Fourth-quarter earnings at health insurer Cigna Corp. dropped 9%, but there are bigger questions about how Cigna will rectify the problems in its Medicare Advantage and Part D plans.
Although Cigna's net profit in the fourth quarter fell to $426 million from $467 million in the same period of 2014, year-end profit mostly stayed the same (PDF). Cigna—based in Bloomfield, Conn., and in the process of combining with competitor Anthem—posted $37.9 billion of total revenue in all of 2015, up 8% from 2014.
Looking ahead to this year, Cigna projected adjusted earnings per share between $8.85 and $9.25, below previous company and Wall Street expectations. That's because last month, the CMS put a halt to Cigna's Medicare operations.
The CMS said in a strongly worded letter (PDF) that “Cigna's conduct poses a serious threat to the health and safety of Medicare beneficiaries” and builds on the insurer's “long-standing history of noncompliance with CMS requirements.” For example, some Medicare Advantage members asked Cigna to cover medical services, but Cigna denied the requests without getting insights from providers. Cigna also stymied the appeals process for people who challenged Cigna's medical determinations, according to the CMS.
Cigna executives baked the Medicare suspension into its lowered 2016 financial outlook. Similar sanctions imposed on other large insurers have taken from nine months to more than a year to resolve.
“Cigna is committed to ensuring that its customers have access to the quality healthcare, customer service and prescription drugs that they need and is working to resolve these matters as quickly as possible in full cooperation with CMS,” Cigna said in a press release Thursday (PDF).
Medicare has become a vital revenue source for Cigna and other insurers because droves of baby boomers are becoming Medicare-eligible. Risk adjustment and bonus payments for quality have made Medicare Advantage, in particular, a high-revenue, solid-profit venture.
Case in point: Medicare beneficiaries represented only 3.3% of Cigna's total medical membership in 2015, but 27% of Cigna's premium revenue came from Medicare.
Cigna ended 2015 with 15 million medical members. A vast majority of those are people who work at self-insured employers.
Cigna also participates in the Affordable Care Act's individual exchanges in 12 states. Individual membership dropped 27% year over year, totaling 204,000 as of Dec. 31.