		)	—			—			4,851		—
Corporate securities	8,712		263			(15		)		(31		)	8,929		(4		)	8,870			339		(9		)	(15		)	—			9,185		(3		)
Residential mortgage-backed securities	3,646		86			(2		)		(8		)	3,722		—			3,654			87		(6		)	(3		)	—			3,732		—
Commercial mortgage-backed securities	87		3			—				(1		)	89		—			84			2		—			—			—			86		—
Other securities	1,645		23			(2		)		(4		)	1,662		—			1,648			21		(3		)	(5		)	—			1,661		—
Total fixed maturity securities	$	19,070	$	626		$	(19	)		$	(45	)	$	19,632	$	(4	)	$	19,508		$	720	$	(24	)	$	(23	)	$	—		$	20,181	$	(3	)
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	)

For fixed maturity securities in an unrealized loss position at June 30, ~~2019~~2020 and December 31, ~~2018~~2019, 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						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			Number of Securities	Estimated Fair Value		Gross Unrealized Loss			Number of Securities	Estimated Fair Value		Gross Unrealized Loss
June 30, 2019
June 30, 2020
Fixed maturity securities:
United States Government securities													5	$	832	$	(1	)	—	$	—	$	—
Government sponsored securities													1	1		(1		)	1	—		—
Foreign government securities													219	161		(15		)	—	—		—
States, municipalities and political subdivisions													111	221		(5		)	3	5		—
Corporate securities													1,813	2,297		(125		)	185	211		(28		)
Residential mortgage-backed securities													375	654		(26		)	78	117		(11		)
Commercial mortgage-backed securities													7	17		(2		)	3	3		(4		)
Other securities													381	924		(34		)	65	161		(9		)
Total fixed maturity securities													2,912	$	5,107	$	(209	)	335	$	497	$	(52	)
December 31, 2019
Fixed maturity securities:
United States Government securities	4	$	55	$	—		8	$	20	$	—		27	$	250	$	(3	)	2	$	1	$	—
Government sponsored securities	—	—		—			13	7		—			14	12		—			3	1		—
States, municipalities and political subdivisions	7	8		—			48	60		(1		)	114	306		(3		)	14	11		—
Corporate securities	406	642		(15		)	564	934		(31		)	386	558		(9		)	224	286		(15		)
Residential mortgage-backed securities	87	227		(2		)	420	668		(8		)	321	635		(6		)	189	237		(3		)
Commercial mortgage-backed securities	—	—		—			4	8		(1		)	1	3		—			4	8		—
Other securities	131	468		(2		)	116	345		(4		)	166	415		(3		)	113	358		(5		)
Total fixed maturity securities	635	$	1,400	$	(19	)	1,173	$	2,042	$	(45	)	1,029	$	2,179	$	(24	)	549	$	902	$	(23	)
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	)

Below are discussions by security type for unrealized losses and credit losses as of June 30, 2020:

Foreign government securities: An allowance for credit loss was established on foreign government security holdings of Republic of Ecuador. Notification of the request for delayed interest payments, a rating downgrade and significant decline in fair value were factors indicating a credit loss. No other foreign government securities had material unrealized losses or qualitative factors to indicate a credit loss. We do not intend to sell these investments and it is likely we will not be required to sell these investments prior to maturity or recovery of amortized cost.

Corporate securities: An allowance for credit losses on certain retail, travel and entertainment as well as energy sector fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, decline in fair value and industry condition along with other available market data. With multiple risk factors present, these securities were reviewed for expected future cash flow to determine the portion of unrealized losses that were credit related and to record an allowance for credit losses. Unrealized losses on our other corporate securities were largely due to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of June 30, 2020. We do not intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.

As for the remaining securities shown in the table above, unrealized losses on these securities have not been recognized into income because we do not intend to sell these investments and it is likely that we will not be required to sell these investments prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated these securities for any change in credit rating and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.

The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the three months ended June 30, 2020:



Three Months Ended June 30		Corporate Securities			Foreign Government Securities		Total
Allowance for credit losses:
	Beginning balance	$	51		$	—	$	51
	Additions for securities for which no previous expected credit losses were recognized	9			1		10
	Securities sold during the period	(8		)	—		(8		)
	Increases (decreases) to the allowance for credit losses on securities	(29		)	—		(29		)
Total allowance for credit losses		$	23		$	1	$	24

The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the six months ended June 30, 2020:



Six Months Ended June 30		Corporate Securities			Foreign Government Securities		Total
Allowance for credit losses:
	Beginning balance	$	—		$	—	$	—
	Additions for securities for which no previous expected credit losses were recognized	60			1		61
	Securities sold during the period	(8		)	—		(8		)
	Increases (decreases) to the allowance for credit losses on securities	(29		)	—		(29		)
Total allowance for credit losses		$	23		$	1	$	24

The amortized cost and fair value of fixed maturity securities at June 30, ~~2019,~~2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.


	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	605	$	604	$	1,481	$	1,484
Due after one year through five years	5,548		5,647		5,736		5,876
Due after five years through ten years	5,179		5,364		6,121		6,340
Due after ten years	4,005		4,206		4,735		4,966
Mortgage-backed securities	3,733		3,811		3,776		3,872
Total fixed maturity securities	$	19,070	$	19,632	$	21,849	$	22,538

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, ~~2019~~2020 and ~~2018~~2019 are as follows:


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
Proceeds	$	1,986		$	2,654		$	3,454		$	4,881		$	2,618		$	1,986		$	4,549		$	3,454
Gross realized gains	22			31			40			61			37			22			80			40
Gross realized losses	(17		)	(33		)	(34		)	(69		)	(50		)	(17		)	(70		)	(34		)

In the ordinary course of business, we may sell securities at a loss for a number of reasons, including, but not limited to: (i) changes in the investment environment; (ii) expectation that the fair value could deteriorate further; (iii) desire to reduce exposure to an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected cash flow.

All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.

Equity Securities

A summary of ~~current and long-term~~ marketable equity securities at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 is as follows:


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Equity securities:
Exchange traded funds	$	510	$	2	$	3,224	$	44
Fixed maturity mutual funds	633		557		152		643
Common equity securities	77		654		32		237
Private equity securities	305		313		62		85
Total	$	1,525	$	1,526	$	3,470	$	1,009

The gains and losses related to equity securities for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 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					Six Months Ended June 30
	2020		2019			2020			2019
Net realized gains (losses) recognized on equity securities	$	45	$	13		$	(5	)	$	92
Less: Net realized losses (gains) recognized on equity securities sold during the period	13		(29		)	(5		)	(50		)
Unrealized gains (losses) recognized on equity securities still held at June 30	$	58	$	(16	)	$	(10	)	$	42

Other Invested Assets

Other invested assets include primarily our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. Financial information for certain of these investments are reported on a one or three month lag due to the timing of when we receive financial information from the companies. Given the recent market volatility, there is a risk that the value of some of these investments may decline in future periods.

Investment Income

At June 30, 2020 and December 31, 2019, accrued investment income totaled $182 and $173, respectively. We recognize accrued investment income under the caption “Other receivables” on our consolidated balance sheets.

Securities Lending Programs

We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. The fair value of the collateral received at the time of the transactions amounted to ~~$564~~$1,114 and ~~$604~~$351 at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The value of the collateral represented ~~103%~~102% and ~~102%~~103% of the market value of the securities on loan at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. We recognize the collateral as an asset under the caption ~~“Securities lending collateral” on~~“Other current assets” in our consolidated balance sheets, and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption ~~“Securities lending payable.~~“Other current liabilities.” The securities on loan are reported in the applicable investment category on our consolidated balance sheets.

The remaining contractual maturity of our securities lending agreements at June 30, ~~2019~~2020 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 collateral
Cash	$	961
United States Government securities	151
Other securities	2
Total	$	1,114

The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or depreciates slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the minimum collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.


5.	Derivative Financial Instruments

We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements, which reduce credit risk by permitting net settlement of transactions.

We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to LIBOR. Any amounts recognized for changes in fair value of these derivatives are included in the ~~London Interbank Offering Rate.~~captions “Other current or noncurrent assets” or “Other current or noncurrent liabilities” in our consolidated balance sheet.

Prior to ~~2019,~~2020, 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. The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was ~~$243~~$256 and ~~$246~~$262 at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

For additional information relating to the fair value of our derivative assets and liabilities, see Note 6, “Fair Value,” of 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~~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, United States Government securities, foreign government securities, and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt securities, which are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets.

Equity securities: Fair values of equity securities ~~with quoted market prices~~ are generally designated as Level I.I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available, and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.

~~Other invested assets, current:~~ Other invested assets, current include securities held in rabbi trusts that are classified as trading. These securities are designated Level I securities, as fair values are based on quoted market prices.

Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from ~~third party~~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, ~~2019~~2020 and December 31, ~~2018~~2019 is as follows:


	Level I		Level II			Level III		Total			Level I		Level II			Level III		Total
June 30, 2019
June 30, 2020
Assets:
Cash equivalents	$	1,938	$	—		$	—	$	1,938		$	3,809	$	—		$	—	$	3,809
Fixed maturity securities, available-for-sale:
United States Government securities	—		417			—		417			—		1,266			—		1,266
Government sponsored securities	—		177			—		177			—		102			—		102
States, municipalities and political subdivisions	—		4,636			—		4,636
Foreign government securities											—		279			—		279
States, municipalities and political subdivisions, tax-exempt											—		5,150			—		5,150
Corporate securities	—		8,632			297		8,929			—		9,834			314		10,148
Residential mortgage-backed securities	—		3,719			3		3,722			—		3,794			2		3,796
Commercial mortgage-backed securities	—		89			—		89			—		76			—		76
Other securities	—		1,651			11		1,662			—		1,716			5		1,721
Total fixed maturity securities, available-for-sale	—		19,321			311		19,632			—		22,217			321		22,538
Equity securities:
Exchange traded funds	510		—			—		510			3,224		—			—		3,224
Fixed maturity mutual funds	—		633			—		633			—		152			—		152
Common equity securities	44		33			—		77			1		31			—		32
Private equity securities	—		—			305		305			—		—			62		62
Total equity securities	554		666			305		1,525			3,225		183			62		3,470
Other invested assets, current	14		—			—		14
Securities lending collateral	—		565			—		565			—		1,114			—		1,114
Derivatives	—		24			—		24			—		50			—		50
Total assets	$	2,506	$	20,576		$	616	$	23,698		$	7,034	$	23,564		$	383	$	30,981
Liabilities:
Derivatives	$	—	$	(15	)	$	—	$	(15	)	$	—	$	—		$	—	$	—
Total liabilities	$	—	$	(15	)	$	—	$	(15	)	$	—	$	—		$	—	$	—

December 31, 2018
December 31, 2019
Assets:
Cash equivalents	$	1,815	$	—		$	—	$	1,815		$	2,015	$	—		$	—	$	2,015
Fixed maturity securities, available-for-sale:
United States Government securities	—		416			—		416			—		525			—		525
Government sponsored securities	—		108			—		108			—		141			—		141
States, municipalities and political subdivisions	—		4,785			—		4,785
States, municipalities and political subdivisions, tax-exempt											—		4,851			—		4,851
Corporate securities	2		7,648			287		7,937			—		8,882			303		9,185
Residential mortgage-backed securities	—		2,744			6		2,750			—		3,730			2		3,732
Commercial mortgage-backed securities	—		67			—		67			—		86			—		86
Other securities	—		1,099			17		1,116			—		1,654			7		1,661
Total fixed maturity securities, available-for-sale	2		16,867			310		17,179			—		19,869			312		20,181
Equity securities:
Exchange traded funds	2		—			—		2			44		—			—		44
Fixed maturity mutual funds	—		557			—		557			—		643			—		643
Common equity securities	601		53			—		654			206		31			—		237
Private equity securities	—		—			313		313			—		—			85		85
Total equity securities	603		610			313		1,526			250		674			85		1,009
Other invested assets, current	21		—			—		21
Securities lending collateral	314		290			—		604			—		353			—		353
Derivatives	—		16			—		16			—		23			—		23
Total assets	$	2,755	$	17,783		$	623	$	21,161		$	2,265	$	20,919		$	397	$	23,581
Liabilities:
Derivatives	$	—	$	(17	)	$	—	$	(17	)	$	—	$	(1	)	$	—	$	(1	)
Total liabilities	$	—	$	(17	)	$	—	$	(17	)	$	—	$	(1	)	$	—	$	(1	)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Corporate Securities			Residential Mortgage- backed Securities			Other Securities			Equity Securities			Total			Corporate Securities			Residential Mortgage- backed Securities			Other Securities			Equity Securities			Total
Three Months Ended June 30, 2020
Beginning balance at April 1, 2020																$	316		$	2		$	5		$	82		$	405
Total gains (losses):
Recognized in net income																1			—			—			(10		)	(9		)
Recognized in accumulated other comprehensive loss																(7		)	—			—			—			(7		)
Purchases																14			—			—			3			17
Sales																(1		)	—			—			(13		)	(14		)
Settlements																(9		)	—			—			—			(9		)
Transfers into Level III																—			—			—			—			—
Transfers out of Level III																—			—			—			—			—
Ending balance at June 30, 2020																$	314		$	2		$	5		$	62		$	383
Change in unrealized losses included in net income related to assets still held at June 30, 2020																$	—		$	—		$	—		$	(10	)	$	(10	)

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

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, ~~2019~~2020 and ~~2018~~2019 is as follows:


																Corporate Securities			Residential Mortgage- backed Securities			Other Securities			Equity Securities			Total
Six Months Ended June 30, 2020
Beginning balance at January 1, 2020																$	303		$	2		$	7		$	85		$	397
Total losses:
Recognized in net income																(1		)	—			—			(16		)	(17		)
Recognized in accumulated other comprehensive loss																(17		)	—			—			—			(17		)
Purchases																39			—			—			15			54
Sales																(4		)	—			—			(22		)	(26		)
Settlements																(19		)	—			(2		)	—			(21		)
Transfers into Level III																13			—			—			—			13
Transfers out of Level III																—			—			—			—			—
Ending balance at June 30, 2020																$	314		$	2		$	5		$	62		$	383
Change in unrealized losses included in net income related to assets still held at June 30, 2020																$	—		$	—		$	—		$	(17	)	$	(17	)
	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		$	287		$	6		$	17		$	313		$	623
Total (losses) gains:
Recognized in net income	(4		)	—			—			—			(4		)	(4		)	—			—			—			(4		)
Recognized in accumulated other comprehensive loss	2			—			—			—			2			2			—			—			—			2
Purchases	63			—			2			21			86			63			—			2			21			86
Sales	(2		)	—			—			(29		)	(31		)	(2		)	—			—			(29		)	(31		)
Settlements	(40		)	(1		)	(2		)	—			(43		)	(40		)	(1		)	(2		)	—			(43		)
Transfers into Level III	—			—			3			—			3			—			—			3			—			3
Transfers out of Level III	(9		)	(2		)	(9		)	—			(20		)	(9		)	(2		)	(9		)	—			(20		)
Ending balance at June 30, 2019	$	297		$	3		$	11		$	305		$	616		$	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
Change in unrealized gains included in net income related to assets still held at June 30, 2019																$	—		$	—		$	—		$	—		$	—

There were no individually material transfers into or out of Level III during the three and six months ended June 30, ~~2019~~2020 or ~~2018.~~2019.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business Acquisitions,” we completed our acquisition of ~~America’s 1st Choice~~Beacon on February ~~15, 2018.~~28, 2020. The preliminary values of net assets acquired in our acquisition of ~~America’s 1st Choice~~Beacon and resulting goodwill and other intangible assets were recorded at fair value primarily using Level III inputs. The majority of ~~America’s 1st Choice’s~~Beacon’s assets acquired and liabilities assumed were recorded at their carrying values as of the respective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The preliminary fair values of goodwill and other intangible assets acquired in our acquisition of ~~America’s 1st Choice~~Beacon were internally estimated based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets could be expected to generate in the future. We developed internal estimates for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of ~~America’s 1st Choice~~Beacon described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 30, ~~2019~~2020 or ~~2018.~~2019.

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, unobservable inputs or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. The use of assumptions for unobservable inputs for the determination of fair value involves a level of judgment and uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of cash flows.

Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain quoted prices for each security from ~~third party~~third-party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. As we are responsible for the determination of fair value, we perform ~~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 and price comparisons to secondary pricing services. There were no adjustments to quoted market prices obtained from the pricing services during the three and six months ended June 30, ~~2019~~2020 or ~~2018~~2019.

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

Other invested ~~assets, long-term:~~assets: 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 and surplus notes: The fair values of our notes are based on quoted market prices in active markets for the same or similar debt, or, if no quoted market prices are available, on the current market observable rates estimated to be available to us for debt of similar terms and remaining maturities.

Long-term debt – convertible debentures: The fair value of our convertible debentures is based on the quoted market price in the active private market in which the convertible debentures trade.

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, ~~2019~~2020 and December 31, ~~2018~~2019 is as follows:


	Carrying Value		Estimated Fair Value								Carrying Value		Estimated Fair Value
			Level I		Level II		Level III		Total				Level I		Level II		Level III		Total
June 30, 2019
June 30, 2020
Assets:
Other invested assets, long-term	$	3,719	$	—	$	—	$	3,719	$	3,719
Other invested assets											$	4,097	$	—	$	—	$	4,097	$	4,097
Liabilities:
Debt:
Notes											21,358		—		24,273		—		24,273
Convertible debentures											118		—		426		—		426

December 31, 2019
Assets:
Other invested assets											$	4,258	$	—	$	—	$	4,258	$	4,258
Liabilities:
Debt:
Short-term borrowings	1,010		—		1,010		—		1,010		700		—		700		—		700
Commercial paper	900		—		900		—		900		400		—		400		—		400
Notes	17,207		—		18,349		—		18,349		18,840		—		20,470		—		20,470
Convertible debentures	179		—		1,042		—		1,042		145		—		904		—		904

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


7.	Income Taxes

During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized income tax expense of ~~$314~~$873 and ~~$450,~~$314, respectively, which represent effective tax rates of ~~21.6%~~27.7% and ~~29.9%~~21.6%, respectively. The ~~decrease~~increase in ~~income tax expense and~~our effective tax rate was primarily due to the ~~suspension~~reinstatement of the non-tax deductible Health Insurance Provider Fee, or HIP Fee, for ~~2019. For the three months ended June 30, 2018, we recognized additional income tax expense of $84 related to the HIP Fee.~~2020.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized income tax expense of ~~$708~~$1,439 and ~~$918,~~$708, respectively, which represent effective tax rates of ~~20.8%~~27.5% and ~~28.0%~~20.8%, respectively. The ~~decrease~~increase in our effective income ~~tax expense and effective~~ tax rate was primarily due to the ~~suspension~~reinstatement of the non-tax deductible HIP Fee for ~~2019. For the six months ended~~2020.

Income taxes payable totaled $978 at June 30, ~~2018, we recognized additional~~2020. Income taxes receivable totaled $335 at December 31, 2019. We recognize the income tax ~~expense of $167 related to~~payable as a liability under the ~~HIP Fee.~~caption “Other current liabilities” and the income tax receivable as an asset under the caption “Other current assets” in our consolidated balance sheets.


8.	Retirement Benefits

The components of net periodic benefit credit included in our consolidated statements of income for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 are as follows:


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Three Months Ended June 30						Three Months Ended June 30						Three Months Ended June 30						Three Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
Service cost	$	—		$	2		$	—		$	1
Interest cost	16			13			4			3			$	13		$	16		$	2		$	4
Expected return on assets	(35		)	(36		)	(6		)	(6		)	(29		)	(35		)	(6		)	(6		)
Recognized actuarial loss	4			6			1			1			6			4			—			1
Settlement loss	2			7			—			—			10			2			—			—
Amortization of prior service credit	—			—			(3		)	(3		)	—			—			(2		)	(3		)
Net periodic benefit credit	$	(13	)	$	(8	)	$	(4	)	$	(4	)	$	—		$	(13	)	$	(6	)	$	(4	)

The components of net periodic benefit credit included in our consolidated statements of income for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 are as follows:


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Six Months Ended June 30						Six Months Ended June 30						Six Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
Service cost	$	—		$	4		$	—		$	1
Interest cost	32			27			8			7			$	25		$	32		$	5		$	8
Expected return on assets	(69		)	(73		)	(11		)	(12		)	(69		)	(69		)	(12		)	(11		)
Recognized actuarial loss	8			12			1			2			12			8			—			1
Settlement loss	4			13			—			—			15			4			—			—
Amortization of prior service credit	—			—			(6		)	(6		)	—			—			(4		)	(6		)
Net periodic benefit credit	$	(25	)	$	(17	)	$	(8	)	$	(8	)	$	(17	)	$	(25	)	$	(11	)	$	(8	)

For the year ending December 31, ~~2019~~2020, 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~~Contributions of $3 and $0 were made to our retirement benefit plans during the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

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~~2020 is as follows:


	Commercial & Specialty Business			Government Business			Total			Commercial & Specialty Business			Government Business			Other		Total
Gross medical claims payable, beginning of period	$	2,586		$	4,680		$	7,266		$	3,039		$	5,608		$	—	$	8,647
Ceded medical claims payable, beginning of period	(10		)	(24		)	(34		)	(14		)	(19		)	—		(33		)
Net medical claims payable, beginning of period	2,576			4,656			7,232			3,025			5,589			—		8,614
Business combinations and purchase adjustments										—			141			198		339
Net incurred medical claims:
Current period	12,460			25,777			38,237			11,318			28,162			498		39,978
Prior periods redundancies	(182		)	(232		)	(414		)	(374		)	(326		)	—		(700		)
Total net incurred medical claims	12,278			25,545			37,823			10,944			27,836			498		39,278
Net payments attributable to:
Current period medical claims	9,928			20,439			30,367			9,014			22,115			496		31,625
Prior periods medical claims	2,081			4,101			6,182			2,218			4,823			—		7,041
Total net payments	12,009			24,540			36,549			11,232			26,938			496		38,666
Net medical claims payable, end of period	2,845			5,661			8,506			2,737			6,628			200		9,565
Ceded medical claims payable, end of period	14			29			43			62			28			—		90
Gross medical claims payable, end of period	$	2,859		$	5,690		$	8,549		$	2,799		$	6,656		$	200	$	9,655

Activity in the Other segment resulted from our acquisition of Beacon.

At June 30, ~~2019,~~2020, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty Business was ~~$45, $267~~$74, $358 and ~~$2,533~~$2,305 for the claim years ~~2017~~2018 and prior, ~~2018~~2019 and ~~2019,~~2020, respectively.

At June 30, ~~2019,~~2020, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was ~~$35, $289~~$80, $360 and ~~$5,337~~$6,188 for the claim years ~~2017~~2018 and prior, 2019 and 2020, respectively.

At June 30, 2020, the total of net incurred but not reported liabilities plus expected development on reported claims for Other was $0, $0 and $200 for the claim years 2018 and prior, 2019 and 2020, 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, ~~2018~~2019 is as follows:


	Commercial & Specialty Business			Government Business			Total			Commercial & Specialty Business			Government Business			Other		Total
Gross medical claims payable, beginning of period	$	3,383		$	4,431		$	7,814		$	2,586		$	4,680		$	—	$	7,266
Ceded medical claims payable, beginning of period	(78		)	(27		)	(105		)	(10		)	(24		)	—		(34		)
Net medical claims payable, beginning of period	3,305			4,404			7,709			2,576			4,656			—		7,232
Business combinations and purchase adjustments	—			199			199
Net incurred medical claims:
Current period	11,699			22,223			33,922			12,460			25,777			—		38,237
Prior periods redundancies	(405		)	(390		)	(795		)	(182		)	(232		)	—		(414		)
Total net incurred medical claims	11,294			21,833			33,127			12,278			25,545			—		37,823
Net payments attributable to:
Current period medical claims	9,367			18,135			27,502			9,928			20,439			—		30,367
Prior periods medical claims	2,520			3,688			6,208			2,081			4,101			—		6,182
Total net payments	11,887			21,823			33,710			12,009			24,540			—		36,549
Net medical claims payable, end of period	2,712			4,613			7,325			2,845			5,661			—		8,506
Ceded medical claims payable, end of period	4			31			35			14			29			—		43
Gross medical claims payable, end of period	$	2,716		$	4,644		$	7,360		$	2,859		$	5,690		$	—	$	8,549

The reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income isfor periods in 2020 are as follows:



	Three Months Ended				Six Months Ended June 30, 2020
	March 31, 2020		June 30, 2020		Six Months Ended June 30, 2020
Net incurred medical claims:
Commercial & Specialty Business	$	5,797	$	5,147	$	10,944
Government Business	14,603		13,233		27,836
Other	130		368		498
Total net incurred medical claims	20,530		18,748		39,278
Quality improvement and other claims expense	959		799		1,758
Benefit expense	$	21,489	$	19,547	$	41,036

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
The reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income for periods in 2019 are as follows:



	Three Months Ended				Six Months Ended June 30, 2019
	March 31, 2019		June 30, 2019		Six Months Ended June 30, 2019
Net incurred medical claims:
Commercial & Specialty Business	$	5,856	$	6,422	$	12,278
Government Business	12,483		13,062		25,545
Total net incurred medical claims	18,339		19,484		37,823
Quality improvement and other claims expense	943		884		1,827
Benefit expense	$	19,282	$	20,368	$	39,650

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,~~2020, is as follows:


	Commercial & Specialty Business		Government Business		Total		Commercial & Specialty Business		Government Business		Other		Total
Net medical claims payable, end of period	$	2,845	$	5,661	$	8,506	$	2,737	$	6,628	$	200	$	9,565
Ceded medical claims payable, end of period	14		29		43		62		28		—		90
Insurance lines other than short duration	—		209		209		—		223		—		223
Gross medical claims payable, end of period	$	2,859	$	5,899	$	8,758	$	2,799	$	6,879	$	200	$	9,878


10.	Debt

We generally issue senior unsecured notes for long-term borrowing purposes. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had ~~$17,182~~$21,333 and ~~$17,153,~~$18,815, respectively, outstanding under these notes.

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. We had issued 25 Equity Units on May 12, 2015, pursuant to an underwriting agreement dated May 6, 2015, in an aggregate principal amount of $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 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 principal amount of our 4.101% senior notes due 2028, or the 2028 Notes, and a cash payment of $4. We cancelled the RSNs upon receipt and recognized a loss on extinguishment of debt of $18. At the remarketing, we also issued $850 aggregate principal amount of 4.550% notes due 2048, or the 2048 Notes, under our shelf registration statement. We used the proceeds from the 2048 Notes for working capital and general corporate purposes. Interest on the 2028 Notes and the 2048 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2018.

We have an unsecured surplus note with an outstanding principal balance of $25 at both June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

On May 5, 2020, we issued $400 aggregate principal amount of additional senior notes pursuant to a reopening of our existing 2.375% Notes due 2025, or the 2025 Notes, $1,100 aggregate principal amount of 2.250% Notes due 2030, or the 2030 Notes, and $1,000 aggregate principal amount of 3.125% Notes due 2050, or the 2050 Notes, under our shelf registration statement. The 2025 Notes constitute an additional issuance of our 2.375% notes due 2025, of which $850 aggregate principal amount was issued on September 9, 2019. Interest on the 2025 Notes is deemed to have accrued from January 15, 2020 and is payable semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020. Interest on the 2030 and 2050 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 2020. We intend to use net proceeds for working capital and general corporate purposes, including, but not limited to, repayment of short-term and long-term debt, repurchase of our common stock pursuant to our share repurchase program and to fund acquisitions.

We have a senior revolving credit facility, or the 5-Year Facility, with a group of lenders for general corporate purposes. ~~In June 2019, we amended and restated the credit agreement for the~~The 5-Year Facility provides credit up to ~~among other things, extend the maturity date of the 5-Year Facility from August 2020 to~~$2,500 and matures in June ~~2024 and decreased the amount of credit available under the 5-Year Facility from $3,500 to $2,500. In June 2019, we~~2024. We also ~~entered into~~have a 364-day senior revolving credit facility, or 364-Day Facility, with a group of lenders for general corporate purposes, which provides for credit in the amount of ~~$1,000~~$1,000. In May 2020, we amended and extended the 364-Day Facility, which now matures in June ~~2020.~~2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of June 30, 2020, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 38.4%. We do not believe the restrictions contained in any of our credit facility covenants materially affect our financial or operating flexibility. As of June 30, 2020, we were in compliance with all of the debt covenants under these credit facilities. 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, ~~2019~~2020 or ~~under~~ the ~~5-Year Facility at~~year ended December 31, ~~2018.~~2019. At June 30, 2020 and December 31, 2019, there were no amounts outstanding under our 5-Year Facility.

Through certain subsidiaries, we have entered into multiple 364-day lines of credit, or the Subsidiary Credit Facilities, with separate lenders for general corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to ~~$600.~~$400. At June 30, ~~2019~~2020 and December 31, ~~2018, $300~~2019, $0 and ~~$500,~~$50, respectively, were outstanding under our Subsidiary Credit Facilities.

We have an authorized commercial paper program of up to ~~$2,500,~~$3,500, the proceeds of which may be used for general corporate purposes. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had ~~$900~~$0 and ~~$697,~~$400, 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, or the indenture. We have accounted for the Debentures in accordance with the FASB cash conversion guidance for debt with conversion and other options. As a result, the value of the embedded conversion option (net of deferred taxes and equity issuance costs) has been

bifurcated from its debt host and recorded as a component of additional paid-in capital in our consolidated balance sheets. During the three and six months ended June 30, ~~2019, $20~~2020, $27 and $40, respectively, of aggregate principal amount of the Debentures were surrendered for conversion by certain holders in accordance with the terms and provisions of the indenture. We elected to settle the excess of the principal amount of the conversions with cash for total payments during the three and six months ended June 30, 2020 of ~~$73.~~$103 and $155, respectively. We recognized a ~~gain of $1~~loss on the extinguishment of debt related to the Debentures of $3 and $4, respectively, for the three and six months ended June 30, 2020, based on the fair values of the debt on the conversion settlement dates.

The following table summarizes at June 30, ~~2019~~2020 the related balances, conversion rate and conversion price of the Debentures:


Outstanding principal amount	$	267	$	175
Unamortized debt discount	$	86	$	55
Net debt carrying amount	$	179	$	118
Equity component carrying amount	$	97	$	63
Conversion rate (shares of common stock per $1,000 of principal amount)	13.8964		14.0171
Effective conversion price (per $1,000 of principal amount)	$	71.9607	$	71.3414

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 ~~$710~~$0 and ~~$645~~$650 in outstanding short-term borrowings from the FHLBs at June 30, ~~2019~~2020 and December 31, ~~2018~~2019, respectively, with a fixed interest ~~rates~~rate of ~~2.437% and 2.458% respectively.~~1.664% for the December 31, 2019 borrowing.

All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings, and the Subsidiary Credit Facilities.


11.	Commitments and Contingencies

Litigation and Regulatory Proceedings

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

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

With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from $0 to approximately ~~$250~~$800 at June 30, ~~2019.~~2020. 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 the actions filed in twenty-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. In June 2018, in response to a motion filed by the defendants, the Court certified its April order for interlocutory appeal to the United States Court of Appeals for the Eleventh Circuit, or the Eleventh Circuit. Also in June 2018, the defendants filed, with the Eleventh Circuit, a petition for permission to appeal the April order, which the plaintiffs opposed. In December 2018, the Eleventh Circuit denied the petition. No dates have been set for either the final pretrial conferences or trials in these actions. In March 2019, the Court issued a Fourth Amended Scheduling Order requiring that briefing on motions for class certification and related expert reports, merits and damages expert reports, and certain dispositive motions occur in 2019. In April 2019, plaintiffs filed their motions for class certification in conjunction with their supporting expert ~~reports. Defendants~~reports, and the defendants filed their motions to exclude plaintiffs’ experts, as well as their opposition to plaintiffs’ motions for class certification, in July 2019. The case has been stayed by the Court until further notice.

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, or the Superior Court, captioned Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, or HCSP, is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax, or GPT, calculated as 2.35% on gross premiums. As a licensed HCSP, BCC has paid the California Corporate Franchise Tax, or CFT, the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the filing of the complaint.

In March 2018, the Superior Court denied BCC’s motion for judgment on the pleadings and similar motions brought by other entities. We filed a writ of mandate in the California Court of Appeal. Although the California Court of Appeal initially accepted our writ, it later indicated that it ~~will~~would 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 a~~postponed the July 2020 trial date to January 2021. The parties are currently engaged in ~~mid-to-late 2020 will~~discovery. BCC has filed a motion for summary judgment, which is scheduled to be ~~set.~~heard in October 2020. Because the GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles, the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC eventually be determined to be subject to the GPT for the tax periods at issue in the litigation. 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 at the time for ~~pharmacy benefit management, or~~ PBM services, captioned Anthem, Inc. v. Express Scripts, Inc., in the U.S. District Court for the Southern District of New York. The

lawsuit seeks to recover over $14,800 in damages for pharmacy pricing that is higher than competitive benchmark pricing under the agreement between the parties, or the ESI PBM Agreement, over $158 in damages related to operational breaches, as well as various declarations under the ESI PBM Agreement, ~~between the parties,~~ including that Express Scripts: (i) breached its obligation to negotiate in good faith and to agree in writing to new pricing terms; (ii) iswas required to provide competitive benchmark pricing to us through the term of the ESI PBM Agreement; (iii) has breached the

ESI PBM Agreement; and (iv) is required under the ESI PBM Agreement to provide post-termination services, at competitive benchmark pricing, for one year following any termination.

Express Scripts has disputed our contractual claims and is seeking declaratory judgments: (i) regarding the timing of the periodic pricing review under the ESI PBM ~~Agreement;~~Agreement, and (ii) that it has no obligation to ensure that we receive any specific level of pricing, that we have no contractual right to any change in pricing under the ESI PBM Agreement and that its sole obligation is to negotiate proposed pricing terms in good faith. In the alternative, Express Scripts claims that we have been unjustly enriched by its payment of $4,675 at the time we 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~~The period of time for completing discovery has been extended to ~~be completed in September 2019.~~August 2020 due to the COVID-19 pandemic. 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~~December 31, 2019 in which we provided prescription drug benefits through the ESI PBM Agreement and paid a percentage based co-insurance payment in the course of using that prescription drug benefit. The plaintiffs allege that we breached our duties, either under ERISA or with respect to the implied covenant of good faith and fair dealing implied in the health plans, (i) by failing to adequately monitor Express Scripts’ pricing under the ESI PBM Agreement, ~~and~~ (ii) by placing our own pecuniary interest above the best interests of our insureds by allegedly agreeing to higher pricing in the ESI PBM Agreement in exchange for the purchase price for our NextRx PBM business, and (iii) with respect to the non-ERISA members, by negotiating and entering into the ESI PBM Agreement that was allegedly detrimental to the interests of such non-ERISA members. Plaintiffs seek to hold us and Express Scripts jointly and severally liable and to recover all losses suffered by the proposed class, equitable relief, disgorgement of alleged ill-gotten gains, injunctive relief, attorney’s fees and costs and interest.

In April 2017, we filed a motion to dismiss the claims brought against us, and it was granted, without prejudice, in January 2018. Plaintiffs filed a notice of appeal with the United States Court of Appeals for the Second Circuit, which was heard in October ~~2018.~~2018 but has not yet been decided. 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 Cigna Agreement and Plan of Merger, or Cigna Merger Agreement, pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice, or DOJ, along with certain state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, or District Court, seeking to block the merger. In February 2017, Cigna purported to terminate the Cigna Merger Agreement and commenced litigation against us in the Delaware Court of Chancery, or Delaware Court, seeking damages, including the $1,850 termination fee pursuant to the terms of the Cigna Merger Agreement, and a declaratory judgment that its purported termination of the Cigna Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc.

Also in February 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from terminating the Cigna Merger Agreement, specific performance compelling Cigna to comply with the Cigna Merger Agreement and damages, which is captioned Anthem Inc. v. Cigna Corp. In April 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District Court, which blocked the

merger. In May 2017, after the Delaware Court denied our motion to enjoin Cigna from terminating the Cigna Merger Agreement, we delivered to Cigna a notice terminating the Cigna Merger Agreement.

In the Delaware Court litigation, trial commenced in late February 2019 and concluded in March 2019. The Delaware Court ~~has set~~held closing argument ~~for September 11, 2019.~~in November 2019 and took the matter under consideration. In February 2020, the Delaware Court requested supplemental briefing, which has been submitted. 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~~Medicare Risk Adjustment Litigation

~~Beginning in December 2016,~~In March 2020, the DOJ ~~has issued~~filed a civil ~~investigative demands~~lawsuit against Anthem, Inc. in the U.S. District Court for the Southern District of New York in a case captioned United States v. Anthem, Inc. The DOJ’s suit alleges, among other things, that we falsely certified the accuracy of the diagnosis data we submitted to the Centers for Medicare and Medicaid Services, or CMS, for risk-adjustment purposes under Medicare Part C and knowingly failed to delete inaccurate diagnosis codes. The DOJ further alleges that, as a result of these purported acts, we caused CMS to calculate the risk-adjustment payments based on inaccurate diagnosis information, which enabled us to ~~discover information about our chart review and risk adjustment programs under Parts C and D~~obtain unspecified amounts of payments in Medicare funds in violation of the ~~Medicare Program.~~ False Claims Act. The DOJ filed an amended complaint in July 2020, alleging the same causes of action but revising some of its allegations.We ~~understand the DOJ is investigating the programs of other Medicare Advantage health plans, along with providers and vendors. We continue~~intend to ~~cooperate with the DOJ’s investigation, and~~vigorously defend this suit; however, the ultimate outcome cannot be presently be determined.

Investigations of CareMore and HealthSun

With the assistance of outside counsel, we are conducting investigations of risk-adjustment practices (unrelated to our retrospective chart review program) at CareMore Health Plans, Inc., or CareMore, one of our California subsidiaries and HealthSun Health Plans, Inc., or HealthSun, one of our Florida subsidiaries. Our CareMore investigation has resulted in the termination of CareMore’s relationship with one contracted provider in California. Our HealthSun investigation focuses on risk adjustment practices initiated prior to our acquisition of HealthSun in December 2017 that continued after the acquisition. We have voluntarily self-disclosed the existence of both investigations to CMS and the Criminal Division of the DOJ, which then initiated an investigation. We are cooperating with that investigation. We have also asserted indemnity claims for escrowed funds under the HealthSun purchase agreement for, among other things, breach of healthcare representation provisions, based on the conduct discovered during our investigation. We are in active litigation with one group of sellers regarding part of the escrowed funds in a case captioned LPPAS Representative, LLC v. ATH Holding Company, LLC in the Delaware Court.

Cyber Attack Regulatory Proceedings and Litigation

In February 2015, we reported that we were the target of a sophisticated external cyber ~~attack. The~~attack during which 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.~~employees. 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. The investigations have all been resolved with the exception of an ongoing investigation by a multi-state group of attorneys general, which remains outstanding. Although we are cooperating in this investigation, we may be subject to additional fines or other obligations. We intend to vigorously defend the remaining regulatory investigation; however, its ultimate outcome cannot be presently 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.

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 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,~~In March 2020, we entered into an agreement with a vendor for information technology infrastructure and related management and support services through ~~our ESI PBM Agreement,~~June 2025. The new agreement supersedes certain prior agreements for such services and includes provisions for additional services not provided under those agreements. Our aggregate commitment under this agreement is approximately $1,700. We will have the ~~provider~~ability to terminate the agreement upon the occurrence of certain ~~PBM services~~events, subject to ~~our plans.~~ early termination fees.

In ~~October 2017,~~the second quarter of 2019, we ~~established a~~began using our new pharmacy benefits manager ~~called~~named IngenioRx, Inc., or IngenioRx, to market and ~~entered into a five-year agreement with~~offer PBM services to fully-insured and self-funded Anthem health plan customers, as well as to external customers outside of the health plans we own. The comprehensive prescription benefits management services portfolio includes, but is not limited to, formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities. Also in the second quarter of 2019, IngenioRx began delegating certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., ~~or CVS Health,~~ which is a subsidiary of CVS Health Corporation, pursuant to ~~begin offering~~a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy. From December 2009 through December 2019, we delegated certain PBM ~~solutions, or~~functions and administrative services to Express Scripts pursuant to the ~~CVS~~ESI PBM Agreement. In January 2019, we exercised our contractual right to terminate the ESI PBM Agreement 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~~We began transitioning existing members 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.~~2019, and completed the transition of all of our members by January 1, 2020. Prior to the termination of the ESI PBM Agreement, Express Scripts managed the network of pharmacy providers, operated mail order pharmacies and processed prescription drug claims on our behalf, while we sold and supported the product for our members, made formulary decisions, sold drug benefit design strategy and provided front line member support. Express Scripts continues to provide certain audit and run out transition services related to our PBM business. 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, refer to the Litigation and Regulatory ~~Proceedings-Express~~Proceedings–Express Scripts, Inc. Pharmacy Benefit Management Litigation section above. We believe we have appropriately recognized all rights and obligations under the ESI PBM Agreement as of June 30, ~~2019.~~2020.


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~~our cash dividend activity for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


Declaration Date	Record Date	Payment Date	Cash Dividend per Share	Total		Record Date	Payment Date	Cash Dividend per Share	Total
Six Months Ended June 30, 2020
January 28, 2020						March 16, 2020	March 27, 2020	$0.95	$	240
April 28, 2020						June 10, 2020	June 25, 2020	$0.95	$	242

Six Months Ended June 30, 2019
January 29, 2019	March 18, 2019	March 29, 2019	$0.80	$	206	March 18, 2019	March 29, 2019	$0.80	$	206
April 23, 2019	June 10, 2019	June 25, 2019	$0.80	$	206	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

On July ~~23, 2019,~~28, 2020, our Audit Committee declared a third quarter ~~2019~~2020 dividend to shareholders of ~~$0.80~~$0.95 per share, payable on September 25, ~~2019~~2020 to shareholders of record at the close of business on September 10, ~~2019~~2020.

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 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.

We temporarily suspended our share repurchase program in March 2020 as a precautionary measure in light of the COVID-19 pandemic, but resumed in late June 2020 after market conditions improved.

A summary of common stock repurchases ~~from July 1, 2019 through July 17, 2019 (subsequent to June 30, 2019) and~~ for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	July 1, 2019 Through July 17, 2019		Six Months Ended June 30				Six Months Ended June 30
	July 1, 2019 Through July 17, 2019		2019		2018		2020		2019
Shares repurchased	0.3		2.8		3.4		2.1		2.8
Average price per share	$	286.03	$	273.84	$	231.61	$	273.72	$	273.84
Aggregate cost	$	72	$	752	$	795	$	584	$	752
Authorization remaining at the end of the period	$	4,669	$	4,741	$	6,383	$	3,208	$	4,741

For additional information regarding the use of capital for debt security repurchases, see Note 10, “Debt” of, included in this Form 10-Q and Note 12, “Debt,” to our audited consolidated financial statements as of and for the year ended December 31, ~~2018~~2019 included in our ~~2018~~2019 Annual Report on Form 10-K.

Stock Incentive Plans

A summary of stock option activity for the six months ended June 30, ~~2019~~2020 is as follows:


	Number of Shares		Weighted- Average Option Price per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value		Number of Shares		Weighted- Average Option Price per Share		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	3.7		$	149.65
Outstanding at January 1, 2020								3.1		$	190.31
Granted	0.7		307.18					1.0		271.33
Exercised	(0.6	)	121.83					(0.5	)	118.84
Forfeited or expired	(0.1	)	238.00					(0.1	)	267.09
Outstanding at June 30, 2019	3.7		182.40		6.48	$	386
Exercisable at June 30, 2019	2.2		135.84		5.01	$	329
Outstanding at June 30, 2020								3.5		221.84		7.08	$	182
Exercisable at June 30, 2020								1.9		176.59		5.51	$	175

A summary of the nonvested restricted stock activity, including restricted stock units, for the six months ended June 30, ~~2019~~2020 is as follows:


	Restricted Stock Shares and Units		Weighted- Average Grant Date Fair Value per Share		Restricted Stock Shares and Units		Weighted- Average Grant Date Fair Value per Share
Nonvested at January 1, 2019	1.7		$	183.32
Nonvested at January 1, 2020					1.4		$	242.47
Granted	0.5		307.08		1.3		272.14
Vested	(0.8	)	151.16		(1.2	)	193.36
Forfeited	—		241.06		(0.1	)	269.70
Nonvested at June 30, 2019	1.4		240.31
Nonvested at June 30, 2020					1.4		271.77

During the six months ended June 30, ~~2019,~~2020, we granted approximately 0.2 restricted stock units that are contingent upon us achieving earnings targets over the three year period from ~~2019~~2020 to ~~2021.~~2022. These grants have been included in the activity shown above, but will be subject to adjustment at the end of ~~2021~~2022 based on results in the three year period.

During the six months ended June 30, 2020, we granted an additional 0.6 restricted stock units associated with our 2017 grants that were earned as a result of satisfactory completion of performance measures between 2017 and 2019. 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, ~~2018~~2019 included in our ~~2018~~2019 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, ~~2019~~2020 and ~~2018~~2019:


	Six Months Ended June 30				Six Months Ended June 30
	2019		2018		2020		2019
Risk-free interest rate	2.69	%	2.90	%	1.30	%	2.69	%
Volatility factor	25.00	%	30.00	%	26.00	%	25.00	%
Quarterly dividend yield	0.260	%	0.323	%	0.350	%	0.260	%
Weighted-average expected life (years)	4.40		3.70		4.30		4.40

The following weighted-average fair values per option or share were determined for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019:


	Six Months Ended June 30				Six Months Ended June 30
	2019		2018		2020		2019
Options granted during the period	$	68.80	$	55.27	$	54.04	$	68.80
Restricted stock awards granted during the period	307.08		231.81		272.14		307.08


13.	Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss at June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	June 30						June 30
	2019			2018			2020			2019
Investments, excluding non-credit component of other-than-temporary impairments:
Investments:
Gross unrealized gains	$	626		$	200		$	974		$	626
Gross unrealized losses	(60		)	(273		)	(229		)	(60		)
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:
Net pre-tax unrealized gains							745			566
Deferred tax liability							(183		)	(130		)
Net unrealized gains on investments							562			436
Non-credit components of impairments on investments:
Unrealized losses	(4		)	—			(32		)	(4		)
Deferred tax asset	1			—			8			1
Net unrealized non-credit component of other-than-temporary impairments on investments	(3		)	—
Net unrealized non-credit component of impairments on investments							(24		)	(3		)
Cash flow hedges:
Gross unrealized losses	(308		)	(318		)	(323		)	(308		)
Deferred tax asset	65			67			67			65
Net unrealized losses on cash flow hedges	(243		)	(251		)	(256		)	(243		)
Defined benefit pension plans:
Deferred net actuarial loss	(738		)	(600		)	(707		)	(738		)
Deferred prior service credits	(1		)	(1		)	(1		)	(1		)
Deferred tax asset	190			156			181			190
Net unrecognized periodic benefit costs for defined benefit pension plans	(549		)	(445		)	(527		)	(549		)
Postretirement benefit plans:
Deferred net actuarial loss	(57		)	(76		)	(25		)	(57		)
Deferred prior service costs	28			40			16			28
Deferred tax asset	7			9			2			7
Net unrecognized periodic benefit costs for postretirement benefit plans	(22		)	(27		)	(7		)	(22		)
Foreign currency translation adjustments:
Gross unrealized losses	(3		)	(2		)	(3		)	(3		)
Deferred tax asset	1			—			1			1
Net unrealized losses on foreign currency translation adjustments	(2		)	(2		)	(2		)	(2		)
Accumulated other comprehensive loss	$	(383	)	$	(783	)	$	(254	)	$	(383	)

Other comprehensive income (loss) reclassification adjustments for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 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
	2020			2019
Investments:
Net holding gain on investment securities arising during the period, net of tax expense of ($238) and ($71), respectively	$	741		$	237
Reclassification adjustment for net realized (gain) loss on investment securities, net of tax expense (benefit) of $4 and ($1), respectively	(11		)	1
Total reclassification adjustment on investments	730			238
Non-credit component of impairments on investments:
Non-credit component of impairments on investments, net of tax expense of ($2) and ($0), respectively	10			(1		)
Cash flow hedges:
Holding gain, net of tax expense of ($1) and ($0), respectively	3			—
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($4) and ($1), respectively	10			3
Foreign currency translation adjustment, net of tax expense of ($0) and ($0), respectively	1			—
Net gain recognized in other comprehensive income, net of tax expense of ($241) and ($73), respectively	$	754		$	240

Other comprehensive income (loss) reclassification adjustments for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 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
	2020			2019
Investments:
Net holding gain on investment securities arising during the period, net of tax expense of ($23) and ($170), respectively	$	33		$	586
Reclassification adjustment for net realized loss on investment securities, net of tax benefit of ($5) and ($2), respectively	8			9
Total reclassification adjustment on investments	41			595
Non-credit component of impairments on investments:
Non-credit component of impairments on investments, net of tax benefit of $7 and $0, respectively	(22		)	(1		)
Cash flow hedges:
Holding gain, net of tax expense of ($2) and ($0), respectively	6			3
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($7) and ($2), respectively	17			6
Net gain recognized in other comprehensive income, net of tax expense of ($30) and ($174), respectively	$	42		$	603


14.	Earnings per Share

The denominator for basic and diluted earnings per share for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three Months Ended June 30		Six Months Ended June 30		Three Months Ended June 30		Six Months Ended June 30
	2019	2018	2019	2018	2020	2019	2020	2019
Denominator for basic earnings per share – weighted-average shares	256.7	258.7	256.9	257.3	252.2	256.7	252.3	256.9
Effect of dilutive securities – employee stock options, nonvested restricted stock awards, convertible debentures and equity units	4.3	5.8	4.7	6.4
Effect of dilutive securities – employee stock options, nonvested restricted stock awards and convertible debentures					3.2	4.3	3.6	4.7
Denominator for diluted earnings per share	261.0	264.5	261.6	263.7	255.4	261.0	255.9	261.6

During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, weighted-average shares related to certain stock options of ~~0.7~~1.6 and ~~0.8,~~0.7, 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, ~~2019~~2020 and ~~2018~~2019, weighted-average shares related to certain stock options of ~~0.5~~1.3 and 0.5, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive.

During the three and six months ended June 30, ~~2019,~~2020, we issued approximately ~~0.0~~0.1 and ~~0.5~~1.3 restricted stock units under our stock incentive plans, 0.2 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of ~~2019~~2020 through ~~2021.~~2022. 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. 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 now described through ~~three~~4 reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and ~~Other,~~Other.

Our Commercial & Specialty Business segment includes our Local Group, National Accounts, Individual and Specialty businesses. Business units in the Commercial & Specialty Business segment offer fully-insured health products; 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; and provide an array of specialty and other insurance products and services such as ~~further described~~dental, vision, life and disability insurance benefits.

Our Government Business segment includes our Medicare and Medicaid businesses, National Government Services, or NGS, and services provided to the federal government in ~~Note 19, “Segment Information,”~~connection with the FEHB program. Our Medicare business includes services such as Medicare Supplement plans; Medicare Advantage, including Special Needs Plans; Medicare Part D; and dual-eligible programs through Medicare-Medicaid Plans. Our Medicaid business includes our managed care alternatives through publicly funded healthcare programs, including Medicaid, Medicaid expansion programs related to ~~our audited consolidated financial statements~~the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as ofamended, Temporary Assistance for Needy Families, programs for seniors and people with disabilities, Children’s Health Insurance Programs, and specialty programs such as those focused on long-term services and support, HIV/AIDS, foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities. NGS acts as a Medicare contractor for the ~~year ended~~ ~~December 31, 2018~~ ~~included~~federal government in ~~our~~ ~~2018~~ ~~Annual Report on Form 10-K.~~several regions across the nation.

~~Included in the Other~~Our IngenioRx segment ~~is IngenioRx,~~includes our PBM business, which began its operations during the second quarter of 2019. IngenioRx markets and offers PBM services to fully-insured and self-funded Anthem health plan customers, as well as to external customers outside of the health plans we own. IngenioRx has a comprehensive PBM services portfolio, which includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities. In 2019, IngenioRx was included in our Other reportable segment. Beginning in 2020, IngenioRx meets

the quantitative thresholds for a reportable segment based on the FASB guidance. Amounts for the three and six months ended June 30, 2019 have been reclassified to conform to the current year presentation for comparability.

Our Other segment includes our Diversified Business Group, or DBG, which is our integrated health services business, and ~~unallocated~~certain eliminations and corporate ~~expenses. Based on the FASB guidance, as of June 30, 2019, IngenioRx and DBG do~~expenses not ~~collectively meet the quantitative thresholds for an operating segment; therefore, they have been included in~~allocated to our ~~Other segment.~~

~~Further, during the second quarter of 2019, we~~other reportable segments. We reclassified DBG from our Government Business segment to the Other segment during the second quarter of 2019 to reflect changes in how our segments are being managed. ~~Amounts for 2018 have been reclassified to conform to~~Also, beginning on February 28, 2020, DBG includes Beacon.

For our 2019 segment reporting, operating gains (losses) generated from IngenioRx and DBG affiliated activity were included in our Commercial & Specialty Business and Government Business segments based upon their utilization of services from IngenioRx and DBG, which aligns with the ~~current year presentation for comparability.~~method by which we assessed the 2019 operating performance of our reportable segments. Beginning January 1, 2020, we are managing the operating performance of each of our segments on a standalone basis.

Affiliated revenues represent revenues or cost for services ~~performed~~provided 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, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Commercial & Specialty Business		Government Business		Other			Eliminations			Total		Commercial & Specialty Business		Government Business		IngenioRx		Other			Eliminations			Total
Three Months Ended June 30, 2020
Operating revenue - unaffiliated													$	8,789	$	17,242	$	2,544	$	603		$	—		$	29,178
Operating revenue - affiliated													—		—		2,725		849			(3,574		)	—
Operating gain													1,372		1,618		304		66			—			3,360
Three Months Ended June 30, 2019
Operating revenue - unaffiliated	$	9,417	$	15,538	$	222		$	—		$	25,177	$	9,417	$	15,538	$	145	$	77		$	—		$	25,177
Operating revenue - affiliated	—		—		572			(572		)	—		—		—		103		469			(572		)	—
Operating gain (loss)	983		478		(28		)	—			1,433		983		480		—		(30		)	—			1,433
Three Months Ended June 30, 2018
Six Months Ended June 30, 2020
Operating revenue - unaffiliated	$	9,055	$	13,619	$	41		$	—		$	22,715	$	18,150	$	34,708	$	4,887	$	881		$	—		$	58,626
Operating revenue - affiliated	—		—		309			(309		)	—		—		—		5,579		1,598			(7,177		)	—
Operating gain (loss)	1,048		532		(21		)	—			1,559
Operating gain													2,792		2,029		653		80			—			5,554
Six Months Ended June 30, 2019
Operating revenue - unaffiliated	$	18,809	$	30,464	$	292		$	—		$	49,565	$	18,809	$	30,464	$	145	$	147		$	—		$	49,565
Operating revenue - affiliated	—		—		1,050			(1,050		)	—		—		—		103		947			(1,050		)	—
Operating gain (loss)	2,581		855		(63		)	—			3,373		2,581		854		—		(62		)	—			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

The major product revenues for each of the reportable segments for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 are as follows:


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
Commercial & Specialty Business
Managed care products	$	7,646		$	7,362		$	15,264		$	14,641		$	7,132		$	7,646		$	14,700		$	15,264
Managed care services	1,353			1,304			2,719			2,581			1,263			1,353			2,645			2,719
Dental/Vision products and services	327			304			650			608			284			327			599			650
Other	91			85			176			176			110			91			206			176
Total Commercial & Specialty Business	9,417			9,055			18,809			18,006			8,789			9,417			18,150			18,809
Government Business
Managed care products	15,444			13,510			30,264			26,750			17,149			15,444			34,524			30,264
Managed care services	94			109			200			222			93			94			184			200
Total Government Business	15,538			13,619			30,464			26,972			17,242			15,538			34,708			30,464
IngenioRx
Pharmacy products and services													5,269			248			10,466			248
Total IngenioRx													5,269			248			10,466			248
Other
Other	794			350			1,342			710			1,452			546			2,479			1,094
Eliminations
Eliminations	(572		)	(309		)	(1,050		)	(631		)	(3,574		)	(572		)	(7,177		)	(1,050		)
Total product revenues	$	25,177		$	22,715		$	49,565		$	45,057		$	29,178		$	25,177		$	58,626		$	49,565

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 revenue to the amounts of total revenues included in our consolidated statements of income for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30					Six Months Ended June 30
	2019			2018			2019			2018			2020		2019			2020			2019
Reportable segments’ operating revenue	$	25,177		$	22,715		$	49,565		$	45,057		$	29,178	$	25,177		$	58,626		$	49,565
Net investment income	285			229			495			458			57		285			311			495
Net realized gains (losses) on financial instruments	11			4			89			(22		)	18		11			(6		)	89
Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)
Impairment recoveries (losses) recognized in income													11		(7		)	(46		)	(17		)
Total revenues	$	25,466		$	22,944		$	50,132		$	45,481		$	29,264	$	25,466		$	58,885		$	50,132

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, ~~2019~~2020 and ~~2018~~2019 is as follows:


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
Reportable segments’ operating gain	$	1,433		$	1,559		$	3,373		$	3,427		$	3,360		$	1,433		$	5,554		$	3,373
Net investment income	285			229			495			458			57			285			311			495
Net realized gains (losses) on financial instruments	11			4			89			(22		)	18			11			(6		)	89
Other-than-temporary impairment losses recognized in income	(7		)	(4		)	(17		)	(12		)
Impairment recoveries (losses) recognized in income													11			(7		)	(46		)	(17		)
Interest expense	(184		)	(192		)	(371		)	(376		)	(201		)	(184		)	(395		)	(371		)
Amortization of other intangible assets	(85		)	(93		)	(172		)	(173		)	(93		)	(85		)	(176		)	(172		)
Gain (loss) on extinguishment of debt	—			1			1			(18		)
(Loss) gain on extinguishment of debt													(3		)	—			(4		)	1
Income before income tax expense	$	1,453		$	1,504		$	3,398		$	3,284		$	3,149		$	1,453		$	5,238		$	3,398


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 1512 years.

The information related to our leases is as follows:


	Balance Sheet Location	June 30, 2019		Balance Sheet Location	June 30, 2020		December 31, 2019
Operating Leases
Right-of-use assets	Other noncurrent assets	$	637	Other noncurrent assets	$	917	$	575
Lease liabilities, current	Other current liabilities	175		Other current liabilities	193		158
Lease liabilities, noncurrent	Other noncurrent liabilities	524		Other noncurrent liabilities	815		482


									Three Months Ended June 30						Six Months Ended June 30
		Three Months Ended June 30, 2019			Six Months Ended June 30, 2019				2020			2019			2020			2019
Lease Expense	Lease Expense							Lease Expense
Operating lease expense	Operating lease expense	$	45		$	90		Operating lease expense	$	59		$	45		$	106		$	90
Short-term lease expense	Short-term lease expense	12			24			Short-term lease expense	14			12			27			24
Sublease income	Sublease income	(4		)	(8		)	Sublease income	(4		)	(4		)	(7		)	(8		)
Total lease expense	Total lease expense	$	53		$	106		Total lease expense	$	69		$	53		$	126		$	106

Other information	Other information							Other information
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases	Operating cash paid for amounts included in the measurement of lease liabilities, operating leases	$	44		$	89		Operating cash paid for amounts included in the measurement of lease liabilities, operating leases	$	46		$	44		$	90		$	89
Right-of-use assets obtained in exchange for new lease liabilities, operating leases								Right-of-use assets obtained in exchange for new lease liabilities, operating leases	$	33		$	—		$	356		$	—
Weighted average remaining lease term, operating leases	Weighted average remaining lease term, operating leases	7 years			7 years			Weighted average remaining lease term, operating leases	7 years			7 years			7 years			7 years
Weighted average discount rate, operating leases	Weighted average discount rate, operating leases	3.90		%	3.90		%	Weighted average discount rate, operating leases	3.45		%	3.90		%	3.45		%	3.90		%

At June 30, ~~2019,~~2020, 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
2020 (excluding the six months ended June 30, 2020)				$	99
2021	127			192
2022	113			176
2023	95			153
2024				123
Thereafter	201			313
Total future minimum payments	800			1,056
Less imputed interest	(101		)	(48		)
Total lease liabilities	$	699		$	1,008

As of June 30, ~~2019,~~2020, 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.~~

$138.


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~~2019 and the MD&A included in our ~~2018~~2019 Annual Report on Form 10-K. References to the terms “we,” “our,” “us,” or “Anthem” used throughout this MD&A refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states” include the District of Columbia, unless the context otherwise requires.

Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, ~~2019,~~2020, or any other period.

Overview

We are one of the largest health benefits companies in the United States in terms of medical membership, serving ~~approximately 41~~greater than 42 million medical members through our affiliated health plans as of June 30, ~~2019.~~2020. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS ~~licensees.~~licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as ~~America’s 1st Choice,~~AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare. Also, ~~beginning with~~in the second quarter of 2019, we ~~provide~~began providing pharmacy benefits management, or PBM, services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.

For additional information about our organization, see Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our ~~2018~~2019 Annual Report on Form 10-K. Additional information on our segments can be found in this MD&A and in Note 15, “Segment Information” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, a global health pandemic and recommended containment and mitigation measures worldwide. The COVID-19 outbreak has also been declared a national emergency in the United States and continues to spread domestically and in other countries globally. To mitigate the spread of this virus, beginning in March 2020 most states imposed shelter-in-place or stay-at-home orders, which generally required businesses not considered essential to close their physical offices. While these orders have largely been lifted, many states and local authorities continue to impose certain restrictions on the conduct of businesses and individuals. The virus and efforts to prevent its spread have drastically impacted the global economy, causing market instability and increasing unemployment in the United States.

In response to the COVID-19 pandemic, federal and state legislation has been, and we expect will continue to be, enacted that will impact our business. For additional information on existing legislation related to the impact of the COVID-19 pandemic on our business, see “Regulatory Trends and Uncertainties” in this MD&A.

As COVID-19 continues to spread, we remain focused on increasing access and coverage for our members, adapting tools and policies to assist consumers and care providers, and leveraging data and advanced analytics to provide innovative solutions. We launched an online COVID-19 assessment tool and enhanced the digital capabilities of Sydney Care, our mobile app, to include a symptom checker feature, as well as virtual text visit and video visit features. The symptom checker feature guides users through a resulting action plan depending upon the results of the user’s assessment, and the virtual text

feature connects users to certified physicians who can provide medical care, including prescribing medication and ordering lab work during consults as necessary. Through at least September 30, 2020, we are providing expanded telehealth coverage including for mental health as well as some physical, occupational and speech therapy, and are continuing to waive cost shares for in-network telehealth visits, including telephonic visits and those for mental health, for our members in fully-insured employer plans, Individual plans, Medicare plans and Medicaid plans, where permissible.

We also introduced a suite of digital tools, including C19 Navigator and C19 Explorer, through our online portal and mobile apps. C19 Navigator is a dashboard solution designed for our employer customers and provides member data and updates related to COVID-19. C19 Explorer aggregates real-time COVID-19 data to present trends and predictions for our communities and is designed to support public health officials, business leaders and consumers so they can make informed, data-driven decisions during this pandemic. The other digital tools are available to help individuals with mental health support or emergency services such as finding assistance with food, transportation, and childcare.

We made other changes to our membership benefits and business operations in response to the COVID-19 pandemic and may make additional changes in the future. We relaxed early prescription refill policies for maintenance and specialty medications and are encouraging the use of home delivery services to ensure access to necessary medications. We are waiving cost sharing for in-network COVID-19 diagnostic tests and treatment through December 31, 2020 for members enrolled in our fully-insured employer plans, Individual plans and Medicare Advantage plans. Self-insured employers who previously chose to adopt cost sharing waivers for treatment can choose to extend the waivers through the end of 2020. Further, we are providing a one-time premium credit to members enrolled in select Individual plans and fully-insured employer customers. In addition, individuals in stand-alone and group dental plans will also receive a one-time credit. Future regulatory action could require us to provide additional coverage or credits related to COVID-19 treatments.

We are also providing support to care provider partners of our affiliated health plans that is designed to help them continue to focus on caring for patients, including funding to support telehealth capabilities, quality-based programs and personal protective equipment, or PPE, and extending financial assistance to targeted independent primary care physician organizations and multispecialty groups who are facing financial pressure during this crisis. Additionally, we are actively working with care providers to accelerate claims processing for outstanding accounts receivables, resolving claims where possible and appropriate, as well as accelerating payments to support state-specific Medicaid programs. We are simplifying access to care by temporarily suspending select prior authorization requirements for respiratory services and medical equipment critical to COVID-19 treatment and temporarily extending prior authorizations on elective inpatient and outpatient procedures issued before May 30, 2020. We are also providing in-network dental providers a PPE Credit per patient, per visit, from June 15, 2020 through the end of August 2020.

The safety, health and wellbeing of our employees remains a top priority as we face these challenges together and continue our work in support of those we serve. To protect our employees and mitigate the spread of COVID-19, we implemented travel limitations and introduced workplace modifications consistent with the Centers for Disease Control and Prevention guidelines and social distancing protocols. We are gradually reopening our offices in accordance with local guidelines; however, the majority of our workforce continues to work remotely. In addition to transitioning to a remote work environment, we expanded our employee benefits to provide additional support, including up to 80 hours of paid emergency leave if employees are experiencing symptoms of COVID-19 or caring for young children whose schools have been closed. We also expanded the use of sick time to include caregiving related to COVID-19 and provided a one-time premium credit to our covered associates.

With many individuals and families impacted by the COVID-19 pandemic in a variety ways, we remain committed to lifting up our local communities through a variety of partnership and relief efforts. For example, during the second quarter of 2020, we contributed $50 million to the Anthem Foundation to support its COVID-19 response and recovery efforts, such as emergency response, food insecurity, mental health and care provider safety resources.

To address food insecurity and other needs for the most vulnerable, our affiliated health plans are reaching out to Medicaid beneficiaries to facilitate connections with state and social services, that can enroll, or help in enrolling, newly eligible and at-risk members in the Supplemental Nutrition Assistance Program and Special Supplemental Nutrition Program for Women, Infants, and Children. Our affiliated health plans are also directly contacting Medicare Advantage and Medicaid consumers to help them make sure they have necessary medications on hand, their nutritional needs are being met and critical health needs are being addressed during this time of social distancing and isolation.

To date, the COVID-19 pandemic has not had a material adverse impact on our business, cash flows, financial condition or results of operations. However, the COVID-19 pandemic is evolving and its impact will depend on future developments, which are highly uncertain and cannot be predicted at this time. As such, the COVID-19 pandemic, including the changes we make in response to it and any further steps taken to expand or otherwise modify the services delivered to our members, could have a material adverse impact on our business, cash flows, financial condition and results of operations going forward. These impacts include, but are not limited to, the following:

◦Our covered medical expenses, including preventive care and COVID-19 treatment, may rise;

◦Our membership may decline;

◦Our membership mix may change to less profitable lines of business;

◦Premium receipts from our Commercial and Government customers may be delayed or uncollectable;

◦Reimbursements for benefit payments made on behalf of our self-insured customers may be delayed or uncollectable;

◦Our suppliers’ operations may be interrupted;

◦Our operations may be interrupted;

◦Our access to credit to meet liquidity may become limited and our credit rating may be negatively impacted; and

◦Our investment returns may be reduced and investment values may become impaired.

We are focused on continuing to navigate these challenges and taking measures to address the impacts of the COVID-19 pandemic. To preserve our liquidity and enhance financial flexibility, we are delaying certain tax payments as permitted by the Internal Revenue Service and the Coronavirus Aid, Relief, and Economic Security, or CARES, Act and are monitoring our discretionary spending.

We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes that may impact our business. For additional discussion regarding our risk factors, see Part I, Item 1A, “Risk Factors” included in our 2019 Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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~~healthcare system. We expect the ACA will continue to impact our business model and strategy. Also, the legal challenges regarding the ACA, including ~~the ultimate outcome of the December 2018~~a federal district court 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,~~2019, we ~~strategically reduced~~modestly expanded 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 7391 of the 143 rating regions in which we operate. In addition, the continuing growth in our government-sponsored business exposes us to increased regulatory oversight.

In ~~October 2017,~~the second quarter of 2019, we ~~established~~began using IngenioRx to market and offer PBM services to Anthem health plan customers throughout the country, as well as to external customers outside of the health plans we own. Our comprehensive PBM services portfolio includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities. In July 2019, we announced our first contract win with a ~~new pharmacy benefits manager, or~~third-party health insurer, Blue Cross of Idaho, and IngenioRx began providing PBM ~~called~~services under that contract on January 1, 2020. Also in the second quarter of 2019, IngenioRx began delegating certain PBM administrative functions, such as claims processing and ~~entered into a five-year agreement with~~prescription fulfillment, to CaremarkPCS Health, L.L.C., ~~or CVS Health,~~ which is a subsidiary of CVS Health Corporation, pursuant to ~~begin offering~~a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy. From December 2009 through December 2019, we delegated certain PBM ~~solutions (the “CVS PBM Agreement”) upon the conclusion of~~functions and administrative services to Express Scripts Inc., or Express Scripts, pursuant to 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~~Agreement. We began transitioning existing members from Express Scripts ~~began. CVS Health began providing certain PBM services~~ to IngenioRx in the second quarter of 2019,

~~pursuant to~~ and completed the ~~CVS PBM Agreement.~~transition of all of our members by January 1, 2020. We expect IngenioRx to provide our members with more cost-effective solutions and improve our ability to integrate pharmacy benefits within our medical and specialty platform.

Pricing Trends: We strive to price our healthcare benefit products consistent with anticipated underlying medical cost trends. We continue to closely monitor the COVID-19 pandemic and the impacts it may have on our pricing, such as continued deferral of non-emergent or elective health services, surges in COVID-19 related hospitalizations, and the cost of a potential COVID-19 vaccine. We frequently make adjustments to respond to legislative and regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants. Product pricing in our Commercial & Specialty Business segment, including our Individual and Small Group lines of business, remains competitive. Revenues from the Medicare and Medicaid programs are dependent, in whole or in part, upon annual funding from the federal government and/or applicable state governments.

The ACA imposed an annual Health Insurance Provider Fee, or HIP Fee, on health insurers that write certain types of health insurance on U.S. risks. We price our affected products to cover the impact of the HIP ~~Fee.~~Fee, when applicable. The HIP Fee was suspended for 2019, has resumed for 2020 and ~~is scheduled to resume for 2020.~~has been permanently eliminated effective in 2021.

Medical Cost Trends:Our medical cost trends are primarily driven by increases in the utilization of services across all provider types and the unit cost increases of these services. We work to mitigate these trends through various medical management programs such as utilization management, condition management, program integrity and specialty pharmacy management, as well as benefit design changes. There are many drivers of medical cost trends ~~which~~that can cause ~~variances~~variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high cost prescription drugs, and healthcare provider or member fraud. Our underlying Local Group medical cost trends reflect the “allowed amount,” or contractual rate, paid to providers. ~~We estimate that~~The COVID-19 pandemic has caused, and may continue to cause, deferral of non-emergent or elective health services, which has decreased our claim costs in the ~~2019 Local Group~~short-term and could increase our claim costs in the long-term and affect our medical cost ~~trend will be~~trends. Further, the cost and volume of covered services related to the COVID-19 disease could have a material adverse effect on our claim costs. In response to the current crisis, we expanded coverage for certain members in our affiliated health plans for testing and treatment related to a COVID-19 diagnosis through December 31, 2020. Governmental action has required us to provide full coverage for COVID-19 testing to our members, and future governmental action could require us to provide additional coverage. We continue to closely monitor the ~~range~~COVID-19 pandemic and its impacts to our business, financial condition, results of ~~5.5% to 6.5%.~~operations and medical cost trend.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in our ~~2018~~2019 Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

Federal and state legislation has been enacted, and is likely to continue to be enacted, in response to the COVID-19 pandemic that has had, and we expect will continue to have, a significant impact on all of our lines of business, including mandates to waive cost-sharing on COVID-19 testing and related services. The federal government enacted the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act and the CARES Act in March 2020 and the Paycheck Protection Program and Health Care Enhancement Act in April 2020. These acts provide, among other things, prohibitions on prior authorization and cost-sharing for certain items and services related to COVID-19 tests, reforms including waiving Medicare originating site restrictions for qualified providers providing telehealth services, financial support to health care providers, including expansion of the Medicare accelerated payment program to all providers receiving Medicare payments, and funding to replenish and administer small business loan programs to help small businesses keep their workers employed and healthcare benefits covered in the group market.

In addition, these legislative reforms and the Internal Revenue Service Notice 2020-23, or IRS Notice 2020-23, issued in April 2020 in response to the COVID-19 pandemic include tax deferrals and other beneficial provisions, including a delay of certain payroll and federal income tax payments, which we expect to have a positive impact on our 2020 cash flows. For more information on measures we have taken to increase our cash on hand, see “Future Sources and Uses of Liquidity” in this MD&A.

Regulatory changes have also been enacted, and are likely to continue to be enacted, at the state and federal level in response to the COVID-19 pandemic. Those changes, which could have a significant impact on health benefits, consumer eligibility for public programs, and our cash flows, include mandated expansion of premium payment terms including the time period for which claims can be denied for lack of payment, mandates related to prior authorizations and payment levels to providers, additional consumer enrollment windows, and an increased ability to provide services through telehealth. We

are providing extensions to premium payment terms in certain situations and continue to work closely with state regulators that are mandating or requesting such relief.

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~~are likely to continue ~~for the next several years~~ as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including ~~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, which judgment has been stayed pending appeal, continue to contribute to this uncertainty. In a separate development, in April 2020, the U.S. Supreme Court ruled that the federal government is required to pay health insurance companies for amounts owed, as calculated under the risk corridor program of the ACA. In June 2020, the U.S. Court of Federal Claims entered a final judgment stipulating that we are entitled to reimbursement for risk corridor amounts from 2014, 2015 and 2016. We will review developments and recognize the impact, if any, in a future reporting period. 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~~Our affected products are priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee. The total amount due from allocations to all health insurers ~~was $14,300~~is $15,523 for ~~2018.~~2020. For the three and six months ended June 30, ~~2018,~~2020, we ~~recognized $398~~estimated our portion of the HIP Fee to be $420 and ~~$795,~~$837, respectively, which were recognized as general and administrative ~~expense related to the HIP Fee.~~expense. 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~~2019 Annual Report on Form ~~10-K.~~

10-K and Part II, Item 1A, “Risk Factors” included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Other Significant Items

On ~~June 6, 2019,~~February 28, 2020, we ~~announced~~completed our ~~entrance into an agreement to acquire~~acquisition of Beacon Health Options, Inc., or Beacon, the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon ~~serves approximately forty~~served more than thirty-four 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~~For additional information, see Note 3, “Business Acquisitions,” of the Notes to ~~close~~Consolidated Financial Statements included in ~~the fourth quarter~~Part 1, Item 1 of ~~2019 and is subject to standard closing conditions and customary approvals.~~this Form 10-Q.

In ~~October 2017,~~January 2019, 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~~to terminate the ESI PBM Agreement, ~~on March 1, 2019. The twelve-month~~and we completed the transition ~~period to migrate the services~~of our members 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.~~on January 1, 2020. Notwithstanding our termination of the ESI PBM Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues. For additional information regarding this lawsuit, see Note 11, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

OnIn May ~~12,~~ 2017, we announced that we were terminating the Agreement and Plan of Merger, or Cigna Merger Agreement, between us and Cigna Corporation. For additional information about ongoing litigation related to the Cigna 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,~~2020, total medical membership increased ~~1,291,~~1.6, or ~~3.3%~~3.9%. Our medical membership grew ~~across~~in both our ~~business segments as well as by customer type~~Government Business and ~~funding arrangement.~~Commercial & Specialty Business segments. The increase in medical membership in our Government Business segment was primarily due to fully-insured membership growth in our Medicaid and Medicare businesses. The increase in medical membership in our Commercial & Specialty Business segment was primarily ~~due to~~driven by growth in our ~~National business.~~self-funded business, partially offset by declines in our fully-insured membership.

Operating revenue for the three months ended June 30, ~~2019~~2020 was ~~$25,177,~~$29,178, an increase of ~~$2,462,~~$4,001, or ~~10.8%~~15.9%, from the three months ended June 30, ~~2018.~~2019. Operating revenue for the six months ended June 30, ~~2019~~2020 was ~~$49,565,~~$58,626, an increase of ~~$4,508,~~$9,061, or ~~10.0%~~18.3%, from the six months ended June 30, ~~2018.~~2019. The increase in operating revenue for the three and six months ended June 30, ~~2019~~2020 compared to ~~2018~~2019 was primarily ~~a result~~driven by pharmacy product revenue related to the launch of IngenioRx, as well as 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~~2020 was ~~$1,139,~~$2,276, an increase of ~~$85,~~$1,137, or ~~8.1%~~99.8%, 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.~~2019. Net income for the six months ended June 30, ~~2019~~2020 was ~~$2,690,~~$3,799, an increase of ~~$324,~~$1,109, or ~~13.7%~~41.2%, from the six months ended June 30, ~~2018.~~2019. The increase in net income for the three and six months ended June 30, ~~2019~~2020 compared to ~~2018~~2019 was ~~driven~~due to higher operating results in all of our segments. The increase was partially offset by ~~lower~~higher income tax expense and ~~higher~~lower net ~~realized gains on investments.~~investment income.

Our diluted earnings per share, or EPS, was $8.91 for the three months ended June 30, 2020, which represented a 104.4% increase from EPS of $4.36 for the three months ended June 30, ~~2019, which represented an 9.5% increase from~~2019. Our fully-diluted EPS ~~of $3.98~~was $14.85 for the ~~three~~six months ended June 30, ~~2018. Our~~2020, which represented a 44.5% increase from fully-diluted EPS ~~was~~of $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.~~2019. The increase in EPS for the three and six months ended June 30, ~~2019~~2020 compared to ~~2018~~2019 resulted primarily from the increase in net ~~income in 2019, and to a lesser extent, the lower number of shares outstanding in 2019.~~

income.

Operating cash flow for the six months ended June 30, 2020 and 2019 was $8,025 and ~~2018 was~~ $3,067, ~~and $2,757,~~ respectively. This increase was primarily ~~due~~attributable to ~~the impact~~higher net income in 2020, a delay of ~~membership increases in~~ our ~~Medicaid~~estimated federal income and ~~Medicare businesses. These increases were partially offset~~certain payroll tax payments as permitted by the ~~timing of Medicare prepayments received in 2018~~CARES Act and ~~lower~~IRS Notice 2020-23, and higher premium receipts as a result of the ~~suspension of the~~ HIP Fee reinstatement for ~~2019.~~2020.

Membership

The following table presents our medical membership by customer type, funding arrangement and reportable segment as of June 30, ~~2019~~2020 and ~~2018.~~2019. Also included below is other membership by product. At this time, the following table does not include membership resulting from our acquisition of Beacon. 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~~2019 Annual Report on Form 10-K.


		June 30							June 30
(In thousands)	(In thousands)	2019	2018 ¹	Change		% Change		(In thousands)	2020	2019	Change		% Change
Medical Membership	Medical Membership							Medical Membership
Customer Type	Customer Type							Customer Type
Local Group	Local Group	15,670	15,634	36		0.2	%	Local Group	15,616	15,670	(54	)	(0.3	)%
Individual	Individual	741	712	29		4.1	%	Individual	711	741	(30	)	(4.0	)%
National:	National:							National:
National Accounts	National Accounts	7,693	7,658	35		0.5	%	National Accounts	7,872	7,693	179		2.3	%
BlueCard^®	BlueCard^®	6,009	5,819	190		3.3	%	BlueCard^®	6,171	6,009	162		2.7	%
Total National	Total National	13,702	13,477	225		1.7	%	Total National	14,043	13,702	341		2.5	%
Medicare:	Medicare:							Medicare:
Medicare Advantage	Medicare Advantage	1,170	937	233		24.9	%	Medicare Advantage	1,366	1,170	196		16.8	%
Medicare Supplement	Medicare Supplement	877	827	50		6.0	%	Medicare Supplement	921	877	44		5.0	%
Total Medicare	Total Medicare	2,047	1,764	283		16.0	%	Total Medicare	2,287	2,047	240		11.7	%
Medicaid	Medicaid	7,099	6,414	685		10.7	%	Medicaid	8,180	7,099	1,081		15.2	%
Federal Health Products & Services		1,593	1,560	33		2.1	%
Federal Employees Health Benefits								Federal Employees Health Benefits	1,616	1,593	23		1.4	%
Total Medical Membership by Customer Type	Total Medical Membership by Customer Type	40,852	39,561	1,291		3.3	%	Total Medical Membership by Customer Type	42,453	40,852	1,601		3.9	%
Funding Arrangement	Funding Arrangement							Funding Arrangement
Self-Funded	Self-Funded	25,433	25,245	188		0.7	%	Self-Funded	25,888	25,433	455		1.8	%
Fully-Insured	Fully-Insured	15,419	14,316	1,103		7.7	%	Fully-Insured	16,565	15,419	1,146		7.4	%
Total Medical Membership by Funding Arrangement	Total Medical Membership by Funding Arrangement	40,852	39,561	1,291		3.3	%	Total Medical Membership by Funding Arrangement	42,453	40,852	1,601		3.9	%
Reportable Segment	Reportable Segment							Reportable Segment
Commercial & Specialty Business	Commercial & Specialty Business	30,113	29,823	290		1.0	%	Commercial & Specialty Business	30,370	30,113	257		0.9	%
Government Business	Government Business	10,739	9,738	1,001		10.3	%	Government Business	12,083	10,739	1,344		12.5	%
Total Medical Membership by Reportable Segment	Total Medical Membership by Reportable Segment	40,852	39,561	1,291		3.3	%	Total Medical Membership by Reportable Segment	42,453	40,852	1,601		3.9	%
Other Membership	Other Membership							Other Membership
Life and Disability Members	Life and Disability Members	4,906	4,673	233		5.0	%	Life and Disability Members	5,110	4,906	204		4.2	%
Dental Members	Dental Members	5,931	5,788	143		2.5	%	Dental Members	6,096	5,931	165		2.8	%
Dental Administration Members	Dental Administration Members	5,523	5,384	139		2.6	%	Dental Administration Members	1,318	5,523	(4,205	)	(76.1	)%
Vision Members	Vision Members	7,161	6,760	401		5.9	%	Vision Members	7,457	7,161	296		4.1	%
Medicare Part D Standalone Members	Medicare Part D Standalone Members	287	312	(25	)	(8.0	)%	Medicare Part D Standalone Members	392	287	105		36.6	%


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~~in both our ~~business~~Government Business and Commercial & Specialty 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.~~businesses, partially offset by the membership decreases in our fully-insured Local Group business. Local Group membership decreased due to lapses and in-group change exceeding sales. Self-funded medical membership increased primarily ~~due~~as a result of membership increases in our National Accounts business resulting from our acquisition of a third-party administrator and sales and favorable in-group changes exceeding lapses. The increase in self-funded membership was further attributable 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. Medicaid membership increased primarily due to organic growth in existing markets due to the temporary suspension of eligibility recertification during the COVID-19 pandemic as well as our acquisition of Medicaid plans in Missouri and Nebraska. Medicare membership increased primarily due to higher sales during open enrollment.

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~~Local Group business. Dental administration membership ~~increased primarily~~decreased due to ~~in-group changes.~~the lapse of a large dental administration services contract. Vision membership increased due to higher sales in our ~~Large~~Medicare and Local 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~~2020 and ~~2018~~2019 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
														2019 vs. 2018					2019 vs. 2018																		2020 vs. 2019					2020 vs. 2019
		2019			2018			2019			2018			$			%		$			%			2020			2019			2020			2019			$			%		$			%
Total operating revenue	Total operating revenue	$	25,177		$	22,715		$	49,565		$	45,057		$	2,462		10.8	%	$	4,508		10.0	%	Total operating revenue	$	29,178		$	25,177		$	58,626		$	49,565		$	4,001		15.9	%	$	9,061		18.3	%
Net investment income	Net investment income	285			229			495			458			56			24.5	%	37			8.1	%	Net investment income	57			285			311			495			(228		)	(80.0	)%	(184		)	(37.2	)%
Net realized gains (losses) on financial instruments	Net realized gains (losses) on financial instruments	11			4			89			(22		)	7			175.0	%	111			(504.5	)%	Net realized gains (losses) on financial instruments	18			11			(6		)	89			7			63.6	%	(95		)	(106.7	)%
Other-than-temporary impairment losses recognized in income		(7		)	(4		)	(17		)	(12		)	(3		)	75.0	%	(5		)	41.7	%
Impairment recoveries (losses) recognized in income																								Impairment recoveries (losses) recognized in income	11			(7		)	(46		)	(17		)	18			(257.1	)%	(29		)	170.6	%
Total revenues	Total revenues	25,466			22,944			50,132			45,481			2,522			11.0	%	4,651			10.2	%	Total revenues	29,264			25,466			58,885			50,132			3,798			14.9	%	8,753			17.5	%
Benefit expense	Benefit expense	20,368			17,728			39,650			34,774			2,640			14.9	%	4,876			14.0	%	Benefit expense	19,547			20,368			41,036			39,650			(821		)	(4.0	)%	1,386			3.5	%
Cost of products sold	Cost of products sold	98			—			98			—			98			NM		98			NM		Cost of products sold	2,225			98			4,209			98			2,127			NM		4,111			NM
Selling, general and administrative expense	Selling, general and administrative expense	3,278			3,428			6,444			6,856			(150		)	(4.4	)%	(412		)	(6.0	)%	Selling, general and administrative expense	4,046			3,278			7,827			6,444			768			23.4	%	1,383			21.5	%
Other expense¹	Other expense¹	269			284			542			567			(15		)	(5.3	)%	(25		)	(4.4	)%	Other expense¹	297			269			575			542			28			10.4	%	33			6.1	%
Total expenses	Total expenses	24,013			21,440			46,734			42,197			2,573			12.0	%	4,537			10.8	%	Total expenses	26,115			24,013			53,647			46,734			2,102			8.8	%	6,913			14.8	%
Income before income tax expense	Income before income tax expense	1,453			1,504			3,398			3,284			(51		)	(3.4	)%	114			3.5	%	Income before income tax expense	3,149			1,453			5,238			3,398			1,696			116.7	%	1,840			54.1	%
Income tax expense	Income tax expense	314			450			708			918			(136		)	(30.2	)%	(210		)	(22.9	)%	Income tax expense	873			314			1,439			708			559			178.0	%	731			103.2	%
Net income	Net income	$	1,139		$	1,054		$	2,690		$	2,366		$	85		8.1	%	$	324		13.7	%	Net income	$	2,276		$	1,139		$	3,799		$	2,690		$	1,137		99.8	%	$	1,109		41.2	%

Average diluted shares outstanding	Average diluted shares outstanding	261.0			264.5			261.6			263.7			(3.5		)	(1.3	)%	(2.1		)	(0.8	)%	Average diluted shares outstanding	255.4			261.0			255.9			261.6			(5.6		)	(2.1	)%	(5.7		)	(2.2	)%
Diluted net income per share	Diluted net income per share	$	4.36		$	3.98		$	10.28		$	8.97		$	0.38		9.5	%	$	1.31		14.6	%	Diluted net income per share	$	8.91		$	4.36		$	14.85		$	10.28		$	4.55		104.4	%	$	4.57		44.5	%
Effective tax rate	Effective tax rate	21.6		%	29.9		%	20.8		%	28.0		%				(830)bp³					(720)bp³		Effective tax rate	27.7		%	21.6		%	27.5		%	20.8		%				610bp³					670bp³
Benefit expense ratio²	Benefit expense ratio²	86.7		%	83.4		%	85.6		%	82.5		%				330bp³					310bp³		Benefit expense ratio²	77.9		%	86.7		%	81.1		%	85.6		%				(880)bp³					(450)bp³
Selling, general and administrative expense ratio⁴	Selling, general and administrative expense ratio⁴	13.0		%	15.1		%	13.0		%	15.2		%				(210)bp³					(220)bp³		Selling, general and administrative expense ratio⁴	13.9		%	13.0		%	13.4		%	13.0		%				90bp³					40bp³
Income before income tax expense as a percentage of total revenues	Income before income tax expense as a percentage of total revenues	5.7		%	6.6		%	6.8		%	7.2		%				(90)bp³					(40)bp³		Income before income tax expense as a percentage of total revenues	10.8		%	5.7		%	8.9		%	6.8		%				510bp³					210bp³
Net income as a percentage of total revenues	Net income as a percentage of total revenues	4.5		%	4.6		%	5.4		%	5.2		%				(10)bp³					20bp³		Net income as a percentage of total revenues	7.8		%	4.5		%	6.5		%	5.4		%				330bp³					110bp³

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


NM	Not meaningful.


1	Includes interest expense, amortization of other intangible assets and loss (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, 2020 and 2019 were $25,092 and ~~2018 were~~ $23,501, ~~and $21,248,~~ respectively. Premiums for the six months ended June 30, 2020 and 2019 were $50,609 and ~~2018 were~~ $46,344, ~~and $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, ~~2019~~2020 Compared to the Three Months Ended June 30, ~~2018~~2019

Total operating revenue increased, resulting from higher product revenue and premiums. Product revenue represents services performed by our IngenioRx pharmacy benefit manager for unaffiliated PBM customers and includes ingredient costs (net of any rebates or discounts), including co-payments made by or on behalf of the customer, and administrative fees. Unaffiliated PBM customers include our self-funded groups that contracted with IngenioRx for PBM services and external customers outside of the health plans we own. The increase in ~~total operating~~product revenue ~~was primarily due~~reflects the completed transition of our unaffiliated PBM customers to ~~higher premium revenue resulting from membership~~IngenioRx by January 1, 2020, after commencing its operations during the second quarter of 2019. The growth ~~and rate increases across our businesses designed to cover overall cost trends. The increase~~ in premium revenue was mainly due to membership growth in our Government Business segment. The increase in premiums was further attributable to ~~increased reimbursed benefit utilization~~rate increases designed to cover the impact of the HIP Fee reinstatement for

2020. These increases were partially offset by a decrease in experience-rated premiums in our Federal Health Products & Services, or FHPS, business.

Net investment income decreased primarily due to losses recognized from energy sector private equity funds, for which the reporting may lag by up to three months due to the availability of financial information. These ~~increases~~losses resulted from a decrease in the worldwide demand for energy during the COVID-19 pandemic.

Benefit expense decreased primarily due to the lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic. This decrease was partially offset by increased costs as a result of membership growth in our Medicaid and Medicare businesses.

Our benefit expense ratio decreased primarily due to the impact of the lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic, and, to a lesser extent, the HIP Fee reinstatement for 2020. These decreases were partially offset by the impact of ~~the HIP Fee suspension for 2019.~~

~~Benefit expense increased due to membership growth across our businesses and higher medical cost experience~~premium credits provided in ~~our Medicaid business.~~

~~Our benefit expense ratio increased largely due~~response 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~~COVID-19 pandemic to our members enrolled in ~~our Medicaid business.~~select Individual plans and fully-insured employer customers.

Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx for our ~~self-funded~~unaffiliated PBM customers. Cost of products sold increased as we completed the transition of all of our unaffiliated PBM customers to IngenioRx ~~began operations during~~between the second quarter of 2019, ~~so there was no cost of products sold recognized in the three months ended June 30, 2018.~~when it began its operations, and January 1, 2020.

~~Our selling,~~Selling, general and administrative expense ~~decreased~~increased primarily due to the ~~suspension~~reinstatement of the HIP Fee for ~~2019. This decrease was partially offset by~~2020, and, to 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 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 tolesser extent, increased ~~reimbursed benefit utilization in our FHPS business. These increases were partially offset by the impact of the HIP Fee suspension for 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 higher medical cost experience in our Medicaid business.~~

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.

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 six 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~~increased due to the ~~suspension~~reinstatement of the HIP Fee for ~~2019~~2020 and increased spend to support growth in our businesses. These increases were partially offset by the growth in operating revenue.

Our effective income tax ~~expense and effective tax~~ rate ~~decreased~~increased primarily due to the ~~suspension~~reinstatement of the non-tax deductible HIP Fee for 2020, which resulted in additional income tax expense of $88.

Our net income as a percentage of total revenues increased in 2020 as compared to 2019 as a result of all factors discussed above.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Total operating revenue increased, resulting from higher product revenue and premiums. Product revenue increased as we completed the transition of all of our unaffiliated PBM customers to IngenioRx between the second quarter of 2019, when it began its operations, and January 1, 2020. Higher premiums were mainly due to membership growth in our Government Business segment. The increase in premiums was further attributable to rate increases and the impact of the HIP Fee reinstatement for 2020. These increases in premiums were partially offset by membership declines in our Commercial & Specialty Business segment.

Net investment income decreased primarily due to losses from energy sector private equity funds as a result of a decrease in the worldwide demand for energy during the COVID-19 pandemic.

We recognized net realized losses on financial instruments during the six months ended June 30, 2020 compared to net realized gains on financial instruments during the six months ended June 30, 2019. This change was primarily due to the changes in the fair values of our investments in equity securities during the six months ended June 30, 2020.

Benefit expense increased primarily due to increased costs as a result of growth in our Medicaid and Medicare membership and overall cost trends across our businesses. These increases were partially offset by the lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic.

Cost of products sold increased as we completed the transition of all of our unaffiliated PBM customers to IngenioRx between the second quarter of 2019, when it began its operations, and January 1, 2020.

Selling, general and administrative expense increased primarily due to the reinstatement of the HIP Fee for 2020, and, to a lesser extent, increased spend to support growth in our businesses.

Our selling, general and administrative expense ratio increased due to the reinstatement of the HIP Fee for 2020 and increased spend to support growth in our businesses. These increases were partially offset by the growth in operating revenue.

Our effective income tax rate increased primarily due to the reinstatement of the non-tax deductible HIP Fee for 2020, which resulted in additional income tax expense of $175.

Our net income as a percentage of total revenue increased in ~~2019~~2020 as compared to ~~2018~~2019 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 also calculate operating gain and operating margin ~~non-GAAP measures,~~ to further aid investors in understanding and analyzing our core operating results and comparing them among periods. We define operating revenue as premium income, product revenue and administrative fees and other revenue. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense. It does not include net investment income, net realized gains (losses) on financial instruments, ~~other than temporary~~ impairment ~~losses~~recoveries (losses) recognized in income, interest expense, amortization of other intangible assets, loss (gain) ~~loss~~ on extinguishment of debt or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management. Operating margin is calculated as operating gain divided by operating revenue. We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating periods and setting incentive compensation targets. This information is not intended to be considered in isolation or as a substitute for income before income tax expense, net income or EPS, prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable segments’ operating gain to income before income tax expense, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

~~Included~~Beginning in ~~the Other segment is~~2020, 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 meetmeets the quantitative thresholds for ~~an operating segment; therefore, they have been included in~~a reportable segment and the results of our ~~Other segment.~~

~~Affiliated revenues represent revenues or cost for services performed by IngenioRx and DBG to our subsidiaries,~~operations 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~~now described through four reportable segments: Commercial & Specialty Business, ~~and~~ Government Business, ~~based upon their utilization of services from~~ IngenioRx and ~~DBG.~~Other. For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The following table presents a summary of the reportable segment financial information for the three and six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


		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
														2019 vs. 2018					2019 vs. 2018																		2020 vs. 2019					2020 vs. 2019
		2019			2018 ¹			2019			2018 ¹			$			%		$			%			2020			2019			2020			2019			$			%		$			%
Operating Revenue	Operating Revenue																							Operating Revenue
Commercial & Specialty Business	Commercial & Specialty Business	$	9,417		$	9,055		$	18,809		$	18,006		$	362		4.0	%	$	803		4.5	%	Commercial & Specialty Business	$	8,789		$	9,417		$	18,150		$	18,809		$	(628	)	(6.7	)%	$	(659	)	(3.5	)%
Government Business	Government Business	15,538			13,619			30,464			26,972			1,919			14.1	%	3,492			12.9	%	Government Business	17,242			15,538			34,708			30,464			1,704			11.0	%	4,244			13.9	%
IngenioRx																								IngenioRx	5,269			248			10,466			248			5,021			NM		10,218			NM
Other	Other	794			350			1,342			710			444			126.9	%	632			89.0	%	Other	1,452			546			2,479			1,094			906			165.9	%	1,385			126.6	%
Eliminations	Eliminations	(572		)	(309		)	(1,050		)	(631		)	(263		)	85.1	%	(419		)	66.4	%	Eliminations	(3,574		)	(572		)	(7,177		)	(1,050		)	(3,002		)	NM		(6,127		)	NM
Total operating revenue	Total operating revenue	$	25,177		$	22,715		$	49,565		$	45,057		$	2,462		10.8	%	$	4,508		10.0	%	Total operating revenue	$	29,178		$	25,177		$	58,626		$	49,565		$	4,001		15.9	%	$	9,061		18.3	%

Operating Gain (Loss)	Operating Gain (Loss)																							Operating Gain (Loss)
Commercial & Specialty Business	Commercial & Specialty Business	$	983		$	1,048		$	2,581		$	2,450		$	(65	)	(6.2	)%	$	131		5.3	%	Commercial & Specialty Business	$	1,372		$	983		$	2,792		$	2,581		$	389		39.6	%	$	211		8.2	%
Government Business	Government Business	478			532			855			1,021			(54		)	(10.2	)%	(166		)	(16.3	)%	Government Business	1,618			480			2,029			854			1,138			237.1	%	1,175			137.6	%
IngenioRx																								IngenioRx	304			—			653			—			304			NM		653			NM
Other	Other	(28		)	(21		)	(63		)	(44		)	(7		)	33.3	%	(19		)	43.2	%	Other	66			(30		)	80			(62		)	96			(320.0	)%	142			(229.0	)%

Operating Margin	Operating Margin																							Operating Margin
Commercial & Specialty Business	Commercial & Specialty Business	10.4		%	11.6		%	13.7		%	13.6		%				(120	)bp				10	bp	Commercial & Specialty Business	15.6		%	10.4		%	15.4		%	13.7		%				520	bp				170	bp
Government Business	Government Business	3.1		%	3.9		%	2.8		%	3.8		%				(80	)bp				(100	)bp	Government Business	9.4		%	3.1		%	5.8		%	2.8		%				630	bp				300	bp

IngenioRx																									5.8		%	—		%	6.2		%	—						NM					NM


1	During the second quarter of 2019, we reclassified DBG from our Government Business segment to our Other segment to reflect changes in 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, ~~2019~~2020 Compared to the Three Months Ended June 30, ~~2018~~2019

Commercial & Specialty Business

Operating revenue decreased primarily due to fully-insured membership declines and the impact of premium credits provided in response to the COVID-19 pandemic to support our members enrolled in select Individual plans and fully-insured employer customers. The decrease in operating revenue was further attributable to less favorable adjustments to our estimates for the ACA risk adjustment premium stabilization program and the absence of pharmacy administrative fee revenue that is now recognized within the IngenioRx segment. These decreases were partially offset by the impact of the HIP Fee reinstatement for 2020.

The increase in operating gain was primarily driven by the lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic. This increase was partially offset by the impact of premium credits provided in response to the COVID-19 pandemic, less favorable adjustments to our estimates for the ACA risk adjustment premium stabilization program and the shift of pharmacy administrative fee earnings to our IngenioRx segment.

Government Business

Operating revenue increased primarily due to higher premium revenue as a result of organic growth, acquisitions and new expansions in our Medicaid business and membership growth in our Medicare business. The increase in premium revenue was further attributable to rate increases, including a refinement of estimates associated with Medicare risk score revenue, and the HIP Fee reinstatement for 2020. These increases in premiums were partially offset by a decrease in experience rated premiums in our FHPS business.

The increase in operating gain was primarily driven by the lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic. This increase was partially offset by higher experience-rated refunds and retroactive rate ~~increases~~adjustments in our ~~Local Group business designed~~Medicaid business.

IngenioRx

Operating revenue and operating gain increased as a result of the transition of our existing members to ~~cover overall~~IngenioRx, which commenced its operations during the second quarter of 2019. Operating revenue represents product revenues from services performed for our fully-insured Anthem health plans and self-funded customers and external customers outside of the health plans we own. Product revenues and cost ~~trends~~of goods sold for fully-insured Anthem health plan customers are eliminated in consolidation. Operating gain represents operating revenue less cost of products sold and selling, general and administrative expenses.

Other

Operating revenue increased primarily due to our acquisition of Beacon in February 2020 and higher administrative fees and other revenue from services performed by our Diversified Business Group, or DBG, which is our integrated health services business, in certain markets.

The increase in operating gain was due to growth in value-added services performed by DBG for our other segments.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Commercial & Specialty Business

Operating revenue decreased primarily due to fully-insured membership ~~increases~~declines and the impact of premium credits provided in response to the COVID-19 pandemic to our members enrolled in select Individual ~~ACA~~plans and fully-insured ~~National Accounts businesses.~~employer customers. The decrease in operating revenue was further attributable to the absence of pharmacy administrative fee revenue that is now recognized within the IngenioRx segment and less favorable adjustments to our estimates for the ACA risk adjustment premium stabilization program. These ~~increases~~decreases were partially offset by the impact of the HIP Fee ~~suspension~~reinstatement for ~~2019~~2020.

The increase in operating gain was primarily driven by the lower volume of healthcare claims experienced resulting from delays to routine care and ~~higher~~elective procedures during the COVID-19 pandemic. This increase was partially offset by the impact of premium credits provided in response to the COVID-19 pandemic, less favorable adjustments ~~recognized in 2018 related~~ to our estimates for the ACA risk adjustment premium stabilization ~~program.~~

~~Operating gain decreased primarily due~~program and the shift of pharmacy administrative fee earnings to the impact of higher favorable adjustments recognized in 2018 related to estimates for the 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.~~IngenioRx segment.

Government Business

Operating revenue increased primarily due to higher premium revenue as a result of membership growth in our Medicare business and organic growth, new expansions and acquisitions in our Medicaid ~~businesses and expansions, including specialized service populations.~~business. The increase in premium revenue was further attributable to rate increases, ~~designed to cover overall cost trends~~including a refinement of estimates associated with Medicare risk score revenue, and the HIP Fee reinstatement for 2020. These increases in ~~our Medicaid and Medicare businesses, and increased reimbursed benefit utilization in our FHPS. These increases~~premiums were partially offset by a decrease in experience rated premiums in our FHPS business.

The increase in operating gain was primarily driven by the ~~impact~~lower volume of healthcare claims experienced resulting from delays to routine care and elective procedures during the COVID-19 pandemic. The increase was partially offset by higher experience-rated refunds and retroactive rate adjustments in our Medicaid business.

IngenioRx

Operating revenue and operating gain increased as a result of the ~~HIP Fee suspension~~transition of our existing members to IngenioRx, which commenced its operations during the second quarter of 2019. Operating revenue represents product revenues from services performed for ~~2019.~~our fully-insured Anthem health plans and self-funded customers and external customers outside of the health plans we own. Product revenues and cost of goods sold for fully-insured Anthem health plan customers are eliminated in

consolidation. Operating gain ~~decreased~~represents operating revenue less cost of products sold and selling, general and administrative expenses.

Other

Operating revenue increased primarily due to ~~continued elevated medical cost experience~~our acquisition of Beacon in ~~our Medicaid business in certain states~~February 2020 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 growth in our Medicare business.

~~Other~~

~~Operating revenue increased due to~~ higher administrative fees and other revenue from services performed by DBG ~~and IngenioRx, which commenced operations during the second quarter of 2019.~~ in certain markets.

~~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~~operating gain was due to ~~higher penetration of value added services for self-funded members in our Large Group and National Accounts businesses.~~

Operating gain increased due to 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 value-added services performed by DBG for 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.

~~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.~~segments.

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 ~~2018~~2019 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, ~~2018,~~2019, 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, ~~2019,~~2020, our critical accounting policies and estimates have not changed from those described in our ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K, except for the policies related to investments and receivables, which changed as a result of the adoption of a new accounting pronouncement.

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, ~~2019,~~2020, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our ~~2018~~2019 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, ~~2019~~2020 and ~~2018,~~2019, see Note 9, “Medical Claims Payable,” of the Notes to 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, ~~2019~~2020 and ~~2018,~~2019, 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
	2019		2018		2020		2019
Assumed trend factors	$	311	$	468	$	558	$	311
Assumed completion factors	103		327		142		103
Total	$	414	$	795	$	700	$	414

The favorable development recognized in the six months ended June 30, 2020 and 2019 ~~and 2018~~ resulted primarily from trend factors in late ~~2018~~2019 and late ~~2017,~~2018, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter parts of ~~2018~~2019 and ~~2017~~2018 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 ~~79.4%~~79.1% and ~~81.1%~~79.4% for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. This ratio serves as an indicator of claims processing

speed whereby claims were processed ~~slightly faster~~at a similar speed during the six months ended June 30, ~~2018.~~2020 as compared to the six months ended June 30, 2019.

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, 2020, this metric was 8.8%, largely driven by favorable trend factor development at the end of 2019 as well as favorable completion factor development from 2019. 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 11.5%, largely driven by favorable trend factor development at the end of 2017.~~

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims. We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology. For the six months ended June 30, 2020, this metric was 0.9%, which was calculated using the redundancy of $700. For the six months ended June 30, 2019, ~~this~~the comparable metric was 0.6%, which was calculated using the redundancy of $414. ~~For the six months ended June 30, 2018, the comparable metric was 1.2%, which was calculated using the redundancy of $795.~~ We believe these metrics demonstrate ~~a generally consistent~~an appropriate level of reserve conservatism.

Investments

On January 1, 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The amendments in ASU 2016-13 replaced the incurred loss model for measuring expected credit losses and require expected losses on available-for-sale fixed maturity securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities. 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, 2019. For additional information, see Note 4, “Investments,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The COVID-19 pandemic and efforts to prevent its spread have drastically impacted the global economy, causing market instability. Given the market volatility, there is a risk that the value of some of our investments may decline or that our investments that have declined may not recover in future periods.

Additional discussion regarding the impact of COVID-19 on our business, cash flows, financial condition and results of operations can be found elsewhere in this MD&A.

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, ~~2019,~~2020, see the “Recently Adopted Accounting Guidance” and “Recent

Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting ~~Policies”~~Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Liquidity and Capital Resources

Sources and Uses of Capital

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

The COVID-19 pandemic and efforts to prevent its spread have drastically impacted the economy, causing market instability and increasing unemployment in the United States. While the full impact of COVID-19 on our business remains uncertain, it could have a material adverse effect on our claim payments, collection of our premiums, product or

administrative fee revenues, investments and our ability to access credit. Additional discussion regarding the impact of COVID-19 can be found elsewhere in this MD&A.

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 ~~2018~~2019 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, ~~2019,~~2020, see Note 5, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock - Use of Capital - Dividends and Stock Repurchase Program,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Liquidity

A summary of our major sources and uses of cash and cash equivalents for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:

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 )



	Six Months Ended June 30						2020 vs. 2019
	2020			2019			Change
Sources of Cash:
Net cash provided by operating activities	$	8,025		$	3,067		$	4,958
Issuances of commercial paper and short- and long-term debt, net of repayments	1,229			—			1,229
Proceeds from issuance of common stock under employee stock plans	92			100			(8		)
Other sources of cash, net	640			65			575
Total sources of cash	9,986			3,232			6,754
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions	(4,575		)	(1,384		)	(3,191		)
Purchases of subsidiaries, net of cash acquired	(1,906		)	—			(1,906		)
Repurchase and retirement of common stock	(584		)	(752		)	168
Purchases of property and equipment	(437		)	(455		)	18
Repayments of commercial paper and short- and long-term debt, net of issuances	—			(5		)	5
Cash dividends	(482		)	(412		)	(70		)
Other uses of cash, net	(911		)	(80		)	(831		)
Total uses of cash	(8,895		)	(3,088		)	(5,807		)
Net increase in cash and cash equivalents	$	1,091		$	144		$	947

The increase in cash provided by operating activities was primarily ~~due~~attributable to ~~the impact~~higher net income in 2020, a delay of ~~membership increases in~~ our ~~Medicaid~~estimated federal income and ~~Medicare businesses. These increases were partially offset~~certain payroll tax payments as permitted by the ~~timing of Medicare prepayments received in 2018~~CARES Act and ~~lower~~IRS Notice 2020-23, and higher premium receipts as a result of the ~~suspension of the~~ HIP Fee reinstatement for ~~2019.~~2020.

Other significant changes in sources ~~and~~or uses of cash year-over-year included an increase in net purchases of investments, ~~a decrease in cash received from issuance of common stock under Equity Units stock purchase contracts and a decrease~~an increase in cash paid for ~~acquisitions.~~acquisitions and an increase in net proceeds from the issuances of commercial paper and short- and long-term debt.

Financial Condition

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of ~~$25,235~~$32,036 at June 30, ~~2019.~~2020. Since December 31, ~~2018,~~2019, total cash, cash equivalents and investments in fixed maturity and equity securities increased by ~~$2,596,~~$5,909, primarily due to cash generated from ~~operations.~~operations and net proceeds from borrowings. These increases were partially offset by cash paid for acquisitions, common stock repurchases, cash dividends paid to shareholders and purchases of property and equipment.

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

At June 30, ~~2019,~~2020, we held ~~$1,359~~$4,089 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

Debt

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

We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our consolidated balance sheets included in Part I, Item 1 of this Form 10-Q. Our debt-to-capital ratio is calculated as total debt divided by total debt plus total shareholders’ equity. Total debt is the sum of short-term borrowings, current portion of long-term debt, long-term debt, less current portion 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 ~~39.4% and 40.2%~~39.5% as of June 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019.

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

Future Sources and Uses of Liquidity

The COVID-19 pandemic and efforts to prevent its spread have drastically impacted the global economy and caused increased volatility in the securities and credit markets. While the full impact of COVID-19 on our business is currently uncertain, it could have a material adverse effect on our financial condition and our liquidity.

In response to the COVID-19 pandemic, we have taken certain precautionary measures to preserve our liquidity and financial flexibility, including reducing our discretionary spending and temporarily suspending our share repurchase activity. After careful consideration, we lifted the temporary suspension and resumed our share repurchase activities in late June 2020. To increase our cash on hand, we also delayed our quarterly estimated federal income tax payments normally due during the second quarter of 2020 until July 15, 2020, as permitted by IRS Notice 2020-23. We also delayed certain payroll tax payments as permitted by the CARES Act. We may take additional actions going forward to maximize our liquidity, including increasing our borrowings from existing or new Federal Home Loan Bank memberships and other available borrowings. We will continue to monitor the market conditions and act in a prudent manner. Additional discussion regarding the impact of COVID-19 can be found elsewhere in this MD&A.

We have an authorized commercial paper program of up to $3,500, the proceeds of which may be used for general corporate purposes. Should commercial paper issuance become unavailable, we intend to use a combination of cash on hand and/or our senior revolving credit facilities, which provide for combined credit up to $3,500, to redeem any outstanding commercial paper upon maturity. While there is no assurance in the current economic environment, we believe the lenders participating in our senior credit facilities, if market conditions allow, will be willing to provide financing in accordance with their legal obligations.

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, ~~2019,~~2020, see Note 4, “Investments,” 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 Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Risk-Based Capital

Our regulated subsidiaries’ states of domicile have statutory risk-based capital, 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, ~~2018,~~2019, 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, ~~2018~~2019 included in our ~~2018~~2019 Annual Report on Form 10-K.

Contractual Obligations and Commitments

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

There have been no material changes to our Contractual Obligations and Commitments disclosure in our ~~2018~~2019 Annual Report on Form 10-K other than our entry into a vendor agreement for information technology infrastructure and related management and support services and an increase in ~~borrowings of commercial paper.~~our borrowings. For additional information regarding our estimated contractual obligations and commitments, see Note 5, “Derivative Financial Instruments,” Note 10, “Debt,” and the “Other Contingencies” and “Contractual Obligations and Commitments” sections of Note 11, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

FORWARD-LOOKING STATEMENTS

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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our ~~2018~~2019 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, ~~2018~~2019.


ITEM 4.	CONTROLS AND PROCEDURES

We carried out an evaluation as of June 30, ~~2019~~2020, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed in our reports under the Exchange Act. In addition, based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

For information regarding legal proceedings at June 30, ~~2019~~2020, see the “Litigation and Regulatory Proceedings,” and “Other Contingencies” sections of Note 11, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.


ITEM 1A.	RISK FACTORS

~~There~~Except for the additional risk factor set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, there have been no material changes to the risk factors disclosed in our ~~2018~~2019 Annual Report on Form 10-K.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table presents information related to our repurchases of common stock for the periods indicated:

Period
Total Number
of Shares
Purchased¹

Average
Price Paid
per Share

Total Number
of Shares
Purchased
as Part
of Publicly
Announced
Programs²

Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under the
Programs
(in millions, except share and per share data)
April 1, 2019 to April 30, 2019 427,943
$ 266.60
424,212
$ 5,086
May 1, 2019 to May 31, 2019 589,141
265.84
587,600
4,930
June 1, 2019 to June 30, 2019 669,139
283.34
665,400
4,741
1,686,223
1,677,212



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, 2020 to April 30, 2020	6,838	$	204.57	—	$	3,263
May 1, 2020 to May 31, 2020	2,038	270.86		—	3,263
June 1, 2020 to June 30, 2020	216,430	259.31		212,500	3,208
	225,306			212,500


1	Total number of shares purchased includes ~~9,011~~12,806 shares delivered to or withheld by us in connection with employee payroll tax withholding upon the 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.

Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board of Directors evaluates periodically. During the three months ended June 30, ~~2019~~2020, we repurchased ~~1,677,212~~212,500 shares at a total cost of ~~$458~~$55 under the program, including the cost of options to purchase shares. The Board of Directors has authorized our common stock repurchase program since 2003. The Board of Director’s most recent authorized increase to the program was $5,000 on December 7, 2017. ~~Between July 1, 2019 and July 17, 2019, we repurchased 253,100 shares at a cost of $72, bringing our current availability to $4,669 at July 17, 2019.~~ No duration has been placed on our common stock repurchase program, and we reserve the right to discontinue the program at any time.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

None.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Exhibit Number		Exhibit

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

3.2		Bylaws of the Company, as amended effective ~~May 15, 2019,~~April 8, 2020, incorporated by reference to Exhibit ~~3.2~~3.1 to the Company’s Current Report on Form ~~8-K/A~~8-K filed on ~~June~~April 8, 2020.

4.6(k)		Form of the 2.250% Notes due 2030, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 5, ~~2019.~~2020.

4.6(l)		Form of the 3.125% Notes due 2050, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on May 5, 2020.

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.

~~10.7~~	*	~~Anthem, Inc. Board of Directors Compensation 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, ~~2019,~~2020, formatted in ~~iXBRL~~Inline XBRL (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.


*104		~~Indicates management contracts or compensatory plans or arrangements.~~Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	ANTHEM, INC. Registrant



Date: July ~~24, 2019~~29, 2020	By:	/S/ JOHN E. GALLINA
		John E. Gallina Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)


Date: July ~~24, 2019~~29, 2020	By:	/S/ RONALD W. PENCZEK
		Ronald W. Penczek Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

~~-59-~~-64-



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