Last-minute COVID costs cut into Cigna’s Q4 share price
Cigna Corp.’s revenue and profits remained strong through the fourth quarter, although an increase in costs related to the COVID-19 pandemic and the return of the health insurance tax took a significant hit to the payer’s expected earnings per share.
Cigna reported $4.1 billion in profits for the fourth quarter, up 76% from the $977 million the company reported during the same time the year prior. The Bloomfield, Conn.-based payer generated $41.7 billion in revenue for the quarter, up 9% from the $38.2 billion reported during the fourth quarter of 2019.
In a research note, Cantor Fitzgerald analysts Steven Halper and Kyle Mikson wrote they were surprised that coronavirus testing and treatment took such a large chunk out of the insurer’s share’s bottom line, with a stock price of $3.51 coming in below Wall Street expectations.
Still, “we believe this is reasonable given the uncertainty,” analysts wrote.
For calendar 2020, Cigna booked $160.4 billion in revenue, up 4% from $153.5 billion in 2019. The insurer reported $8.4 billion in profits in 2020, up 65% from $5.1 billion the year before. Cigna’s medical loss ratio reached 85.8% for the quarter, meaning nearly 86 cents of every premium dollar was spent on customers’ medical care.
CEO David Cordani credited the company’s positive year-end results to its $6.2 billion sale of its group and life business to New York Life on Dec. 31 and its Evernorth healthcare services division, which saw significant growth in its pharmacy business last year. During the fourth quarter, the company issued 388 million pharmacy prescriptions, up 19% year-over-year.
Cigna also completed its integration with Express Scripts in 2020 and partnered with Amazon Prime to offer medication home delivery, a partnership that Cordani said will evolve throughout 2021. This year, the company expects to issue 1.5 billion adjusted pharmacy prescriptions.
“We continue to invest significantly because of the rate and pace of growth in the business, as we are continuing to add significant business to that portfolio,” Cordani said.
As far as membership goes, Cigna reported 16.6 million medical members at the end of the year, a decrease of 472,000 from the year before, which the company credited to disenrollment from the pandemic and the loss of a single 240,000-member client. Because 85% of Cigna’s commercial customers are self-insured, Cantor Fitzgerald analysts wrote that Cigna is more impacted by rises in unemployment than other large insurers.
“Given its high exposure to employer-based health insurance, the company is uniquely impacted by COVID-related changes in employment levels and other economic factors,” analysts wrote.
These declines were partially offset by an 18% year-over-year growth in Medicare Advantage.
In 2021, Cigna expects much of the same to continue, with its Medicare Advantage customers growing by up to 15%. Cordani also expects growth in its individual Affordable Care Act plans, although its exit from the non-ACA individual market will partially offset this expansion.
Cigna operates individual exchange plans in 220 counties this year, representing a more than 50% year-over-year increase, Cordani said. Across all its benefits offerings, the company expects to add up to 325,000 total enrollees in 2021.
Coronavirus testing, treatment and other costs will continue to play a role in Cigna’s future, cutting $1.25 from its earnings price in 2021. Cordani said Cigna is not planning on paying for return-to-work testing for its members. Because most of the payer’s commercial members are self-insured, Cigna generally just acts as their fiduciary and helps them administer and process claims, he said.
“We think you should view it as transient, really removable,” Cordani said of the COVID-19 costs. “I’d caution penciling all of it as immediately recoverable in 2022.”
One area the pandemic has accelerated for Cigna is acceptance and adoption of value-based care models among its provider network, Chief Financial Officer Brian Evanko said. While these models are much more common among the company’s Medicare Advantage members, he said expansion in the commercial space represented an opportunity for the company.
“Now [value-based care] may look a little bit more palatable to some that may have not viewed it in the past and were more with a fee-for-service model,” Evanko said.
The coronavirus also has accelerated consumer and provider adoption of telehealth. Cordani said the company is excited about the future of integrating behavioral and medical services digitally and that Cigna views virtual-first primary care plans as a potential growth area for the insurer.
“It’s a significant opportunity, and our company is positioned to pursue it,” Cordani said.