Investors were concerned about medical cost trends coming into the second quarter, but health insurers have largely bucked the worst of rising expenses. Cigna, one of the last major payers to report earnings, was no different.
“We planned and priced for more normalized levels of utilization this year. Our year-to-date claims experience has been broadly in line with this expectation,” Cigna CFO Brian Evanko said in a Thursday morning call with investors.
Cigna’s medical loss ratio, or how much of the premium dollar is spent on patient care, was 81.2% in the second quarter, according to new financial results — better than analysts expected.
In June, UnitedHealth and Humana flagged early signs of higher-than-expected outpatient utilization among seniors that was driving up medical costs. Cigna did see elevated use of outpatient and professional services, especially orthopedic and cardiovascular surgeries, according to executives.
But “medical costs were well-controlled during the quarter,” SVB analyst Whit Mayo noted.
Cigna’s medical costs in the quarter were pressured by higher estimated risk-adjustment payments in the Affordable Care Act individual exchanges in two states, CEO David Cordani said.
The unfavorable impact from the risk-adjustment payments totaled $80 million in the first half of 2023, and is expected to total another $80 million in the back half of the year.
The hit was offset by risk-adjustment payments the payer received from 2022 that totaled about $50 million, along with lower medical costs in the individual exchanges reflecting a younger and healthier population, Cordani said.
Cigna filed “sizable” rate increases in those two states for 2024, so the payer should see some margin expansion in its individual exchange book that year, according to Cordani.
“The exact amount of that margin improvement will end up being a function of our geographic and customer mix in 2024 as we’re likely to have fewer customers in the individual exchange business in 2024 relative to where we are now in 2023,” Cordani said.
Overall, Cigna reaffirmed its 2023 MLR range of between 81.5% to 82.3%.
Cigna’s medical membership reached 19.5 million in the quarter, up 8% from the end of 2022. The Bloomfield, Connecticut-based payer now expects to add another 1.4 million members in 2023, up from its prior estimate of 1.3 million, mostly from individual exchange growth.
Cigna isn’t yet seeing meaningful signs of economic pressure in its commercial business, but is assuming some elevated disenrollment in the second half of the year, executives said on the call.
Large employers are mostly concerned about affordability for 2024 in benefits design, and continue to focus on addressing their employees’ behavioral health needs and paring back on point solutions, Cordani said.
Cigna’s health services segment Evernorth, which includes pharmacy benefit manager ExpressScripts, reported revenue of $38.2 billion in the quarter, up 10% year over year. Its specialty pharmacy, Accredo, has grown to make up 40% of Evernorth’s total revenue, Cordani said.
Evernorth has seen a “meaningful uptick” in utilization of GLP-1 agonists, Evernorth CEO Eric Palmer said on the call. The drugs have been available to treat diabetes for years, but have recently been in high demand due to weight loss benefits.
Evernorth recently launched a chronic condition management program called EncircleRx that brings together management of GLP-1s along with cardiac and diabetic conditions and obesity, according to Palmer.
“GLP-1 utilization does continue to build, which in the Evernorth business is a positive contributor to our earnings at this point in time whether that be for diabetic indications or non-diabetic indications,” Cordani said.
Cigna beat Wall Street expectations on earnings and revenue in the quarter. The payer reported revenue of $48.6 billion, up 7% year over year, and profit of $1.5 billion, down 4% year over year.