Q4 2023 Earnings Summary
- Significant Capital Return to Shareholders: Cigna plans to return the majority of its excess capital to shareholders through share repurchases, including at least $5 billion in the first half of 2024 and a 14% increase in quarterly dividend.
- Strategic Focus on High-Growth Opportunities through Evernorth: The sale of the Medicare Advantage business allows Cigna to sharpen its focus and redirect capital to higher-growth areas within Evernorth, expanding services for health plan partners in government programs like Medicare and Medicaid, viewing this as an attractive, capital-light way to grow.
- Strong Growth Potential in the Select Employer Segment: Cigna continues to see opportunities for above-market growth in the Select segment (employers under 500 employees), where its market share is still just 7%, indicating significant potential for expansion. ,
- Cigna expects net customer volumes to decline slightly in 2024, primarily due to customer declines in the individual exchange business resulting from necessary pricing actions.
- Selling the Medicare businesses to HCSC may limit future growth opportunities in the attractive seniors market and reflects the need for sustained investments that were disproportionate to their size within Cigna's portfolio.
- Medical care ratio (MCR) is projected to increase in 2024 compared to 2023, due to normalization of stop-loss products and product mix shifts, which may indicate higher medical costs.
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Sale of Medicare Advantage Business
Q: Why sell MA business yet still see it as attractive?
A: Cigna is pleased with the sale of its Medicare Advantage business to HCSC, viewing it as a win-win that clarifies their strategy. While the MA market is attractive, they believe resources are better allocated elsewhere due to required capital investment and regulatory environment. They will continue to expand services through Evernorth to support Medicare plans.
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Future of Medicare Advantage Market
Q: What's your 5-10 year view of the MA market?
A: Cigna sees Medicare Advantage as an important and attractive market with benefits for seniors and society. Although growth may ebb and flow with funding and demographic shifts, they believe MA will continue to provide value, and they view it as an expansion opportunity for Evernorth services.
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MLR Guidance and Stop-Loss Products
Q: Why is 2024 MLR guidance higher than 2023?
A: The slight increase in the projected 2024 Medical Loss Ratio is primarily due to expected normalization of stop-loss product margins within the U.S. Commercial Employer business. In 2023, stop-loss products performed better than expected, but they anticipate margins returning to typical levels in 2024.
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Evernorth Growth Drivers
Q: What are the key drivers for Evernorth in 2024?
A: Evernorth expects strong growth driven by coordinating fragmented point solutions, expanding behavioral care, and specialty pharmacy growth, including biosimilars and therapies like GLP-1s. The Centene contract adds significant volume, and they anticipate continued benefits from biosimilars, supporting an expected 9% AOI growth in 2024.
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Capital Allocation Post-MA Sale
Q: How will MA sale affect investment priorities?
A: The sale allows Cigna to sharpen focus and reallocate capital to digital capabilities, infrastructure expansion, and services like ClearCare and Pathwall. They continue to view the exchange business as complementary and will maintain their investment strategy without significant changes due to the sale.
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Membership Guidance for 2024
Q: What's driving membership changes in 2024?
A: Cigna projects a net decline in customers for 2024, primarily due to intentional pricing actions in the individual exchange business leading to expected customer declines. They anticipate modest growth in the U.S. Commercial Employer segment, especially in the Select segment, despite declines in national accounts. Medicare Advantage customer volumes are expected to be down slightly.
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PBM Transparency and Cost-Plus Models
Q: How are cost-plus models impacting the PBM?
A: Evernorth offers clients choice and flexibility, including transparent offerings like the Clear Network solution, a cost index-based pharmacy network. Clients demand more affordability, and they're engaging in conversations about innovative programs, though adoption may have long lead times.
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Specialty Products Penetration
Q: How is specialty products penetration in self-insured?
A: Specialty product attachment rates remain high in the under-500 employee Select segment, where employers typically purchase the full suite of offerings. Larger employers buy more selectively. Cigna continues to see opportunities as employers seek to consolidate vendors and reduce point solution fatigue.
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Stop-Loss Performance Impact
Q: How did stop-loss affect 4Q and 2024 outlook?
A: Stop-loss products contributed to lower Medical Loss Ratio in 2023, especially in Q4 due to settlement activities, finishing the year with $6 billion in premiums. For 2024, Cigna expects stop-loss profitability to normalize, impacting the projected MLR increase.
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Evernorth's Centene Contract and Biosimilars
Q: What's the status of Centene onboarding and biosimilars?
A: The Centene implementation has been successful, with significant onboarding costs in 2023 now normalizing. Evernorth anticipates continued benefits from biosimilars and expects adjusted operating income growth of about 9% in 2024, aligning with their growth algorithm of 5–7% annual income growth.