Cigna Group has taken a big step forward to exit the Medicare Advantage business, a strategy that may pay off given industry headwinds.
The Justice Department has completed its review of Cigna’s Medicare Advantage sale to Health Care Service Corp., a move that would allow the company to direct more attention toward its Evernorth Health Services segment, Cigna CEO David Cordani said on its first-quarter earnings call Thursday.
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The deal, announced in January for $3.3 billion, is on track to close in the first quarter of 2025, he said.
Medicare Advantage carriers, including heavyweights CVS Health and Humana, are battling pressures related to higher medical costs, heightened regulatory scrutiny and slower enrollment growth.
As a result, companies have been forced to rethink their strategies. CVS Health’s insurance subsidiary Aetna has launched a multi-year plan to boost profit margins after recording $900 million in higher-than-anticipated medical costs during the first quarter. Humana and other Medicare Advantage carriers are considering scaling back benefits in response to the reimbursement rate cut finalized in April by the Centers for Medicare and Medicaid Services.
Cigna's insurance unit recorded first-quarter revenue of $13.3 billion, up 4.1%, driven by higher premiums covering medical cost trends and its smaller exposure in Medicare Advantage.
"Cigna's commercial insurance mix delivered on its promise of well-underwritten shelter from the MA storms," Gary Taylor, managing director and senior equity research analyst covering healthcare at TD Cowen, wrote in a note Thursday.
Overall first-quarter revenue increased 23.1% to $57.3 billion. Cigna recorded a net loss of $300 million, or 97 cents per share, compared with net income of $1.3 billion, or $4.24 per share, in the year-ago period. The company attributed the decline to an investment loss of $1.8 billion driven by an impairment charge from primary care provider VillageMD, executives said.
Cigna raised its adjusted annual profit to be at least $28.40 a share, a 15-cent increase from the prior guidance.
Cigna wrote down the asset given VillageMD's decision to scale back its footprint. Cigna invested $2.5 billion into VillageMD in 2022.
Total medical membership, which includes those covered under a Cigna Healthcare medical insurance policy or managed care arrangement, fell 1.5% to 19.2 million, driven by a decline in its exchange plan membership after raising premiums in certain geographies to improve profitability. The medical cost ratio, or the percentage of premiums spent on medical care, improved to 79.9%, from 81.3%.
Membership in its employer business grew 0.86% to 2.2 million members and Medicare Advantage membership increased 1.9% to 595,000 members, while its health insurance exchange membership dropped 17.4% to 649,000 members.
Its Evernorth Health Services unit also saw gains during the quarter.
- Evernorth’s total revenues increased 27.8% to $46.2 billion.
- Adjusted revenue for its Express Scripts pharmacy benefit manager unit grew 43.3% to $26.1 billion, in part driven by the start of its contract with Centene.
- Adjusted revenue for its specialty and care services segment increased 12% to $20.1 billion.