Cigna Is Still Interested In Medicare

Dive Brief:

• Cigna on Friday defended its decision to sell its Medicare division, with management telling investors the health insurer will emerge from the divestiture as a leaner and more focused organization.
• On a call to discuss Cigna’s fourth-quarter earnings, analysts peppered the payer’s C-suite with questions about the trajectory of its business following the sale, which some had criticized for seeming to undervalue Cigna’s Medicare lives.
• Cigna still likes Medicare as an expansion area, but is more interested in providing services like pharmacy benefits to other Medicare Advantage organizations than offering plans itself, according to CEO David Cordani. “We were really pleased with the nature of the transaction we were able to structure,” Cordani said on the call. ”We see it as a win-win.”

Dive Insight:

Cigna on Friday raised its revenue and profit forecasts for 2024 after announcing fourth-quarter financial results that beat Wall Street expectations.

The Connecticut-based insurer is projecting stability and growth days after announcing plans to offload what used to be a key growth business — Medicare — for $3.7 billion to Health Care Service Corporation. The decision came after the division failed to reach long-term target margins, mostly because of administrative expenses related to expansion.

The divestiture, which includes Cigna’s Medicare Advantage plans, should allow the payer to focus on its core business in employer-sponsored coverage, which is expected to grow this year amid the U.S. economic recovery.

Cigna is also withdrawing from a sector embroiled by notable turbulence, including shifting regulations, lowering payment rates and rising medical costs, that’s pressured earnings for major participants like UnitedHealth and Humana.

However, some analysts aired concerns that Cigna had inked a deal undervaluing its MA division, while eliminating a wellspring for future growth.

Cigna executives said on Friday those concerns are unfounded.

“While we view the market as an attractive growth market, the required capital, investments, resources, focus relative to its size within our portfolio coupled with the continued elevated regulatory environment — our decision was it was best to enter this transaction,” Cordani said.

Cigna is not eschewing MA altogether. The payer is still interested in serving Medicare beneficiaries through Evernorth, its health services arm that includes pharmacy benefit manager Express Scripts, management said.

The deal with HCSC, for example, includes a stipulation that Evernorth will continue providing pharmacy services to the Medicare businesses for four years after the transaction closes.

“We’ve been quite deliberate now for several years working to expand the services portfolio and the value proposition within Evernorth for our health plan partners as it relates to their government services, be it Medicare, be it [dual-eligibles], be it Medicaid, et cetera,” Cordani said. “We’re demonstrating a proven track record of growing our government reach but through the services franchise, and we will continue to fuel that on a go-forward basis.”

Cigna expects its MA membership to fall in 2024, which — if the HCSC transaction closes on the expected timeline — will be its last year of operating the business.

That’s because the payer pulled back in some markets in response to lower payment rates for 2024. Cigna also experienced more competition for members than it had expected in select areas, resulting in less growth than planned, said CFO Brian Evanko.

Cigna expects to bring in at least $28.25 per share in operational income this year, up from its prior estimate of $28 per share, and adjusted revenue of at least $235 billion.

The payer benefited from lower-than-expected medical costs in the fourth quarter — a sharp contrast to its managed care peers that have reported earnings so far.

Cigna reported a medical loss ratio of 82.2%. An insurer’s medical loss ratio, or MLR, represents how much in premiums were spent on patient care.

The better MLR was mostly thanks to Cigna’s core commercial employer business, Evanko said. Specifically, fewer customers with stop-loss insurance, which protects self-funded employers from health insurance costs above a certain amount, ended up needing payment.

Meanwhile, Cigna’s spending on seasonal diseases like COVID-19, the flu and respiratory virus RSV also came in lower than expected, Evanko said.

However, Cigna’s MLR guidance for 2024 was higher than analysts forecast. The insurer’s guide to an MLR between 81.7% to 82.7% represents a significant increase in medical costs, said Jefferies analyst David Windley in a note on the earnings.

Evanko said the jump is also due to stop-loss products in its commercial business. Cigna is assuming the profitability of those products will normalize in 2024.

Overall in 2023, Cigna brought in $5.2 billion in profit on revenue of $195.3 billion.