Dive Brief:
Cigna closed out 2024 on shaky footing, posting fourth-quarter results below Wall Street’s expectations due to a rise in medical costs. Meanwhile, top executives pledged changes to medical and pharmacy plans amid widespread discontent with health insurance companies.
On Thursday, the Connecticut-based company reported revenue of $65.7 billion, up 29% year over year, and income of $1.4 billion, up 38% year over year. However, adjusted income from operations, which Cigna believes is a better metric of how the company performs, fell 8% year over year to $1.8 billion, well below analyst forecasts.
Cigna CEO David Cordani told investors Thursday morning the company will work to make receiving medical and pharmacy care cheaper and easier for its customers, amid criticism that insurers and pharmacy benefit managers are profiteering at the expense of the American consumer.
Dive Insight:
Cigna’s results, which Jefferies analyst David Windley summarized in a note as “messy,” come almost two months after the killing of UnitedHealthcare CEO Brian Thompson set off an intense wave of anti-insurer animus in the U.S. The crime and the resulting firestorm led to a reckoning for insurers, with major national payers UnitedHealthcare, Elevance and now Cigna promising to do better for their millions of members.
Cordani called Thompson’s death “tragic” during the call.
“The past several weeks have further challenged us to even more intensely listen to the public narrative about our industry,” Cordani said, adding: “We know that more can be done within our health plan offering.”
Specifically, Cigna will “soon” announce steps to lower costs and address patient pain points, like accelerating and simplifying hurdles to getting care approved such as prior authorizations, Cordani said.
Cigna will also focus on expanding access to patient advocates for people with complex health conditions, according to the CEO.
Cigna has also been on the defensive when it comes to pharmacy costs. The company operates one of the largest pharmacy benefit managers in the country, Express Scripts, which together with CVS’ Caremark and UnitedHealth’s Optum Rx handles about 80% of all U.S. prescriptions.
Express Scripts has been a target of federal lawmakers and antitrust regulators for allegedly using its massive market power and position as a pharmaceutical middleman to profit from higher drug costs.
Express Scripts maintains it saves its clients money, though the opaque nature of PBM contracting and business practices makes it difficult to parse that claim.
However, the company says it wants to be more transparent moving forward.
On Wednesday, Express Scripts announced it would let patients pay the PBM’s lower negotiated price at the pharmacy counter, even if they haven’t reached their deductible.
Express Scripts also plans to expand its benefit summaries and disclosures, so patients will receive a document sharing their annual drug spending, how much their plan paid and how much the PBM saved them, Cordani said. Customers will also get a report that’s more detailed than what Express Scripts currently provides, including more information on costs and pharmacy claims.
“I’d expect this to be the default way that we bring these solutions to market” moving forward, Eric Palmer, the head of Cigna’s health services division, said on the call.
Express Scripts’ announcement follows a pledge from Cordani last summer to more aggressively defend the PBM from outside intervention. That’s as Express Scripts generates an estimated two-thirds of Cigna’s profits, according to analysts.
Express Scripts is part of Cigna’s health services division, called Evernorth, which has been responsible for almost all of Cigna’s growth over the past few years. Along with Express Scripts, Evernorth also includes specialty pharmacy Accredo, medical benefit manager EviCore and Cigna’s other health service product lines.
Executives in particular tout Accredo as a growth engine for the company thanks to strong demand for specialty drugs and increasing adoption of biosimilars.
Evernorth’s specialty and care division reported adjusted operating income up 27% year over year in the quarter, to $948 million. (In comparison, Express Scripts added $1.2 billion in adjusted operating income for the division in the quarter, but saw only 5% growth.)
Evernorth continues to see uptake of its interchangeable biosimilar for immune disease drug Humira, which became available for eligible Accredo patients for $0 out-of-pocket cost in June. Almost half of eligible Accredo patients are currently on the copycat drug, Cordani said.
Evernorth plans to introduce a biosimilar for immunosuppressant Stelara early this year, also for $0 out-of-pocket.
Cigna expects $100 billion of specialty drug spend in the U.S. will be subject to biosimilar and generic competition in the next five years. That’s a significant addressable market — and a lucrative one given switching Accredo patients to biosimilars is more profitable for Cigna, according to analysts.
The Humira and Stelara copycats are “just the start of this opportunity,” Cordani said.
Evernorth’s growth was offset by flagging earnings in Cigna’s health insurance division in the quarter. Cigna Healthcare reported adjusted operating income of $511 million, down 47% year over year.
The division’s medical loss ratio, an important metric of how much insurers spend on patient care, was 87.9% in the quarter, compared to 82.2% same time last year.
The “vast majority” of falling earnings was due to higher stop-loss medical costs, CFO Brian Evanko said.
Stop-loss insurance protects self-funded employers from health insurance costs above a certain amount. Fewer stop-loss customers needing payment helped Cigna in the fourth quarter last year, so investor did expect stop-loss costs to increase year over year.
But “the magnitude of the miss was greater than anticipated,” J.P Morgan analyst Lisa Gill wrote in a note on the results.
There’s often variability in stop-loss costs, but they came in higher than Cigna had planned for in the fourth quarter, Evanko said.
The CFO chalked the increase up to more pricey claims for specialty medications, especially injectables like cancer drug Keytruda, and elevated high-acuity surgeries, especially for oncology and cardiac-related inpatient procedures.
Cigna said it’s working to improve stop-loss margins and expects those efforts to bear fruit starting in 2026.
Insurers also struggled over the past year with higher than expected costs for members in privatized Medicare plans. The challenges led Cigna, already a relatively small Medicare Advantage insurer, to plot out an exit from the market altogether, inking a sale of its Medicare business to Chicago-based Health Care Service Corporation.
The $3.7 billion deal is expected to close in the first quarter. Cigna and HCSC have already received federal approval and the majority of state approvals, but are waiting on a final green light from one state, according to Cordani.
“We’re ready to hand it off to HCSC,” Cordani said.
Overall, Cigna’s revenue jumped 27% year over year to $247.1 billion in 2024. The company reported net income of $3.4 billion, compared to $5.2 billion in 2023. Cigna’s profit would have been higher if not for a $2.7 billion investment loss on primary care chain VillageMD.
Cigna expects adjusted revenue of at least $252 billion this year and adjusted operational income of at least $7.9 billion.
“On 2025, guidance also came in below, with Cigna Healthcare also looking like the culprit,” Gill said.
Cigna’s stock fell in early morning trade Thursday following the results.
