Ladies and gentlemen, thank you for standing by, and welcome to Anthem First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star and then zero. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the company's management. Please go ahead.
Good morning, welcome to Anthem's First Quarter 2020 Earnings Call. This is Chris Rigg, Vice President of Investor Relations. With us this morning are Gail Boudreaux, President and CEO, John Gallina, our CFO, Pete Haytaian, President of our Commercial and Specialty Business division, and Felicia Norwood, President of our Government Business division. 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 carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.
Good morning. Thank you for joining us. Across the globe and right here at home, we're facing a critical humanitarian crisis. All of us are impacted, and our hearts go out to those struggling. I will focus my comments this morning on the impact of the COVID-19 global health crisis on our business, along with the actions we've taken to provide support and relief. I will direct you to the earnings release for the financial results for the first quarter. Let me begin by saying how incredibly grateful I am to the men and women, including many of Anthem's own clinical associates, fighting on the frontlines of this healthcare crisis, from small rural communities to the heart of New York City.
I am also incredibly proud of the more than 77,000 Anthem associates who have been providing compassionate and tireless support for our customers, members, care providers, and communities each day as we battle this pandemic together. To ensure the safety and health of our associates and support the nationwide effort to contain the virus, in March, we began transitioning our employees away from offices and now have nearly 99% working safely at home. In recognition of these unprecedented times, we are offering our associates up to 80 hours of additional paid leave, providing online workouts, expanding mental health support, and have increased our Anthem Cares Emergency Relief Fund to help associates manage through this crisis. Anthem has long served and met the unique needs of our local communities.
Our commitment to improving lives and communities is core to our mission. We have approached our response to the COVID-19 pandemic with a local and personal lens. Anthem, along with our association of 35 other independent and locally operated Blue Cross and Blue Shield companies, have committed nearly $3 billion to ensure that more than 100 million Americans, along with care providers and hospitals, have access to the resources and support they need to help improve the health of America. Because of our strong Blue brand and deep local roots, we were well-positioned to work quickly and seamlessly with local, state, and federal officials, local care providers, key customers, and community partners from day one of the pandemic. Our associates are at the forefront of our comprehensive efforts. Our Anthem culture and values serve as our foundation for giving back in our local communities.
Our deeply committed associates have been giving back in various ways, such as online teaching, outreach via phone or mail to those isolated at home, making masks for non-healthcare industry workers, helping to provide personal care supplies, and providing meal delivery to those homebound by the crisis. Across the country with partners like the American Red Cross, Boys & Girls Club, Feeding America, and Americares, Anthem is on the forefront of delivering relief and support to those most impacted. We know there is great fear and uncertainty among consumers right now, particularly when it comes to safe and affordable access to care. We've removed barriers to care by waiving cost-sharing for treatment of COVID-19, including coverage for testing, treatment, and inpatient hospital stays.
We've waived prior authorizations for COVID-19 diagnostic tests and related coverage services, as well as ensured continuity of care by waiving early prescription refill limits on 30-day maintenance medications and encouraging the use of 90-day mail order benefits, if applicable. We've also expanded access to telehealth and nurse lines for both medical and emotional health to meet the growing needs for 24/7 information, support, and care. For our most vulnerable consumers in Medicare and Medicaid, we've also reinforced our longstanding focus on social drivers of health to provide support with food, housing, transportation, and more. From outreach to isolated seniors and families, to donating meals and other needed personal care items, we are working to ensure our members' needs are being met and that they realize they are not alone in this fight against the virus.
Our associates working with these populations are demonstrating their endless compassion and care during this time as well. We've seen examples of our team members personally delivering boxes of food and much-needed supplies safely to our members in dire need. Their commitment is inspiring but not surprising. This is how Anthem shows up every day to serve others. At the core of the crisis, there's been tremendous focus on the need for testing and no bigger push for that testing than in the crisis epicenter of New York City. There, we've partnered with the Coalition of Asian-American IPA to provide free mobile testing in the five boroughs across the city. We also established the Anthem Medical Associate Volunteer Program for associates with professional medical training and licensure to volunteer at hospitals and other clinical settings in a variety of states, including New York, where the needs are so great.
Our clinical associates are demonstrating Anthem's strong values and commitment to service as they stand fearlessly on the front lines to deliver critical care. As Anthem's care provider partners continue their important work in local markets across the country, we have simplified policies designed to help them deliver care to patients more quickly and effectively. Unless otherwise required under specific state and federal mandates, we have suspended prior authorization requirements for patient transfers and the use of medical equipment critical to COVID-19 treatment. Additionally, Anthem is covering respiratory services for acute treatment of COVID-19, along with in-network and out-of-network coverage for COVID-19 laboratory testing. The actions we've taken are ensuring that healthcare providers are focused where they need to be, with their patients. Partnerships are foundational to our work in Anthem.
Today, we're partnering with XPRIZE and other industry leaders to form a global pandemic alliance to combat COVID-19 and leverage learnings to help prepare for future pandemics. Across the digital landscape, Anthem has been collaborating extensively with various state and federal partners, as well as other private sector partners, to innovate and help simplify the entire healthcare system experience through the use of technology. Anthem's digital-first capabilities are proactively addressing issues with COVID-19 to simplify healthcare for consumers. Our Sydney Care mobile app and the new coronavirus assessment tool are helping people safely and conveniently assess their risk of having COVID-19, locate testing sites as may be needed, and connect directly with a doctor via our virtual care solution. To date, we've seen more than 170,000 downloads of the app and have witnessed a 250% surge in virtual care engagements via text and video.
This crisis has made clear that telehealth and virtual care will continue to be a key component of how and where care is delivered going forward. Our employer partners are certainly feeling the impacts of the crisis. Anthem is working closely with our customers to ensure not only the safety and wellbeing of their employees but to also provide affordable, flexible payment terms as they work through the financial implications of COVID-19. We recognize this action may add payment risk to our business, but we also know it's the right thing to do. The economic impacts of the crisis may also drive an unprecedented shift in consumers from the employer market into our Medicaid and ACA segments. We are quickly reallocating resources as may be needed to meet these potential challenges.
In the small group market, a segment especially vulnerable to disruption, we are proactively identifying groups at risk and providing more affordable product offerings or helping displaced members find coverage in the individual marketplace or in Medicaid. Anthem entered 2020 in a position of strength, ready to achieve our financial objectives and serve as a trusted partner in health. Our first quarter performance was in line with our expectations. While we know COVID-19 is likely to produce unforeseen challenges, both short and long- term, we also see tremendous opportunities to reimagine what's possible for our company and healthcare more broadly. While there is much uncertainty, as you saw in our press release, we are maintaining our 2020 EPS guidance. We view this as the most reasonable posture given the multitude of offsetting factors across our diversified business.
In a moment, John will discuss the financial scenarios underlying our guidance decision in greater detail. As we look ahead, I am confident that our organization will grow stronger based on the learnings from the current crisis, more effective and better prepared to deliver on what we are entrusted to do. As this crisis evolves, we are unwavering in our efforts to support the medical and social needs of our consumers, improve total health and wellbeing, and we'll be ready to execute on the momentum we had prior to the onset of the pandemic. I'll now turn it over to John to discuss our financial position. John?
Thank you, Gail, good morning. My objective today is to share with you the actions that we've taken to enhance our liquidity and strengthen our already solid capital position, as well as sharing some of the scenarios that form the basis of our outlook. First, I'll briefly review our first quarter results, which were both strong and largely unaffected by the current crisis. This morning, we reported first quarter GAAP earnings per share of $5.94, adjusted earnings per share of $6.48. Medical membership totaled 42.1 million members as of the end of the quarter, an increase of 1.3 million lives year-over-year, 1.1 million lives sequentially, in part through the acquisitions of AmeriBen and the Missouri and Nebraska Medicaid plans, also aided by our strong organic growth.
Medical costs in the quarter were well controlled and slightly better than expectations. As anticipated, our individual business margin began to normalize to more sustainable levels, where our Medicaid business was on track to achieve the midpoint of our 2%-4% target margin range by year end. Our MLR for the quarter was 84.2%, exceeding expectations. We had strong cash flow at 1.7x earnings or 1.3x earnings normalized for the health insurer fee, while simultaneously seeing an increase of almost four days in the days in claims payable metric sequentially. Of note, IngenioRx is now a standalone reportable segment. In the quarter, operating gain in the segment was $349 million, which includes approximately $75 million-$100 million that under prior segment reporting would have resided in the commercial and specialty business division.
That said, IngenioRx's core performance is running slightly ahead of prior expectations. As the threat of COVID-19 began to accelerate in mid-March, we felt it was prudent to enhance our liquidity by drawing down a total of $600 million from our various credit facilities and an incremental $900 million through the commercial paper market. We are well positioned with total undrawn borrowing capacity of an additional $2.1 billion. Our total debt to capital at the end of the first quarter was 41.7%, slightly more than 150 basis points higher than if we had not taken these proactive steps in March to enhance liquidity. We will continue to closely monitor our capital position and evaluate ways to optimize our debt structure, including accessing capital markets. We also temporarily suspended our share repurchases beginning in the second half of March.
It is clear that COVID-19 is having a profound impact on the global economy, and there remains significant uncertainty around the shape and timing of an eventual recovery. We have spent considerable time evaluating various scenarios on how COVID-19 and rapidly rising unemployment will impact our financial results. Key factors we evaluated include the anticipated infection rate and hospitalization rate associated with members that contract coronavirus, as well as estimating the number that need a ventilator or ECMO machine. The intensity and duration of the infection and the impacts on the healthcare system. Unemployment rates. Membership mix changes. Thus far, we have seen a slight uptick in the Medicaid enrollment as a result of states temporarily suspending reverification efforts and limited changes in our commercial business. As time goes on, we expect a more significant shift of commercial group members in the Medicaid and the ACA marketplace.
Deferred non-emergent or elective procedures and the eventual timing of a rebound, including assessing the capacity of the system and the ability to address pent-up demand. Extended payment terms and the likelihood of higher than normal bad debt expense. Lower interest rates and overall capital market conditions. Higher interest expense due to increased borrowing to enhance liquidity, and the impact of our decision to temporarily suspend share repurchases. Overall, we estimate that approximately 30%-40% of our annual medical expense is related to deferrable elective procedures. As a result of deferrals, we currently expect the second quarter MLR to be well below its historical levels, but expect an elevated MLR in the second half of the year as elective procedures return.
We recognize many of you are requesting details on our expected business mix changes and the broader impact of COVID-19 on our business. Unfortunately, the rapidly changing environment prevents us today from sharing the level of specificity you would normally expect from us as a management team. We intend to regularly update the investment community as conditions evolve and visibility improves on key operating metrics. We are in uncharted territory. The future may look markedly different from what anyone expects. That said, we recognize our business is more diverse and resilient today than in past periods of economic disruption. In 2008, at the time of the Great Recession, commercial and individual customers comprised nearly 75% of our risk-based membership, versus less than 30% today. We currently operate Medicaid plans in 23 states and D.C., in most of our markets, we are first or second in terms of market share.
This compares to operating in only 14 states in 2008. At the same time, our Medicare Advantage business is expanding. We expect strong growth for the foreseeable future. The diversity of our business today positions Anthem well to mitigate the challenges we see ahead. While the details and metrics underlying our EPS guidance will undoubtedly look different from previous expectations, based on our balanced business mix, coupled with extensive modeling factoring various scenarios, we are maintaining our original full-year adjusted earnings per share guidance of greater than $22.30. Operator, we will now open it up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press one then zero on your touch-tone phone. You will hear an acknowledgment tone that you've been placed into queue. You may remove yourself from queue at any time by repeating the one-zero command. If you're on a speakerphone, please pick up the handset before pressing those numbers. Once again, for any questions, please press one-zero. We'll go to the line of Steven Valiquette with Barclays. Please go ahead.
Great. Thanks. Good morning, everyone. Let me commend you and everyone at Anthem on the work you're doing around the pandemic that you highlighted earlier. The question is just around the medical reserves. I guess I'm curious if you're able to provide a little more color on the actuarial process around medical reserving for all the puts and takes related to COVID-19. Did any extraordinary reserving impact the reported 1Q 2020 MLR at all? Just want to confirm that one way or the other. Thanks.
Thank you, Steve. This is John. I'll just start out by stating that our reserving philosophy is consistent and which is both prudent and reasonably conservative. Reserves are estimated based on the immediate view of how claims are developing. Under GAAP accounting, we cannot reserve now for claims that will be incurred later in the year, which might include accruals for pent-up demands and utilization of elective or discretionary services. We've been very consistent and conservative with our view. The impact of COVID-19 actually is rather minimal on the first quarter results and on our March 31st reserve balances, is GAAP accounting does require to only look at what's been incurred through the end of the reporting period. We do have conservatism factors in to ensure that they're all actuarially justified. Really, COVID-19 has minimal impact on the March 31st reserve balances. Thank you.
Thank you for the question, Steven. Again, appreciate your comments. We're really proud of the work that all of our associates at Anthem have done to help respond to this incredible humanitarian crisis. As John said, I just want to reiterate, we've been very consistent in our reserving practices and process. Next question, please.
We'll go to the line of Ralph Giacobbe with Citi. Please go ahead.
Thanks. Good morning. Appreciate all the details. If a recovery is slower and costs do remain suppressed, can you give us a sense of how close you are to MLR floors and potential for MLR rebates, and then how that impacts or influences your thoughts around pricing into 2021, just given the timing of all this? Thanks.
Thank you, Ralph. Great questions. First of all, in terms of some of the MLR rebates, as you know, in our individual line of business, we have earned above target margins in both 2018 and 2019. We expected a normalization of our margins to occur here in 2020. Obviously, regardless of the length or the recovery of the COVID situation, I think individuals are going to have MLR rebates under any circumstance. In terms of some of the other lines of business, well, clearly that does play a role in our modeling and impacting that and impacting really how the imbalance or inequities in the system might be handled by us throughout the year in terms of the forward view of trend.
We will clearly price to the forward view of trend, but we will also have to understand the impacts on the providers, on the members, on the customers here in 2020, and make decisions accordingly.
Thanks. Yeah. Thanks, Ralph. I'll just follow up a little bit on John's comments because I think he hit the high points. We're closely monitoring the situation, and as you know, this is emerging information for us around how the coronavirus will translate over the course of this year. At this stage, we're really in the early, I would say, stages of understanding the cost of treating our patients, including, we're covering the copays and deductibles, etcetera. As we think about that, fundamentally, we believe that, as John said, we'll think about that and think about the entire cost structure for all of our customers. At this stage, the majority of our business is 1:1, and that as we get into the course of the year, we'll have much better information to be able to share more of that. Thank you. Next question, please.
We'll go to the line of Matthew Borsch. Please go ahead.
Yes. Thank you. I'm just wondering, could you just comment on how you think about the trade-off between the commercial and Medicaid membership, and/or the Obamacare exchange members, in terms of, well, revenue is maybe more clear, but in terms of the earnings mix. Obviously, that's going to be pretty different for, I would assume, for fully insured versus self-funded commercial members.
Thanks for the question, Matt. There's a number of things inside of that. Let me sort of give you a perspective. First and foremost, as we think about what's going on, our priority right now has been really to work with our customers to help them navigate this crisis. In terms of our commercial membership, let me sort of break it into each of the individual pieces. It's pretty early in this process right now. We do expect that we will see, because of the potential high unemployment, some impact, certainly impact on our commercial enrollment. The early stages have been muted because of what's happening with furloughs. Thinking about that, as John mentioned in his comments, we have a much more diversified business than we historically had.
Thinking about where that membership would go, versus what happened in 2008 in terms of the economic recession then, we've had Medicaid expansion. We would expect 40%-50% of those members to potentially go into the Medicaid markets. In that sense, we're fairly well diversified. All 14 of our markets today have both Medicare, I'm sorry, Medicaid, commercial, and the individual exchanges. There are 10 additional markets of the 24 we cover for Medicaid, where we don't have commercial and obviously have an opportunity to have an impact in those states as well. Again, we think 40%-50% potentially go into the Medicaid pools. Another probably 30% or so have an opportunity to go into the individual exchanges where we also have a footprint. That's kind of the breakout as we see in terms of enrollment going forward.
Another opportunity as we work with our commercial clients, I think they're really trying to understand this impact to their overall business. We have a number of affordable options for them as they think about buydowns and different products. We are seeing an increase in those opportunities, but again, it's really early for them, and our focus has been on them keeping their employees safe and helping them to manage through this. That's roughly how we see the breakdown going forward. We'll know a lot more as we get through this over the next several months because we're pretty early into that process. Thank you. Next question, please.
We'll go to the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah. Hi, good morning. In the prepared remarks, you talked about IngenioRx and outperformance with the core is performing ahead of your expectations. Can you just kind of detail what the sources of the outperformance and what's looking better and also, the trends in Ingenio as a result of COVID? Obviously, mail, 90-day, has seen an increase. Do you think that this is sustainable? How do you think the business evolves throughout the year?
Thank you, Ricky, for that question. I appreciate the opportunity to provide a little clarification on the IngenioRx first quarter results. As you know, they're a separate SEC reporting segment effective this quarter. The operating gain earnings associated with Ingenio were $349 million. That probably differs from what some folks were thinking about, the $4 billion of savings that we got from moving to the CVS contract, with at least 20% of that dropping to the bottom line. Just very simplistic math would say that, divided by four quarters, that would be about $200 million per quarter.
First of all, it's very important to note that we had transferred ASO PBM business that our commercial block had been administering for the last few years into IngenioRx effective January 1 of this year. That added about $75 million-$100 million to the Ingenio performance, which obviously took away $75 million-$100 million from the commercial performance on a year-over-year basis. The rest of it was really just stronger performance. There was an impact from COVID-19. We did relax the refill too soon requirements in mid-March. We saw really a spike in scripts being filled during March that actually helped the Ingenio performance as well.
The $349 million is not run rate, because as we look at the rest of the year, we do expect our business mix to change with some of the impacts from the economy, Medicaid to grow. The run rate of scripts is obviously different. We have seen a slight drop in new scripts here in April over historical patterns. The $349 million, you cannot just multiply it by four. Those are really the key factors, and we're very happy with how Ingenio is performing. As you know, this is a full year ahead of schedule that we're getting this $800 million dropping to the bottom line effective for the entirety of 2020. Very happy with the Ingenio performance. Thank you for the question.
Next question, please.
We'll go to the line of A.J. Rice with Credit Suisse. Please go ahead.
Hi, everybody. Best wishes to the entire Anthem team, obviously, in the midst of this as well. You made the comments in the prepared remarks, Gail, about obviously telemedicine and telehealth and virtual care is a change that probably persists. I wonder, as you guys are seeing this situation evolve, any other areas or maybe even expand on that a little bit, but other areas where you think there's changes that are happening that'll persist long- term, and how this crisis is going to impact long-term healthcare delivery in the U.S.?
Thanks for the question, A.J., and also thanks for your kind remarks. As we think about this, again, it is an unprecedented time. Our first focus was really to ensure that our consumers and members had access to care, and we pivoted fairly quickly to virtual care. We've always had capabilities, but what we've seen is a real acceleration both through the use of our Sydney app online where people can go check symptoms, understand where testing sites are, and we've seen a dramatic increase of people using those digital capabilities. In addition, our care providers have been able to go online and use virtual care. It's not only just virtual consults, but it's also texting and communication. As we think about this, there has certainly been an increase.
We do think that as we reenter the economy, obviously, and restart it, we have to be incredibly thoughtful, understand what the testing is, and the confidence in the economy. I do think we're going to continue to see use of virtual care, and it will continue to be an important part. It is something we started well before the pandemic. I think it also has accelerated the opportunity, and people have become more comfortable with it. In addition to sort of physical health, the other area that we think there's significant opportunity is behavioral health. We've seen a big increase in the use of behavioral telehealth. Again, a capability we had. Beacon has always had this, and we've expanded it as a result of the acquisition of Beacon Healthcare.
One in three visits right now are being used through virtual opportunity. We actually do see that continuing for behavioral and mental health support. Overall, I think that's one of the most interesting. The other opportunity I have is we've been working with our care providers, trying to ensure that they are able to support their patients. We've seen our own teams through CareMore and Aspire reaching out to those patients and ensuring one of our concerns is that they do get the appropriate care that they need. Our teams have been working with them both on the social supports. I think that's another area that's really growing. As part of our Medicare Advantage plans today, we do offer supplemental benefits that include many of those things. As I think about this, I think we're going to see much more virtual care.
I think the social supports are going to continue to be really important. Behavioral health aspects, not only because of loneliness, which we've always known, but also the use of virtual care is very important. Those are the areas that I think right now we're going to see an uptick, and I think we'll see a continued one as people become much more confident in that usage. Next question, please.
We'll go to the line of Justin Lake with Wolfe Research. Please go ahead.
Thanks. Good morning. Just a two quick numbers questions for me. First, can you give us an update on your Medicaid margin trajectory toward that 3% target by year-end? Would appreciate any comments on your employer customers in terms of what you're seeing in April around premium collectability given what's going on in the economy. Thanks.
Great. Thanks, Justin. I'm going to ask Felicia maybe to comment on Medicaid, and then I'll go to Pete Haytaian to talk a little bit more about the commercial marketplace. Felicia?
Good morning. Thank you for the question, Justin. When you set aside COVID, our Medicaid business was on track to end the year around 3%, which is consistent with our original outlook. Our rate actions came in as expected during the quarter, and our out-of-period adjustments were actually negligible. We really had a clean quarter with respect to Medicaid. When you think about our Medicaid business, over 50% of our Medicaid markets have rate actions that occur in the first half of the year, so we have very good visibility around that performance. As we look to the end of 2020, we remain confident around ending the year at the midpoint of our target margin range of 2%-4% for Medicaid.
Okay. Thanks, Felicia. Pete?
Yeah. Thanks, Justin. I hope you're well and the family's well. As Gail said, we recognize that this is obviously a really challenging time for our employers and for brokers, and we're very focused on creating value for them. We've been in frequent communications with them on providing solutions. As it relates to premium collections, this has been a topic of conversation. First for March was really in line with normal months. As you'd expect, COVID didn't really hit until the second or third week. Our premium collections as it related to March was generally in line. As it relates to April, we are seeing a slight uptick in the month for clients that are utilizing grace periods. In a typical month, the percentage of premiums for groups that are basically taking advantage of this is basically 0.5%-1%, versus April, we've seen it be around 3%.
A slight uptick, but as Gail said, we continue to work with our clients on options around affordability and certainly providing solutions around premium payments is a part of that.
Thanks, Pete. Just another piece of information, Justin, as you think about our overall premium, about 70% of our total insured premiums is part of the government business, and that has been collected in time, and we expect that to continue. Next question, please.
We'll go to the line of Lance Wilkes with Bernstein. Please go ahead.
First off, certainly appreciate everything you guys are doing during the crisis. My question is really related to a number of the actions you're taking and was interested in what you think the impacts are going to be from a cash flow and a net investment income standpoint, given acceleration of payables may be offset by slower claim submissions, looking over on the receivables side, kind of the point of maybe some delays in premium collection. Also just had a quick clarification on your dental ASO business membership and maybe what occurred there as well. Thanks a lot.
Sure, Lance. This is John. Thank you for the question. The investment income and interest expense is probably going to be most instructive to view these on a combined basis. Let's just maybe start at the beginning of the year. What has happened in the meantime is that the market's experienced 150 basis point Fed rate cut that we did not anticipate. We say, well, what's the impact of that? Well, about 90% of our portfolio is in fixed maturities, and they're all very high quality with a duration of over four. Which means that clearly any reinvested earnings are going to be down from what our original expectations would have been.
The other 10% of our portfolio certainly has been subjected to a lot of volatility and subject to the same way that the overall market's been subject to a lot of volatility, and it's sort of difficult to predict where that's going to end up by the end of the year at this point in time. On the debt side, we do have some variable rate debt, so we have a natural hedge against interest rates dropping, and so we'll have a benefit on that side. Maybe more importantly, in order to optimize liquidity, we've accessed more debt and we're carrying really higher levels of short-term cash than normal. Additionally, we do have some bonds that are going to mature in August and November. Under normal circumstances, we would have refinanced those later in the year.
We're going to certainly be opportunistic in terms of timing associated with that and the impacts of carrying that debt. All in, I would say that we're really looking at the net of investment income and interest expense to be a headwind against us for the rest of the year. We had a slight tailwind with our first quarter actual results. For the rest of the year, we think it'll be a headwind. We've obviously taken all that into consideration as part of the $22.30 reaffirmation guidance.
Lance, in terms of your question on the specialty dental, that really is the result of one large client that we knew we were going to lose. It came to us as the result of our acquisition of DeCare under a contract roughly 10 years ago, and that contract expired in 2019. Overall, our specialty business, when you take that out, actually had a strong quarter. That was a known loss coming out of this contract expiration as part of an acquisition. Next question, please.
Welcome to the line of Gary Taylor with JPMorgan. Please go ahead.
Hi, good morning. Wanted to just ask for a little more detail on what you're doing with providers, both hospitals, health systems, and your medical groups. I know you alluded to the $3 billion you've made available to providers. I think that's the broader Blue Cross, just wondered a little more detail on, is that just extending liquidity? I'd seen something from Blue Shield that was being done in conjunction with a bank taking the credit risk. I also know you made the $50 million donation to the foundation. Just wondering a little bit, what are you doing with these fee for service physician groups who are seeing really dramatic reductions in revenue and income in the near- term?
Thanks for your question, Gary. You're right. First of all, the $3 billion is part of the entire Blue Cross and Blue Shield system that we have been working really close with. I think part of what makes our affiliation unique here is that just our local and deep roots, and we've been sharing best practices and really trying to make sure that we can respond to the needs that we're seeing in our local community. As part of your direct question on care providers, we've been working really closely with them and have taken several steps to help support them during these challenging times. We've obviously talked a little bit about just the co-pays and things like that. More importantly, one of our immediate efforts is to work with them and ensure that payments are made to them on a timely basis.
First and foremost, we've been working with each of our provider groups to ensure that their receivables, et cetera, are important. They're reducing their administrative burden as well, ticking off pre-authorizations. Really, our focus has been to help them do what they need to do best, which is serve patients in this environment. Proactively, as we think about our focus has also been on working closely in our communities. You mentioned our fee-for-service providers in our local markets. That's an area that we have worked on, and each of our communities is a little different in terms of their needs, but our care provider teams are working with them to try to understand how we ensure that we're a good partner to them as part of our value-based care. Many of them are in our value-based care arrangements.
We've been, again, working with them to support their needs so that they can stay viable during this time, as well as enhance their ability to do telehealth and other things to make sure that they can serve their patients. On the government side of our business, particularly in Medicaid, we've been working very closely with our state partners, to understand those critical providers and that we can provide them the right resources and support across their patient base. I think as we look at that, one of the things that we also, I think is important to point out is that pre-COVID, Anthem and the Blues across the system had some of the lowest days in claim payable in the industry. We were already a fairly quick payer for these providers.
Even in addition to that, we wanted to make sure that any of their receivables, we are working to clean that up, and ensure that they had appropriate cash flow. Those have been the areas that we've been predominantly focused on, but again, across the system, we're sharing best practices and really trying to understand how we help and support providers as they really focus on direct delivery of patient care. Next question, please.
We'll go to the line of Sarah James with Piper Sandler. Please go ahead.
Hey, this is Chris Neamonitis on for Sarah. A quick question around the commercial book. How are you pricing for the June 1 renewals? Is there anything you can share around the conversation you're having for those? I guess specifically, are you assuming that if we do have a fall COVID peak, that'll drive some delayed surgeries into 2021? Just any commentary on pricing for that cost trend assumption?
Sure. I'm going to ask Pete Haytaian . I think it's pretty consistent with the previous question, but I'll ask Pete maybe to give a little bit more color just about our commercial business. Pete?
Yeah, sure, Gail. I think it is consistent. Most of our book, as Gail said, renews January 1. This is such an unprecedented event. There are so many moving pieces and parts, getting our arms around it is something that we're very focused on. Things will evolve over the next few weeks and months that will give us better visibility into rates and what we do with increases in the back half of the year and towards January 1. We feel like we still have time in that regard. As it relates to the near-term rate increases, we don't have a lot of our book really renewing in the near- term. Since COVID wasn't as apparent at that time, it was not as greatly considered.
As Gail said, most of our book renewing in January 1, we have plenty of time once we see how medical costs and deferred electives occur in the back half of the year.
Thank you, Pete. Also just I think to reiterate, we said this in the earlier commentary, but I think it's important. We're going to keep our same consistent and disciplined pricing to our forward view of costs, but we also recognize that this is a unique situation in terms of what's happening, and we will work with our consumers and our customers to ensure that inequities that occur along the way, that we are taking that into consideration as we understand the cost patterns of exactly what's happening. Next question, please.
We'll go to the line of Dave Windley with Jefferies. Please go ahead.
Hi, good morning. It's Dave Styblo in for Windley. First question was just, I was curious about the use of the $3.2 billion of PBM savings that's not going to shareholders. Is that something, which is obviously in your control, that you might use to support some of the EPS headwinds that you guys have disclosed? Just a quick second one, I'm wondering if you could provide an apples-to-apples commercial operating margin comparison since the commercial ASO pharmacy is now out of that for the first quarter of this year.
Thank you, Dave, for the question. First of all, on the $3.2 billion that you're referencing, which is the amount that's been provided back to members and consumers, to help control healthcare costs associated with our better PBM deal. The way that we approach that is we really looked at each line of business and looked at it from a competitive marketplace, looked at it from a geographic marketplace. Where were we versus the competitors? How close were we to MLR rebates, MLR floors? Went through and like Medicare Advantage, looked at the benefit designs and how we could include or enhance benefit designs and still ensure we achieve target margins. We went through a very painstaking process, as I said, with every line of business, geography by geography by geography.
We ended up doing a little bit better than the 20%, as you could tell by our first quarter operating results. It's not a lever in and of itself that we could just pull and take a large chunk down to the bottom line. We are in a very competitive environment, and we are trying to deliver the appropriate value to our members at the appropriate pricing. We've always aspired to do a bit better, but it's not just a short-term lever that we can pull. It's something that is part of a larger overall strategy in terms of price points, product designs, and all the other types of things. The second part of your question associated with just a year-over-year comparison.
Really, the most significant issue is to take the commercial operating gain that's shown in the press release and just go ahead and subtract $75 million-$100 million out of the op gain from the first quarter of 2019. What you'll have is something that's much closer to an apples to apples comparison of how the commercial segment actually performed year-over-year.
Next question, please.
We'll go to the line of Scott Fidel with Stephens. Please go ahead.
Hi. Thanks. Good morning. I had a question just on how you're thinking about the exchange strategy in terms of the footprint and participation for next year. I know that you've taken a pretty disciplined approach towards market selection over the last couple of years. Clearly, just given the significant market shifts that will likely occur, how aggressively you're thinking about ramping that up. Maybe if you could just remind us at this point across your 14 Blue states, just in terms of what your current footprint is on the exchange market.
Great. Thank you for the question, Scott. I'll start, and then I'll maybe ask Pete to give a little bit more color on it. I appreciate your comments because I think you're right on that we have been, I think, taking an active involvement in the individual market and have stayed in the exchanges, but have been prudent in terms of where we think we have the best opportunity to have an impact, and we've been balanced. We modestly expanded our footprint within our 14 states in 2020. As we shared with you on previous calls, we weren't rescaling it. We were really taking a measured, balanced approach. We actually feel that we have a really good footprint going into this and an opportunity to offer some really compelling products to our members in those 14 states as part of the individual exchange.
With that, maybe I'll ask Pete to give some commentary just on the thinking, because his team has been really involved in how we think about the exchanges and our opportunities. Pete?
Yeah. Sure. Thanks, Gail, and thanks, Scott, for the question. I am really proud of the team and the approach. We've been very thoughtful over the last couple of years with regard to how we expand. We have been expanding. Our focal point in almost every instance is ensuring that we can partner with the right providers. We look very closely at value-based relationships. We look at where we can partner on critical clinical programs as well as programs like risk adjustment, and obviously, where we can have the most viable and affordable product and choice for membership. That strategy's really played through over the last couple of years. We haven't fundamentally changed that, so as we think about what's happening with COVID and the potential recession, we still are following those principles.
As Gail said, with respect to coverage, we have pretty decent coverage across our 14 states. It certainly does vary. In some states, we are very competitive across most of the counties in the state. In other states, we are much more targeted. I don't think we're going to fundamentally change that approach. If we can be competitive in many counties in the state, we will be. If we don't feel like we can, we're going to be disciplined and not necessarily reenter.
Next question, please.
We'll go to the line of Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks. I wanted to follow up on the comment that John made earlier about thinking that about 30%-40% of the costs that you guys cover are deferrable in some way. I'm just wondering, is that based upon kind of real-time data? I think most of the providers that we've talked to have said that there's been a much bigger drop in elective procedures than they ever would have thought was possible. Just trying to understand if this is what your historical view on costs are kind of informed by the real-time drop in utilization that seems more perverse than average. Just trying to get a sense of when you do see drops like this in the past, what percentage goes away versus ultimately gets rescheduled, and whether you think that percentage might change this time around.
Thank you, Kevin, for the question. In terms of the 30%-40%, that was based more on a historical view. It may be closer to the higher end of the range in terms of what we're seeing right now and with real-time utilization. That's our historical view, and we call it non-emergent care, things you can pick up the phone and schedule. It's been pretty consistent for us over the last couple of years when we've done the study and the analysis. In terms of the percent that gets deferred and the pent-up demand comes back as increased utilization versus what gets canceled altogether, we've certainly looked into that, and we've studied things like when there were snow days or when there were hurricanes or natural disasters.
While those are all helpful, I don't know that they're really going to provide us the exact information we need from a modeling perspective, because this is such an unprecedented time, and it's just different. The scope and duration of the entire COVID-19 issue is going to be different than anything we've seen. While we do expect a small amount to not come back, it's really too early to provide an estimate or a percentage of what we think will be pent-up demand and the increased utilization in the future. We know that there will be increased utilization in the future once people are more comfortable going back to the hospital and to the doctor.
I would also add that we also know and appreciate that patients are avoiding seeking some care in the interim. That's an area with underlying medical conditions that we are concerned about, and that could worsen. We are closely trying to monitor and help those patients, and make sure that they have the right access. Again, as John shared, this is unlike any of the historical models that we've had. We have certainly done a lot of modeling. At this stage, I think it's really hard to give any point estimates about where this will end up, and really appreciate your understanding of that. Next question, please. We're checking to see if we have any more questions in the queue.
Charles Rhyee , your line is open.
Yeah. Hi, can you hear me?
Yes, please.
Yes.
Okay, great. Thanks for taking the question. Hey, first, a clarification, I think, to an earlier question, I think A.J.'s question on virtual care. Gail, did you make mention on sort of what percent of your ASO clients are currently signed up for LiveHealth Online, and is that something that's easily turned on? If clients wanted to access telehealth, is that something they can get onto for this current period, or is that something they'd have to look at for next year? Secondly, John, we've been talking a lot about sort of deferred costs, and one area where we're looking at, it seems like investment income came in higher than we expected, and I think if you were to annualize the amount in the first quarter, we'd be probably above sort of the guidance range for the full year, yet we've seen rates fall.
Is there something in the 1Q number that we're missing here? If we think that number normalizes for where interest rates have kind of fallen too, right? We have less share repo as well. We have higher incremental interest expense. Are you kind of implying that the amount of elective procedures you do expect to come back still, we're going to expect a big drop in the second quarter, it's going to come back a little bit in the third and fourth, but net, we're still going to be down fairly significantly for the full year, or do you think at the end of the day, we might net out roughly close as we kind of exceed normal capacity, let's say, in the fourth quarter? Thank you.
Well, thank you for that very thorough question. I know we had a gap in the timing. You were accumulating all of those, but appreciate the question, and we will try to address them. Let me start with first your question around LiveHealth Online. First and foremost, Sydney Care, which is the app that LiveHealth Online is in, as well as our Engage, we've seen more than a 39% increase since 2019, well ahead of our expectations. By the way, Sydney Care, as part of COVID-19, we have offered to anyone who wants to use it. This is not a subscription service. You can essentially sign on, download the application, do the coronavirus symptom checking as well as the testing, and that's been very strongly used. We think it's obviously a capability more broadly.
As you think about LiveHealth Online, it's one of the aspects of virtual care. Again, very strong usage, but also, I also think we're going to see more virtual care within our sort of traditional care providers because they have also pivoted to that. Not only are we seeing an increased usage in the virtual part of it, but also texting back and forth, in terms of symptom checking and other things. A lot of strength there continued. We've seen continued growth. We saw an initial surge, certainly when the shelter-in-place orders were given, but we're continuing to see that week over week. I think it's going to continue to grow, and again, 39% increase so far, and I'd expect it to continue to grow through the course of the year. With that, I'll ask John maybe to address your other questions.
Thank you, Charles. In terms of the investment income and interest expense, it's consistent with the question that Lance asked earlier, and that is that we did have a very strong first quarter from that perspective. Given all the comments that I made before about the 150 basis point Fed rate cuts, the fact that 10% of our portfolio has been subject to some extreme volatility, the fact that we're accumulating cash to really address our liquidity issues and to ensure that we have enough cash and assets to maintain and pay all of our claims and accessing the debt markets maybe a little bit earlier than normal. On a net basis, that will be a headwind for the rest of the year. We just haven't quantified that at this point, but it's all part of the $22.30 thought process.
The last question on the deferrable procedures, in the 30%-40%. Right now, we're expecting that the second quarter medical loss ratio and the second quarter earnings per share will be very favorable to historical numbers, and we'll have a very low MLR on a comparable basis here in the second quarter. We do expect the pent-up demand to come in. The real question is, what's the duration of the COVID-19?
situation before the deferrable procedures really pick back up. There's a very good chance that many of those deferrable procedures will work their way into 2021. When you're looking at 2020 in a vacuum, there's a good chance it'll be a net positive. Over the course of a couple years, people will get their care, and we will have the cost structure associated with it. Thank you.
Thank you, John. Next question, please.
We'll go to the line of George Hill with Deutsche Bank. Please go ahead. Mr. Hill, you have taken yourself out of queue. Please press one zero if you would like to ask a question.
Hello?
Mr. Hill.
Hello
your line is open.
Sorry. I don't know what happened there, team. I guess just we would probably be in the beginning of the PBM and managed care selling season for 2021 right now. I guess I was focused on IngenioRx with the market traction it had shown recently. I guess, can you say whether or not you've started to see the PBM selling season for 2021 start to move as normal with people working remotely and benefits consultants working remotely? Do you kind of expect the selling season to be a push until the 2021 selling season starts, or I guess any comments around the selling season as it relates to the virus would be helpful?
Sure. Thank you for the question. I think we are operating in an incredibly rapidly changing environment. I think it's still early to really understand the full implications. With that, the way our sales cycle work, a lot of activity, for the beginning of next year really does occur now, and we are seeing a slowdown in decisions. I think employers are particularly focused on ensuring the safety and health of their employees first and foremost, and also trying to understand the implications to their own businesses. With that said, we had a really strong pipeline, and what we expect across many of these procurement opportunities that they'll move out further into next year.
I think we still have really strong opportunities, but I do think we are going to see some deferred decisions just because of what's happening across this environment and the need for employers really to focus on their own business right now and the health and safety of their employees. With that said, I think we've had a very compelling offering and still feel really strongly about the value proposition, particularly the opportunities inside of our fee-based business and in the commercial business. Thank you. Next question.
We'll go to the line of Joshua Raskin with Nephron Research. Please go ahead.
Hi. Thanks. Good morning. Can you hear me okay?
We can. Thanks, Josh.
Excellent. Wanted to follow up on the commercial membership and understand that March was a quote-unquote "normal month" from an enrollment perspective. Sort of curious on early membership trends in April. Do you get information on furloughs where people actually maintain their benefits, or are you just getting benefit rolls, or are you actually getting employment rolls? Sort of the last part of that is just ancillary benefit cross-sell. You guys have talked a lot about that, trying to increase your ASO fee on a PMPM basis. Do you think that sort of slowed down the process? You sort of mentioned that in the last question that employers are kind of just making sure everybody's okay first. A couple of questions there just on commercial membership.
Sure. Thanks, Josh. I'm going to ask Pete Haytaian to answer your questions. Pete?
Yeah. Thanks, Josh. With respect to April, it hasn't been fundamentally different than March. As Gail said in her commentary, we are seeing furloughs accelerate. We obviously had the PPP, the federal relief, and folks taking advantage of that. We've been working closely with our employers and brokers on affordable options. We've been working closely with them on creating relief around premium payments. All that activity, as it relates to April, we haven't seen an acceleration yet in disenrollment. We're beginning to see signs of that. In the last couple of weeks of April, we did see in-group change start to accelerate, so employees beginning to fall off the rolls, but not to a very material extent. The numbers more broadly, we are expecting that to accelerate in the next month or so.
Again, our focal point has been creating solutions for employers and brokers, buy-downs, alternative products, et cetera. As it relates to furloughs, yes, we do get information from clients. We are very closely connected with our brokers and our employers. We followed multiple webinars. We've had multiple outreaches. We're staying close to them. They're actually asking us for a lot of advice around things like that. For example, if they're furloughing employees and/or if they're reducing hours of employees, what kind of options exist for them? I think that is part of the reason why you're not seeing as much activity in April out of the gate. As it relates to our ancillary benefit strategy and our margin improvement in the ASO business, we had a really strong 2019 in that regard. We had a strong first quarter in that regard.
To Gail's point earlier with respect to RFPs slowing down, that will inevitably affect us in 2020 as it relates to performing around the 5:1 to 3:1 . Point out around that is as it relates to going from 5:1 to 3:1 . It actually translates into affordability. When you think about critical clinical programs and packaging of those programs, when you think of stop loss, when you think of pharmacy and the integrated value proposition of pharmacy to the extent that we can sell through on that and have Anthem be a single source solution, I think we're enabling more affordability. That's with eyes wide open and the understanding that some of that may slow down. We are, though, once we get out of this, we feel very good about continuing on our path to 3:1 .
If not for COVID, Josh, we would stick with what we had said, and that is that we were on a path to definitely get to 4:1 in 2020. We might see a slight slowdown in that, but it'll pick up again.
Thanks, Pete, and Josh, just a little bit more color on Pete's commentary and your specifics about how do we know what's happening is we do the deep analytics on our business. We are looking at it by SIC code, obviously. Just a little bit of color on that. Our book does skew a little more towards large municipalities, which are a little more stable, as well as essential workers right now. That's why you wouldn't see as much of that kind of furlough activity early on in our book of business. We're going to take the last question, please.
That question comes from Steve Willoughby with Cleveland Research. Please go ahead.
Hi, good morning. Thanks for taking my question. Just a quick follow-up on a comment that John was discussing earlier as it relates to utilization coming back in the back half of the year. John, in your prepared remarks, you made a comment about assessing the healthcare system's capacity. I was just wondering if you could provide any more color on how you're thinking about that. Once we get on the other side of this virus, how are you guys thinking in terms of the healthcare system being able to absorb capacity or utilization above normal? Thank you.
Thank you, Steve. That's a great question, and certainly if there's thousands of providers out there's probably thousands of answers to that question. There's only so many surgeons, there's only so many beds, there's only so many access or availability to appropriate points of care. It's really difficult to give an exact percentage or difficult to provide something that's really specific from a modeling perspective. As you look at the various facilities that are out there and the information that many of us have available to us from the public marketplace, and you look at some of the productivity and capacity percentages at these large public hospitals, you can then make assumptions from there in terms of just how much they can even do.
Quite honestly, given the duration of this virus and this situation, once the pent-up demand comes through, I don't think it's possible that it'll be able to be handled in a short period of time. I think it's an elongated period of time for the pent-up demand to work its way through the system. That assumes that everyone is comfortable scheduling their procedures and going back to the hospital and going back to the doctor's offices as well, which is another variable in that. It's just one of many, many, many variables, but it's a very important variable. Thank you for the question.
Thank you, John. Thank you to everyone who joined us this morning. Despite the challenges facing this country with COVID-19, Anthem is well positioned to fulfill our promises to those we serve in this new era for healthcare. As we move through this pandemic, we'll continue to lead and lend our voices and perspectives across the healthcare system to support our members and customers, as well as our care provider and other partners. The lives of those we serve we know have changed. In that spirit, Anthem is also evolving to create a simpler, more affordable, and more effective healthcare experience in this new context.
I'm confident we'll emerge on the other side of this current pandemic, even stronger and nimbler as the healthcare partner of choice, demonstrating the strength of our brand, where Blue Cross and Blue Shield currently serve nearly one in three people in the United States today. We hope you all stay safe and well, and thank you again for joining us.
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