Dive Brief:

• Cigna’s massive pharmacy benefit manager Express Scripts could have lower profits next year due to its transition to a new rebate-free model and discounted contracts for three major clients, the company said Thursday along with the release of its third quarter results.
• But “overall, we expect [earnings per share] growth in 2026,” COO Brian Evanko told investors. Earnings should climb due to growth in Cigna’s specialty pharmacy and higher margins in its health insurance business, executives said.
• Both Cigna’s health services business Evernorth and its insurance arm Cigna Healthcare beat analyst expectations in the quarter, and Cigna reaffirmed its 2025 outlook following the results. Still, the company’s stock fell more than 17% in morning trade after the results were published.

Dive Insight:

Cigna reported revenue of $69.7 billion in the third quarter, up 10% year over year. The Bloomfield, Connecticut-based company’s net income was $1.9 billion, up from $739 million in the third quarter last year, when Cigna lodged a significant investment loss. However, Cigna’s adjusted income from operations, which does not include that charge, was flat year over year at $2.1 billion.

J.P. Morgan analyst Lisa Gill called the results “solid” in a Thursday note.

Evernorth, which accounts for 60% of Cigna’s profits, reported adjusted income from operations of $1.9 billion, up 1% year over year, on revenue of $60.4 billion, up 15% year over year.

Revenue growth largely didn’t trickle down to the division’s bottom line due to higher spending in Express Scripts. That margin pressure in Cigna’s pharmacy benefits segment should continue over the next two years, executives said. That’s due to two factors.

For one, Cigna issued better contract terms to three large clients — Centene, Prime Therapeutics and the Department of Defense — in order to renew their business through the end of the decade. That will lower margins in those contracts, which in total account for $90 billion in annual revenue, according to Evanko.

Secondly, Cigna is investing in technology and other operations to transition clients to its new default pharmacy benefits model starting in 2028. The model, which Cigna announced earlier this week, will pass the savings it negotiates with drugmakers onto members at the point of sale, instead of returning those rebates to clients after the fact.

Executives touted the model on the Thursday call, saying it will lead to patients paying less at the pharmacy counter, more stable reimbursement for pharmacies, and a simplified payment structure and budget certainty for employer clients.

And importantly for investors and the company itself, the new model will have “comparable” profit margins to Evernorth’s other pharmacy benefits products, at around 4%, according to Evanko.

“We would expect strong levels of contribution from our new rebate-free model,” the COO said.

Meanwhile, Cigna’s health insurance division, which accounts for about 40% of its profits, has managed to avoid the worst of higher costs slamming its payer peers, mainly by dint of its business makeup. Cigna Healthcare covers more than 18 million members in employer-sponsored health plans and plans on the Affordable Care Act exchanges.

The insurer used to offer Medicare Advantage and Medicare prescription drug plans as well, but sold that business earlier this year, exiting a market that’s been driving significant spending for insurers.

That divestiture drove down Cigna Healthcare’s adjusted revenues in the quarter by 18%, to $10.8 billion. Excluding the impacts from the sale, Cigna Healthcare’s revenues would have been up 6%, since it increased premiums to cover rising medical costs, the company said.

Still, those premium increases were not entirely sufficient. Cigna reported a medical loss ratio, a marker of spending on patient care, of 84.8% in the quarter, up from 82.8% same time last year and higher than analysts’ expectations.

The main culprit behind the MLR increase was Cigna’s Affordable Care Act business, executives said. Plans on the exchanges have struggled to absorb higher costs this year, and since the increase in enrollees’ health needs is affecting essentially all issuers, it’s not being hedged by normal checks and balances against spiking costs.

Cigna’s “updated view of risk adjustment” in its ACA business drove the brunt of the higher MLR, Evanko said.

Executives also attributed the increase to higher stop-loss medical costs that have bedeviled Cigna since late 2024. There’s often spending variability in stop-loss insurance, which protects self-funded employers from health insurance costs above a certain amount.

However, Cigna saw its stop-loss spending soar in the fourth quarter last year as workers in employer-sponsored plans used more expensive specialty medications and received more high-acuity surgeries.

Though stop-loss trend remained elevated in the third quarter, it remained within the company’s expectations, executives said. Cigna repriced its stop-loss products early this year and expects the business’ margins to improve in 2026.

“By and large our 2025 performance is in line with our expectations with the exception of, as we called out in advance, some of the pressure we saw in the individual exchange business,” CEO David Cordani said on the call.

Overall, Cigna Healthcare’s adjusted income from operations dropped 12% year over year to $1 billion in the quarter.