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Segment Information

6 Months Ended

Jun. 30, 2019

Segment Information [Abstract]

Segment Information [Text Block]

Note 18 – Segment Information

See Note 1 for a description of our segments that changed effective with the fourth quarter of 2018 along with one of our principal financial measures of segment operating performance, which is now pre-tax adjusted income from operations. Prior year segment information reported in this Form 10-Q was adjusted to reflect these changes. In addition, effective with the first quarter of 2019, the Company began allocating compensation cost for stock options to the segments. Prior year segment information was not restated for this change due to immateriality. A description of our basis for reporting segment operating results is outlined below. Intersegment transactions primarily reflect pharmacy sales to insured customers of the Integrated Medical segment. These and other transactions are eliminated in consolidation.

The Company uses “pre-tax adjusted income from operations” and “adjusted revenues” as its principal financial measures of segment operating performance because management believes they best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income before taxes excluding realized investment results, amortization of acquired intangible assets, results of transitioning clients Anthem Inc. and Coventry Health Care, Inc. (the “transitioning clients”) and special items. Income or expense amounts that are excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales

Amortization of acquired intangible assets because these relate to costs incurred for acquisitions

Results of transitioning clients because those results are not indicative of ongoing results

Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters. Further context about these items is provided in the footnotes listed in the table below.

Adjusted revenues is defined as revenues excluding: 1) revenue contributions from transitioning clients; 2) the Company’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting; and 3) special items, if any.

The following table presents the special items recorded by the Company for the three and six months ended June 30, 2019 and 2018.

		Three Months Ended
(In millions)		June 30, 2019						June 30, 2018
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)			After-tax			Before-tax			After-tax			Before-tax
Integration and transaction-related costs (selling, general and administrative expenses) (See Note 4)		$	115		$	155		$	109		$	130
Charge associated with a litigation matter (selling, general and administrative expenses)⁽¹⁾			64			81			-			-
Total impact from special items		$	179		$	236		$	109		$	130

		Six Months Ended
(In millions)		June 30, 2019						June 30, 2018
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)			After-tax			Before-tax			After-tax			Before-tax
Integration and transaction-related costs (selling, general and administrative expenses) (See Note 4)		$	223		$	291		$	159		$	190
Charge associated with a litigation matter (selling, general and administrative expenses)⁽¹⁾			64			81			-			-
Total impact from special items		$	287		$	372		$	159		$	190

⁽¹⁾The Company recorded a charge in the second quarter of 2019 related to the sale of a subsidiary and is appealing.

Summarized segment financial information for the three and six months ended June 30 was as follows:

(In millions)	Health Services		Integrated Medical		International Markets		Group Disability and Other		Corporate and Eliminations		Total
Three months ended June 30, 2019
Revenues from external customers⁽¹⁾	$	27,337	$	8,668	$	1,343	$	1,131	$	-	$	38,479
Inter-segment revenues		633		189		-		7		(829)		-
Net investment income		17		111		40		171		1		340
Total revenues		27,987		8,968		1,383		1,309		(828)		38,819
Revenue contributions from transitioning clients		(4,450)		-		-		-		-		(4,450)
Net realized investment results from equity method subsidiaries⁽²⁾		-		-		6		-		-		6
Adjusted revenues	$	23,537	$	8,968	$	1,389	$	1,309	$	(828)	$	34,375
Income (loss) before taxes	$	1,108	$	989	$	195	$	155	$	(689)	$	1,758
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients		(655)		-		-		-		-		(655)
(Income) loss attributable to noncontrolling interests		-		-		(4)		-		-		(4)
Net realized investment (gains) losses⁽²⁾		-		(17)		8		(8)		-		(17)
Amortization of acquired intangible assets		709		18		8		2		-		737
Special items
Integrated and transaction-related costs		-		-		-		-		155		155
Charges associated with litigation matters		-		-		-		-		81		81
Pre-tax adjusted income (loss) from operations	$	1,162	$	990	$	207	$	149	$	(453)	$	2,055



(In millions)	Health Services		Integrated Medical		International Markets		Group Disability and Other		Corporate and Eliminations		Total
Three months ended June 30, 2018
Revenues from external customers⁽¹⁾	$	833	$	7,915	$	1,288	$	1,092	$	-	$	11,128
Inter-segment revenues		278		135		-		3		(416)		-
Net investment income		2		120		36		187		7		352
Total revenues		1,113		8,170		1,324		1,282		(409)		11,480
Less: net realized investment results from equity method subsidiaries ⁽²⁾		-		-		20		-		-		20
Adjusted revenues	$	1,113	$	8,170	$	1,344	$	1,282	$	(409)	$	11,500
Income (loss) before taxes	$	77	$	900	$	173	$	162	$	(210)	$	1,102
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) loss attributable to noncontrolling interests		-		-		(3)		-		-		(3)
Net realized investment (gains) losses		-		(3)		29		(3)		-		23
Amortization of acquired intangible assets		-		18		4		2		-		24
Special items
Integrated and transaction-related costs		-		-		-		-		130		130
Pre-tax adjusted income (loss) from operations	$	77	$	915	$	203	$	161	$	(80)	$	1,276

(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.
(2) Includes the Company’s share of certain realized investment gains (losses) of its joint ventures reported in the International Markets segment using the equity method of accounting.

(In millions)		Health Services	Integrated Medical		International Markets		Group Disability and Other		Corporate and Eliminations		Total
Six Months Ended June 30, 2019
Revenues from external customers⁽¹⁾	$	53,534	$	17,578	$	2,727	$	2,240	$	-	$	76,079
Inter-segment revenues		1,370		351		-		14		(1,735)		-
Net investment income (loss)		32		234		78		351		(9)		686
Total revenues		54,936		18,163		2,805		2,605		(1,744)		76,765
Revenue contributions from transitioning clients		(8,939)		-		-		-		-		(8,939)
Net realized investment results from equity method subsidiaries⁽²⁾		-		-		(22)		-		-		(22)
Adjusted revenues	$	45,997	$	18,163	$	2,783	$	2,605	$	(1,744)	$	67,804
Income (loss) before taxes	$	2,050	$	2,146	$	417	$	248	$	(1,315)	$	3,546
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients		(1,315)		-		-		-		-		(1,315)
(Income) attributable to noncontrolling interests		(1)		-		(8)		-		-		(9)
Net realized investment (gains)⁽²⁾		-		(22)		(15)		(18)		-		(55)
Amortization of acquired intangible assets		1,422		36		19		3		-		1,480
Special items
Integration and transaction-related costs		-		-		-		-		291		291
Charges associated with litigation matters		-		-		-		-		81		81
Pre-tax adjusted income (loss) from operations	$	2,156	$	2,160	$	413	$	233	$	(943)	$	4,019

(In millions)		Health Services	Integrated Medical		International Markets		Group Disability and Other		Corporate and Eliminations		Total
Six Months Ended June 30, 2018
Revenues from external customers⁽¹⁾	$	1,619	$	15,818	$	2,590	$	2,185	$	-	$	22,212
Inter-segment revenues		562		271		-		6		(839)		-
Net investment income		3		231		73		362		12		681
Total revenues		2,184		16,320		2,663		2,553		(827)		22,893
Net realized investment results from equity method subsidiaries ⁽²⁾		-		-		22		-		-		22
Adjusted revenues	$	2,184	$	16,320	$	2,685	$	2,553	$	(827)	$	22,915
Income (loss) before taxes	$	160	$	1,872	$	386	$	265	$	(363)	$	2,320
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) attributable to noncontrolling interests		-		-		(7)		-		-		(7)
Net realized investment losses ⁽²⁾		-		15		33		9		1		58
Amortization of acquired intangible assets		-		40		8		3		-		51
Special items
Integration and transaction-related costs		-		-		-		-		190		190
Pre-tax adjusted income (loss) from operations	$	160	$	1,927	$	420	$	277	$	(172)	$	2,612

(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.
(2) Includes the Company’s share of certain realized investment gains (losses) of its joint ventures reported in the International Markets segment using the equity method of accounting.

Revenue from external customers includes pharmacy revenues, premiums and fees and other revenues. The following table presents these revenues by product, premium and service type for the three and six months ended June 30:

	Three Months Ended							Six Months Ended
	June 30,							June 30,
(In millions)	2019				2018			2019				2018
Products (Pharmacy revenues) (ASC 606)
Home delivery and specialty revenues	$		12,272	$		758		$		24,056		$	1,475
Network revenues			12,758			-				25,031			-
Other			1,258			-				2,380			-
Total pharmacy revenues			26,288			758				51,467			1,475
Insurance premiums
Integrated Medical premiums (ASC 944)
Commercial
Risk			3,065			2,643				6,104			5,254
Stop loss			1,067			993				2,136			1,973
Other			241			259				519			517
Government
Medicare Advantage			1,610			1,461				3,217			2,959
Medicare Part D			400			189				925			417
Other			1,013			1,140				2,078			2,241
Total Integrated Medical premiums			7,396			6,685				14,979			13,361
International Markets premiums			1,301			1,262				2,605			2,522
Domestic disability, life and accident premiums			1,069			1,009				2,116			2,007
Other premiums			37			56				74			121
Total premiums			9,803			9,012				19,774			18,011
Services (ASC 606)
Fees			2,376			1,362				4,766			2,714
Other external revenues			12			(4)				72			12
Total services			2,388			1,358				4,838			2,726
Total revenues from external customers	$		38,479		$	11,128		$		76,079		$	22,212

The Health Services segment may provide certain financial and performance guarantees in its pharmacy benefit management contracts including a minimum level of discounts a client may receive, generic utilization rates and various service levels. Clients may be entitled to receive performance penalties if we fail to meet guarantees. Actual performance is compared to the guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within accrued expenses and other liabilities (current). These estimates are adjusted at the end of the guarantee period. Historically, adjustments to original estimates have not been material. The balance was $895 million as of June 30, 2019 and December 31, 2018.

The Company recognized revenues as follows from Anthem and the Department of Defense for the six months ended June 30, 2019. Amounts presented below reflect the percentage of consolidated revenues. The Company did not recognize revenue from these two customers in periods before the Merger. These revenues are reported in the Health Services segment.

	Six Months Ended
	June 30, 2019
Anthem	12%
Department of Defense	8%