UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 20202021
OR
☐☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                         to                                         
Commission file number: 001-16751
ANTHEM, INC.
(Exact name of registrant as specified in its charter)
Indiana
 
35-2145715
(State or other jurisdiction of

incorporation or organization)
 
(I.R.S. Employer

Identification Number)
220 Virginia Avenue
Indianapolis,, Indiana46204
(Address of principal executive offices) (Zip Code)
Registrant’sRegistrant’s telephone number, including area code: (800) (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(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“large accelerated filer”filer”, “accelerated filer”“accelerated filer”, “smaller“smaller reporting company”company”, and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☒☒

  
  
Accelerated filer
☐☐
Non-accelerated filer
☐☐

  
  
Smaller reporting company
☐☐
Emerging growth company
☐☐
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       Yes   ☐   ☐    No   ☒ ☒
As of April 22, 2020, 252,116,09715, 2021, 244,840,654 shares of the Registrant’sRegistrant’s Common Stock were outstanding.




Anthem, Inc.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 20202021
Table of Contents
 
Page
PART I. FINANCIAL INFORMATION
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
 
 
 
2
 
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2020 31, 2021 and 20192020
3
 
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2020 31, 2021 and 20192020
4
 
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 31, 2021 and 20192020
5
 
Consolidated Statements of Shareholders’Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 31, 2021 and 20192020
6
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
 7
ITEM 2.
MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
38
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
54
ITEM 4.
CONTROLS AND PROCEDURES
54
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
 54
ITEM 1.1A.
RISK FACTORS
LEGAL PROCEEDINGS
ITEM 1A.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
55
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
55
ITEM 4.
MINE SAFETY DISCLOSURES
55
ITEM 5.
OTHER INFORMATION
55
ITEM 6.
EXHIBITS
56
ITEM 3.SIGNATURES
DEFAULTS UPON SENIOR SECURITIES
ITEM 4.
ITEM 5.
ITEM 6.

-1-
-1-


PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
ITEM 1.    FINANCIAL STATEMENTS
Anthem, Inc.
Consolidated Balance Sheets
March 31,
2020
 
December 31,
2019
March 31,
2021		December 31,
2020
(In millions, except share data)
(Unaudited)
 
 
(In millions, except share data)(Unaudited) 
Assets
 
 
 
Assets
Current assets:
 
 
 
Current assets:
Cash and cash equivalents
$
5,345

 
$
4,937

Cash and cash equivalents$9,326 $5,741 
Fixed maturity securities (amortized cost of $20,211 and $19,021; allowance for credit losses of $51 and $0)
19,881

 
19,676

Fixed maturity securities (amortized cost of $23,808 and $22,222; allowance for credit losses of $8 and $7)Fixed maturity securities (amortized cost of $23,808 and $22,222; allowance for credit losses of $8 and $7)24,555 23,433 
Equity securities
570

 
1,009

Equity securities3,630 1,559 
Premium receivables
5,786

 
5,014

Premium receivables6,111 5,279 
Self-funded receivables
2,613

 
2,570

Self-funded receivables3,109 2,849 
Other receivables
2,926

 
2,807

Other receivables3,071 2,830 
Other current assets
4,135

 
3,020

Other current assets4,693 4,060 
Total current assets
41,256

 
39,033

Total current assets54,495 45,751 
Long-term investments:
 
 
 
Long-term investments:
Fixed maturity securities (amortized cost of $489 and $487;
allowance for credit losses of $0 and $0)
505

 
505

Fixed maturity securities (amortized cost of $537 and $532; allowance for credit losses of $0 and $0)Fixed maturity securities (amortized cost of $537 and $532; allowance for credit losses of $0 and $0)558 562 
Other invested assets
4,181

 
4,258

Other invested assets4,474 4,285 
Property and equipment, net
3,350

 
3,133

Property and equipment, net3,533 3,483 
Goodwill
21,661

 
20,500

Goodwill21,708 21,691 
Other intangible assets
9,613

 
8,674

Other intangible assets9,352 9,405 
Other noncurrent assets
1,833

 
1,350

Other noncurrent assets1,563 1,438 
Total assets
$
82,399

 
$
77,453

Total assets$95,683 $86,615 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Liabilities and equityLiabilities and equity
Liabilities
 
 
 
Liabilities
Current liabilities:
 
 
 
Current liabilities:
Medical claims payable
$
9,902

 
$
8,842

Medical claims payable$12,347 $11,359 
Other policyholder liabilities
3,252

 
3,050

Other policyholder liabilities5,075 4,590 
Unearned income
947

 
1,017

Unearned income1,139 1,259 
Accounts payable and accrued expenses
5,058

 
4,198

Accounts payable and accrued expenses5,329 5,493 
Short-term borrowings
1,075

 
700

Current portion of long-term debt
1,603

 
1,598

Current portion of long-term debt700 700 
Other current liabilities
5,202

 
4,127

Other current liabilities10,159 6,052 
Total current liabilities
27,039

 
23,532

Total current liabilities34,749 29,453 
Long-term debt, less current portion
19,005

 
17,787

Long-term debt, less current portion22,534 19,335 
Reserves for future policy benefits
754

 
759

Reserves for future policy benefits776 794 
Deferred tax liabilities, net
2,213

 
2,227

Deferred tax liabilities, net1,961 2,019 
Other noncurrent liabilities
1,695

 
1,420

Other noncurrent liabilities1,745 1,815 
Total liabilities
50,706

 
45,725

Total liabilities61,765 53,416 
Commitment and contingencies – Note 11


 


Shareholders’ equity
 
 
 
Preferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – none
—

 
—

Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding –
252,020,028 and 252,922,161
3

 
3

Commitments and contingencies – Note 11Commitments and contingencies – Note 1100
Shareholders’ equityShareholders’ equity
Preferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – nonePreferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – none0 0 
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding –
244,938,635 and 245,401,430
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding –
244,938,635 and 245,401,430
2 3 
Additional paid-in capital
9,338

 
9,448

Additional paid-in capital9,253 9,244 
Retained earnings
23,360

 
22,573

Retained earnings24,793 23,802 
Accumulated other comprehensive loss
(1,008
)
 
(296
)
Total shareholders’ equity
31,693

 
31,728

Total liabilities and shareholders’ equity
$
82,399

 
$
77,453

Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income(195)150 
Total shareholders’ equityTotal shareholders’ equity33,853 33,199 
Noncontrolling interestsNoncontrolling interests65 0 
Total equityTotal equity33,918 33,199 
Total liabilities and equityTotal liabilities and equity$95,683 $86,615 









See accompanying notes.

-2-
-2-


Anthem, Inc.
Consolidated Statements of Income
(Unaudited) 
 
Three Months Ended 
 March 31
 Three Months Ended 
 March 31
(In millions, except per share data)
 
2020
 
2019
(In millions, except per share data)20212020
Revenues
 
 
 
 
Revenues
Premiums
 
$
25,517

 
$
22,843

Premiums$27,676 $25,517 
Product revenue
 
2,344

 
—

Product revenue2,737 2,344 
Administrative fees and other revenue
 
1,587

 
1,545

Administrative fees and other revenue1,685 1,587 
Total operating revenue
 
29,448

 
24,388

Total operating revenue32,098 29,448 
Net investment income
 
254

 
210

Net investment income291 254 
Net realized (losses) gains on financial instruments
 
(24
)
 
78

Impairment losses on investments:
 
 
 
 
Total impairment losses on investments
 
(101
)
 
(13
)
Portion of impairment losses recognized in other comprehensive income
 
44

 
3

Impairment losses recognized in income
 
(57
)
 
(10
)
Net realized losses on financial instrumentsNet realized losses on financial instruments(4)(81)
Total revenues
 
29,621

 
24,666

Total revenues32,385 29,621 
Expenses
 
 
 
 
Expenses
Benefit expense
 
21,489

 
19,282

Benefit expense23,699 21,489 
Cost of products sold
 
1,984

 
—

Cost of products sold2,313 1,984 
Selling, general and administrative expense
 
3,781

 
3,166

Selling, general and administrative expense3,925 3,781 
Interest expense
 
194

 
187

Interest expense192 194 
Amortization of other intangible assets
 
83

 
87

Amortization of other intangible assets80 83 
Loss (gain) on extinguishment of debt
 
1

 
(1
)
Loss on extinguishment of debtLoss on extinguishment of debt0 1 
Total expenses
 
27,532

 
22,721

Total expenses30,209 27,532 
Income before income tax expense
 
2,089

 
1,945

Income before income tax expense2,176 2,089 
Income tax expense
 
566

 
394

Income tax expense509 566 
Net income
 
$
1,523

 
$
1,551

Net income1,667 1,523 
Net income per share
 
 
 
 
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests(2)0 
Shareholders’ net incomeShareholders’ net income$1,665 $1,523 
Shareholders’ net income per shareShareholders’ net income per share
Basic
 
$
6.03

 
$
6.03

Basic$6.80 $6.03 
Diluted
 
$
5.94

 
$
5.91

Diluted$6.71 $5.94 
Dividends per share
 
$
0.95

 
$
0.80

Dividends per share$1.13 $0.95 
















See accompanying notes.

-3-
-3-


Anthem, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited) 
 
Three Months Ended 
 March 31
 Three Months Ended 
 March 31
(In millions)
 
2020
 
2019
(In millions)20212020
Net income
 
$
1,523

 
$
1,551

Net income$1,667 $1,523 
Other comprehensive (loss) income, net of tax:
 
 
 
 
Other comprehensive loss, net of tax:Other comprehensive loss, net of tax:
Change in net unrealized losses/gains on investments
 
(689
)
 
357

Change in net unrealized losses/gains on investments(362)(689)
Change in non-credit component of impairment losses on investments
 
(32
)
 
—

Change in non-credit component of impairment losses on investments1 (32)
Change in net unrealized gains/losses on cash flow hedges
 
3

 
3

Change in net unrealized gains/losses on cash flow hedges4 3 
Change in net periodic pension and postretirement costs
 
7

 
3

Change in net periodic pension and postretirement costs10 7 
Foreign currency translation adjustments
 
(1
)
 
—

Foreign currency translation adjustments0 (1)
Other comprehensive (loss) income
 
(712
)
 
363

Total comprehensive income
 
$
811

 
$
1,914

Other comprehensive lossOther comprehensive loss(347)(712)
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests(2)0 
Other comprehensive loss attributable to noncontrolling interestsOther comprehensive loss attributable to noncontrolling interests2 0 
Total shareholders’ comprehensive incomeTotal shareholders’ comprehensive income$1,320 $811 

































See accompanying notes.
-4-

See accompanying notes.

-4-

Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended 
 March 31
 Three Months Ended 
 March 31
(In millions)
2020
 
2019
(In millions)20212020
Operating activities
 
 
 
Operating activities
Net income
$
1,523

 
$
1,551

Net income$1,667 $1,523 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses (gains) on financial instruments
24

 
(78
)
Net realized losses on financial instrumentsNet realized losses on financial instruments4 81 
Depreciation and amortization
270

 
289

Depreciation and amortization282 270 
Deferred income taxes
57

 
55

Deferred income taxes31 57 
Share-based compensation
67

 
70

Share-based compensation64 67 
Changes in operating assets and liabilities:
 
 
 
Changes in operating assets and liabilities:
Receivables, net
(639
)
 
(753
)
Receivables, net(1,258)(639)
Other invested assets
63

 
(21
)
Other invested assets(20)63 
Other assets
(525
)
 
(125
)
Other assets(288)(525)
Policy liabilities
692

 
791

Policy liabilities1,455 692 
Unearned income
(109
)
 
96

Unearned income(119)(109)
Accounts payable and other liabilities
588

 
(354
)
Accounts payable and other liabilities358 588 
Income taxes
491

 
115

Income taxes438 491 
Other, net
13

 
(6
)
Other, net(109)(44)
Net cash provided by operating activities
2,515

 
1,630

Net cash provided by operating activities2,505 2,515 
Investing activities
 
 
 
Investing activities
Purchases of investments
(3,896
)
 
(6,069
)
Purchases of investments(6,978)(3,896)
Proceeds from sale of investments
2,728

 
5,236

Proceeds from sale of investments4,650 2,728 
Maturities, calls and redemptions from investments
597

 
393

Maturities, calls and redemptions from investments998 597 
Changes in securities lending collateralChanges in securities lending collateral(731)(77)
Purchases of subsidiaries, net of cash acquired
(1,908
)
 
—

Purchases of subsidiaries, net of cash acquired(27)(1,908)
Purchases of property and equipment
(204
)
 
(234
)
Purchases of property and equipment(204)(204)
Other, net
(101
)
 
22

Other, net(15)(24)
Net cash used in investing activities
(2,784
)
 
(652
)
Net cash used in investing activities(2,307)(2,784)
Financing activities
 
 
 
Financing activities
Net proceeds from commercial paper borrowings
905

 
178

Net (repayments of) proceeds from commercial paper borrowingsNet (repayments of) proceeds from commercial paper borrowings(250)905 
Proceeds from long-term borrowings
300

 
2

Proceeds from long-term borrowings3,462 300 
Repayments of long-term borrowings
(52
)
 
(63
)
Repayments of long-term borrowings0 (52)
Proceeds from short-term borrowings
1,075

 
2,710

Proceeds from short-term borrowings0 1,075 
Repayments of short-term borrowings
(700
)
 
(2,760
)
Repayments of short-term borrowings0 (700)
Changes in securities lending payableChanges in securities lending payable731 77 
Repurchase and retirement of common stock
(529
)
 
(294
)
Repurchase and retirement of common stock(447)(529)
Cash dividends
(240
)
 
(206
)
Cash dividends(277)(240)
Proceeds from issuance of common stock under employee stock plans
44

 
76

Proceeds from issuance of common stock under employee stock plans89 44 
Taxes paid through withholding of common stock under employee stock plans
(107
)
 
(78
)
Taxes paid through withholding of common stock under employee stock plans(91)(107)
Other, net
(17
)
 
6

Other, net171 (94)
Net cash provided by (used in) financing activities
679

 
(429
)
Net cash provided by financing activitiesNet cash provided by financing activities3,388 679 
Effect of foreign exchange rates on cash and cash equivalents
(2
)
 
(1
)
Effect of foreign exchange rates on cash and cash equivalents(1)(2)
Change in cash and cash equivalents
408

 
548

Change in cash and cash equivalents3,585 408 
Cash and cash equivalents at beginning of period
4,937

 
3,934

Cash and cash equivalents at beginning of period5,741 4,937 
Cash and cash equivalents at end of period
$
5,345

 
$
4,482

Cash and cash equivalents at end of period$9,326 $5,345 











See accompanying notes.
-5-



See accompanying notes.

-5-

Anthem, Inc.
Consolidated Statements of Shareholders’Shareholders’ Equity
(Unaudited)
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
(In millions)
Number of
Shares
 
Par
Value
 
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

 
 
 
 
 
 
 
 
 
 
 
 
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


 
 
 
 
 
 
 
 
 
 
 
 
 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Noncontrolling InterestsTotal
Equity
(In millions)Number of
Shares		Par
Value
January 1, 2021245.4 $3 $9,244 $23,802 $150 $0 $33,199 
Net income— — — 1,665 — 2 1,667 
Other comprehensive loss— — — — (345)(2)(347)
Noncontrolling interests adjustment— — — — — 65 65 
Repurchase and retirement of common stock(1.4)(1)(53)(393)— — (447)
Dividends and dividend equivalents— — — (281)— — (281)
Issuance of common stock under employee stock plans, net of related tax benefits0.9 — 62 — — — 62 
March 31, 2021244.9 $2 $9,253 $24,793 $(195)$65 $33,918 
December 31, 2019 (audited)252.9 $3 $9,448 $22,573 $(296)$— $31,728 
Adoption of Accounting Standards Update No. 2016-13— — — (35)— — (35)
January 1, 2020252.9 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 benefits1.0 — 3 — — — 3 
Convertible debenture repurchases and conversions— — (42)— — — (42)
March 31, 2020252.0 $3 $9,338 $23,360 $(1,008)$— $31,693 














See accompanying notes.

-6-
-6-

Anthem, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 20202021
(In Millions, Except Per Share Data or As Otherwise Stated Herein)
 
1.     Organization
1.
Organization
References to the terms “we,” “our,” “us”“we,” “our,” “us” or “Anthem”“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”“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 42 million nearly 44 medical members through our affiliated health plans as of March 31, 2020.2021. We offer a broad spectrum of network-based managed care plans to LargeIndividual, Group, Small Group, Individual, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations or PPOs;(“PPOs”); Health Maintenance Organizations or HMOs;(“HMOs”); Point-of-Service plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-fundedfee-based customers, including claims processing, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management or PBM,(“PBM”), dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare. We also provide services to the federal government in connection with our Federal Health Products && Services business, which administers the Federal Employees Health Benefits or FEHB,(“FEHB”) Program.
We are an independent licensee of the Blue Cross and Blue Shield Association or BCBSA,(“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,(“BCBS”) licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare.UniCare. Also, in the second quarter of 2019, we began providingprovide PBM services through our IngenioRx, Inc. (“IngenioRx”) subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.
2.
2.     Basis of Presentation and Significant Accounting Policies
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,(“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 20192020 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. 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 months ended March 31, 20202021 and 20192020 have been recorded. The results of operations for the three months ended March 31, 20202021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020,2021, or any other period. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 20192020 included in our 20192020 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.(“USD”). We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the

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period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during
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the period. The net effect of these translation adjustments is included in “Foreign“Foreign currency translation adjustments”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 $221$205 and $215$170 at March 31, 20202021 and December 31, 2019,2020, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.
Investments: Prior to 2020, ourWe classify fixed maturities were evaluated for other-than-temporary impairment where credit related impairments were presented within the other-than-temporary impairment losses recognizedmaturity securities in our consolidated statements of income with an adjustmentinvestment portfolio as “available-for-sale” and report those securities at fair value. Certain fixed maturity securities are available to the security’s amortized cost basis. Effective January 1, 2020, ifsupport current operations and, accordingly, we classify such investments as current assets without regard to their contractual maturity. Investments used to satisfy contractual, regulatory or other requirements are classified as long-term, without regard to contractual maturity.
If a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity security’ssecurity’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost basis, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive loss. Furthermore, unrealized losses entirely caused by non-credit relatednon-credit-related factors related to fixed maturity securities for which we expect to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive loss. (loss) income.
The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.
For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the purchase date of the securities. Such adjustments are reported within net investment income.
In accordance with the Financial Accounting Standards Board, or FASB guidance, theThe 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“Other invested assets”assets” in our consolidated balance sheets.
We use the equity method of accounting for investments in companies in which our ownership interest enablesmay 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“Other invested assets”assets” in our consolidated balance sheets.
Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.

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We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. Under FASB guidance related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, weWe recognize the collateral as an asset, which is reported under the caption “Other“Other current assets”assets” in our consolidated balance sheets, and we record a corresponding liability for the obligation to return the collateral to the borrower, which is reported under the caption “Other“Other current liabilities”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(loss) income as a separate component of shareholders’shareholders’ equity. The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’securities’ value appreciates faster or depreciates slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.
Receivables: Receivables are reported net of amounts for expected credit losses. The allowance for doubtful accounts is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.
Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $234 and $237$146 at each of March 31, 20202021 and December 31, 2019, respectively. 2020.
Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers. Self-funded receivables are reported net of an allowance for doubtful accounts of $55$51 and $46$54 at March 31, 2021 and December 31, 2020, and 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 receivablesaccrued investment income, and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts of $282$406 and $242$374 at March 31, 20202021 and December 31, 2019, respectively, which is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.2020, respectively.
Revenue Recognition: For our non-fully-insuredfee-based contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at March 31, 2020.2021. For the three months ended March 31, 2020,2021, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.
Recently Adopted Accounting Guidance: In November 2019,January 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. In May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. 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 to maintain the same amortized cost basis before and after the date of adoption. We adopted ASU 2016-13 on January 1, 2020, and

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recognized a cumulative-effect adjustment of $35 to our opening retained earnings for credit related allowances on receivables. The adoption did not have an impact on our consolidated statements of income or cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, 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 on January 1, 2020 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 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. 2020-04,2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or (“ASU 2020-04.2021-01”). The amendments in ASU 2020-04 provides2021-01 provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate or LIBOR,(“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic, or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. We adopted ASU 2021-01 on January 7, 2021 and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.
In October 2020, the FASB issued Accounting Standards Update No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs (“ASU 2020-08”). The provisionsamendments in ASU 2020-08 clarify when an entity should assess whether a callable debt security is within the scope of accounting guidance, which impacts the amortization period for nonrefundable fees and other costs. ASU 2020-042020-08 became effective for interim and annual reporting periods beginning after December 15, 2020. The amendments are available until December 31, 2022, whento be applied on a prospective basis as of the reference rate replacement activity is expected tobeginning of the period of adoption for existing or newly purchased callable debt securities. We adopted ASU 2020-08 on January 1, 2021, and the adoption did not have been completed. We are currently evaluating the provisions within ASU 2020-04.an impact on our consolidated financial position, results of operations or cash flows.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes or (“ASU 2019-12.2019-12”). The amendments in ASU 2019-12 remove certain exceptions to the
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general principles in ASCAccounting Standards Codification Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments arebecame effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted.2020. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We are currently evaluating the effectsadopted ASU 2019-12 on January 1, 2021, and the adoption of ASU 2019-12 willdid not have an impact on our consolidated financial statements.position, results of operations or cash flows.
Recent Accounting Guidance Not Yet Adopted: In August 2018,November 2020, the FASB issued Accounting Standards Update No. 2018-14, 2020-11,Compensation—Retirement Benefits - Defined Benefit Plans—General (Subtopic 715-20) Financial Services—Insurance (Topic 944): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit PlansEffective Date and Early Application , or (“ASU 2018-14.2020-11”). The amendments in ASU 2018-14 eliminate, add,2020-11 make changes to the effective date 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 adoptionapplication of ASU 2018-14 will have on our disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts or (“ASU 2018-12.2018-12”), which was issued in November 2018. The amendments in ASU

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2020-11 have extended the original effective date by one year and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022. The amendments in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments in ASU 2018-12 will be effective for our interim and annual reporting periods beginning after December 15, 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 2020-11 and ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments eliminate two of the three accounting models that require separate accounting for convertible features of debt securities, simplify the contract settlement assessment for equity classification, require the use of the if-converted method for all convertible instruments in the diluted earnings per share calculation and expand disclosure requirements. The amendments are effective for our annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. We are currently evaluating the effects the adoption of ASU 2020-06 will have on our consolidated financial statements and disclosures.
There were no other new accounting pronouncements that were issued or became effective since the issuance of our 20192020 Annual Report on Form 10-K that had, or are expected to have, a material impact on our consolidated financial position, results of operations or cash flows.

3.    Business Acquisitions
Pending Acquisition of myNEXUS, Inc.
On March 24, 2021, we announced our entrance into an agreement with WindRose Health Investors to acquire myNEXUS, Inc. (“myNEXUS”). myNEXUS is a comprehensive home-based nursing management company for payors and delivers integrated clinical support services for Medicare Advantage members across twenty states. This acquisition aligns with our strategy to manage integrated, whole person multi-site care and support, by providing national, large-scale expertise to manage nursing services in the home and facilitate transitions of care. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
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3.
Business Acquisition

Pending Acquisition of MMM Holdings LLC and Affiliates
On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries, including MMM Holdings, LLC (“MMM”), its Medicare Advantage plan, Medicaid plan and other affiliated companies. MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
Beacon Health Options, Inc.
On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc., or Beacon, (“Beacon”) which was the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition alignsaligned 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’sBeacon’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the preliminary fair value of net assets acquired resulted in preliminary goodwill of $1,049$1,072 at MarchDecember 31, 2020, all of which was allocated to our Other segment. Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions and strategy. Any additional payments or receiptsGoodwill was adjusted by $9 through the end 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 be recordedin February 2021 related to finalization of income tax considerations, resulting in final goodwill of $1,081 as an adjustment to goodwill.of March 31, 2021.
The preliminary fair value of the net assets acquired from Beacon includes $752$752 of other intangible assets at March 31, 2020,2021, which primarily consist of finite-lived customer relationships with amortization periods ranging from 98 to 2125 years. The results of operations of Beacon are included in our consolidated financial statements within our Other segment for the period following February 28, 2020. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.
4.    Business Optimization Initiatives
During 2020, management introduced enterprise-wide initiatives to optimize our business, including process automation and a reduction in our office space footprint and, as a result, we recognized a liability in 2020 for future payments for employee termination costs in connection with the repositioning and reskilling of our workforce. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization.
A summary of the activity related to the liability for the employee termination costs during the three months ended March 31, 2021, by reportable segment, is as follows:
Commercial & Specialty BusinessGovernment BusinessIngenioRxOtherTotal
2020 Business Optimization Initiatives
Employee termination costs:
Liability for employee termination costs at January 1, 2021$92 $88 $1 $6 $187 
Payments(5)(5)0 (1)(11)
Liability for employee termination costs at March 31, 2021$87 $83 $1 $5 $176 
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5.     Investments
4.
Investments
Fixed Maturity Securities
We evaluate our available-for-sale fixed maturity securities for declines based on qualitative and quantitative factors. Our fixed maturity securities have been negatively impacted by the significant market volatility that began in March 2020 due to the COVID-19 global health pandemic, or COVID-19 pandemic, and other market related changes. Declines in fair value have increased the potential for material credit losses. We have established an allowance for credit loss and recorded credit loss expense as a reflection of our expected impairment losses. We continue to review our investment portfolios under our impairment review policy. Given the inherent uncertainty of changes in market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and additional material impairment losses on investments may be recorded in future periods.

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A summary of current and long-term fixed maturity securities, available-for-sale, at March 31, 20202021 and December 31, 20192020 is as follows:
 
Cost or
Amortized
Cost
 
 
 
 
 
 
 
 
 
Non-Credit
Component of
Impairment Recognized in
Accumulated
Other
Comprehensive
Loss
 
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses
 
Allowance For Credit Losses
 
Estimated
Fair Value
 
 
 
 
Less than
12 Months
 
12 Months
or Greater
 
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
450

 
$
24

 
$
—

 
$
—

 
$
—

 
$
474

 
$
—

Government sponsored securities
369

 
5

 
(48
)
 
—

 
—

 
326

 
—

States, municipalities and political subdivisions
4,768

 
233

 
(14
)
 
—

 
—

 
4,987

 
—

Corporate securities
9,609

 
148

 
(450
)
 
(44
)
 
(51
)
 
9,212

 
(44
)
Residential mortgage-backed securities
3,731

 
93

 
(95
)
 
(7
)
 
—

 
3,722

 
—

Commercial mortgage-backed securities
81

 
1

 
(3
)
 
(1
)
 
—

 
78

 
—

Other securities
1,692

 
6

 
(97
)
 
(14
)
 
—

 
1,587

 
—

Total fixed maturity securities
$
20,700

 
$
510

 
$
(707
)
 
$
(66
)
 
$
(51
)
 
$
20,386

 
$
(44
)
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
524

 
$
4

 
$
(3
)
 
$
—

 
$
—

 
$
525

 
$
—

Government sponsored securities
136

 
5

 
—

 
—

 
—

 
141

 
—

States, municipalities and political subdivisions
4,592

 
262

 
(3
)
 
—

 
—

 
4,851

 
—

Corporate securities
8,870

 
339

 
(9
)
 
(15
)
 
—

 
9,185

 
(3
)
Residential mortgage-backed securities
3,654

 
87

 
(6
)
 
(3
)
 
—

 
3,732

 
—

Commercial mortgage-backed securities
84

 
2

 
—

 
—

 
—

 
86

 
—

Other securities
1,648

 
21

 
(3
)
 
(5
)
 
—

 
1,661

 
—

Total fixed maturity securities
$
19,508

 
$
720

 
$
(24
)
 
$
(23
)
 
$
—

 
$
20,181

 
$
(3
)

 Cost or
Amortized
Cost		Non-Credit
Component of
Impairment Recognized in
Accumulated
Other
Comprehensive
Loss
Gross
Unrealized
Gains		Gross Unrealized LossesAllowance For Credit LossesEstimated
Fair Value
 Less than
12 Months		12 Months
or Greater
March 31, 2021
Fixed maturity securities:
United States Government securities$898 $4 $(22)$0 $0 $880 $0 
Government sponsored securities71 4 0 0 0 75 0 
Foreign government securities341 5 (9)(1)0 336 0 
States, municipalities and political subdivisions5,253 327 (13)(1)0 5,566 0 
Corporate securities11,228 466 (76)(13)(6)11,599 (1)
Residential mortgage-backed securities4,258 117 (25)(9)(2)4,339 0 
Commercial mortgage-backed securities70 3 0 (3)0 70 0 
Other securities2,226 30 (2)(6)0 2,248 0 
Total fixed maturity securities$24,345 $956 $(147)$(33)$(8)$25,113 $(1)
December 31, 2020
Fixed maturity securities:
United States Government securities$765 $11 $(2)$0 $0 $774 $0 
Government sponsored securities63 6 0 0 0 69 0 
Foreign government securities290 17 (2)0 0 305 0 
States, municipalities and political subdivisions5,185 395 (1)0 0 5,579 0 
Corporate securities10,233 697 (20)(11)(7)10,892 (1)
Residential mortgage-backed securities4,208 154 (8)(9)0 4,345 (2)
Commercial mortgage-backed securities73 3 (1)(3)0 72 0 
Other securities1,937 33 (5)(6)0 1,959 0 
Total fixed maturity securities$22,754 $1,316 $(39)$(29)$(7)$23,995 $(3)


-12--12-


For fixed maturity securities in an unrealized loss position at March 31, 20202021 and December 31, 2019,2020, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position: 
 
Less than 12 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
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
1

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Government sponsored securities
278

 
224

 
(48
)
 
1

 
—

 
—

States, municipalities and political subdivisions
239

 
509

 
(14
)
 
3

 
4

 
—

Corporate securities
2,773

 
5,003

 
(450
)
 
170

 
176

 
(44
)
Residential mortgage-backed securities
603

 
1,182

 
(95
)
 
63

 
57

 
(7
)
Commercial mortgage-backed securities
14

 
29

 
(3
)
 
3

 
6

 
(1
)
Other securities
520

 
1,175

 
(97
)
 
58

 
142

 
(14
)
Total fixed maturity securities
4,428

 
$
8,122

 
$
(707
)
 
298

 
$
385

 
$
(66
)
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
27

 
$
250

 
$
(3
)
 
2

 
$
1

 
$
—

Government sponsored securities
14

 
12

 
—

 
3

 
1

 
—

States, municipalities and political subdivisions
114

 
306

 
(3
)
 
14

 
11

 
—

Corporate securities
386

 
558

 
(9
)
 
224

 
286

 
(15
)
Residential mortgage-backed securities
321

 
635

 
(6
)
 
189

 
237

 
(3
)
Commercial mortgage-backed securities
1

 
3

 
—

 
4

 
8

 
—

Other securities
166

 
415

 
(3
)
 
113

 
358

 
(5
)
Total fixed maturity securities
1,029

 
$
2,179

 
$
(24
)
 
549

 
$
902

 
$
(23
)

 Less than 12 Months12 Months or Greater
(Securities are whole amounts)Number of
Securities		Estimated
Fair Value		Gross
Unrealized
Loss		Number of
Securities		Estimated
Fair Value		Gross
Unrealized
Loss
March 31, 2021
Fixed maturity securities:
United States Government securities51 $654 $(22)0 $0 $0 
Government sponsored securities2 2 0 0 0 0 
Foreign government securities202 177 (9)26 17 (1)
States, municipalities and political subdivisions242 495 (13)7 13 (1)
Corporate securities1,735 2,707 (76)241 291 (13)
Residential mortgage-backed securities363 1,489 (25)125 156 (9)
Commercial mortgage-backed securities1 2 0 6 13 (3)
Other securities160 456 (2)70 149 (6)
Total fixed maturity securities2,756 $5,982 $(147)475 $639 $(33)
December 31, 2020
Fixed maturity securities:
United States Government securities27 $301 $(2)0 $0 $0 
Government sponsored securities0 0 0 1 0 0 
Foreign government securities55 35 (2)9 4 0 
States, municipalities and political subdivisions36 57 (1)1 3 0 
Corporate securities646 765 (20)150 169 (11)
Residential mortgage-backed securities224 442 (8)90 110 (9)
Commercial mortgage-backed securities6 16 (1)3 4 (3)
Other securities207 509 (5)79 179 (6)
Total fixed maturity securities1,201 $2,125 $(39)333 $469 $(29)
Below are discussions by security type for unrealized losses and credit losses as of March 31, 2020:
United States Government securities:Unrealized losses on government sponsored securities have not been recognized into income because management does not intend to sell and it is likely that management will not be required to sell these securities 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 the credit ratings of the securities and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
Government sponsored securities: There were no material unrealized losses on investments in government sponsored securities. We have no intent to sell these investments, and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost bases.
States, municipalities and political subdivisions: Unrealized losses on securities of states, municipalities and political subdivisions have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated the credit ratings of the securities and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.

-13-


2021:
Corporate securities: An allowance for credit losses on certain energy-relatedretail, travel and entertainment and energy sector fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, default,decline in fair value and industry condition and known information of the issuer 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. NoUnrealized losses on our other corporate securities were largely due to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of March 31, 2021. We do not intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.
Residential mortgage-backed securities: An allowance for credit loss was established on certain residential mortgage-backed securities. Notification of maturity and coupon default, as well as a significant and sustained decline in fair value, were factors to indicate a credit loss. No other mortgage securities had material unrealized losses or qualitative factors to indicate a credit loss. We do not intend to sell these investments and it is likely we will not be required to sell these investments prior to maturity or recovery of amortized cost.
-13-

As for the remaining corporate fixed maturity securities at March 31, 2020. Unrealizedshown in the table above, unrealized losses on the remaining corporatethese securities have not been recognized into income because management doeswe do not intend to sell these investments and it is likely that managementwe will not be required to sell these securitiesinvestments prior to their anticipated recovery, and the decline in fair value is largely due to current market conditions relating to the COVID-19 pandemic and tensions within the energy sector. We have evaluated each corporate security’s credit rating as well as industry risk factors associated with the securities. At this time, no allowance has been deemed necessary.recovery. The issuers continue to make timely principal and interest payments on the bonds. The fair value of these securities is expected to recover as they approach maturity.
Residential mortgage-backed securities: Unrealized losses on residential mortgage-backed securities have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated the 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.
Commercial mortgage-backed securities: There were no material unrealized losses on investments in commercial mortgage-backed securities. We have no intent to sell these investments, and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost bases.
Other securities: Unrealized losses on other securities have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. Other securities largely consists of asset-backed securities. We have evaluated these securities for any change in credit rating and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the three months ended March 31, 2021 and 2020:
 
 
 
Corporate Securities
Allowance for credit losses:
 
 
 
 
Beginning balance
 
 
$
—

 
Additions for securities for which no previous expected credit losses were recognized
 
 
51

Total allowance for credit losses
 
 
$
51


Three Months Ended March 31, 2021:Corporate SecuritiesResidential mortgage-backed securitiesTotal
Allowance for credit losses:
Beginning balance$7 $0 $7 
Additions for securities for which no previous expected credit losses were recognized1 0 1 
(Decreases) increases to the allowance for credit losses on securities(2)2 0 
Total allowance for credit losses, ending balance$6 $2 $8 
Three Months Ended March 31, 2020:Corporate SecuritiesResidential mortgage-backed securitiesTotal
Allowance for credit losses:
Beginning balance$0 $0 $0 
Additions for securities for which no previous expected credit losses were recognized51 0 51 
Total allowance for credit losses, ending balance$51 $0 $51 
The amortized cost and fair value of fixed maturity securities at March 31, 2020,2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
520

 
$
511

Due after one year through five years
5,730

 
5,583

Due after five years through ten years
6,035

 
5,882

Due after ten years
4,603

 
4,610

Mortgage-backed securities
3,812

 
3,800

Total fixed maturity securities
$
20,700

 
$
20,386


Amortized
Cost		Estimated
Fair Value
Due in one year or less$617 $622 
Due after one year through five years6,057 6,293 
Due after five years through ten years8,009 8,225 
Due after ten years5,334 5,564 
Mortgage-backed securities4,328 4,409 
Total fixed maturity securities$24,345 $25,113 

-14-


ProceedsDuring the three months ended March 31, 2021 and 2020 we received proceeds from sales, maturities, calls or redemptions of fixed maturity securities of $5,323 and the related gross realized gains and gross realized losses for the three months ended March 31, 2020 and 2019 are as follows:$1,931, respectively.
 
 
Three Months Ended 
 March 31
 
 
2020
 
2019
Proceeds
 
$
1,931

 
$
1,468

Gross realized gains
 
43

 
18

Gross realized losses
 
(20
)
 
(17
)

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.
-14-

Equity Securities
A summary of marketable equity securities at March 31, 20202021 and December 31, 20192020 is as follows:
 
March 31, 2020
 
December 31, 2019
Equity securities:
 
 
 
Exchange traded funds
$
245

 
$
44

Fixed maturity mutual funds
211

 
643

Common equity securities
32

 
237

Private equity securities
82

 
85

Total
$
570

 
$
1,009


 March 31, 2021December 31, 2020
Equity securities:
Exchange traded funds$3,409 $1,154 
Fixed maturity mutual funds0 144 
Common equity securities156 201 
Private equity securities65 60 
Total$3,630 $1,559 
The gains and losses related to equity securities for the three months ended March 31, 2020 and 2019 are as follows:
 
 
Three Months Ended March 31
 
 
2020
 
2019
Net realized (losses) gains recognized on equity securities
 
$
(50
)
 
$
79

Less: Net realized gains recognized on equity securities sold during the period
 
(18
)
 
(21
)
Unrealized (losses) gains recognized on equity securities still held at March 31
 
$
(68
)
 
$
58


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’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
Investment Losses
Net realized investment losses for the recent market volatility, there is a risk thatthree months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31
20212020
Net realized gains (losses):
Fixed maturity securities:
Gross realized gains from sales$56 $43 
Gross realized losses from sales(12)(20)
Impairment losses recognized in income(1)(51)
Net realized gains (losses) from sales of fixed maturity securities43 (28)
Equity securities:
Gross realized gains12 23 
Gross realized losses(78)(73)
Net realized losses on equity securities(66)(50)
Other invested assets:
Gross realized gains from sales5 7 
Gross realized losses from sales0 (1)
Impairment losses recognized in income(8)(6)
Net realized losses from sales of other investments(3)0 
Net realized losses on investments$(26)$(78)
The gains and losses related to equity securities for the value of some of these investments may decline in future periods.three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31
 20212020
Net realized losses recognized on equity securities$(66)$(50)
Less: Net realized gains (losses) recognized on equity securities sold during the period26 (18)
Unrealized losses recognized on equity securities still held at the end of the period$(40)$(68)
-15-

Accrued Investment Income
At March 31, 20202021 and December 31, 2019,2020, accrued investment income totaled $166$185 and $173,$188, respectively. We recognize accrued investment income under the caption “Other receivables”“Other receivables” on our consolidated balance sheets.

-15-


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 $427$1,930 and $351$1,199 at March 31, 20202021 and December 31, 2019,2020, respectively. The value of the collateral represented 103%102% of the market value of the securities on loan at each of March 31, 20202021 and December 31, 2019.2020. We recognize the collateral as an asset under the caption “Other“Other current assets”assets” in our consolidated balance sheets, and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption “Other“Other current liabilities.”” The securities on loan are reported in the applicable investment category on our consolidated balance sheets.
The remaining contractual maturity of our securities lending agreements at March 31, 20202021 is as follows:
 
Overnight and Continuous
Securities lending transactions
 
Cash
$
354

United States Government securities
69

Other securities
4

Total
$
427


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 InstrumentsOvernight and Continuous
Securities lending collateral
Cash$1,695 
United States Government securities234 
Other securities1 
Total$1,930 

6.    Derivative Financial Instruments
We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements, which reduce credit risk by permitting net settlement of transactions.
We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to LIBOR. Any amounts recognized for changes in fair value of these derivatives are included in the captions “Other“Other current or noncurrent assets”assets” or “Other“Other current or noncurrent liabilities”liabilities” in our consolidated balance sheet. sheets.
Prior to 2020, weWe have previously entered into a series of forward starting pay fixed interest rate swaps with the objective of reducing the variability of cash flows in the interest payments on future financings that were anticipated future financings. at the time of entering into the swaps. All swaps were expired or terminated as of March 31, 2021.
The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $246 and $250 at March 31, 2021 and December 31, 2020, respectively.
During the three months ended March 31, 2021, we recognized net realized gains on non-hedging derivatives of $22. During the $259 and $262 at three months ended March 31, 2020 and December 31, 2019, respectively. we recognized net realized losses on non-hedging derivatives of $3.
For additional information relating to the fair value of our derivative assets and liabilities, see Note 6, “Fair7, “Fair Value,”” of this Form 10-Q.


-16-
-16-


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


-17--17-


A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at March 31, 20202021 and December 31, 20192020 is as follows:
Level ILevel IILevel IIITotal
March 31, 2021
Assets:
Cash equivalents$5,914 $0 $0 $5,914 
Fixed maturity securities, available-for-sale:
United States Government securities0 880 0 880 
Government sponsored securities0 75 0 75 
Foreign government securities0 336 0 336 
States, municipalities and political subdivisions, tax-exempt0 5,566 0 5,566 
Corporate securities0 11,275 324 11,599 
Residential mortgage-backed securities0 4,337 2 4,339 
Commercial mortgage-backed securities0 70 0 70 
Other securities0 2,243 5 2,248 
Total fixed maturity securities, available-for-sale0 24,782 331 25,113 
Equity securities:
Exchange traded funds3,409 0 0 3,409 
Common equity securities125 31 0 156 
Private equity securities0 0 65 65 
Total equity securities3,534 31 65 3,630 
Securities lending collateral0 1,930 0 1,930 
Derivatives0 42 0 42 
Total assets$9,448 $26,785 $396 $36,629 
Liabilities:
Derivatives$0 $(11)$0 $(11)
Total liabilities$0 $(11)$0 $(11)
December 31, 2020
Assets:
Cash equivalents$3,163 $0 $0 $3,163 
Fixed maturity securities, available-for-sale:
United States Government securities0 774 0 774 
Government sponsored securities0 69 0 69 
Foreign government securities0 305 0 305 
States, municipalities and political subdivisions, tax-exempt0 5,579 0 5,579 
Corporate securities0 10,567 325 10,892 
Residential mortgage-backed securities0 4,343 2 4,345 
Commercial mortgage-backed securities0 72 0 72 
Other securities0 1,954 5 1,959 
Total fixed maturity securities, available-for-sale0 23,663 332 23,995 
Equity securities:
Exchange traded funds1,154 0 0 1,154 
Fixed maturity mutual funds0 144 0 144 
Common equity securities171 30 0 201 
Private equity securities0 0 60 60 
Total equity securities1,325 174 60 1,559 
Securities lending collateral0 1,199 0 1,199 
Derivatives0 43 0 43 
Total assets$4,488 $25,079 $392 $29,959 
Liabilities:
Derivatives$0 $(5)$0 $(5)
Total liabilities$0 $(5)$0 $(5)
 
Level I
 
Level II
 
Level III
 
Total
March 31, 2020
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
2,363

 
$
—

 
$
—

 
$
2,363

Fixed maturity securities, available-for-sale:
 
 
 
 
 
 
 
United States Government securities
—

 
474

 
—

 
474

Government sponsored securities
—

 
326

 
—

 
326

States, municipalities and political subdivisions, tax-exempt
—

 
4,987

 
—

 
4,987

Corporate securities
—

 
8,896

 
316

 
9,212

Residential mortgage-backed securities
—

 
3,720

 
2

 
3,722

Commercial mortgage-backed securities
—

 
78

 
—

 
78

Other securities
—

 
1,582

 
5

 
1,587

Total fixed maturity securities, available-for-sale
—

 
20,063

 
323

 
20,386

Equity securities:


 


 


 


Exchange traded funds
245

 
—

 
—

 
245

Fixed maturity mutual funds
—

 
211

 
—

 
211

Common equity securities
2

 
30

 
—

 
32

Private equity securities
—

 
—

 
82

 
82

Total equity securities
247

 
241

 
82

 
570

Securities lending collateral
—

 
426

 
—

 
426

Derivatives
—

 
49

 
—

 
49

Total assets
$
2,610

 
$
20,779

 
$
405

 
$
23,794

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
—

 
$
(5
)
 
$
—

 
$
(5
)
Total liabilities
$
—

 
$
(5
)
 
$
—

 
$
(5
)
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
2,015

 
$
—

 
$
—

 
$
2,015

Fixed maturity securities, available-for-sale:
 
 
 
 
 
 
 
United States Government securities
—

 
525

 
—

 
525

Government sponsored securities
—

 
141

 
—

 
141

States, municipalities and political subdivisions, tax-exempt
—

 
4,851

 
—

 
4,851

Corporate securities
—

 
8,882

 
303

 
9,185

Residential mortgage-backed securities
—

 
3,730

 
2

 
3,732

Commercial mortgage-backed securities
—

 
86

 
—

 
86

Other securities
—

 
1,654

 
7

 
1,661

Total fixed maturity securities, available-for-sale
—

 
19,869

 
312

 
20,181

Equity securities:


 


 


 


Exchange traded funds
44

 
—

 
—

 
44

Fixed maturity mutual funds
—

 
643

 
—

 
643

Common equity securities
206

 
31

 
—

 
237

Private equity securities
—

 
—

 
85

 
85

Total equity securities
250

 
674

 
85

 
1,009

Securities lending collateral
—

 
353

 
—

 
353

Derivatives
—

 
23

 
—

 
23

Total assets
$
2,265

 
$
20,919

 
$
397

 
$
23,581

Liabilities:
 
 
 
 
 
 
 
Derivatives
$
—

 
$
(1
)
 
$
—

 
$
(1
)
Total liabilities
$
—

 
$
(1
)
 
$
—

 
$
(1
)
-18-

 
 
 
 
 
 
 
 
 
 


-18-


A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the three months ended March 31, 20202021 and 20192020 is as follows:
 
Corporate
Securities
 
Residential
Mortgage-
backed
Securities
 
Other 
Securities
 
Equity
Securities
 
Total
Three Months Ended March 31, 2020
 
 
 
 
 
 

 
 
Beginning balance at January 1, 2020
$
303

 
$
2

 
$
7

 
$
85

 
$
397

Total losses:
 
 
 
 
 
 
 
 
 
Recognized in net income
(2
)
 
—

 
—

 
(6
)
 
(8
)
Recognized in accumulated other comprehensive loss
(10
)
 
—

 
—

 
—

 
(10
)
Purchases
26

 
—

 
—

 
12

 
38

Sales
(3
)
 
—

 
—

 
(9
)
 
(12
)
Settlements
(11
)
 
—

 
(2
)
 
—

 
(13
)
Transfers into Level III
13

 
—

 
—

 
—

 
13

Ending balance at March 31, 2020
$
316

 
$
2

 
$
5

 
$
82

 
$
405

Change in unrealized losses included in net income related to assets still held at March 31, 2020
$
—

 
$
—

 
$
—

 
$
(7
)
 
$
(7
)
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 

 
 
Beginning balance at January 1, 2019
$
287

 
$
6

 
$
17

 
$
313

 
$
623

Total (losses) gains:
 
 
 
 
 
 
 
 
 
Recognized in net income
(1
)
 
—

 
—

 
(2
)
 
(3
)
Recognized in accumulated other comprehensive loss
2

 
—

 
—

 
—

 
2

Purchases
33

 
—

 
2

 
7

 
42

Sales
(1
)
 
—

 
—

 
(21
)
 
(22
)
Settlements
(21
)
 
—

 
(1
)
 
—

 
(22
)
Transfers into Level III
—

 
—

 
3

 
—

 
3

Transfers out of Level III
(2
)
 
—

 
(7
)
 
—

 
(9
)
Ending balance at March 31, 2019
$
297

 
$
6

 
$
14

 
$
297

 
$
614

Change in unrealized gains included in net income related to assets still held at March 31, 2019
$
—

 
$
—

 
$
—

 
$
(2
)
 
$
(2
)

Corporate
Securities		Residential
Mortgage-
backed
Securities		Other 
Securities		Equity
Securities		Total
Three Months Ended March 31, 2021
Beginning balance at January 1, 2021$325 $2 $5 $60 $392 
Total gains:
Recognized in net income0 0 0 8 8 
Recognized in accumulated other comprehensive loss3 0 0 0 3 
Purchases39 0 0 0 39 
Sales(2)0 0 (3)(5)
Settlements(41)0 0 0 (41)
Ending balance at March 31, 2021$324 $2 $5 $65 $396 
Change in unrealized losses included in net income related to assets still held at March 31, 2021$0 $0 $0 $8 $8 
Three Months Ended March 31, 2020
Beginning balance at January 1, 2020$303 $2 $7 $85 $397 
Total losses:
Recognized in net income(2)0 0 (6)(8)
Recognized in accumulated other comprehensive loss(10)0 0 0 (10)
Purchases26 0 0 12 38 
Sales(3)0 0 (9)(12)
Settlements(11)0 (2)0 (13)
Transfers into Level III13 0 0 0 13 
Ending balance at March 31, 2020$316 $2 $5 $82 $405 
Change in unrealized losses included in net income related to assets still held at March 31, 2020$0 $0 $0 $(7)$(7)
There were no individually material transfers into or out of Level III during the three months ended March 31, 20202021 or 2019.2020.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business“Business Acquisitions,”” we completed our acquisition of Beacon on February 28, 2020. The preliminary values of net assets acquired in our acquisition of Beacon and resulting goodwill and other intangible assets were recorded at fair value primarily using Level III inputs. The majority of Beacon’sBeacon’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 Beacon were internally estimated based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets could be expected to generate in the future. We developed internal estimates for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of Beacon described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 20202021 or 2019.2020.

-19-


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.
-19-

Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, unobservable inputs or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. The use of assumptions for unobservable inputs for the determination of fair value involves a level of judgment and uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of cash flows.
Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain quoted prices for each security from third-party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. As we are responsible for the determination of fair value, we perform analysis on the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. This analysis is performed by our internal treasury personnel who are familiar with our investment portfolios, the pricing services engaged and the valuation techniques and inputs used. Our analysis includes procedures such as a review of month-to-month price fluctuations and price comparisons to secondary pricing services. There were no adjustments to quoted market prices obtained from the pricing services during the three months ended March 31, 20202021 or 2019.2020.
In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in our consolidated balance sheets.
Non-financial instruments such as real estate, property and equipment, other current or noncurrent assets, deferred income taxes, intangible assets and certain financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine our underlying economic value.
The carrying amounts for cash, 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: 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’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 – senior revolving credit facility: The carrying amount for the senior revolving credit facility approximates fair value, and is based 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.

-20-


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.
-20-

A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance sheets at March 31, 20202021 and December 31, 20192020 is as follows:
 Carrying
Value		Estimated Fair Value
 Level ILevel IILevel IIITotal
March 31, 2021
Assets:
Other invested assets$4,474 $0 $0 $4,474 $4,474 
Liabilities:
Debt:
Notes23,125 0 25,289 0 25,289 
Convertible debentures109 0 797 0 797 
December 31, 2020
Assets:
Other invested assets$4,285 $0 $0 $4,285 $4,285 
Liabilities:
Debt:
Commercial paper250 0 250 0 250 
Notes19,677 0 23,307 0 23,307 
Convertible debentures108 0 712 0 712 
 
Carrying
Value
 
Estimated Fair Value
 
 
Level I
 
Level II
 
Level III
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Other invested assets
$
4,181

 
$
—

 
$
—

 
$
4,181

 
$
4,181

Liabilities:
 
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
 
Short-term borrowings
1,075

 
—

 
1,075

 
—

 
1,075

Senior revolving credit facility
300

 
—

 
300

 
—

 
300

Commercial paper
1,305

 
—

 
1,305

 
—

 
1,305

Notes
18,867

 
—

 
20,343

 
—

 
20,343

Convertible debentures
136

 
—

 
680

 
—

 
680

 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Other invested assets
$
4,258

 
$
—

 
$
—

 
$
4,258

 
$
4,258

Liabilities:
 
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
 
Short-term borrowings
700

 
—

 
700

 
—

 
700

Commercial paper
400

 
—

 
400

 
—

 
400

Notes
18,840

 
—

 
20,470

 
—

 
20,470

Convertible debentures
145

 
—

 
904

 
—

 
904


7.
8.     Income Taxes
Income Taxes
During thethree months ended March 31, 20202021 and 2019,2020, we recognized income tax expense of $566$509 and $394,$566, respectively, which represent effective income tax rates of 27.1%23.4% and 20.3%27.1%, respectively. The increasedecrease in our effective income tax rate was primarily due to the reinstatementrepeal of the non-tax deductible Health Insurance Provider Fee, or HIP Fee for 2020.effective beginning in 2021.

Income taxes payable totaled $159$176 at March 31, 2020.2021. Income taxes receivable totaled $335$262 at December 31, 2019.2020. We recognize the income tax payable as a liability under the caption “Other“Other current liabilities”liabilities” and the income tax receivable as an asset under the caption “Other“Other current assets”assets” in our consolidated balance sheets.

-21-
-21-


8.
Retirement Benefits
 
 
 
 
 
 
 
 
The components of net periodic benefit credit included in our consolidated statements of income for the three months ended March 31, 2020 and 2019 are as follows:
 
Pension Benefits
 
Other Benefits
 
Three Months Ended 
 March 31
 
Three Months Ended 
 March 31
 
2020
 
2019
 
2020
 
2019
Interest cost
$
12

 
$
16

 
$
3

 
$
4

Expected return on assets
(40
)
 
(34
)
 
(6
)
 
(5
)
Recognized actuarial loss
6

 
4

 
—

 
—

Settlement loss
5

 
2

 
—

 
—

Amortization of prior service credit
—

 
—

 
(2
)
 
(3
)
Net periodic benefit credit
$
(17
)
 
$
(12
)
 
$
(5
)
 
$
(4
)

For the year ending December 31, 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 were made to our retirement benefit plans during the three months ended March 31, 2020 and 2019.
9. Medical Claims Payable
A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”“Segment Information”), for the three months ended March 31, 20202021 is as follows:
Commercial
& Specialty
Business		Government
Business		OtherTotal
Gross medical claims payable, beginning of period$3,294 $7,646 $195 $11,135 
Ceded medical claims payable, beginning of period(13)(33)0 (46)
Net medical claims payable, beginning of period3,281 7,613 195 11,089 
Net incurred medical claims:
Current period6,575 17,289 351 24,215 
Prior periods redundancies(503)(970)(15)(1,488)
Total net incurred medical claims6,072 16,319 336 22,727 
Net payments attributable to:
Current period medical claims4,164 10,650 217 15,031 
Prior periods medical claims1,746 4,856 146 6,748 
Total net payments5,910 15,506 363 21,779 
Net medical claims payable, end of period3,443 8,426 168 12,037 
Ceded medical claims payable, end of period9 30 0 39 
Gross medical claims payable, end of period$3,452 $8,456 $168 $12,076 
 
Commercial
& Specialty
Business
 
Government
Business
 
Other
 
Total
Gross medical claims payable, beginning of period
$
3,039

 
$
5,608

 
$
—

 
$
8,647

Ceded medical claims payable, beginning of period
(14
)
 
(19
)
 
—

 
(33
)
Net medical claims payable, beginning of period
3,025

 
5,589

 
—

 
8,614

Business combinations and purchase adjustments
—

 
141

 
198

 
339

Net incurred medical claims:
 
 
 
 
 
 
 
Current period
6,090

 
15,010

 
130

 
21,230

Prior periods redundancies
(293
)
 
(407
)
 
—

 
(700
)
Total net incurred medical claims
5,797

 
14,603

 
130

 
20,530

Net payments attributable to:
 
 
 
 
 
 
 
Current period medical claims
3,908

 
9,698

 
138

 
13,744

Prior periods medical claims
1,875

 
4,234

 
—

 
6,109

Total net payments
5,783

 
13,932

 
138

 
19,853

Net medical claims payable, end of period
3,039

 
6,401

 
190

 
9,630

Ceded medical claims payable, end of period
37

 
23

 
—

 
60

Gross medical claims payable, end of period
$
3,076

 
$
6,424

 
$
190

 
$
9,690

Activity in the Other segment resulted from our acquisition of Beacon.
At March 31, 2020,2021, the total of net incurred but not reported liabilities plus expected development on reported claims for the Commercial && Specialty Business was $94, $763$101, $931 and $2,182$2,411 for the claim years 20182019 and prior, 20192020 and 2020,2021, respectively.

-22-


At March 31, 2020,2021, the total of net incurred but not reported liabilities plus expected development on reported claims for the Government Business was $63, $885$344, $1,442 and $5,453$6,640 for the claim years 20182019 and prior, 20192020 and 2020,2021, respectively.
At March 31, 2020,2021, the total of net incurred but not reported liabilities plus expected development on reported claims for Other was $0, $0$0, $34 and $190$134 for the claim years 20182019 and prior, 20192020 and 2020,2021, respectively.
-22-

A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 15, “Segment Information”“Segment Information”), for the three months ended March 31, 20192020 is as follows:
 
Commercial
& Specialty
Business
 
Government
Business
 
Other
 
Total
Gross medical claims payable, beginning of period
$
2,586

 
$
4,680

 
$
—

 
$
7,266

Ceded medical claims payable, beginning of period
(10
)
 
(24
)
 
—

 
(34
)
Net medical claims payable, beginning of period
2,576

 
4,656

 
—

 
7,232

Net incurred medical claims:
 
 
 
 
 
 
 
Current period
6,053

 
12,741

 
—

 
18,794

Prior periods redundancies
(197
)
 
(258
)
 
—

 
(455
)
Total net incurred medical claims
5,856

 
12,483

 
—

 
18,339

Net payments attributable to:
 
 
 
 
 
 
 
Current period medical claims
3,898

 
8,265

 
—

 
12,163

Prior periods medical claims
1,766

 
3,648

 
—

 
5,414

Total net payments
5,664

 
11,913

 
—

 
17,577

Net medical claims payable, end of period
2,768

 
5,226

 
—

 
7,994

Ceded medical claims payable, end of period
8

 
26

 
—

 
34

Gross medical claims payable, end of period
$
2,776

 
$
5,252

 
$
—

 
$
8,028


Commercial
& Specialty
Business		Government
Business		OtherTotal
Gross medical claims payable, beginning of period$3,039 $5,608 $0 $8,647 
Ceded medical claims payable, beginning of period(14)(19)0 (33)
Net medical claims payable, beginning of period3,025 5,589 0 8,614 
Business combinations and purchase adjustments0 141 198 339 
Net incurred medical claims:
Current period6,090 15,010 130 21,230 
Prior periods redundancies(293)(407)0 (700)
Total net incurred medical claims5,797 14,603 130 20,530 
Net payments attributable to:
Current period medical claims3,908 9,698 138 13,744 
Prior periods medical claims1,875 4,234 0 6,109 
Total net payments5,783 13,932 138 19,853 
Net medical claims payable, end of period3,039 6,401 190 9,630 
Ceded medical claims payable, end of period37 23 0 60 
Gross medical claims payable, end of period$3,076 $6,424 $190 $9,690 
The favorable development recognized in the three months ended March 31, 2021 and 2020 resulted primarily from trend factors in late 2020 and late 2019, respectively, developing more favorably than originally expected. Favorable development in the completion factors resulting from the latter parts of 2020 and 2019 developing faster than expected also contributed to the favorability.
The reconciliation of net incurred medical claims to benefit expense included in our consolidated statements of income for periods in 2020 areis as follows:
Three Months Ended
 
Three Months Ended 
 March 31, 2020
 
Three Months Ended 
 March 31, 2019
March 31, 2021March 31, 2020
 
Net incurred medical claims:
 
 
 
 
Net incurred medical claims:
Commercial & Specialty Business
 
$
5,797

 
$
5,856

Commercial & Specialty BusinessCommercial & Specialty Business$6,072 $5,797 
Government Business
 
14,603

 
12,483

Government Business16,319 14,603 
Other
 
130

 
—

Other336 130 
Total net incurred medical claims
 
20,530

 
18,339

Total net incurred medical claims22,727 20,530 
Quality improvement and other claims expense
 
959

 
943

Quality improvement and other claims expense972 959 
Benefit expense
 
$
21,489

 
$
19,282

Benefit expense$23,699 $21,489 

 
 
 
 
 
 
 
 
 


-23--23-


The reconciliation of the medical claims payable reflected in the tables above to the consolidated ending balance for medical claims payable included in the consolidated balance sheet, as of March 31, 2020,2021, is as follows:
Commercial
& Specialty
Business		Government
Business		OtherTotal
Net medical claims payable, end of period$3,443 $8,426 $168 $12,037 
Ceded medical claims payable, end of period9 30 0 39 
Insurance lines other than short duration0 271 0 271 
Gross medical claims payable, end of period$3,452 $8,727 $168 $12,347 
 
Commercial
& Specialty
Business
 
Government
Business
 
Other
 
Total
Net medical claims payable, end of period
$
3,039

 
$
6,401

 
$
190

 
$
9,630

Ceded medical claims payable, end of period
37

 
23

 
—

 
60

Insurance lines other than short duration
—

 
212

 
—

 
212

Gross medical claims payable, end of period
$
3,076

 
$
6,636

 
$
190

 
$
9,902


10.     Debt
10.
Debt
 
 
 
 

We generally issue senior unsecured notes for long-term borrowing purposes. At March 31, 20202021 and December 31, 2019,2020, we had $18,842$23,100 and $18,815,$19,652, respectively, outstanding under these notes.
On April 15, 2021, we provided notice to the holders of our outstanding 3.700% Notes due August 15, 2021 that we will be redeeming the $700 outstanding principal balance of such notes on May 15, 2021 at a redemption price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest.
On March 17, 2021, we issued $500 aggregate principal amount of 0.450% Notes due 2023 (the “2023 Notes”), $750 aggregate principal amount of 1.500% Notes due 2026 (the “2026 Notes”), $1,000 aggregate principal amount of 2.550% Notes due 2031 (the “2031 Notes”) and $1,250 aggregate principal amount of 3.600% Notes due 2051 (the “2051 Notes”) under our shelf registration statement. Interest on the 2023 Notes, 2026 Notes, 2031 Notes and 2051 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2021. We intend to use the net proceeds for working capital and general corporate purposes, including, but not limited to, the funding of acquisitions, repayment of short-term and long-term debt and the repurchase of our common stock pursuant to our share repurchase program.
We have an unsecured surplus note with an outstanding principal balance of $25$25 at both March 31, 20202021 and December 31, 2019. 2020.
We have a senior revolving credit facility or the 5-Year Facility,(the “5-Year Facility”) with a group of lenders for general corporate purposes. The 5-Year Facility provides credit up to $2,500$2,500 and matures in June 2024. We also have a 364-day senior revolving credit facility or (“364-Day Facility,Facility”) with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000$1,000 and 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 March 31, 2020,2021, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 40.6%40.7%. We do not believe the restrictions contained in any of our credit facility covenants materially affect our financial or operating flexibility. As of March 31, 2020,2021, we were in compliance with all of the debt covenants under these credit facilities. There were no amounts outstanding under the 364-Day Facility at any time during the three months ended March 31, 20202021 or the year ended December 31, 2019.2020. At March 31, 20202021 and December 31, 2019, $300 and $0, respectively,2020, there were no amounts outstanding under our 5-Year Facility. We repaid the $300 outstanding on the 5-Year Facility on April 23, 2020.
Through certain subsidiaries, we have entered into multiple 364-day lines of credit or the Subsidiary(the “Subsidiary Credit Facilities,Facilities”) with separate lenders for general corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to $500.$300. At March 31, 20202021 and December 31, 2019, $300 and $50, respectively,2020, there were no amounts outstanding under our Subsidiary Credit Facilities.
We have an authorized commercial paper program of up to $3,500,$3,500, the proceeds of which may be used for general corporate purposes. At March 31, 20202021 and December 31, 2019,2020, we had $1,305$0 and $400,$250, respectively, outstanding under this program.
We have outstanding senior unsecured convertible debentures due 2042 or the Debentures,(the “Debentures”) which are governed by an indenture (the “indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee, or the indenture.trustee. We have
-24-

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 months endedMarch 31, 2020, $13 aggregate principal amount of the Debentures were surrendered for conversion by certain holders in accordance with the terms and provisions of the indenture. We elected to settle the excess of the principal amount of the conversions with cash for total payments of $52. We recognized a loss of $1 on the extinguishment of debt related to the Debentures, based on the fair values of the debt on the conversion settlement dates.

-24-


The following table summarizes at March 31, 20202021 the related balances, conversion rate and conversion price of the Debentures:
Outstanding principal amount
$
202

Unamortized debt discount
$
64

Net debt carrying amount
$
136

Equity component carrying amount
$
73

Conversion rate (shares of common stock per $1,000 of principal amount)
13.9862

Effective conversion price (per $1,000 of principal amount)
$
71.4990


Outstanding principal amount$159 
Unamortized debt discount$49 
Net debt carrying amount$109 
Equity component carrying amount$58 
Conversion rate (shares of common stock per $1,000 of principal amount)14.1158 
Effective conversion price (per $1,000 of principal amount)$70.8426 
We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of Atlanta, or collectively,New York (collectively, the FHLBs.“FHLBs”). As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements. We had $775 and $650 inno outstanding short-term borrowings from the FHLBs at March 31, 20202021 and December 31, 2019, respectively, with fixed interest rates of 0.679% and 1.664%, respectively. 2020.
All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings, and the Subsidiary Credit Facilities.

11.     Commitments and Contingencies
11.
Commitments and Contingencies
Litigation and Regulatory Proceedings
In the ordinary course of business, we are defendants in, or parties to, a number of pending or threatened legal actions or proceedings. To the extent a plaintiff or plaintiffs in the following cases have specified in their complaint or in other court filings the amount of damages being sought, we have noted those alleged damages in the descriptions below. With respect to the cases described below, we contest liability and/or the amount of damages in each matter and believe we have meritorious defenses.
Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and we can reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many proceedings, however, it is difficult to determine whether any loss is probable or reasonably possible. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of loss.
With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from $0$0 to approximately $800$250 at March 31, 2020.2021. This estimated aggregate range of reasonably possible losses is based upon currently available information taking into account our best estimate of such losses for which such an estimate can be made.
Blue Cross Blue Shield Antitrust Litigation
We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees or Blue plans,(the “Blue plans”) across the country. The casesCases filed in twenty-eight states were consolidated into a single,
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multi-district proceeding captioned In re Blue Cross Blue Shield Antitrust Litigationthat is pending in the United States District Court for the Northern District of Alabama or the Court.(the “Court”). Generally, the suits allege that the BCBSA and the Blue plans have conspired to

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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,Act”) and related state laws. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and actions filed in twenty-eight states have been consolidated into the multi-district proceeding. providers.

In response to cross motions for partial summary judgment by plaintiffs and defendants, the Court issued an order in April 2018 determining that the defendants’defendants’ aggregation of geographic market allocations and output restrictions are to be analyzed under a per se standard of review, and the BlueCard® program and other alleged Section 1 Sherman Act violations are to be analyzed under the rule of reason standard of review. The Court also found that there remain genuine issues of material fact as to whether the defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield trademarks. 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, the plaintiffs filed their motions for class certification in conjunction with their supporting expert reports. Defendantsreports, and the defendants filed their motions to exclude plaintiffs’plaintiffs’ experts, and to oppose plaintiffs’ motions for class certification.
The BCBSA and Blue plans have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the subscriber plaintiffs. If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $594, and will contain certain non-monetary terms including (i) eliminating the “national best efforts” rule in the BCBSA license agreements (which rule limits the percentage of non-Blue revenue permitted for each Blue plan) and (ii) allowing for some large national employers with self-funded benefit plans to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. As of March 31, 2021, the liability balance accrued for our estimated remaining payment obligation was $507, net of payments made.
On November 30, 2020, the Court issued an order preliminarily approving the Subscriber Settlement Agreement, following which members of the subscriber class were provided notice of the Subscriber Settlement Agreement and an opportunity to opt out of the class. All terms of the Subscriber Settlement Agreement are subject to final approval by the Court before they become effective. Objections to the settlement, as well as their oppositionthe deadline for those who wish to opt-out from the settlement, must be submitted by July 28, 2021. Claims must be filed by November 5, 2021. A final approval hearing has been scheduled for October 20, 2021. If the Court grants approval of the Subscriber Settlement Agreement, and after all appellate rights have expired or have been exhausted in a manner that affirms the Court’s final order and judgment, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective.
In October 2020, after the Court lifted the stay as to the provider litigation, provider plaintiffs’ motions filed a renewed motion for class certification, in July 2019. The case has been stayed byand defendants filed an opposition to that motion. In March 2021, the courtCourt issued an order terminating the pending motion for class certification until further notice.
after a ruling on the standard of review applicable to providers’ claims. Standard of review motions for the provider litigation are due on May 21, 2021, and certain other potentially dispositive motions on issues of liability are due on June 18, 2021. We intend to continue to vigorously defend these suits;the provider suit; however, theirits 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, (“BCC”) was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court (the “Superior Court”) captioned Michael D. Myers v. State Board of Equalization, et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, or HCSP, is an “insurer”“insurer” for purposes of taxation despite acknowledging it is not an “insurer”“insurer” under regulatory law. At the time, under California law, “insurers”“insurers” were required to pay a gross premiums tax or GPT,(“GPT”) calculated as 2.35% on gross premiums. As a licensed HCSP,Health Care Service Plan, BCC has paid the California Corporate Franchise Tax or CFT,(“CFT”), the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the filing of the complaint.
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In March 2018,
Because 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 would not hear the issues raised by our writ until the case concludes in the Superior Court. The Superior Court postponed the March 2020 trial date to July 2020. The parties are currently engaged in discovery. Because GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles, the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC eventually be determined to be subject to the GPT for the tax periods at issue in the litigation.
In March 2018, the Superior Court denied BCC's motion for judgment on the pleadings and similar motions brought by other entities. BCC intendsfiled a motion for summary judgment with the Superior Court, which was heard in October 2020. In December 2020, the Superior Court granted BCC's motion for summary judgment, dismissing the plaintiff's lawsuit. Plaintiff has appealed the order granting summary judgment. We intend to vigorously defend the appeal of this suit; however, its ultimate outcome cannot be presently determined.lawsuit.
Express Scripts, Inc. Pharmacy Benefit Management Litigation
In March 2016, we filed a lawsuit against Express Scripts, Inc., or (“Express Scripts,Scripts”), our vendor at the time for 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$14,800 in damages for pharmacy pricing that is higher than competitive benchmark pricing under the agreement between the parties or the ESI(the “ESI PBM Agreement,Agreement”), over $158$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) was 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.

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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$4,675 at the time we entered into the ESI PBM Agreement. In March 2017, the court granted our motion to dismiss Express Scripts’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. The period of time for completingRebuttal expert reports were submitted in October 2020 and discovery has been extended to August 2020 due to the recent outbreak of COVID-19.must be completed by June 2021. 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 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’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’sattorney’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 (the “Second Circuit”), which was heard in October 2018 but has not yet been decided.2018. In December 2020, the Second Circuit affirmed the trial court's decision dismissing the ERISA complaint. Plaintiffs filed a Petition for Rehearing and Rehearing En Banc. Plaintiff’s Petition for
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Rehearing was denied. Plaintiffs have until June 2021 to file a Writ of Certiorari with the U.S. Supreme Court. 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,(“Cigna”) announced that we entered into the Cigna Agreement and Plan of Merger or (“Cigna Merger Agreement,Agreement”) pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice or DOJ,(“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,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,Court”) seeking damages, including the $1,850$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 held closing argumentarguments in November 2019 and took the matter under consideration. In FebruaryAugust 2020, the Delaware Court requested supplemental briefing which has been submitted.issued an opinion finding that neither party was owed damages and that we did not owe Cigna the $1,850 termination fee. The Delaware Court issued an order implementing its opinion in October 2020. Cigna filed its notice of appeal in November 2020 challenging the Court's decision that Anthem did not owe Cigna a termination fee. Cigna filed its appellate brief in December 2020, and we filed our response in January 2021. Oral argument before the Delaware Supreme Court was held in April 2021. The matter was taken under advisement. We believe Cigna’sCigna’s allegations are without merit and we intend to vigorously pursue our claims and defend against Cigna’sCigna’s allegations; however, the ultimate outcome of ourthe appeal of this litigation with Cigna cannot be presently determined.

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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’slawsuit’s ultimate outcome cannot be presently determined.
Medicare Risk Adjustment Litigation
Beginning in December 2016, the DOJ issued civil investigative demands to us to discover information about our retrospective chart review and risk adjustment programs under Parts C and D of the Medicare program. We understand the DOJ is investigating the programs of other Medicare Advantage health plans, along with providers and vendors. In March 2020, the DOJ filed a civil 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’sDOJ’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,(“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 obtain unspecified amounts of payments in Medicare funds in violation of the False Claims Act. We have untilThe DOJ filed an amended complaint in July 2020, alleging the endsame causes of Mayaction but revising some of its allegations. In September 2020, we filed a motion to respond.transfer the lawsuit to the Southern District of Ohio, a motion to dismiss part of the lawsuit, and a motion to strike certain allegations in the amended complaint. The motions are fully briefed and no decision has been rendered. We intend to continue to vigorously defend this suit; however, the ultimate outcome cannot be presently determined.

Investigations of CareMore and HealthSun
With the assistance of outside counsel, we are conducting investigations of risk-adjustment practices involving data submitted to CMS (unrelated to our retrospective chart review program) at CareMore Health Plans, Inc. (“CareMore”), or CareMore one of
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our California subsidiaries, and HealthSun Health Plans, Inc. (“HealthSun”), or HealthSun, one of our Florida subsidiaries. Our CareMore investigation has resulted in the termination of CareMore’sCareMore’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 of our investigations to CMS and the Criminal Division of the DOJ, which then initiated an investigation. We are cooperating with thatthe government's investigation. We are in the process of analyzing the scope of potential data corrections to be submitted to CMS. We have also asserted indemnity claims for escrowed funds under the HealthSun purchase agreement for, among other things, breach of healthcare and financial representation provisions, based on the conduct discovered during our investigation. We are in active litigation with one grouptwo groups of sellers regarding part of the escrowed funds in a casecases captionedShareholder Representative Services, LLC v. ATH Holding Company, LLC and Highland Acquisition Holdings, LLC and LPPAS Representative, LLC v. ATH Holding Company, LLC, both pending 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 during which the attackers gained unauthorized access to certain of our information technology systems and obtained personal information related to many individuals and employees. To date, there is no evidence that credit card or medical information was accessed or obtained. Upon discovery of the cyber attack, we took immediate action to remediate the security vulnerability and have continued to implement security enhancements since this incident.
Federal and state agencies 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.

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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
In March 2020, we entered into an agreement with a vendor for information technology infrastructure and related management and support services through June 2025. The new agreement supersedes certain prior agreements for such services and includes provisions for additional services not provided under those agreements. Our aggregateremaining commitment under this agreement at March 31, 2021 is approximately $1,700.$1,223. We will have the ability to terminate the agreement upon the occurrence of certain events, subject to early termination fees.
InBeginning in the second quarter of 2019, we began using our new pharmacy benefits manager named IngenioRx, Inc., or IngenioRx to market and offer PBM services to fully-insured and self-funded Anthemour affiliated health plan customers, throughout the country, 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 delegatingdelegates certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C.,which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy. From December 2009 through December 2019, we delegated certain PBM functions and administrative services to Express Scripts pursuant to the 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 acquisition of Express Scripts by Cigna. We began transitioning existing members from Express Scripts to IngenioRx in the second quarter of 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 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 March 31, 2020.
12.     Capital Stock
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

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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.
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A summary of theour cash dividend activity for the three months ended March 31, 20202021 and 20192020 is as follows: 
Declaration Date
 
Record Date
 
Payment Date
 
Cash
Dividend
per Share
 
Total
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
January 28, 2020
 
March 16, 2020
 
March 27, 2020
 
$0.95
 
$
240

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
January 29, 2019
 
March 18, 2019
 
March 29, 2019
 
$0.80
 
$
206


Declaration DateRecord DatePayment Date
Cash
Dividend
per Share
Total
Three Months Ended March 31, 2021
January 26, 2021March 10, 2021March 25, 2021$1.13$277 
Three Months Ended March 31, 2020
January 28, 2020March 16, 2020March 27, 2020$0.95$240 
On April 28, 2020,20, 2021, our Audit Committee declared a second quarter 20202021 dividend to shareholders of $0.95$1.13 per share, payable on June 25, 20202021 to shareholders of record at the close of business on June 10, 2020. 2021.
Under our Board of Directors’Directors’ authorization, we maintain a common stock repurchase program. On December 7, 2017,January 26, 2021, our Audit Committee, pursuant to authorization granted by the Board of Directors, authorized a $5,000$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 have temporarily suspended our share repurchase program given the market volatility.
A summary of common stock repurchases for the three months ended March 31, 20202021 and 20192020 is as follows:
 
 
Three Months Ended March 31
 
 
2020
 
2019
Shares repurchased
 
1.9

 
1.1

Average price per share
 
$
275.38

 
$
275.23

Aggregate cost
 
$
529

 
$
294

Authorization remaining at the end of the period
 
$
3,263

 
$
5,199


Three Months Ended March 31
 20212020
Shares repurchased1.4 1.9 
Average price per share$316.06 $275.38 
Aggregate cost$447 $529 
Authorization remaining at the end of the period$5,645 $3,263 
For additional information regarding the use of capital for debt security repurchases, see Note 10, “Debt” of“Debt”, included in this Form 10-Q and Note 12, “Debt,”13, “Debt,” to our audited consolidated financial statements as of and for the year ended December 31, 20192020 included in our 20192020 Annual Report on Form 10-K.

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Stock Incentive Plans
A summary of stock option activity for the three months ended March 31, 20202021 is as follows:
Number of
Shares		Weighted-
Average
Option Price
per Share		Weighted-
Average
Remaining
Contractual
Life (Years)		Aggregate
Intrinsic
Value
Outstanding at January 1, 20213.1 $230.00 
Granted0.7 311.47 
Exercised(0.4)185.63 
Forfeited or expired0 277.15 
Outstanding at March 31, 20213.4 251.80 7.44$361 
Exercisable at March 31, 20211.8 214.76 6.16$259 
 
Number of
Shares
 
Weighted-
Average
Option Price
per Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2020
3.1

 
$
190.31

 
 
 
 
Granted
1.0

 
271.27

 
 
 
 
Exercised
(0.3
)
 
107.46

 
 
 
 
Forfeited or expired
—

 
256.05

 
 
 
 
Outstanding at March 31, 2020
3.8

 
216.40

 
7.15
 
$
139

Exercisable at March 31, 2020
2.2

 
171.44

 
5.57
 
$
139

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A summary of the nonvested restricted stock activity, including restricted stock units, for the three months ended March 31, 20202021 is as follows:
 
Restricted
Stock Shares
and Units
 
Weighted-
Average
Grant Date
Fair Value
per Share
Nonvested at January 1, 2020
1.4

 
$
242.47

Granted
1.2

 
272.03

Vested
(1.1
)
 
193.23

Forfeited
(0.1
)
 
264.40

Nonvested at March 31, 2020
1.4

 
271.00


Restricted
Stock Shares
and Units		Weighted-
Average
Grant Date
Fair Value
per Share
Nonvested at January 1, 20211.3 $272.51 
Granted0.9 311.32 
Vested(0.8)244.20 
Forfeited0 279.37 
Nonvested at March 31, 20211.4 294.70 
During the three months ended March 31, 2020,2021, we granted approximately 0.20.3 restricted stock units that are contingent upon us achieving earnings targets over the three year period from 20202021 to 2022.2023. These grants have been included in the activity shown above, but will be subject to adjustment at the end of 20222023 based on results in the three year period.
During the three months ended March 31, 2020,2021, we granted an additional 0.60.3 restricted stock units associated with our 20172018 grants that were earned as a result of satisfactory completion of performance measures between 20172018 and 2019.2020. 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, “Capital15, “Capital Stock,”” to our audited consolidated financial statements as of and for the year ended December 31, 20192020 included in our 20192020 Annual Report on Form 10-K.
The following weighted-average assumptions were used to estimate the fair values of options granted during the three months ended March 31, 20202021 and 2019:2020:
 
Three Months Ended March 31
 
2020
 
2019
Risk-free interest rate
1.30
%
 
2.69
%
Volatility factor
26.00
%
 
25.00
%
Quarterly dividend yield
0.350
%
 
0.260
%
Weighted-average expected life (years)
4.30

 
4.40



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Three Months Ended March 31
20212020
Risk-free interest rate1.44 %1.30 %
Volatility factor30.00 %26.00 %
Quarterly dividend yield0.360 %0.350 %
Weighted-average expected life (years)5.504.30
The following weighted-average fair values per option or share were determined for the three months ended March 31, 20202021 and 2019:2020: 
Three Months Ended March 31
20212020
Options granted during the period$79.03 $54.03 
Restricted stock awards granted during the period311.32 272.03 
 
Three Months Ended March 31
 
2020
 
2019
Options granted during the period
$
54.03

 
$
68.92

Restricted stock awards granted during the period
272.03

 
307.59


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13.
Accumulated Other Comprehensive Loss

13.     Accumulated Other Comprehensive Loss
A reconciliation of the components of accumulated other comprehensive loss at March 31, 20202021 and 20192020 is as follows:
March 31
20212020
Investments:
Gross unrealized gains$956 $510 
Gross unrealized losses(179)(729)
Net pre-tax unrealized gains (losses)777 (219)
Deferred tax (liability) asset(186)51 
Adjustment for noncontrolling interest(2)0 
Net unrealized gains (losses) on investments589 (168)
Non-credit components of impairments on investments:
Gross unrealized losses(1)(44)
Deferred tax asset0 10 
Net unrealized non-credit component of impairments on investments(1)(34)
Cash flow hedges:
Gross unrealized losses(311)(327)
Deferred tax asset65 68 
Net unrealized losses on cash flow hedges(246)(259)
Defined benefit pension plans:
Deferred net actuarial loss(734)(724)
Deferred prior service credits(1)0 
Deferred tax asset186 185 
Net unrecognized periodic benefit costs for defined benefit pension plans(549)(539)
Postretirement benefit plans:
Deferred net actuarial loss(2)(25)
Deferred prior service costs11 18 
Deferred tax (liability) asset(2)2 
Net unrecognized periodic benefit credit (costs) for postretirement benefit plans7 (5)
Foreign currency translation adjustments:
Gross unrealized gains (losses)6 (4)
Deferred tax (liability) asset(1)1 
Net unrealized gains (losses) on foreign currency translation adjustments5 (3)
Accumulated other comprehensive loss$(195)$(1,008)
 
March 31
 
2020
 
2019
Investments:
 
 
 
Gross unrealized gains
$
510

 
$
379

Gross unrealized losses
(729
)
 
(121
)
Net pre-tax unrealized (losses) gains
(219
)
 
258

Deferred tax asset (liability)
51

 
(61
)
Net unrealized (losses) gains on investments
(168
)
 
197

Non-credit components of impairments on investments:
 
 
 
Unrealized losses
(44
)
 
(3
)
Deferred tax asset
10

 
1

Net unrealized non-credit component of impairments on investments
(34
)
 
(2
)
Cash flow hedges:
 
 
 
Gross unrealized losses
(327
)
 
(308
)
Deferred tax asset
68

 
65

Net unrealized losses on cash flow hedges
(259
)
 
(243
)
Defined benefit pension plans:
 
 
 
Deferred net actuarial loss
(724
)
 
(744
)
Deferred prior service credits
—

 
(1
)
Deferred tax asset
185

 
191

Net unrecognized periodic benefit costs for defined benefit pension plans
(539
)
 
(554
)
Postretirement benefit plans:
 
 
 
Deferred net actuarial loss
(25
)
 
(57
)
Deferred prior service costs
18

 
31

Deferred tax asset
2

 
7

Net unrecognized periodic benefit costs for postretirement benefit plans
(5
)
 
(19
)
Foreign currency translation adjustments:
 
 
 
Gross unrealized losses
(4
)
 
(3
)
Deferred tax asset
1

 
1

Net unrealized losses on foreign currency translation adjustments
(3
)
 
(2
)
Accumulated other comprehensive loss
$
(1,008
)
 
$
(623
)
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-32-


Other comprehensive income (loss) reclassification adjustments for the three months ended March 31, 20202021 and 20192020 are as follows:
 
Three Months Ended March 31
 
2020
 
2019
Investments:
 
 
 
Net holding (loss) gain on investment securities arising during the period, net of tax benefit (expense) of $213 and $(98), respectively
$
(716
)
 
$
350

Reclassification adjustment for net realized gains on investment securities, net of tax benefit of $7 and $2, respectively
27

 
7

Total reclassification adjustment on investments
(689
)
 
357

Non-credit component of impairments on investments:
 
 
 
Non-credit component of impairments on investments, net of tax benefit of $9
(32
)
 
—

Cash flow hedges:
 
 
 
Holding gain, net of tax expense of ($1) and ($0), respectively
3

 
3

Other:
 
 
 
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($3) and ($1), respectively
7

 
3

Foreign currency translation adjustment, net of tax expense of ($0) and ($0), respectively
(1
)
 
—

Net (loss) gain recognized in other comprehensive income, net of tax benefit (expense) of $211 and $(101), respectively
$
(712
)
 
$
363


Three Months Ended March 31
20212020
Investments:
Net holding loss on investment securities arising during the period, net of tax benefit of $108 and $213, respectively$(332)$(716)
Reclassification adjustment for net realized (loss) gains on investment securities, net of tax expense (benefit) of $8 and ($7), respectively(28)27 
Total reclassification adjustment on investments(360)(689)
Non-credit component of impairments on investments:
Non-credit component of impairments on investments, net of tax (expense) benefit of ($1) and $9, respectively1 (32)
Cash flow hedges:
Holding gain, net of tax expense of ($1) and ($1), respectively4 3 
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement benefit plans, net of tax expense of ($4) and ($3), respectively10 7 
Foreign currency translation adjustment, net of tax expense of ($0) and ($0), respectively0 (1)
Net loss recognized in other shareholders' comprehensive income, net of tax benefit of $110 and $211, respectively(345)(712)
Net loss related to noncontrolling interests, net of tax benefit of $1 and $0, respectively(2)0 
Net loss recognized in other comprehensive income, net of tax benefit of $111 and $211, respectively$(347)$(712)
14.
Earnings per Share
14.     Earnings per Share
The denominator for basic and diluted earnings per share for the three months ended March 31, 20202021 and 20192020 is as follows:
 

Three Months Ended 
 March 31
 
 
2020
 
2019
Denominator for basic earnings per share – weighted-average shares
 
252.4

 
257.1

Effect of dilutive securities – employee stock options, nonvested restricted stock awards and convertible debentures
 
4.0

 
5.2

Denominator for diluted earnings per share
 
256.4

 
262.3


 Three Months Ended 
 March 31
 20212020
Denominator for basic earnings per share – weighted-average shares245.0 252.4 
Effect of dilutive securities – employee stock options, nonvested restricted stock awards and convertible debentures3.2 4.0 
Denominator for diluted earnings per share248.2 256.4 
During the three months ended March 31, 20202021 and 2019,2020, weighted-average shares related to certain stock options of 0.90.4 and 0.2,0.9, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive.
During the three months ended March 31, 2020,2021, we issued approximately 1.20.9 restricted stock units under our stock incentive plans, 0.20.3 of which vesting is contingent upon us meeting specified annual earnings targets for the three year period of 20202021 through 2022.2023. During the three months endedMarch 31, 2019,2020, we issued approximately 0.51.2 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 20192020 through 2021.2022. 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.

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15.     Segment Information
15.
Segment Information
Beginning in 2020, IngenioRx meets the quantitative thresholds for a reportable segment based on the FASB guidance. The results of our operations are now described through 4 reportable segments: Commercial && Specialty Business, Government Business, IngenioRx and Other.
Our Commercial && Specialty Business segment includesoffers plans and services to our LocalIndividual, Group National Accounts, Individualrisk-based, Group fee-based, BlueCard, and Specialty businesses. Business units in thecustomers. The Commercial && Specialty Business segment offer fully-insuredoffers health products; provideproducts on a full-risk basis; provides a broad array of managed care services to self-fundedfee-based 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 provideprovides an array of specialty and other insurance products and services such as dental, vision, life and disability insurance benefits.
Our Government Business segment includes our Medicare and Medicaid businesses, National Government Services or NGS,(“NGS”), and services provided to the federal government in 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. Medicare Advantage membership also includes Medicare Advantage members in our Group Retiree Solutions business who are retired members of Commercial accounts or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us. Our Medicaid business includes our managed care alternatives through publicly funded healthcare programs, including Medicaid, Medicaid expansion programs related to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, Temporary Assistance for Needy Families programs, programs for seniors and people with disabilities, Children’sChildren’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 federal government in several regions across the nation.
Our IngenioRx segment 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 Anthemour affiliated health plan customers, as well as to external customers outside of the health plans we own. IngenioRx has a comprehensive prescription benefits managementPBM services portfolio, which includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail order capabilities.
Our Other segment includes our Diversified Business Group or DBG,(“DBG”), which is our integrated health services business, and certain eliminations and corporate expenses not allocated to our 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 the three months ended March 31, 2019 have been reclassified to conform to the current year presentation for comparability. 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 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 provided by IngenioRx and DBG to our subsidiaries, are recorded at cost or management’smanagement’s estimate of fair market value, and are eliminated in consolidation.

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Financial data by reportable segment for the three months ended March 31, 20202021 and 20192020 is as follows:
Commercial
& Specialty
Business		Government
Business		IngenioRxOtherEliminationsTotal
Three Months Ended March 31, 2021
Operating revenue - unaffiliated$9,491 $19,283 $2,738 $586 $— $32,098 
Operating revenue - affiliated— — 3,124 1,784 (4,908)0 
Operating gain1,268 478 407 8 — 2,161 
Three Months Ended March 31, 2020
Operating revenue - unaffiliated$9,361 $17,466 $2,344 $277 $— $29,448 
Operating revenue - affiliated0 0 2,853 750 (3,603)0 
Operating gain1,420 411 349 14 — 2,194 
 
Commercial
& Specialty
Business
 
Government
Business
 
IngenioRx
 
Other
 
Eliminations
 
Total
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Operating revenue - unaffiliated
$
9,361

 
$
17,466

 
$
2,344

 
$
277

 
$
—

 
$
29,448

Operating revenue - affiliated
—

 
—

 
2,853

 
750

 
(3,603
)
 
—

Operating gain
1,420

 
411

 
349

 
14

 
—

 
2,194

Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Operating revenue - unaffiliated
$
9,392

 
$
14,925

 
$
—

 
$
71

 
$
—

 
$
24,388

Operating revenue - affiliated
—

 
—

 
—

 
477

 
(477
)
 
—

Operating gain (loss)
1,598

 
374

 
—

 
(32
)
 
—

 
1,940

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The major product revenues for each of the reportable segments for the three months ended March 31, 20202021 and 20192020 are as follows:
 
 
Three Months Ended 
 March 31
 
 
2020
 
2019
Commercial & Specialty Business
 
 
 
 
Managed care products
 
$
7,569

 
$
7,618

Managed care services
 
1,381

 
1,366

Dental/Vision products and services
 
315

 
323

Other
 
96

 
85

Total Commercial & Specialty Business
 
9,361

 
9,392

Government Business
 
 
 
 
Managed care products
 
17,375

 
14,821

Managed care services
 
91

 
104

Total Government Business
 
17,466

 
14,925

IngenioRx
 
 
 
 
Pharmacy products and services
 
5,197

 
—

Total IngenioRx
 
5,197

 
—

Other
 
 
 
 
Other
 
1,027

 
548

Eliminations
 
 
 
 
Eliminations
 
(3,603
)
 
(477
)
Total product revenues
 
$
29,448

 
$
24,388


Three Months Ended 
 March 31
20212020
Commercial & Specialty Business
Managed care products$7,689 $7,569 
Managed care services1,386 1,381 
Dental/Vision products and services336 315 
Other80 96 
Total Commercial & Specialty Business9,491 9,361 
Government Business
Managed care products19,182 17,375 
Managed care services101 91 
Total Government Business19,283 17,466 
IngenioRx
Pharmacy products and services5,862 5,197 
Total IngenioRx5,862 5,197 
Other
Integrated health services2,249 949 
Other121 78 
Total Other Business2,370 1,027 
Eliminations
Eliminations(4,908)(3,603)
Total product revenues$32,098 $29,448 
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. 

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A reconciliation of reportable segments’segments’ operating revenue to the amounts of total revenues included in our consolidated statements of income for the three months ended March 31, 20202021 and 20192020 is as follows:
 Three Months Ended 
 March 31
 20212020
Reportable segments’ operating revenue$32,098 $29,448 
Net investment income291 254 
Net realized losses on financial instruments(4)(81)
Total revenues$32,385 $29,621 
 
 
Three Months Ended 
 March 31
 
 
2020
 
2019
Reportable segments’ operating revenue
 
$
29,448

 
$
24,388

Net investment income
 
254

 
210

Net realized (losses) gains on financial instruments
 
(24
)
 
78

Impairment losses recognized in income
 
(57
)
 
(10
)
Total revenues
 
$
29,621

 
$
24,666

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A reconciliation of reportable segments’segments’ operating gain to income before income tax expense included in our consolidated statements of income for the three months ended March 31, 20202021 and 20192020 is as follows:
 
 
Three Months Ended 
 March 31
 
 
2020
 
2019
Reportable segments’ operating gain
 
$
2,194

 
$
1,940

Net investment income
 
254

 
210

Net realized (losses) gains on financial instruments
 
(24
)
 
78

Impairment losses recognized in income
 
(57
)
 
(10
)
Interest expense
 
(194
)
 
(187
)
Amortization of other intangible assets
 
(83
)
 
(87
)
(Loss) gain on extinguishment of debt
 
(1
)
 
1

Income before income tax expense
 
$
2,089

 
$
1,945


 Three Months Ended 
 March 31
 20212020
Reportable segments’ operating gain$2,161 $2,194 
Net investment income291 254 
Net realized losses on financial instruments(4)(81)
Interest expense(192)(194)
Amortization of other intangible assets(80)(83)
Loss on extinguishment of debt0 (1)
Income before income tax expense$2,176 $2,089 

-36-
16.     Leases


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 1513 years.
The information related to our leases is as follows:
Balance Sheet LocationMarch 31, 2021December 31, 2020
Operating Leases
Right-of-use assetsOther noncurrent assets$628 $646 
Lease liabilities, currentOther current liabilities116 110 
Lease liabilities, noncurrentOther noncurrent liabilities801 847 
Three Months Ended 
 March 31
20212020
Lease Expense
Operating lease expense$29 $47 
Short-term lease expense12 13 
Sublease income(1)(3)
Total lease expense$40 $57 
Other information
 Operating cash paid for amounts included in the measurement of lease liabilities, operating leases$52 $44 
Right-of-use assets obtained in exchange for new lease liabilities, operating leases$14 $323 
-36-
 
Balance Sheet Location
 
March 31, 2020
 
December 31, 2019
Operating Leases
 
 
 
 
 
Right-of-use assets
Other noncurrent assets
 
$
915

 
$
575

Lease liabilities, current
Other current liabilities
 
195

 
158

Lease liabilities, noncurrent
Other noncurrent liabilities
 
801

 
482

 
 
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
Lease Expense
 
 
 
 
Operating lease expense
 
$
47

 
$
45

Short-term lease expense
 
13

 
12

Sublease income
 
(3
)
 
(4
)
Total lease expense
 
$
57

 
$
53

 
 
 
 
 
 
Other information
 
 
 
 
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases
 
$
44

 
$
44

Right-of-use assets obtained in exchange for new lease liabilities, operating leases
 
$
323

 
$
—

Weighted average remaining lease term, operating leases
 
7.2 years

 
6.5 years

Weighted average discount rate, operating leases
 
3.57
%
 
3.97
%

At As of March 31, 2021 and December 31, 2020,, future the weighted average remaining lease term of our operating leases was 7 years. The lease liabilities reflect a weighted average discount rate of 3.07% at March 31, 2021 and 3.21% at December 31, 2020.
Future lease payments for noncancellable operating leases with initial or remaining terms of one year or more are as follows:
2020 (excluding the three months ended March 31, 2020)
$
140

2021
178

2022
161

2023
140

2024
110

Thereafter
288

Total future minimum payments
1,017

Less imputed interest
(21
)
Total lease liabilities
$
996


2021 (excluding the three months ended March 31, 2021)$151 
2022188 
2023163 
2024134 
202594 
Thereafter243 
Total future minimum payments973 
Less imputed interest(56)
Total lease liabilities$917 
As of March 31, 2020,2021, 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.buildings. The undiscounted lease payments for these leases, which are not included in the tables above, aggregate $133.
$226.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations or (“MD&A,&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, 20192020 and the MD&A&A included in our 20192020 Annual Report on Form 10-K. References to the terms “we,” “our,” “us,”“we,” “our,” “us,” or “Anthem”“Anthem” used throughout this MD&A&A refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states”“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 months ended March 31, 20202021 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2020,2021, 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 42 million nearly 44 medical members through our affiliated health plans as of March 31, 2020. 2021. We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield or BCBS,(“BCBS”) licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare. Also, in the second quarter of 2019, we began providing prescriptionUniCare. Pharmacy benefits management or PBM,(“PBM”) services are offered 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”“Business” and Part II, Item 7, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”” included in our 20192020 Annual Report on Form 10-K. Additional information on our segments can be found in this MD&A&A and in Note 15, “Segment Information”“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,(“COVID-19”) a global health pandemic and recommended containment and mitigation measures worldwide. Since then, the COVID-19 outbreak has also been declared a national health emergency in the United States and continues to spread domestically and in other countries globally. To prevent the spread of this virus, most states have issued shelter-in-place or stay-at-home orders, which generally require businesses not considered essential to close their physical offices.pandemic. The virus and mitigation efforts have continued to prevent its spread have also drastically impactedimpact the global economy, causingcause market instability, increase unemployment and increasing unemploymentput pressure on the healthcare system. The COVID-19 pandemic has impacted, and will likely continue to impact, our membership, our benefit expense and member behavior, including how members access healthcare services. Our Medicaid membership grew since the pandemic as a result of the temporary suspension of eligibility recertification efforts in the United States.
In response to the COVID-19 pandemic, federal and state legislation has been, andwhich 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.
To better serve our members, we have introduced new resources and taken proactive steps that can help provide increased access to care for our members. We have launched an online COVID-19 symptom 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 usersremain suspended at least through the resulting action plan depending uponend of 2021. During the resultsfirst quarter of 2021, our non-COVID-19 healthcare utilization experience remained below pre-COVID-19 levels, partially offsetting our COVID-19 related healthcare utilization, which remained elevated. Our expenses associated with COVID-19, including testing, treatment and vaccine administration exceeded the user’s assessment,benefit we experienced during the quarter from the lower volume of healthcare claims attributable to decreased utilization of non-COVID-19 healthcare services.
We provided enhanced access and the virtual text feature connects users to certified physicians who can provide medical care

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including prescribing medication and ordering lab work during consults as necessary. We are providing virtual visits through our LiveHealth Online service, including visits for mental health, and waiving cost share until June 14, 2020 for telehealth visitscoverage for our members, in fully-insured employer plans, Individual plans, Medicare plans and Medicaid plans, where permissible. Further, we have 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 have also made other changes to ourselect membership benefits and business operations and may make additional changes in the future. We suspended select prior authorization requirementsmodified tools and policies to allow care providers to focus on caring for our members diagnosed with COVID-19. While not mandated, on April 1, 2020, to meet the needs of those directly impacted by the COVID-19 disease, we expanded coverage for certain members in our affiliated health plans undergoing treatment related to a COVID-19 diagnosis. The expansion waives cost sharing for COVID-19 treatment received through May 31, 2020,assist consumers and we will reimburse health care providers at in-network rates or Medicare rates, as applicable, for our affiliated health plan fully insured employer, Individual, Medicaid and Medicare Advantage members. In addition, government action required us to provide full coverage for COVID-19 testing to our members, and future governmental action could require us to provide additional coverage related to COVID-19 treatments. We are in frequent communication with our employer groups in an effort to support them in these unprecedented times and we serve as a resource for employers looking for health coverage options.
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 have imposed travel limitations and directed our employees to work remotely whenever possible, with nearly all of our employees working remote. We have 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 carrying for young children whose schools have been closed. We are also expanding the use of sick time to include caregiving related to COVID-19. Furthermore, we have taken additional precautions with regard to workspace modifications and sanitation of our facilities.
The COVID-19 pandemic, including the changes we made in response to 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. These impacts include, but are not limited to, the following:
◦Our covered medical expenses 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 navigating these challenges and have taken certain measures to address the impactsheight of the COVID-19 pandemic. In particular,We continued to waive cost-sharing to our members related to COVID-19 diagnostic tests, treatment and vaccine administration through the first quarter of 2021. Although the COVID-19 pandemic has impacted and will likely continue to impact our membership and benefit expense, and continued COVID-19 care, testing and vaccine administration, and the
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possible risk of new COVID-19 variants are expected to result in increased future medical costs, we are taking severalhave proactively taken actions to preserve our liquidity and financial flexibility. Such measures include, but are not limited to, borrowing under our senior revolving credit facility, delaying certain tax payments as permitted by the Internal Revenue Serviceminimize these effects, and the Coronavirus Aid, Relief,pandemic has not had a material adverse effect on our reported results through March 31, 2021. However, this may change in the future as the COVID-19 pandemic continues to evolve and Economic Security,the full extent of its impact (including new variants of the virus, which may be more contagious, more severe or CARES, Act, increasing our borrowings from existingless responsive to treatment or new Federal Home Loan Bank memberships, reducing our discretionary spendingvaccines) will depend on future developments, which are highly uncertain and temporarily suspending our share repurchase activity.
cannot be predicted at this time. We will continue to closely monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes that may impact our business. For additional discussion regardingrelated to the COVID-19 pandemic and our risk factors, see Part I, Item 1, “Business–COVID-19”, Part I, Item 1A, “Risk Factors”“Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations–COVID-19” included in our 20192020 Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors” of this Form 10-Q.10-K.
Business Trends
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended or collectively,(collectively, the ACA,“ACA”) has changed and may continue to make broad-based changes to the U.S. healthcare system. We expect the ACA will continue to impact our business model and strategy. Also, the legal challenges regarding the

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ACA, including a federal district court decision invalidating the ACA, orwhich was argued before the 2018 ACA Decision, which judgmentU.S. Supreme Court in November 2020 and has been stayed pending appeal,the U.S. Supreme Court’s decision, could significantly disrupt our business. During 2019,In 2020, we modestly expanded our participation in the Individual ACA-compliant market.market for 2021. Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such as expected financial performance, regulatory environment, and underlying market characteristics. We currently offer Individual ACA-compliant products in 91103 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.
InBeginning in the second quarter of 2019, we began using IngenioRx to market and offer PBM services to fully-insured and self-funded Anthemour affiliated health plan customers throughout the country, as well as to external customers outside of the health plans we own. TheOur comprehensive PBM services portfolio includes services such as formulary management, pharmacy networks, a prescription drug database, member services and mail order capabilities. In July 2019, we announced our first contract win with a third-party health insurer, Blue Cross of Idaho, and IngenioRx began providing PBM services under that contract on January 1, 2020. Also in the second quarter of 2019, IngenioRx began delegatingdelegates certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy. From December 2009 through December 2019, we delegated certain PBM functions and administrative services to Express Scripts Inc., or Express Scripts, pursuant to our PBM agreement with Express Scripts, or the ESI PBM Agreement. We began transitioning existing members from Express Scripts to IngenioRx in the second quarter of 2019, and completed the 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 surges in COVID-19 related hospitalizations, infection rates, the cost of COVID-19 vaccines and the return of non-COVID-19 healthcare utilization. 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,Fee”) on health insurers that write certain types of health insurance on U.S. risks. We pricepriced our affected products to cover the impact of the HIP Fee, when applicable. The HIP Fee was suspended for 2019, has resumed for 2020 and has been permanently eliminatedrepealed beginning 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 that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high cost prescription drugs, and healthcare provider or member fraud. Our underlying Local Group medical cost trends reflect the “allowed amount,” or contractual rate, paid to providers.
The COVID-19 pandemic has caused and may continue to cause, deferrala decrease in utilization of non-emergent or electivenon-COVID-19 health services, which could decreasedecreased our claim costs in 2020. During the short-termfirst quarter of 2021, non-COVID healthcare utilization experience remained below our pre-COVID-19 levels, partially offsetting our COVID-19 related healthcare utilization, which remained elevated. We expect
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utilization of non-COVID-19 healthcare services to rebound and for claim costs to normalize in 2021. Further increases and pent-up demand in the utilization of such services may increase our claim costs in the long-termfuture and affect our medical cost trends. Further,Our expenses in 2020 and the amountfirst quarter of 2021 included additional costs to cover COVID-19 related testing, treatment and frequencyvaccine administration. During the first quarter of covered services related2021, through various dates, we continued to the COVID-19 disease could have a material adverse effect on our claim costs. In response to the current crisis, weprovide expanded coverage for certain members in our affiliated health plans undergoingfor treatment related to a COVID-19 diagnosis. The expansion waives cost sharing for COVID-19 treatment received through May 31, 2020. Governmental action has required us to provide fullvarying coverage for COVID-19 testing and vaccine administration to our members,members. Continued COVID-19 care, testing and vaccine administration, and the possible risk of new COVID-19 variants, are expected to result in increased future governmental action could require us to provide additional coverage.medical costs. We continue to closely monitor the COVID-19 pandemic and its impacts toon our business, financial condition, results of operations and medical cost trend.trends.
For additional discussion regarding business trends, see Part I, Item 1, “Business”“Business” included in our 20192020 Annual Report on Form 10-K.

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Regulatory Trends and Uncertainties
Federal and state legislation has beengovernments have enacted, and is likely tomay continue to be enacted,enact, legislation and regulations in response to the COVID-19 pandemic that have had, and we expect will continue to have, a significant impact on healthcare benefits, consumer eligibility for public programs and our cash flows for all of our lines of business, including business. These actions, which are in effect for various durations, provide, among other things:
•mandates to waive cost-sharing on COVID-19 testing, treatment, vaccines and related services. As of April 21, 2020, the federal government has enacted the following four pieces of legislation addressing the COVID-19 pandemic, among others:
◦
Signed into law on March 6, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act provided supplemental appropriations for the Department of Health and Human Services, the State Department, and the Small Business Administration to respond to the COVID-19 pandemic, as well as certain reforms, including waiving Medicare originating site restrictions for qualified providers providing telehealth services.
◦
Signed into law on March 19, 2020, the Families and Workers First Act enacted a prohibition on prior authorization and cost-sharing for certain items and services related to COVID-19 tests.
◦
Signed into law on March 27, 2020, the CARES Act provided financial support to health care providers, including expansion of the Medicare accelerated payment program to all providers receiving Medicare payments. The CARES Act also provided a broad lending program for small businesses to help keep their workers employed and healthcare benefits covered in the group market.
◦
Signed into law on April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act allocated additional funds to replenish and administer small business loan programs and increased financial support to providers and bolstered COVID-19 testing.
In addition, these legislative reforms and the Internal Revenue Service Notice 2020-23, or IRS Notice 2020-23, issued inApril 2020 in response to the COVID-19 pandemic included tax deferrals and other beneficial provisions, including 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.services;
Regulatory changes have also been enacted, and are likely•reforms, including waiving Medicare originating site restrictions for qualified providers providing telehealth services;
•financial support to continuehealthcare providers, including expansion of the Medicare accelerated payment program 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 cash flows, include all providers receiving Medicare payments;
•mandated expansion of premium payment terms, including the time period for which claims can be denied for lack of payment, payment; and
•mandates related to prior authorizations and payment levels to providers, additional consumer enrollment windows and an increased ability to provide services through telehealth. Wetelehealth services.
The Consolidated Appropriations Act of 2021, which was enacted in December 2020 (the “Appropriations Act”) contains a number of provisions that may have begun providing extensionsa material effect upon our business, including procedures and coverage requirements related to premium payment terms insurprise medical bills and new mandates for continuity of care for certain situationspatients, price comparison tools, disclosure of broker compensation and continue to work closely with state regulators that are mandating or requesting such relief.reporting on pharmacy benefits and drug costs. The various health plan-related requirements of the Appropriations Act will go into effect on January 1, 2022, and our first report on pharmacy benefits and drug costs is due December 27, 2021.
The ACA presented us with new growth opportunities, but also introduced new risks, regulatory challenges and uncertainties, and required changes in the way products are designed, underwritten, priced, distributed and administered. Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees. In addition, the legal challenges regarding the ACA including the 2018 ACA Decision, which judgment has been stayed pending appeal, continue to contribute to this uncertainty. Inuncertainty, including a separate development,federal district court decision invalidating the ACA in April 2020,its entirety, which was argued before the U.S. Supreme Court ruled thatin November 2020 and has been stayed pending the federal government is required to pay health insurance companies for amounts owed, as calculated under the risk corridor program of the ACA. We will review this ruling and recognize the impact, if any, in a future reporting period.U.S. Supreme Court’s decision. We will continue to evaluate the impact of the ACA as any further developments or judicial rulings occur.
The annual HIP Fee, iswhich has been permanently eliminated effective in 2021, was allocated to health insurers based on the ratio of the amount of an insurer’sinsurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S. health risk for those certain lines of business written during the preceding calendar year. We record our estimated liability for the HIP Fee in full at the beginning of the year with a corresponding deferred asset that is amortized on a straight-line basis to selling, general and administrative expense. The final calculation and payment of the annual HIP Fee is due by September 30th of each fee year. The HIP Fee iswas non-deductible for federal income tax purposes. Our affected products arewere priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee.Fee when applicable. The total amount due from allocations to all health insurers is $15,523was $15,523 for 2020. For the three months ended March 31, 2020, we estimated our portion

recognized $417 as selling, general and administrative expense related to the HIP Fee.
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of the HIP Fee to be $417, which was recognized as general and administrative expense. There was no corresponding expense for 2019 due to the suspension of the HIP Fee for 2019.
For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business - Regulation” and“Business – Regulation”, Part I, Item 1A, “Risk Factors”“Risk Factors”, and the “Regulatory“Regulatory Trends and Uncertainties”Uncertainties” section of Part II, Item 7, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” included in our 20192020 Annual Report on Form 10-K10-K.
Other Significant Items
Business and Operational Matters
On March 24, 2021, we announced our entrance into an agreement with WindRose Health Investors to acquire myNEXUS, Inc. (“myNEXUS”). myNEXUS is a comprehensive home-based nursing management company for payors and delivers integrated clinical support services for Medicare Advantage members across twenty states. This acquisition aligns with our strategy to manage integrated, whole person multi-site care and support, by providing national, large-scale expertise to manage nursing services in the home and facilitate transitions of care. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries, including MMM Holdings, LLC (“MMM”), its Medicare Advantage plan, Medicaid plan and other affiliated companies. MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
In 2020, we introduced enterprise-wide initiatives to optimize our business and as a result, recorded a charge of $653 in selling, general and administrative expenses for the year ended December 31, 2020. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization, including process automation and a reduction in our office space footprint. For additional information, see Note 4, “Business Optimization Initiatives” of the Notes to Consolidated Financial Statements included in Part II,I, Item 1A, “Risk Factors”1 of this Form 10-Q.
Other Significant Items
On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc., or Beacon,(“Beacon”), the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition alignsaligned 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. For additional information, see Note 3, “Business“Business Acquisitions,”” of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q.
Litigation Matters
In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”) have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the plaintiffs representing a putative nationwide class of health plan subscribers. Generally, the lawsuits in the BCBSA Litigation challenge elements of the licensing agreements between the BCBSA and the independently owned and operated Blue plans. The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and the Subscriber Settlement Agreement applies only to the putative subscriber class. No settlement agreement has been reached with the provider plaintiffs at this time, and the defendants continue to contest the consolidated cases brought by the provider plaintiffs.
If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $594, and will contain certain non-monetary terms. As of March 31, 2021, the liability balance accrued for our estimated remaining payment obligation was $507, net of payments made. All terms of the Subscriber Settlement Agreement are subject to final approval by the Court before they become effective. For additional information regarding this lawsuit, see Note 11, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
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In August 2020, the Delaware Court of Chancery ruled that neither we nor Cigna Corporation (“Cigna”) could collect damages in connection with the now terminated Agreement and Plan of Merger between us and Cigna. Cigna filed a notice of appeal in November 2020 challenging the trial court’s opinion that Anthem did not owe Cigna a termination fee. Cigna filed its appellate brief in December 2020, and we filed a response in January 2021. Oral argument before the Delaware Supreme Court was held in April 2021. The matter was taken under advisement. For additional information, 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.
In January 2019, we exercised our contractual right to terminate the ESIour PBM Agreement,agreement with Express Scripts, Inc. (the “ESI PBM Agreement”) and we completed the transition of our members from Express Scripts to IngenioRx onby 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“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.
In May 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 March 31, 2020,2021, total medical membership increased1.3, 1.4, or 3.2%3.3%. Our medical membership grew in both Government Business and Commercial & Specialty Business segments. The increase in medicalprimarily due to membership increases 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 driven by growth in our self-funded business, partially offset by declines in our fully-insured membership.Commercial & Specialty Business segment. The increase in our Government Business membership was primarily driven by organic growth in our Medicaid business due to the temporary suspension of eligibility recertification during the COVID-19 pandemic, which we expect will remain suspended at least through the end of 2021. The increase in our Government Business membership was further due to higher sales in our Medicare Advantage business exceeding lapses. The decrease in our Commercial & Specialty Business membership was primarily driven by our fee-based business, which experienced higher in-group change as a result of increased unemployment caused by the COVID-19 pandemic, partially offset by sales in our Individual business exceeding lapses.
Operating revenue for the three months ended March 31, 20202021 was $29,448, $32,098, an increase of $5,060,$2,650, or 20.7%9.0%, from the three months ended March 31, 2019.2020. The increase in operating revenue for the three months ended March 31, 2021 compared to 2020 was primarily driven by higher premium revenue in our Government Business segment and higher pharmacy product revenue in our IngenioRx segment.
Net income for the three months ended March 31, 2021 was $1,667, an increase of $144, or 9.5%, from the three months ended March 31, 2020. The increase in net income for the three months ended March 31, 2021 was primarily due to lower net realized losses on financial instruments, improved operating gain in our Government Business and IngenioRx segments, lower income tax expense, and improved investment income, partially offset by a decline in operating gain in our Commercial & Specialty Business segment.
Our fully-diluted earnings per share (“EPS”) was $6.71 for the three months ended March 31, 2021, which represented a 13.0% increase from EPS of $5.94 for the three months ended March 31, 2020. The increase in EPS for the three months ended March 31, 2021 compared to 2020 resulted primarily from the increase in net income, as well as a lower number of diluted shares outstanding in 2021.
Operating cash flow for the three months ended March 31, 2021 and 2020 was $2,505 and $2,515, respectively. Operating cash flow was driven by pharmacy product revenue related to the launch of IngenioRx. The increase was further attributable to higher premium revenue from rate increases across our businesses designed to cover overall cost trends andchanges in working capital, the impact of the HIP Fee reinstatement for 2020, and membership growth in our Government Business segment.
Net income for the three months ended March 31, 2020 was $1,523, a decrease of $28, or 1.8%, from the three months ended March 31, 2019. The decrease insegment and higher net income was primarily due to lower operating results in our Commercial & Specialty Business segment, higher income tax expense due to2021 offset by the impact of the repeal of the HIP Fee reinstatement for 2020 and net realized losses on financial instruments compared to net realized gains on financial instruments in the three months ended March 31, 2019. The decrease in net income was partially offset by favorable operating results in our IngenioRx segment and higher operating results in our Other and Government Business segments.
Our diluted earnings per share, or EPS, was $5.94 for the three months ended March 31, 2020, which represented a 0.5%increase from EPS of $5.91 for the three months ended March 31, 2019. This increase resulted from the impact of a lower number of shares outstanding in 2020, partially offset by the decrease in net income.

2021.
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Membership
Operating cash flow forIn 2021, we have updated our medical membership reporting to better align with how we view our business. Our medical membership now includes the following customer types: Individual, Group risk-based, Group fee-based, BlueCardthree months ended March 31, 2020 and 2019 was $2,515 and $1,630®, respectively. This Medicare, Medicaid and our Federal Employees Health Benefits (“FEHB”) Program. BCBS-branded business generally refers to members in our service areas licensed by the BCBSA. Non-BCBS-branded business refers to members in our non-BCBS-branded Amerigroup, Freedom Health, HealthSun, Optimum HealthCare and Simply Healthcare plans, as well as HealthLink and UniCare members. In addition to the above medical membership, we also serve customers who purchase one or more of our other products or services that are often ancillary to our health business.
•increaseIndividual consists of individual customers under age 65 and their covered dependents. Individual policies are generally sold through independent agents and brokers, retail partnerships, our in-house sales force or via the exchanges. Individual business is sold on a risked-based basis. We offer on-exchange products through public exchanges and off-exchange products. Federal premium subsidies are available only for certain public exchange Individual products. Unsubsidized Individual customers are generally more sensitive to product pricing and, to a lesser extent, the configuration of the network and the efficiency of administration. Customer turnover is generally higher with Individual as compared to Group risk-based business.
•Group risk-based consists of employer customers who purchase products on a full-risk basis, which are products for which we charge a premium and indemnify our policyholders against costs for health benefits. Group risk-based accounts include Local Group customers and National Accounts. Local Group consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as customers with more than 5% of eligible employees located outside of the headquarter state with up to 5,000 eligible employees. In addition, Local Group includes Student Health members. National Accounts generally consist of multi-state employer groups primarily headquartered in an Anthem service area with at least 5% of the eligible employees located outside of the headquarter state and with more than 5,000 eligible employees. Some exceptions are allowed based on broker and consultant relationships. Group risk-based accounts are generally sold through brokers or consultants who work with industry specialists from our in-house sales force and are offered both on and off the public exchanges.
•Group fee-based customers represent employer groups, Local Group, including UniCare members, and National Accounts, who purchase fee-based products and elect to retain most or all of the financial risk associated with their employees’ healthcare costs. Some fee-based customers choose to purchase stop loss coverage to limit their retained risk. Group fee-based accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force.
•BlueCard® host customers represent enrollees of Blue Cross and/or Blue Shield plans not owned by Anthem who receive healthcare services in our BCBSA licensed markets. BlueCard® membership consists of estimated host members using the national BlueCard® program. Host members are generally members who reside in or travel to a state in which an Anthem subsidiary is the Blue Cross and/or Blue Shield licensee and who are covered under an employer-sponsored health plan issued by a non-Anthem controlled BCBSA licensee (the “home plan”). We perform certain functions, including claims pricing and administration, for BlueCard® members, for which we receive administrative fees from the BlueCard® members’ home Blue plans. Other administrative functions, including maintenance of enrollment information and customer service, are performed by the home Blue plan. Host members are computed using, among other things, the average number of BlueCard® claims received per month.
•Medicare customers are Medicare-eligible individual members age 65 and over who have enrolled in Medicare Supplement plans; Medicare Advantage, including Special Needs Plans (“SNPs”), also known as Medicare Advantage SNPs; Medicare Part D; and dual-eligible programs through Medicare-Medicaid Plans (“MMPs”). Medicare Supplement plans typically pay the difference between healthcare costs incurred by a beneficiary and amounts paid by Medicare. Medicare Advantage plans provide Medicare beneficiaries with a managed care alternative to traditional Medicare and often include a Medicare Part D benefit. In addition, our Medicare Advantage SNPs provide tailored benefits to special needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-income seniors and persons under age 65 with disabilities. Medicare Advantage SNPs are coordinated care plans specifically designed to provide targeted care, covering all the healthcare services considered medically necessary for members and often providing professional care coordination services, with personal guidance and programs that help members maintain their health. Medicare Advantage membership also includes Medicare Advantage members in our Group Retiree Solutions business who
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are retired members of Commercial accounts or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us. Medicare Part D offers a prescription drug plan to Medicare and MMP beneficiaries. MMP, which was primarily attributable to higher premium receiptsestablished as a result of the HIP Fee reinstatementpassage of the ACA, is a demonstration program focused on serving members who are dually eligible for Medicaid and Medicare. Medicare Supplement and Medicare Advantage products are marketed in 2020the same manner, primarily through independent agents and brokers.
•Medicaid membership represents eligible members who receive healthcare benefits through publicly funded healthcare programs, including Medicaid, ACA-related Medicaid expansion programs, Temporary Assistance for Needy Families, programs for seniors and people with disabilities, Children’s Health Insurance Programs, and specialty programs such as well as other changesthose focused on long-term services and support, HIV/AIDS, foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities, among others.
•FEHB members consist of United States government employees and their dependents within our geographic markets through our participation in working capital.
Membershipthe national contract between the BCBSA and the U.S. Office of Personnel Management.
The following table presents our medical membership by reportable segment and customer type funding arrangement and reportable segment as of March 31, 20202021 and 2019.2020. 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 2019 Annual Report on Form 10-K.
  
March 31  
(In thousands)20212020Change% Change
Medical Membership
Commercial & Specialty Business:
Individual731 717 142.0 %
Group Risk-Based3,837 3,841 (4)(0.1)%
Commercial Risk-Based4,568 4,558 100.2 %
BlueCard®6,166 6,197 (31)(0.5)%
Group Fee-Based19,515 19,905 (390)(2.0)%
Commercial Fee-Based25,681 26,102 (421)(1.6)%
Total Commercial & Specialty Business30,249 30,660 (411)(1.3)%
Government Business:
Medicare Advantage1,538 1,341 19714.7 %
Medicare Supplement930 914 161.8 %
Total Medicare2,468 2,255 213 9.4 %
Medicaid9,172 7,615 1,55720.4 %
Federal Employees Health Benefits1,632 1,614 181.1 %
Total Government Business13,272 11,484 1,78815.6 %
Total Medical Membership43,521 42,144 1,3773.3 %
Other Membership
Life and Disability Members4,766 5,158 (392)(7.6)%
Dental Members6,599 6,476 123 1.9 %
Dental Administration Members1,488 1,311 177 13.5 %
Vision Members7,798 7,510 288 3.8 %
Medicare Part D Standalone Members450 383 67 17.5 %
  
 
March 31

 

 
(In thousands)
2020
 
2019

Change

% Change
Medical Membership







Customer Type







Local Group
15,848

 
15,697

 
151

 
1.0
 %
Individual
717

 
773

 
(56
)
 
(7.2
)%
National:
 
 
 
 
 
 
 
National Accounts
7,898

 
7,757

 
141

 
1.8
 %
BlueCard®
6,197

 
5,981

 
216

 
3.6
 %
Total National
14,095

 
13,738

 
357

 
2.6
 %
Medicare:
 
 
 
 
 
 
 
Medicare Advantage
1,341

 
1,144

 
197

 
17.2
 %
Medicare Supplement
914

 
867

 
47

 
5.4
 %
Total Medicare
2,255

 
2,011

 
244

 
12.1
 %
Medicaid
7,615

 
7,033

 
582

 
8.3
 %
Federal Employees Health Benefits
1,614

 
1,591

 
23

 
1.4
 %
Total Medical Membership by Customer Type
42,144

 
40,843

 
1,301

 
3.2
 %
Funding Arrangement
 
 
 
 
 
 
 
Self-Funded
26,120

 
25,495

 
625

 
2.5
 %
Fully-Insured
16,024

 
15,348

 
676

 
4.4
 %
Total Medical Membership by Funding Arrangement
42,144

 
40,843

 
1,301

 
3.2
 %
Reportable Segment
 
 
 
 
 
 
 
Commercial & Specialty Business
30,660

 
30,208

 
452

 
1.5
 %
Government Business
11,484

 
10,635

 
849

 
8.0
 %
Total Medical Membership by Reportable Segment
42,144

 
40,843

 
1,301

 
3.2
 %
Other Membership
 
 
 
 
 
 
 
Life and Disability Members
5,158

 
4,849

 
309

 
6.4
 %
Dental Members
6,172

 
5,955

 
217

 
3.6
 %
Dental Administration Members
1,311

 
5,491

 
(4,180
)
 
(76.1
)%
Vision Members
7,510

 
7,169

 
341

 
4.8
 %
Medicare Part D Standalone Members
383

 
289

 
94

 
32.5
 %
 
 
 
 
 
 
 
 
 



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Medical Membership
Total medical membership grew in both Government Business and Commercial & Specialty Business segments as well as by funding arrangement. Fully-insured membership increased primarily due to growth in our Government Business, which was driven by organic growth in our Medicaid andmembership as a result of the temporary suspension of eligibility recertification during the
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COVID-19 pandemic. The increase in our Government Business membership was further due to higher sales in our Medicare businesses,Advantage business exceeding the lapses. These increases were partially offset by the membership decreasesa decrease in our fully-insured Local Group business resulting from lapses andCommercial & Specialty Business group fee-based membership attributable to higher in-group change exceedingas a result of increased unemployment caused by the COVID-19 pandemic, partially offset by sales and in our Individual business resulting from attrition in our non-ACA-compliant off-exchange product offerings. Self-funded medical membership increased primarily as a result of higher BlueCard® activity at other Blue Cross Blue Shield Association, or BCBSA, plans whose members reside in or travel to our licensed areas. The increase in self-funded membership was further attributable to membership increases in our National Accounts business resulting from our acquisition of a third-party administrator, or TPA, and in our Local Group self-funded business resulting from in-group change. Medicaid membership increased primarily due to our acquisition of Medicaid plans in Missouri and Nebraska and organic growth in existing markets. Medicare membership increased primarily due to higher sales during open enrollment exceeding lapses. Local Group membership increased due to our TPA acquisition, new sales and favorable in-group change exceeding lapses. National Accounts membership increased primarily due to our TPA acquisition.
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 experiencedLife and disability membership decreased primarily due to the loss of a group risk-based account and membership decrease in our group fee-based business. Vision membership increased as a result of growth in our life and disability and dental membershipsMedicare business. Dental administration membership increased due to growth in our FEHB program. Dental membership increased primarily due to higher sales in our Local Group business. Dental administration membership decreased due to the lapse of a large dental administration services contract. Vision membership increased due to higher salesIndividual and group accounts and growth in our Medicare and Local Group businesses.FEHB business.

-44-


Consolidated Results of Operations
Our consolidated summarized results of operations and other financial information for the three months ended March 31, 20202021 and 20192020 are as follows: 
Three Months Ended March 31
20212020Change% Change
Total operating revenue$32,098 $29,448 $2,650 9.0 %
Net investment income291 254 37 14.6 %
Net realized losses on financial instruments(4)(81)77 95.1 %
Total revenues32,385 29,621 2,764 9.3 %
Benefit expense23,699 21,489 2,210 10.3 %
Cost of products sold2,313 1,984 329 16.6 %
Selling, general and administrative expense3,925 3,781 144 3.8 %
Other expense1 
272 278 (6)(2.2)%
Total expenses30,209 27,532 2,677 9.7 %
Income before income tax expense2,176 2,089 87 4.2 %
Income tax expense509 566 (57)(10.1)%
Net income$1,667 $1,523 $144 9.5 %
Net income attributable to noncontrolling interests(2)— (2)NM
Shareholders’ net income$1,665 $1,523 $142 9.3 %
Average diluted shares outstanding248.2 256.4 (8.2)(3.2)%
Diluted shareholders’ net income per share$6.71 $5.94 $0.77 13.0 %
Effective tax rate23.4 %27.1 %
(370) bp3
Benefit expense ratio2
85.6 %84.2 %
140 bp3
Selling, general and administrative expense ratio4
12.2 %12.8 %
(60) bp3
Income before income tax expense as a percentage of total revenues6.7 %7.1 %
(40) bp3
Shareholders' net income as a percentage of total revenues5.1 %5.1 %
0 bp3
 
 
 
Three Months Ended 
 March 31

 
 
 
 
 
 

 
 
 
 
 
 
 
 
2020
 
2019


$ Change

% Change
Total operating revenue

$
29,448


$
24,388


 
$
5,060

 
20.7
 %
Net investment income

254


210


 
44

 
21.0
 %
Net realized (losses) gains on financial instruments

(24
)

78


 
(102
)
 
(130.8
)%
Impairment losses recognized in income

(57
)

(10
)

 
(47
)
 
470.0
 %
Total revenues

29,621


24,666


 
4,955

 
20.1
 %
Benefit expense

21,489


19,282


 
2,207

 
11.4
 %
Cost of products sold
 
1,984

 
—

 
 
1,984

 
NM

Selling, general and administrative expense

3,781


3,166


 
615

 
19.4
 %
Other expense1 

278


273


 
5

 
1.8
 %
Total expenses

27,532


22,721


 
4,811

 
21.2
 %
Income before income tax expense

2,089


1,945


 
144

 
7.4
 %
Income tax expense

566


394


 
172

 
43.7
 %
Net income
 
$
1,523

 
$
1,551

 
 
$
(28
)
 
(1.8
)%
 
 
 
 
 
 
 
 
 
 
Average diluted shares outstanding

256.4


262.3


 
(5.9
)
 
(2.2
)%
Diluted net income per share
 
$
5.94

 
$
5.91

 
 
$
0.03

 
0.5
 %
Effective tax rate
 
27.1
%
 
20.3
%
 
 
 
 
680bp3

Benefit expense ratio2

84.2
%

84.4
%




(20)bp3

Selling, general and administrative expense ratio4

12.8
%

13.0
%




(20)bp3

Income before income tax expense as a percentage of total revenues

7.1
%

7.9
%




(80)bp3

Net income as a percentage of total revenues

5.1
%

6.3
%




(120)bp3

 
 
 
 
 
 
 
 
 
 
 
Certain of the following definitions are also applicable to all other results of operations tables in this discussion:
NM    Not meaningful.
NM
1Includes interest expense, amortization of other intangible assets and loss on extinguishment of debt.
2Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended March 31, 2021 and 2020 were $27,676 and $25,517, respectively.
3bp = basis point; one hundred basis points = 1%.
4Selling, general and administrative expense ratio represents selling, general and administrative expense as a percentage of total operating revenue.
-45-

Not meaningful.
1
Includes interest expense, amortization of other intangible assets and (gain) loss on extinguishment of debt.
2
Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the three months ended March 31, 2020 and 2019 were $25,517 and $22,843, 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 March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
The increase in totalTotal operating revenue was primarilyincreased as a result of higher premium revenue due mainly to product revenue and higher premiums. Product revenue represents services performed by our IngenioRx pharmacy benefit manager for unaffiliated PBM customers as well as ingredient costs (net of any rebates or discounts), including co-payments made by or on behalf of the customer, and administrative fees. There was no product revenue recognized in the three months ended March 31, 2019, as IngenioRx began its operations during the second quarter of 2019. The higher premiums were due to rate increases across our businesses designed to cover overall cost trends and the impact of the HIP Fee reinstatement for 2020, and membership growth in our Government Business segment related to our Medicaid and Medicare businesses. The increase in operating revenue was also the result of additional pharmacy product revenue within our IngenioRx segment. These increases in operating revenue were partially offset by the impact of lower premium revenue due to the repeal of the HIP Fee in 2021 and certain retroactive rate adjustments and experience-rated refunds in our Medicaid business.

Net investment income increased primarily due to an increase in income from other invested assets, partially offset by lower yields on fixed maturity securities.
-45-


We recognized netNet realized losses on financial instruments in the first quarter of 2020 compared to net realized gains on financial instruments in the first quarter of 2019. This change wasdecreased primarily due to an increase in gains from sales of our fixed maturity securities, other invested assets and equity securities. In addition, credit losses on fixed maturity securities declined year-over-year. These improvements were partially offset by a decreasedecline in net realized gains onthe fair value of our equity securities, reflecting the changeswhich is recognized in their fair values during the three months ended March 31, 2020.earnings.
Benefit expense increased primarily due to increased costs as a result ofresulting from membership growth in our Medicaid and Medicare and Medicaid membership and overall cost trends across our businesses. businesses as well as increased expense for COVID-19 related costs. These benefit expense increases were partially offset by decreased utilization of non-COVID-19 healthcare services in 2021.
Our benefit expense ratio decreased largelyincreased primarily due to costs associated with COVID-19, including testing and vaccine administration, and to a lesser extent, the impact of the repeal of the HIP Fee reinstatement for 2020. This decrease wasin 2021. These increases were partially offset by lower non-COVID-19 healthcare utilization in 2021 and the leap year impact of an extraone less calendar day compared to the first quarter of claims in the three months ended March 31, 2020 as associated premiums are recognized ratably throughout the year, and margin normalization in our Individual business.2020.
Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx. There was no costIngenioRx for our unaffiliated PBM customers. Cost of products sold recognized inincreased as the three months ended March 31, 2019, as IngenioRx began its operations during the second quarter of 2019. corresponding pharmacy product revenues increased.
Our selling,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. businesses, higher employee incentive compensation costs and increased premium taxes as a result of the growth in our premiums. These increases were partially offset by the repeal of the HIP Fee in 2021.
Our selling, general and administrative expense ratio decreased primarily due to the growth in operating revenue. This decrease was partially offset by the reinstatementrepeal of the HIP Fee for 2020in 2021 and increased spend to supportthe growth in our businesses.operating revenue. These decreases were partially offset by increased selling, general and administrative expense, as discussed in the preceding paragraph.
Our effective income tax rate increaseddecreased primarily due to the reinstatementelimination of the non-tax deductible HIP Fee for 2020, which resulted in additional income tax expense of $87. 2021.
Our shareholders’ net income as a percentage of total revenue decreased during the three months ended March 31, 2020revenues remained level in 2021 as compared to the three months ended March 31, 20192020 as a result of all factors discussed above.
Reportable Segments Results of Operations
Our results of operations discussed throughout this MD&A&A are determined in accordance with U.S. generally accepted accounting principles or GAAP.(“GAAP”). We also calculate operating gain and operating margin to further aid investors in understanding and analyzing our core operating results and comparing them among periods. We define operating revenue as premium income, product revenue and administrative fees and other revenue. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense. It does not include net investment income, net realized (losses) gainslosses on financial instruments, impairment losses recognized in income, interest expense, amortization of other intangible assets, loss (gain) 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, shareholders’ net income or EPS, prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For a reconciliation of reportable segments’segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and
-46-

a reconciliation of reportable segments’segments’ operating gain to income before income tax expense, see Note 15, “Segment“Segment Information,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Beginning in 2020, IngenioRx meets the quantitative thresholds for a reportable segment and the resultsResults of our operations are now described through four reportable segments: Commercial && Specialty Business, Government Business, IngenioRx and Other. For additional information, see Note 15, “Segment“Segment Information,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

-46-


The following table presents a summary of the reportable segment financial information for the three months ended March 31, 20202021 and 2019:2020:
 Three Months Ended 
 March 31
 20212020Change% Change
Operating Revenue
Commercial & Specialty Business$9,491 $9,361 $130 1.4 %
Government Business19,283 17,466 1,817 10.4 %
IngenioRx5,862 5,197 665 12.8 %
Other2,370 1,027 1,343 130.8 %
Eliminations(4,908)(3,603)(1,305)36.2 %
Total operating revenue$32,098 $29,448 $2,650 9.0 %
Operating Gain
Commercial & Specialty Business$1,268 $1,420 $(152)(10.7)%
Government Business478 411 67 16.3 %
IngenioRx407 349 58 16.6 %
Other8 14 (6)(42.9)%
Operating Margin
Commercial & Specialty Business13.4 %15.2 %(180) bp
Government Business2.5 %2.4 %10 bp
IngenioRx6.9 %6.7 %20 bp
 
 
Three Months Ended 
 March 31
 
 
 
 
2020
 
2019 1
 
$ Change
 
% Change
Operating Revenue







Commercial & Specialty Business
$
9,361

 
$
9,392

 
$
(31
)
 
(0.3
)%
Government Business
17,466

 
14,925

 
2,541

 
17.0
 %
IngenioRx
5,197

 
—

 
5,197

 
NM

Other
1,027

 
548

 
479

 
87.4
 %
Eliminations
(3,603
)
 
(477
)
 
(3,126
)
 
NM

Total operating revenue
$
29,448

 
$
24,388

 
$
5,060

 
20.7
 %
 
 
 
 
 
 
 
 
Operating Gain (Loss)
 
 
 
 
 
 
 
Commercial & Specialty Business
$
1,420

 
$
1,598

 
$
(178
)
 
(11.1
)%
Government Business
411

 
374

 
37

 
9.9
 %
IngenioRx
349

 
—

 
349

 
NM

Other
14

 
(32
)
 
46

 
NM

 
 
 
 
 
 
 
 
Operating Margin
 
 
 
 
 
 
 
Commercial & Specialty Business
15.2
%
 
17.0
%
 



(180
)bp
Government Business
2.4
%
 
2.5
%
 



(10
)bp
IngenioRx
 
6.7
%
 
—
%
 
 
 
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 months ended March 31, 2019 have been reclassified to conform to the current year presentation for comparability.
Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
Commercial && Specialty Business
Operating revenue decreasedincreased primarily due to premium rate increases in our Group risk-based business designed to cover medical cost trends and increased membership declines in our Individual and Local group fully-insured businesses and the absence of pharmacy administrative fee revenue that is now recognized within the IngenioRx segment.business. These decreasesincreases were partially offset by decreases in premiums due to the rate increases designed to cover overall cost trends and the impactrepeal of the HIP Fee reinstatement for 2020.in 2021.
Operating gain decreased primarily due to costs associated with COVID-19, including testing and vaccine administration as well as investments to support growth. The decrease in operating gain was primarily driven by margin normalization in our Individual business and the shift of pharmacy earnings to our IngenioRx segment. The decrease was further due to the leap year impact of an extra day of claims in the three months ended March 31, 2020. These decreases were partially offset by growth in our value-added services.lower non-COVID-19 healthcare utilization and the impact of one less calendar day compared to the first quarter of 2020.
Government Business
Operating revenue increased primarily due to higher premium revenue as a resultgrowth in our Medicaid business driven by the temporary suspension of organic growth, acquisitionseligibility recertification efforts during the COVID-19 pandemic, which we expect will remain suspended at least through the end of 2021. Acquisitions and new expansions, as well as membership growth and rate increases, in our Medicare business also contributed to the operating revenue increase. These increases were partially offset by a decline in premium revenue associated with the repeal of the HIP Fee in 2021, as well as certain retroactive rate adjustments and experience-rated refunds in our Medicaid business and membership growth in our Medicare business. The increase in premium revenue was further attributable to rate increases designed to cover overall cost trends and the HIP Fee reinstatement for 2020.lower risk revenue.
-47-

The increase in operating gain was primarily driven by premium rate adjustments and membership growth in our Medicaid business, as well asmembership and the impact of one less calendar day compared to the HIP Fee reinstatement forfirst quarter of 2020. These increases in operating gain wereThe increase was partially offset by an increase in selling, general and administrative spend to support growthincreased costs associated with COVID-19, net of lower non-COVID-19 healthcare utilization, experience-rated refunds in our businessesMedicaid business and the leap year impact of an extra day of claims in the three months ended March 31, 2020.lower risk revenue.

IngenioRx
-47-


IngenioRx
Operating revenue and operating gain increased as a result of higher drug spend from IngenioRx commencing operations during the second quartercustomers including spend relating to increased Medicaid membership within our Government Business segment.
The increase in operating gain was primarily driven by an out of 2019. Operating revenue represents product revenues from services performed for our fully-insured Anthem health plansperiod adjustment and self-funded customersgrowth in integrated medical and external customers outside of the health plans we own. Product revenues and cost of goods sold for Anthem health plans are eliminatedpharmacy members in consolidation. Operating gain represents operating revenue less cost of products sold and selling, general and administrative expenses. 2021.
Other
Operating revenue increased primarily due to higher administrative fees and other revenue fromfor services performed by DBG in certain marketsour Diversified Business Group for our Commercial & Specialty Business and Government Business segments, as well as our acquisition of Beacon in February 2020.
The increasedecrease in operating gain was due todriven by an increase in unallocated corporate expenses, partially offset by growth in value-added services performed by DBG for our other segments. Diversified Business Group.
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.&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 20192020 Annual Report on Form 10-K in Note 2, “Basis“Basis of Presentation and Significant Accounting Policies,”” to our audited consolidated financial statements as of and for the year ended December 31, 2019,2020, as well as in the “Critical“Critical Accounting Policies and Estimates”Estimates” section of Part II, Item 7, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”” As of March 31, 2020,2021, our critical accounting policies and estimates have not changed from those described in our 20192020 Annual Report on Form 10-K, except for the policies related to investments and receivables, which changed as a result of the adoption of a new accounting pronouncement.10-K.
Medical Claims Payable
The most subjective accounting estimate in our consolidated financial statements is our liability for medical claims payable. Our accounting policies related to medical claims payable are discussed in the references cited above. As of March 31, 2020,2021, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 20192020 Annual Report on Form 10-K. For a reconciliation of the beginning and ending balance for medical claims payable for the three months endedMarch 31, 20202021 and 2019,2020, see Note 9, “Medical“Medical Claims Payable,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
-48-

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the three months ended March 31, 20202021 and 2019,2020, 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
Three Months Ended 
 March 31
20212020
Assumed trend factors$998 $510 
Assumed completion factors490 190 
Total$1,488 $700 
 
 
 
 
 
 
 
Favorable Developments by 
Changes in Key Assumptions
 
 
 
 
 
 
 
Three Months Ended 
 March 31
 
 
 
 
 
 
 
2020
 
2019
Assumed trend factors
 
 
 
 
 
 
$
510

 
$
345

Assumed completion factors
 
 
 
 
 
 
190

 
110

Total
 
 
 
 
 
 
$
700

 
$
455

The favorable development recognized in the three months ended March 31, 20202021 and 20192020 resulted primarily from trend factors in late 20192020 and late 2018,2019, respectively, developing more favorably than originally expected. Favorable

-48-


development in the completion factors resulting from the latter parts of 20192020 and 20182019 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 62.1% and 64.7% for both the three months ended March 31, 20202021 and 2019.2020, respectively. This ratio serves as an indicator of claims processing speed whereby claims were processed at approximately the samea similar speed during the three months ended March 31, 2020 and 2019. 2021 as compared to the three months ended March 31, 2020.
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 three months ended March 31, 2020,2021, this metric was 8.8%15.5%, largely driven by favorable trend factor development at the end of 20192020 as well as favorable completion factor development from 2019.2019 and 2020. For the three months ended March 31, 2019,2020, this metric was 6.7%8.8%, largely driven by favorable trend factor development at the end of 2018 as well as favorable completion factor development from 2018. 2019.
We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims. We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology. For the three months ended March 31, 2020,2021, this metric was 0.9%1.8%, which was calculated using the redundancy of $700.$1,488. For the three months ended March 31, 2019,2020, the comparable metric was 0.7%0.9%, which was calculated using the redundancy of $455.$700. We believe these metrics demonstrate a generally consistentan 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 drasticallysignificantly impacted the global economy, causing market instability and significantly decreasingdeclines in the worldwide demand for energy. We regularly evaluatefair value of our holdings of fixed maturity securities for declines and impairment, as well as industry risk, and as a result of our evaluation, we recognized a $49 credit loss allowance for ourin the energy sector fixed maturity securities forand consumer-driven industries such as travel, entertainment and retail. While the three months ended March 31, 2020. At March 31, 2020, we held $888markets have stabilized since the onset of these securities, which have the potential to be further impaired if oilCOVID-19 pandemic, the extent and natural gas prices stay at current levels or further decline. At March 31, 2020, we also held $249length of equity investments in certainthe recovery remain uncertain. Further, the energy sector joint ventures, for which the fair value is estimated based on each security’s current condition and future cash flow projections.consumer-driven industries remain distressed. Given the uncertainty of changes in market conditions,uncertainty, there is a risk that declines in fair value of theseour investments that have declined may occur in the near future and further impairment losses may need to be recorded.
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 declinenot 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 three months ended March 31, 2020,2021, see the ““Recently Adopted Accounting Guidance”” and ““Recent Accounting Guidance Not Yet Adopted”” sections of Note 2, “Basis“Basis of Presentation and Significant Accounting Policies,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

-49-
-49-


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 drasticallysignificantly impacted the global economy causing market instability and increasing unemploymentcaused increased volatility in the United States.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 claim payments, collection of our premiums, product or administrative fee revenues, investmentsfinancial condition and our abilityliquidity. We intend to access credit. Additional discussion regarding the impact of COVID-19 can be found elsewherecontinue to monitor market conditions and act in this MD&A. a prudent manner.
For a more detailed overview of our liquidity and capital resources management, see the ““Introduction”” section included in the “Liquidity“Liquidity and Capital Resources”Resources” section of Part II, Item 7, “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” included in our 20192020 Annual Report on Form 10-K.
For additional information regarding our sources and uses of capital during the three months ended March 31, 2020,2021, see Note 5, “Derivative6, “Derivative Financial Instruments,”” Note 10, “Debt,”“Debt,” and Note 12, “Capital“Capital Stock -– Use of Capital -– Dividends and Stock Repurchase Program,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Liquidity
A summary of our major sources and uses of cash and cash equivalents for the three months ended March 31, 20202021 and 20192020 is as follows:
 Three Months Ended 
 March 31		2021 vs. 2020
 20212020Change
Sources of Cash:
Net cash provided by operating activities$2,505 $2,515 $(10)
Issuances of commercial paper and short- and long-term debt, net of repayments3,212 1,528 1,684 
Proceeds from issuance of common stock under employee stock plans89 44 45 
Other sources of cash, net65 — 65 
Total sources of cash5,871 4,087 1,784 
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions(1,330)(571)(759)
Purchases of subsidiaries, net of cash acquired(27)(1,908)1,881 
Repurchase and retirement of common stock(447)(529)82 
Purchases of property and equipment(204)(204)— 
Cash dividends(277)(240)(37)
Other uses of cash, net— (225)225 
Total uses of cash(2,285)(3,677)1,392 
Effect of foreign exchange rates on cash and cash equivalents(1)(2)1 
Net increase in cash and cash equivalents$3,585 $408 $3,177 
 
Three Months Ended 
 March 31
 
2020 vs. 2019
 
2020
 
2019
 
Change
Sources of Cash:
 
 
 
 
 
Net cash provided by operating activities
$
2,515

 
$
1,630

 
$
885

Issuances of commercial paper and short- and long-term debt, net of repayments
1,528

 
67

 
1,461

Proceeds from issuance of common stock under employee stock plans
44

 
76

 
(32
)
Other sources of cash, net
—

 
28

 
(28
)
Total sources of cash
4,087

 
1,801

 
2,286

Uses of Cash:
 
 
 
 
 
Purchases of investments, net of proceeds from sales, maturities, calls and redemptions
(571
)
 
(440
)
 
(131
)
Purchases of subsidiaries, net of cash acquired
(1,908
)
 
—

 
(1,908
)
Repurchase and retirement of common stock
(529
)
 
(294
)
 
(235
)
Purchases of property and equipment
(204
)
 
(234
)
 
30

Cash dividends
(240
)
 
(206
)
 
(34
)
Other uses of cash, net
(225
)
 
(78
)
 
(147
)
Total uses of cash
(3,677
)
 
(1,252
)
 
(2,425
)
Effect of foreign exchange rates on cash and cash equivalents
(2
)
 
(1
)
 
(1
)
Net increase in cash and cash equivalents
$
408

 
$
548

 
$
(140
)
The increase in cashCash provided by operating activities was primarily attributable todriven by changes in working capital, the impact of membership growth in our Government Business segment and higher premium receipts as a resultnet income in 2021 offset by the impact of the repeal of the HIP Fee reinstatement in 2020 as well as other changes in working capital.

2021.
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Other significant changes in sources or uses of cash year-over-year included increasesa decrease in cash paid for acquisitions, cash paid for repurchase and retirement of common stock and receipt ofan increase in net proceeds received from the issuancesissuance of commercial paperlong-term debt and short- and long-term debt. an increase in net purchases of investments.
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 $26,301$38,069 at March 31, 2020.2021. Since December 31, 2019,2020, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $174,$6,774, primarily due to net proceeds from the issuance of commercial paper and short- and long-term debt and cash generated from 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.operations.
Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies. Certain accounting practices prescribed by insurance regulatory authorities, or statutory accounting practices, differ from GAAP. Changes that occur in statutory accounting practices, if any, could impact our subsidiaries’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 March 31, 2020,2021, we held $1,689$4,593 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, pending 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,(“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’shareholders’ equity. Total debt is the sum of short-term borrowings, current portion of long-term debt, long-term debt, less current portion and 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 41.7%41.6% and 39.5%38.7% as of March 31, 20202021 and December 31, 2019,2020, respectively. The increase in our consolidated debt-to-capital ratio was primarily due to the debt issued in our March bond offering to fund our pending acquisitions and refinance an upcoming debt maturity.
Our senior debt is rated “A”“A” by S&P&P Global Ratings, “BBB”“BBB” by Fitch Ratings, Inc., “Baa2”“Baa2” by Moody’sMoody’s Investor Service, Inc. and “bbb+”“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 couldWe have a material adverse effect on our financial condition and our liquidity.
We have taken several recent actions to preserve our liquidity and financial flexibility. As a precautionary measure, we borrowed $300 on our senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes. The 5-Year Facility provides credit up to $2,500 and matures in June 2024. We also have a 364-day senior revolving credit facility (“364-Day Facility”) with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000 and matures in June 2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of March 31, 2021, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 40.7%. We do not believe the restrictions contained in any of our credit facility covenants materially affect our financial or operating flexibility. As of March 31, 2021, we were in compliance with all of the debt covenants under these credit facilities. There were no amounts outstanding under the 364-Day Facility at any time during the three months ended March 31, 2021 or the year ended December 31, 2020. This $300 was repaid in April 2020.At March 31, 2021 and December 31, 2020, there were no amounts outstanding under our 5-Year Facility.
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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. Inaddition, in the second quarter of 2020, we expect to extend the term of our 364-day senior revolving credit facility to expire in June 2021.

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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. At March 31, 2021, there were no amounts outstanding under our commercial paper program.
Other measures we have taken include reducing our discretionary spending and temporarily suspending our share repurchase activity. To increase our cash on hand, we are delaying our quarterly estimated federal income tax payments normally due during the second quarter of 2020 until July 15, 2020, as provided for by IRS Notice 2020-23. We are also delaying 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 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.expansions or the repurchase of shares of our common stock.
We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders. The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.
For additional information regarding our sources and uses of capital at March 31, 2020,2021, see Note 4, “Investments,”5, “Investments,” Note 5, “Derivative6, “Derivative Financial Instruments,”” Note 10, “Debt”“Debt,” and Note 12, “Capital“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’subsidiaries’ states of domicile have statutory risk-based capital or RBC,(“RBC”) requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners or NAIC, RBC(“NAIC”) Risk-Based Capital (RBC) for Insurers Model Act.Act (the "RBC Model Act"). These RBC requirements are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’sinsurer’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’scompany’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’subsidiaries’ respective RBC levels as of December 31, 2019,2020, 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, “Statutory22, “Statutory Information,”” in our audited consolidated financial statements as of and for the year ended December 31, 20192020 included in our 20192020 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 20192020 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 our borrowings. For additional information regarding our estimated contractual obligations and commitments, see Note 5, “Derivative6, “Derivative Financial Instruments,”” Note 10, “Debt,”“Debt,” and the ““Other Contingencies”” and ““Contractual Obligations and Commitments”” sections of Note 11 “Commitments“Commitments and Contingencies,”” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,” “forecast,” “plan”“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- lookingforward-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,(collectively, the ACA,“ACA”), and the ultimate outcome of legal challenges to the ACA; changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; our ability to contract with providers on cost-effective and competitive terms; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities; reduced enrollment; 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;(including the ultimate outcome of litigation between Cigna Corporation and us related to the merger agreement between the parties and the potential for such litigation to cause us to incur substantial additional costs, including potential settlement and judgment costs;parties), government investigations, audits or reviews; risks and uncertainties related to our pharmacy benefit management or PBM,(“PBM”) business, including non-compliance by any party with the PBM services agreement between us and CaremarkPCS Health, L.L.C.; medical malpractice or professional liability claims or other risks related to healthcare and PBM services provided by our subsidiaries; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; changes in U.S. tax laws; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; possible restrictions in the payment of dividends from our subsidiaries and increases in required minimum levels of capital; our ability to repurchase shares of our common stock and pay dividends on our common stock due to the adequacy of our cash flow and earnings and other considerations; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular; failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield Association; the impact of international laws and 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.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our market risks, refer to Item 7A, “Quantitative“Quantitative and Qualitative Disclosures about Market Risk,”” included in our 20192020 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, 20192020.
.
ITEM 4.    CONTROLS AND PROCEDURES
ITEM 4.
CONTROLS AND PROCEDURES
We carried out an evaluation as of March 31, 2020,2021, 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.(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.
During the three months ended March 31, 2020, we implemented certain additional controls associated with our IngenioRx PBM business. Other than these new controls, thereThere have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.
ITEM 1.    LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
For information regarding legal proceedings at March 31, 2020,2021, see the ““Litigation and Regulatory Proceedings,”” and ““Other Contingencies”” sections of Note 11, “Commitments“Commitments and Contingencies”Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.10-Q, which information is incorporated herein by reference.

ITEM 1A.
RISK FACTORS
Except as set forth below, there
ITEM 1A.    RISK FACTORS
There have been no material changes to the risk factors disclosed in our 20192020 Annual Report on Form 10-K.
The following risk factor has been added:
The outbreak of the COVID-19 pandemic and measures taken to prevent its spread are adversely affecting our business in a number of ways, and we are unable to predict the full extent of those impacts on our business, cash flows, financial condition and results of operations, but the impact could be material.
The ongoing COVID-19 pandemic has caused illness, deaths, quarantines, business and school shutdowns, reductions in business activity, travel and financial transactions, unemployment, labor shortages, supply chain interruptions and overall economic and financial market instability, and it underscores and may heighten certain risks we face in our business, including those discussed in our 2019 Annual Report on Form 10-K.
We are closely monitoring developments related to the COVID-19 pandemic to assess its ongoing impact on our business. While we expect the impacts of COVID-19, and the actions taken to contain its spread or address its impacts, to have an adverse effect on our business, cash flows, financial condition and results of operations, the extent of those impacts will depend on future developments, which are highly uncertain and cannot be predicted at this time, including, but not limited to, the transmission rate, duration and spread of the outbreak, its severity, the extent and effectiveness of the actions taken to contain the spread of the virus and address its impacts, and how quickly and to what extent normal economic and operating conditions can resume. Factors that could negatively

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
impact our ability to operate successfully during or following the COVID-19 pandemic, or that could otherwise significantly adversely impact and disrupt our business, cash flows, financial condition and results of operations include, but are not limited to, the following:
•
Increased healthcare costs due to higher utilization rates of medical facilities and services, medical expenses and other increases in associated hospital and pharmaceutical costs. We have begun to offer our members expanded benefit coverage, such as providing full coverage for COVID-19 testing and treatment, and governmental action has required, and may continue to require, us to provide additional coverage.
•
A reduction in enrollment in our health benefits and pharmacy benefit management products and services, or a change in membership mix to less profitable lines of business, as a result of reductions in workforce by existing customers and other impacts of an economic downturn.
•
Cash flow volatility or shortfalls caused by an increase in delayed, delinquent or non-collectable payments from customers and government payers.
•
Reductions in our operating effectiveness as our employees work from home or otherwise are impacted by COVID-19. We have transitioned nearly all of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our members or other third parties.
•
Disruptions in our normal business operations due to disruptions in public and private infrastructure,including communications, financial services and supply chains.
•
Loss of functionality due to the disruption of services provided to us by third-party vendors, including as a result of financial difficulties experienced by such vendors and the impact of vendor employees working from home or otherwise being impacted by COVID-19.
•
Increased cost of capital and limited ability to access the capital markets due to disruption and volatility in global financial markets or a downgrade in our credit rating.
•
A further decrease in the value of our investments, which may result in additional losses charged to income.
•
An increase in our effective income tax rate due to the impacts of COVID-19 on our income and other factors described above and the non-tax deductibility of the HIP Fee.
For more information on how these and other risks may further affect our business, please see Part I, Item 1A, “Risk Factors” in our 2019 Annual Report on Form 10-K.

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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)    
January 1, 2021 to January 31, 2021496,541 $319.59 493,200 $5,935 
February 1, 2021 to February 28, 2021528,311 295.23 527,734 5,779 
March 1, 2021 to March 31, 2021679,367 327.81 393,985 5,645 
1,704,219 1,414,919 
1Total number of shares purchased includes 289,300 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.
2    Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board of Directors evaluates periodically. During the three months ended March 31, 2021, we repurchased 1,414,919 shares at a total cost of $447 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 most recent authorized increase to the program was $5,000 on January 26, 2021 by our Audit Committee, pursuant to authorization granted by the Board of Directors. 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.

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Period
Total Number
of Shares
Purchased1 
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased
as Part
of Publicly
Announced
Programs2
 
Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under the
Programs
(in millions, except share and per share data)
 
 
 
 
 
 
 
January 1, 2020 to January 31, 2020
509,949

 
$
298.71

 
509,300

 
$
3,640

February 1, 2020 to February 29, 2020
671,852

 
278.76

 
670,900

 
3,453

March 1, 2020 to March 31, 2020
1,135,798

 
261.46

 
740,058

 
3,263

 
2,317,599

 
 
 
1,920,258

 
 

ITEM 6.    EXHIBITS
1Exhibit
Number
Total number of shares purchased includes 397,341 shares delivered to or withheld by us in connection with employee payroll tax withholding upon exercise or vesting of stock awards. Stock grants to employees and directors and stock issued for stock option plans and stock purchase plans in the consolidated statements of shareholders’ equity are shown net of these shares purchased.
Exhibit
2
Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board of Directors evaluates periodically. During the three months ended March 31, 2020, we repurchased 1,920,258 shares at a cost of $529 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. 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.

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ITEM 6.
EXHIBITS
Exhibit3.1 
Number
 
Exhibit
 
 
 
 
3.1

  
3.2 
 
 
 
3.2

  
4.6 (l)
(m)
(n)
 
(o)

 
4.7 Upon the request of the U.S. Securities and Exchange Commission, the Company will furnish copies of any other instruments defining the rights of holders of long-term debt of the Company or its subsidiaries.
 10.2*(m)
 
 
 
4.8

 
 
 
 
 
10.2

*
(l)
 *(n)
 
 
 
 
*
(m)
 *(o)
 
 
 
 
*
(n)
31.1 
 
 
 
31.1

  
31.2 
 
 
 
31.2

  
32.1 
 
 
 
32.1

  
32.2 
 
 
 
32.2

  
 
 
 
 
101

  
The following material from Anthem, Inc.’s’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,2021, formatted in 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’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

 
Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
 
 
 
 
 
 
 
 
*

 
Indicates management contracts or compensatory plans or arrangements.


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SIGNATURES

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
 
ANTHEM, INC.
Registrant
 
 
 
 
 
 
 
April 21, 2021
By: 
 
 
 
Date: April 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: April 29, 202021, 2021
By:
 
/S/   RONALD W. PENCZEK
 
 
 
Ronald W. Penczek

Senior Vice President and Chief Accounting Officer

(Principal Accounting Officer)

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