Ladies and gentlemen, thank you for standing by. Welcome to the Anthem Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to the company's management.

Good morning, and welcome to Anthem's second quarter 2016 earnings call. This is Doug Simpson, Vice President of Investor Relations. With us this morning are Joe Swedish, Chairman, President and CEO, and John Gallina, our CFO. Joe will offer some commentary on the recent DOJ actions and provide an overview of our second quarter 2016 financial results and then John will walk through the financials of our business units and provide some incremental commentary around our updated 2016 outlook. We're then available for Q&A. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website at antheminc.com. We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Anthem. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in today's press release and in our quarterly and annual filings with the SEC. I will now turn the call over to Joe. Joseph R. Swedish - Chairman, President & Chief Executive Officer: Thank you, Doug, and good morning. This morning, we announced second quarter 2016 adjusted earnings per share of $3.33, with membership and revenue tracking above our previous expectations. On a GAAP basis, we reported earnings per share of $2.91. Before John and I discuss the details of our second quarter financials and our updated 2016 outlook, I think it's appropriate to discuss our perspective on the latest Cigna developments. I'll start by saying, we are disappointed by the U.S. Department of Justice's decision to block Anthem's acquisition of Cigna. A combination specifically designed…

Thank you. Your first question comes from the line of A. J. Rice from UBS. Please go ahead.

Thanks. Hello, everybody. First just to maybe try to clarify a little bit more on the outlook for the year and particularly what you're assuming for the back half. If my numbers are right, you're allowing for about a 300 basis point to 400 basis point deterioration further from what we saw first half MLR to back half MLR and you're getting obviously, as you say, the SG&A leverage. Two parts to this. Is that a normal seasonal pattern? Are you allowing for any other contingencies on the MLR assumption in the back half? And would you characterize what you're doing on the SG&A side as something that's sustainable, or are these sort of extraordinary measures in light of the MLR pressure that you've experienced? John E. Gallina - Chief Financial Officer & Executive Vice President: Hi, A. J., this is John. Thank you for the question and good morning. Yeah, so a couple questions in there in terms of MLR and G&A. But, first of all, in MLR, your math is certainly appropriate from the first half to the last half. And really what we've seen is that we've got an elevated amount of utilization specifically in the ACA Individual compliant plans as well as in Medicaid and most significantly, they're in Iowa. And we're at least, for purposes of our outlook, assuming that that elevated level is going to continue throughout the rest of the year. So, while certainly if there's any mitigation factors or medical management initiatives end up being more successful than we're planning, there could be upside. But it's really it has to do with taking the elevated levels of utilization we've seen and just essentially run-rating them for the rest of the year. In terms of the G&A, I'd say the bulk of the…

Okay. If I could do just a quick follow up. Joe, thanks for the comments about the Cigna transaction. I might just ask, do you have any updated assessment of the timeline from here? And then I think the merger agreement goes through the end of this year. Can you just mention to us what happens after the end of the year if we're still in the Court dealing with the proposed transaction? Joseph R. Swedish - Chairman, President & Chief Executive Officer: Got it. Thanks, A. J. First of all, when you referenced the end of the year, actually we had the option on our side, our call, to extend it to the end of April, which obviously we intend to do so. So I just want to make that record clear that we will continue and obviously we're going to run out the litigation as long as it takes, working towards the end of April. Our expectation is, I guess, under normal or usual circumstances claims like this, we're expecting the trial to begin somewhere around October, and at the outside, we're looking at four months. We believe it'll be about four months. Obviously it could run a little longer, but that's our expectation.

Okay. Great. Thanks a lot.

Your next question comes from the line of Josh Raskin from Barclays. Please go ahead.

Hi. Thanks. I think I'm going to ask just very similar questions to A. J., but just I guess a different perspective. So on the MLR, forgetting about sort of the first half versus second half, on a year-over-year basis, the first half is up 188 basis points and that's only three months of Iowa and you get some ACA benefit, but the second half looks more like an increase of 140 basis points. So, the way I'm looking at it year-over-year you're actually expecting some noticeable improvement in the second half. So my MLR question is, what's causing that improvement on a relative basis? And then, John, on the G&A side, I think you mentioned that growth is going up a lot less than the revenue growth. But the way I look at it is, second quarter you added $1.5 billion to revenues, but took $600 million of G&A out. So it looks like there are noticeable savings. And I guess I'm just curious, is that deferred investment or is that some other sort of savings on the G&A side? John E. Gallina - Chief Financial Officer & Executive Vice President: Sure, Josh. Great question. So, yeah, first half we'll be clear. On the MLR, yeah, the first half of the year had the benefit of three Rs in it. The run rate of claims outside of three Rs is worse, and so that's obviously being baked into our outlook and our thought process. On the admin side, quite honestly, the single largest driver of that year-over-year is the bonus program that I referenced at the end of A. J.'s question in terms of being a pay-for-performance company. We adjusted our bonus payable appropriately based on ensuring that we're going to hit our $10.80. And so, that's certainly a positive, the reconciliation.

And John, what was the three R benefit? And I don't know, is there a way to size Iowa's impact in 2Q as well? John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah. The three R benefit in and of itself, we don't provide the level of specificity that you're probably asking for. In terms of Iowa, I'll just say that Iowa is a brand new market and we expected it to be dilutive in 2016 as we implemented our various medical management and revenue optimization processes. We ended up with about 25,000 more members in Iowa than we originally expected when we did our plan at the beginning of the year. And, quite honestly, the MLR in Iowa, is 25 basis points to 30 basis points higher than we expected when we did our plan as well. So we got the additional members and it's more dilutive simultaneously with the elevated claims level. The really good news for that is that our plan, we look at what we've done here historically, what the team has done historically in terms of new markets and implementing the managed care type processes and procedures and the fact that the first-year markets have historically been dilutive and that we've guided to target margins within our 18-month to 24-month period of time. There's no reason to believe that that's not going to occur again here in Iowa given though the starting point may be a little bumpier than we had hoped.

And you said 25 basis points to 30 basis points or points higher? Joseph R. Swedish - Chairman, President & Chief Executive Officer: Josh, 25 points to 30 points higher, not basis points.

Points. Okay. So it's a huge number. Yeah, yeah, okay. Okay. That makes sense. Okay. Thanks, guys.

Your next question comes from the line of Dave Windley from Jefferies. Please go ahead.

Hi. Good morning. It's Dave Styblo in for Windley. Just wanted to come back to – maybe if you guys could help us bridge sort of the puts and takes. I know obviously the overall guidance remains the same in terms of EPS, but I think by the math that you guys presented on the Individual book being at a mid-single digit loss, it sounds like that's about a (30:26), and then on top of that, you've got the Medicaid challenges that you highlighted. Is that sort of the right way to think about it? And then the offset being largely just the SG&A improvement on top of that to offset those two negatives? John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah, the other part of that is the top-line growth is very clearly a good guide, it's part of all that. But, yeah, those are the most significant pieces. I think the good news is, and just to sort of maybe answer your follow-up question before you ask it, is that as we look at 2016 versus 2017, let's be very clear, as I said in the prepared comments, when we did our pricing for 2017, we already had taken this elevated level of claims and utilization into account and baked it into our 2017 outlook. So we believe that this is more of a one-year type of issue and that we're very committed to returning the ACA block of business back to profitability in 2017.

So you did address my question earlier on the follow-up. So is it – I guess so it seems like you priced for these things to happen, and in some ways, it still seems like it's worse than expected. So if you were filing rates and benefit changes earlier in the year, maybe you can just give us more comfort about specifically how you caught these things earlier on when we're starting to see more of the development come in with higher utilization on the dialysis and COPD and the other elements that you've talked about? John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah, sure. Well, the rates were developed in the April/May timeframe, and so if you look back at our – when we closed the books in March and the information we had available to us at that point in time, we had seen some of the spikes and the elevations, just not to the same – we weren't crystal-clear then it was going to continue for the rest of the year or not. However, we wanted to be conservative. We wanted to be prudent. And so we believed – we had hoped that it was not a trend. However, when we did our pricing, we felt it was best to assume it was a trend. Here we are 90 days later. I believe our conservatism turned out to be prudent, in that something that we weren't sure if it was going to be a trend or not probably is. There's still the opportunity that seasonality could be in our favor and that things could get a little bit better in the second half of the year. We just have decided not to assume that at this point in time.

Okay. And then if I could just ask on Medicaid, I know obviously you highlighted Iowa and then you mentioned that broadly, there was just higher trends. Is it predominantly just Iowa being the drag in Medicaid, or are there some specific other states? And maybe if you could sort of share a percentage of the weighting? Is it 75% Iowa, 25% other states, and highlight what those other states might be and the issues that you're seeing there? John E. Gallina - Chief Financial Officer & Executive Vice President: In terms of – it is both, Iowa as well as other states, and we really don't get into specifics state-by-state. We're just calling out Iowa as a marker because it's brand new and it is a significant driver in and of itself. I will say that the primary drivers of the elevated trends, they're pharmacy, nursing facilities, ER, and outpatient surgery. Those four items are really the most significant part of our trend issue in the other states. So – but we are seeing elevated trends in several states and we're addressing those accordingly.

Okay. But fair to say well above 50% is attributable to Iowa, though? John E. Gallina - Chief Financial Officer & Executive Vice President: We really don't get into that level of detail on a state-by-state basis for competitive reasons.

Okay. Thanks.

Your next question comes from the line of Andy Schenker from Morgan Stanley. Please go ahead. Andy Schenker - Morgan Stanley & Co. LLC: Hey. So just going back to the exchange business here. Just think about it big picture, right? In 2014, you guys were actually profitable. Last year you were close to break-even. This year you're now losing money here. So what has really changed over that timeframe? Is it just the risk pool has continued to get worse? And therefore is this something you can actually rectify with pricing? Are there structural issues to the exchanges, or are there other more meaningful benefit changes, i.e. networks or other design changes that you've also incorporated for next year that are going to be necessary to offset what's been a steady deterioration in the profitability of this book every year? Thanks. John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah, sure. No, great question. And in terms of will pricing by itself rectify it, no. Because there's no one single bullet that actually solves the entire problem. The administration is extremely focused on having a sustainable marketplace, and we think that we've been a very active participant in the exchanges and been a great partner with CMS in trying to help with the stability of the marketplace. They've made changes over the years of tightening the supplemental enrollment a bit and various other requirements. The penalty continues to increase. We think all those things obviously have to be done. Other things that would certainly help the acceleration of the stabilization would be to eliminate the health insurer tax beyond 2017. The risk adjuster model, it does a lot of what it's intended to do, but quite honestly, there's a bit of an imbalance that it overcharges…

Your next question comes from the line of Gary Taylor from JPMorgan. Please go head.

Hi. Good morning. Just a couple questions. Did you give us the total exchange enrollment as of the end of 2Q? Did I miss that? John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah, it's 923,000 members.

And the total – when you talk about the ACA compliant book now being mid-single-digit losses, what is the total ACA compliant enrollment that you're speaking to? So presumably that's some op exchange and some Small Group ACA compliant as well? John E. Gallina - Chief Financial Officer & Executive Vice President: A little more than half of the remainder is ACA compliant.

Okay. And I just wanted to come back to the risk adjustment. Because it seems like potentially it was quite material in the quarter. I know you guys only disclose that you had a payable at year-end. We calculate that payable about $105 million in the swing factor to $190 million payment that CMS was citing for 2015 was about $0.60. You say that you booked some valuation allowances against that because of the Co-op situations, but, I mean, should we assume that material portion of that $0.60 was trued up in his quarter? John E. Gallina - Chief Financial Officer & Executive Vice President: There was a lot of things that went against it, and I'm not going to really comment on your estimate of the payable. But in terms of valuation allowance, it was clearly part of it. Certainly medical loss ratio rebates were part of it. After all the dust settled, we're going to pay over $100 million in MLR rebates in 2016 related to the 2015 calendar year. And so that's part of it. You've got the Small Group versus the Individual component is clearly a piece of it, risk corridor true-ups, I mean, there's so many moving parts it's hard to, on a call here, pin that down exactly. And then quite honestly, whatever benefits existed after all the other offsets have now been baked into our trend outlook and our guidance for the rest of the year.

Okay. If I could, just two quick clarifications. I think Josh was asking about the G&A run rate and sustainability of that. The guidance for the second half certainly implies this reduced G&A is fairly sustainable. But as you head into 2017, do you feel like there's going to be a deferred level that has to rebound, or is this sort of G&A ratio a number that makes sense as a jumping off point heading into 2017? John E. Gallina - Chief Financial Officer & Executive Vice President: The most significant driver of the G&A benefits here compared to our guidance or our outlook is the top line revenue growth and the fixed cost leveraging associated with that. And so that clearly is run rate and sustainable. In terms of certainly as an employee of the company, I'm fully supportive of getting back to the bonus structure back to target levels, but there's a natural hedge associated with that. So as results warranted, we then record the expense. If they don't warrant it, we don't record the expense. So what the impact that might be on an exact ratio is to be seen, but the bottom line has a natural hedge built in.

My last one. When we think about the year, ACA compliant business worse than you had anticipated. Iowa and Medicaid overall worse than anticipated. Yet you maintained the guidance. So the two components that were better that allowed you to maintain compliance was risk adjustment and some of the additional enrollment growth? Is that fair? John E. Gallina - Chief Financial Officer & Executive Vice President: Well, certainly admin, risk adjustment, enrollment growth, we're doing extremely well in the National, and large local ASL in terms of enrollment. Our Medicare Advantage and our Senior business are doing very, very well and exceeding expectations for the year. And, quite honestly, we had a bit of an initial conservative posture at the beginning of the year as well. So, it's a lot of things. Our specialty product line is beating expectations, so I would hate to just point to one or two items because there are far more positives than there are negatives. It's just that the two negatives have really caused our conservative posture to be a more prudent posture.

Okay. Thank you very much.

Your next question comes from the line of Justin Lake from Wolfe Research. Please go ahead.

Thanks. Good morning. First just a follow-up on the SG&A number for that bonus program. I understand that, as you said, it's a hedge and other things have to improve to offset it, but can you give us a ballpark number there in terms of how much cost comes back into SG&A if you fully accrue that for next year? John E. Gallina - Chief Financial Officer & Executive Vice President: Well, in terms of exactly how much that is, the bonus program at target is certainly a significant number in and of itself, but, Justin, that's just not a number that we're comfortable giving out.

Okay. Is there any way to proportion it, for instance? You're losing – you said mid-single-digits on the Individual side, I mean can you remind us what's the ACA compliant premium number for this year, ballpark? John E. Gallina - Chief Financial Officer & Executive Vice President: It's a bit north of $6 billion. Close to that. Maybe closer to $7 billion.

Okay. So you're talking about $300 million plus in potential just getting back to break even, right, in the Individual business? Right? Is that how we should think about the earnings power of the business? I assume you're not expecting to run losses for even the intermediate term here as you talked about? So... John E. Gallina - Chief Financial Officer & Executive Vice President: I'm not going to argue with your math.

Okay. So if Individual comes back to break even or better, does this SG&A basically offset that? Or is it larger or smaller than Individual coming back to break even? John E. Gallina - Chief Financial Officer & Executive Vice President: Well, there's – certainly it's a natural hedge built in, but to answer your question would be to answer the question that you asked the first time. So good luck. It's a big number. But we're not going to size it specifically.

Okay. But you wouldn't call me crazy if I said it was in the same ballpark as getting back to break even in Individual? John E. Gallina - Chief Financial Officer & Executive Vice President: I would never call you crazy.

All right. Last question just on the Government side. So you've laid out the issues here and you were very clear coming into 2016 saying, for instance, Medicaid was – the margins were unsustainable, they were going to come down, plus you were going to have the Medicaid pressure in Iowa. I guess, what I'm trying to think about here is, these margins are down meaningfully for 2016 in the Government overall, and you're saying Medicare is actually improving. So Medicaid's the full brunt. My question is, is Medicaid now at a target margin for 2016 when you think about it overall, or does the Medicaid margin actually improve going forward from here given how tough it's been and the worse-than-expected cost overall? Joseph R. Swedish - Chairman, President & Chief Executive Officer: Yeah, it's – the Medicaid margins are within our target range. Obviously, we're hopeful that we can improve it to the high end of the range, but even with all these headwinds and the negative comments that we had earlier in the year, we're still within the range.

So for the full year you're within the range, but closer to the midpoint to the low end, and potentially can improve it towards the higher end again, where you've typically been? Joseph R. Swedish - Chairman, President & Chief Executive Officer: That's a reasonable way of thinking about it, yes.

Okay. Great. Thank you very much. Joseph R. Swedish - Chairman, President & Chief Executive Officer: Thank you.

Your next question comes from the line of Kevin Fischbeck from Bank of America. Please go ahead. Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Hi. I've got a couple questions. I guess first on the exchanges, I guess obviously you guys believe that you've caught everything as far as pricing for next year and you expect margins to improve next year. But I guess we've seen now, I don't know, five quarters or six quarters in a row where it kind of seems like the costs continue to rise for you, but really for a lot of the players out there. I mean, can you give a sense as to why you feel confident saying that, given the experience of most companies over the last year-and-a-half? John E. Gallina - Chief Financial Officer & Executive Vice President: Why we believe that we've caught everything? Kevin Mark Fischbeck - Bank of America – Merrill Lynch: Yeah, exactly. John E. Gallina - Chief Financial Officer & Executive Vice President: I think – well, a lot of it obviously has to do with our data analytics and how we track things. And as you look at the rate increases that we've put in, approaching 20% range on a weighted average basis across our 14 states, very significant. And as we – we also believe that we have some of the best-in-class risk adjuster capabilities of really understanding what drives risk adjuster and things like that and I think the results that we saw from the CMS true-up really helped verify that. So, the other piece that gives us a little bit of comfort in terms of having caught everything is that our 2016 risk adjuster that we're assuming in 2017 really is based on 2015 experience. So we think that…

And your final question today comes from the line of Chris Rigg. Please go ahead.

Good morning. Just with regard to the ACA compliant membership, do you have a sense at this point how many of the individuals were new members to Anthem? And is there – if you have that information, is there a pronounced difference in utilization trends among those who are new to Anthem versus those that have been enrolled for a year or two? Joseph R. Swedish - Chairman, President & Chief Executive Officer: Yeah. A very quick response to the question, a little less than half of the membership was new to us in 2016.

Okay. And then just one quick follow up here. Of the Individual that's non-ACA compliant at this point, will most of them become – roll into ACA compliant plans in 2017 because of the grandmothering dynamic, or will they still stay outside the compliant side? Thanks. John E. Gallina - Chief Financial Officer & Executive Vice President: Yeah, no, a great question. We do expect some attrition in that area, as you pointed out whether the enrollment remains to be seen, but historically, we haven't seen the uptake in ACA compliant plans that maybe was estimated by the CBO when the law was passed. But, yeah, that's certainly a watch area for us.

And I would now like to turn the conference back to the company's management for closing comments. Joseph R. Swedish - Chairman, President & Chief Executive Officer: Well, as usual, thanks for your questions. They're all very insightful. As a company, we remain committed to tackling our healthcare system's challenges head-on and deliver greater value to consumers by expanding access to high-quality, affordable healthcare. That's why we're committed to challenging the DOJ's recent decision to block our acquisition of Cigna in Court. We also want to thank all of our associates for their continued commitment to serving our 39.8 million members every day. Thanks for your interest in Anthem, and we look forward to speaking with you very soon. Again, thank you very much.

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