Anthem (now officially known as Elevance Health as of June 2022) is one of the largest and most influential health benefits companies in the United States. Think of it as a massive financial gatekeeper for the healthcare system. Its primary business is selling health insurance plans to a vast customer base, including large and small employers, individuals, and Medicaid and Medicare recipients. The company operates as a licensee of the Blue Cross and Blue Shield Association in 14 states, a brand synonymous with American health insurance for decades. In essence, Anthem collects a steady stream of payments, called premiums, from its members. In exchange, it covers a significant portion of their medical costs when they visit a doctor, go to the hospital, or buy prescription drugs. This simple-sounding model is incredibly powerful at scale, making Anthem a cornerstone of the U.S. healthcare industry and a company of great interest to long-term investors.
At its heart, Anthem's business is about managing risk and scale. The company pools the premiums from millions of members to pay for the healthcare claims of a smaller number of them. The magic for investors lies in a concept that Warren Buffett famously adores: insurance float. Anthem collects premiums upfront but pays claims later. This creates a massive pool of cash—the float—that doesn't belong to the company but which it can invest for its own profit until claims need to be paid. The company's immense size creates powerful network effects. Because it has tens of millions of members, it can negotiate lower rates with hospitals, doctors, and pharmacies. This vast, cost-effective network attracts more members, which in turn increases its bargaining power with providers. This virtuous cycle makes it incredibly difficult for smaller competitors to challenge its position. Anthem doesn't just sell insurance; it's actively involved in managing healthcare through its diversified services, aiming to control costs and improve patient outcomes, which ultimately benefits its bottom line.
For a value investor, a company like Anthem presents a compelling case study in durable competitive advantages, often called an economic “moat.” The business is predictable, generates enormous and consistent cash flows, and operates in an industry with high barriers to entry.
Anthem's defenses are layered and formidable, protecting its long-term profitability.
No investment is without risk, and Anthem is no exception.
When analyzing Anthem (Elevance Health), investors should keep an eye on a few key performance indicators:
Ultimately, Anthem represents the kind of stable, wide-moat business that value investors seek. The key, as always, is to buy it at a sensible price by evaluating metrics like its price-to-earnings ratio and dividend yield against its historical performance and future prospects.