Cigna Corporation Q2 2023 Earnings Conference Call Insights

Key highlights from Cigna Corporation (CI) Q2 2023 Earnings Concall

Q&A Highlights:

• [00:21:37] Scott Fidel with Stephens asked how are underlying utilization and cost trends in the individual market affecting core exchange margins in 2023, and how will price increases in 2024 impact long-term profitability goals. Brian Evanko CFO said the individual exchange business is expected to run below target margins in 2023 due to a $80 million risk adjustment payable impact. However, price increases in 2024 are expected to lead to some margin expansion in the individual exchange book. The exact amount of margin improvement will depend on the geographic and customer mix in 2024.

• [00:25:24] A.J. Rice with Credit Suisse enquired about the top priorities for large employers in designing their 2024 health benefits, and how are they managing costs in the face of rising healthcare costs. David Cordani CEO answered that employers are increasingly focused on affordability, consistent high-quality service levels, and complex behavioral health needs. They are also looking for ways to coordinate and integrate point solutions to get more value and better service. CI’s portfolio of solutions is well-positioned to meet these needs.

• [00:30:08] Justin Lake with Wolfe Research queried what drove the increase in medical costs payable in the quarter, and how does CI expect the stop loss business to perform in the future. Brian Evanko CFO said CI’s reserving methodology is consistent and there is natural variability in the metric. The company is confident in its balance sheet and Stop Loss business is performing well.

• [00:32:51] Lisa Gill at JPMorgan asked about the margin impact from GLP-1s, the shift to biosimilars, and the Centene implementation costs in the quarter, as well as renewals and retention rates for 2024. Brian Evanko CFO replied that Evernorth is performing well overall, with GLP-1 utilization being a positive contributor to earnings. Biosimilar adoption is low in 1H, but is expected to increase in 2H. The Centene implementation is on track and is expected to cost $200 million in 2023. The company is also expecting additional new growth, on top of the large Centene wins.

• [00:36:31] Kevin Fischbeck with Bank of America asked if CI’s increased enrollment outlook comes from new customer growth or from revised expectations for session and determinations. Brian Evanko CFO answered that Cigna Healthcare is seeing strong growth momentum, with year-to-date customer growth running ahead of expectations. The company has increased its membership outlook for the year, with the primary driver being an elevated expectation for individual exchange customers.

• [00:38:41] Josh Raskin of Nephron Research asked to clarify the impact of the exchange true-ups on EPS, and what CI’s MA bid strategy is for 2024, specifically in terms of benefit design and the VillageMD partnership. Brian Evanko CFO answered that CI’s individual exchange business is in a larger payable position for 2023 than it was in 2022. This is due to risk adjustment data that showed that the company’s customers were sicker than expected. However, this was partially offset by a favorable true-up on the 2022 receivable and favorable claim costs in 2023.

• [00:43:17] Nathan Rich with Goldman Sachs asked how has the pricing of biosimilar HUMIRA compared to expectations, and does the significant reduction in pricing pull forward the benefit from the HUMIRA biosimilar. Eric Palmer CEO said Cigna has added 3 biosimilars to its National Preferred Formulary in 2023, and it is working with manufacturers to drive competition and improve affordability for its clients.

• [00:43:45] Nathan Rich with Goldman Sachs also enquired about the seasonality in Cigna Healthcare’s business this year, and whether it’s expected to see more normal seasonality in 2024. Brian Evanko CFO answered that Cigna Healthcare’s MCR seasonality is expected to be similar to 2022, with 4Q being the highest quarter of the year. However, SG&A spending and net investment income are expected to be different in 2023 than they were in 2022. There is no indication of abnormal seasonality patterns in 2024.

• [00:47:30] Steven Valiquette from Barclays enquired about the normalized utilization trends in Cigna’s Medicare Advantage book, specifically in the outpatient and inpatient settings. Brian Evanko CFO answered that Cigna’s Medicare Advantage book is seeing normalized utilization trends, as expected. Outpatient and professional services are elevated, but is in line with expectations. Inpatients are showing some favorability.

• [00:48:38] Stephen Baxter with Wells Fargo asked about the divergence in growth between Evernorth’s revenue, gross profit, and earnings. Brian Evanko CFO replied that the increased rate of investments in Evernorth’s accelerated growth businesses, such as healthcare services and Accredo specialty pharmacy, weighed down income growth in 1H23. However, income growth is expected to accelerate in the back half of the year, largely driven by the increased ramp for biosimilars.

• [00:53:26] Lance Wilkes with Bernstein asked about the utilization trends in behavioral, dental, and other specialty products and their contribution to earnings and cross-sell opportunities. Brian Evanko CFO replied that Behavioral health utilization has been growing at a strong clip, which is beneficial because it helps to defray core medical costs. Dental utilization has also increased, but all of these trends are within what was forecasted and priced for. As a result, the commercial employer business is on track to achieve target margins in 2023.