Anthem, Inc.

Anthem, Inc. (now officially known as Elevance Health) is one of the largest and most influential health benefits companies in the United States. Before its rebranding in June 2022, Anthem was a household name, primarily known for its affiliation with the Blue Cross Blue Shield Association, operating plans in 14 states. The company's business model revolves around providing a vast array of health insurance products and services to individuals, employers, and government-sponsored programs. Think of it as a massive financial intermediary in the healthcare world, collecting premiums from its members and paying out claims to doctors and hospitals. Its immense scale gives it significant negotiating power over healthcare providers, which is a cornerstone of its competitive advantage. The name change to Elevance Health was a strategic move to signal its evolution from a traditional health insurer to a broader “lifetime, trusted health partner,” aiming to manage the “whole health” of its members, not just their insurance claims.

The company's operations are a well-oiled machine, typically broken down into a few key segments that generate revenue in different ways. Understanding these is key to understanding the business.

• Commercial & Specialty Business: This is the classic health insurance you might get from your employer. It includes a range of plans (like HMOs and PPOs) for large corporations and small businesses. This segment also covers specialty products like dental, vision, life, and disability insurance.
• Government Business: This massive segment serves individuals through government-funded programs. It manages Medicare plans for seniors and Medicaid plans for low-income individuals and families. This is a huge growth area, but it's also highly regulated by federal and state governments.
• IngenioRx (now CarelonRx): This was Anthem's in-house Pharmacy Benefit Manager (PBM). A PBM is a middleman that negotiates drug prices with pharmaceutical manufacturers on behalf of insurance plans and their members. By managing prescription drug benefits for millions of people, this division leverages its scale to secure discounts and rebates, aiming to control spiraling drug costs.

Why the new name? It wasn't just a cosmetic change. The shift from “Anthem” to “Elevance Health” reflects a fundamental strategic pivot. The leadership believes the future isn't just in paying medical bills but in proactively keeping people healthy. “Elevance” is a combination of elevate and advance. The strategy involves integrating its various services—insurance, pharmacy, and other healthcare services—to create a more cohesive and preventative system. The goal is to move beyond simply reacting to sickness and toward a model that predicts health needs and provides holistic care, a much more ambitious (and potentially profitable) mission.

For a value investor, a company's name is less important than its underlying business quality and long-term earning power. From this lens, Anthem/Elevance Health has several compelling attributes, as well as notable risks.

Legendary investor Warren Buffett loves businesses with a durable competitive advantage, or an “economic moat”. Anthem/Elevance Health has a wide and deep one, built on several factors:

• Powerful Network Effects: This is the company's crown jewel. Because it has tens of millions of members, it can demand significant price concessions from hospitals and doctors who need access to that huge patient base. These lower costs allow it to offer more competitive premiums, which in turn attracts even more members. This self-reinforcing loop is incredibly difficult for smaller competitors to break.
• Scale and Brand: Size matters in insurance. As one of the nation's largest players, it enjoys enormous economies of scale in everything from claims processing to regulatory compliance. Furthermore, its affiliation with the Blue Cross Blue Shield brand, one of the most recognized and trusted names in American healthcare, is a massive intangible asset.
• Moderate Switching Costs: For large employers, changing insurance carriers is a complex and disruptive process. This creates a “stickiness” that results in high customer retention and predictable revenue streams.

No investment is without risk, and in healthcare, the risks are often front-page news.

• Regulatory and Political Risk: The U.S. healthcare system is a political battlefield. Changes to laws like the Affordable Care Act (ACA) or shifts in Medicare and Medicaid reimbursement policies can have a sudden and dramatic impact on the company's profitability.
• Medical Cost Trends: The company's core profitability hinges on its ability to price premiums correctly. If medical costs (doctor visits, hospital stays, new technologies) rise faster than anticipated, its profit margins get squeezed. Investors watch a key metric called the Medical Loss Ratio (MLR), which shows how much of every premium dollar is spent on healthcare claims.
• Fierce Competition: While the moat is strong, Anthem/Elevance Health doesn't operate in a vacuum. It competes head-to-head with other giants like UnitedHealth Group and CVS Health (which owns Aetna), all of whom are fighting for the same members and corporate clients.

Anthem, now Elevance Health, is a classic example of a high-quality, wide-moat business operating in a defensive and ever-growing industry. Its powerful network effects and immense scale create a formidable barrier to entry. For a value investor, the critical question is not whether it is a great business—it clearly is—but what is a fair price to pay for that business. The company's future success will depend on its ability to navigate the complex regulatory landscape and execute its ambitious strategy to become a more integrated healthcare company. Paying a reasonable multiple for its stable and growing earnings stream is the name of the game.