Is Cigna Group the Nation's Best-Run Health Insurance Company?

Key Points

• The Cigna Group provides health, dental, vision, accident, pharmacy benefits management, life, homeowners and renters insurance.
• The Cigna Group saw the writing on the wall with Medicare Advantage (MA) expenses and unloaded its Medicare business for $3.7 billion to Health Care Services Co.
• While Humana cut its adjusted EPS guidance from $36.00 to a range of $6.00 to $10.00, Cigna beat Q1 2024 EPS by 25 cents and revenues by $660 million and then raised its full-year 2024 EPS guidance.

Health insurance companies in the medical sector have not fared well in 2024. Medicare Advantage (MA) plans were a bountiful source of income until the second half of 2023. Humana Inc. NYSE: HUM shocked the market with its drastic 2025 EPS guidance cut from $36.00 to a range of $6.00 to $10.00, attributed to rising inpatient utilization costs associated with MA plan members. It was a big surprise that the sickest demographic of insured patients, the elderly, was finally starting to eat into profits.

Like Dominos, They Fall

One by one, health insurers from UnitedHealth Group Inc. NYSE: UNH to CVS Health Co. NYSE: CVS owned Aetna were warning of rising MA expenses. However, one major health insurer is no longer impacted by MA plans. This insurer may be the best-run health insurance company in the nation: The Cigna Group NYSE: CI.

Cigna Saw the Writing on the Wall

Cigna saw the proverbial writing on the wall early on and took action. Cigna unloaded and sold its Medicare business, which includes Medicare Advantage plans, to Health Care Service Co. NASDAQ: HCSG for $3.7 billion. Cigna also operates its pharmacy benefits management (PBM) unit, which was created from the $67 billion acquisition of Express Scripts in 2018. The Cigna Group also offers whole life and group life insurance and has partnered with Lifestyle Benefits to offer auto, home and renters insurance.

Daily Inverse Cup Pattern

CI formed a bearish daily inverse cup pattern. The inverse cup lip line formed at the $331.02 swing low on March 1, 2024. CI rallied to a high of $365.71 before falling back down to retest the cup lip line on May 24, 2024. This will either be a double bottom or trigger a small bounce to form a handle that peaks and falls through the lip line, triggering an inverse cup and handle breakdown. The bull case would be a double bottom that causes CI to reverse back into an uptrend. The daily relative strength index (RSI) is slipping back down towards the 30-band. Pullback support levels are at $325.08, $315.05, $309.07 and $303.69.

Robust Business

Cigna reported Q1 2024 EPS of $6.47, beating analyst estimates by 25 cents. Revenues rose 23.2% YoY to $57.25 billion, beating $56.59 billion analyst expectations, a $660 million beat. Total pharmacy customers rose 25% sequentially due to new sales and continued relationship expansion. Total medical customers were 19.2 million. Behavioral care customers were 23.8 million.

Raised Guidance

Cigna expects FY 2024 EPS of at least $28.40, up from $28.25, compared to $28.42 consensus analyst estimates. Full-year 2024 revenues of at least $235 billion are also expected compared to $235.04 consensus estimates.

CEO Insights

The Cigna Group CEO David Cordani pointed out that its Evernorth and Cigna Healthcare businesses contributed 60% and 40% of its earnings, respectively. Cigna Healthcare achieved strong performance with its focus on affordability and disciplined pricing. Its medical care ratio (MCR) was 79.9%. This is just a tick under the Affordable Care Act (ACA) minimum of 80%. MCR is the percentage of premium revenue spent on healthcare claims.

Cigna launched its EncircleRx solution to enhance outcomes for cardio diabesity, which is an expansion to its GLP-1 management solution. The program offers an industry-first financial guarantee, allowing greater predictability in the costs of covering the medications. GLP-1s are currently the top driver of drug spending, forcing employers to rethink their coverage options. EncircleRx has already grown to over 1 million enrollees.

Biosimilar Growth Opportunity

Evernorth saw strong growth in its Pharmacy Benefits Services as it gained traction with large commercial employers and governmental organizations. Cordani addressed the interchangeable biosimilar (generic) program, which enables over 100,000 Accredo patients in the Specialty business within Evernorth to use biosimilar Humira, which is priced 85% cheaper, enabling cost savings of $3,500 on average per user. 

Cordani commented, “And in addition to Accredo patients, all of our pharmacy benefit service clients and patients will have access to these biosimilars. Importantly, the biosimilar opportunity goes well beyond Humira. By 2030, we expect to see biosimilars or generics introduced for nearly half of the top 25 specialty drugs in the United States.”

Cordani concluded, “This translates to over $100 billion in annual spend, subject to additional choice and competition. The introduction of biosimilars creates a multiyear tailwind that enables us to continue to drive growth and value-creation for the benefit of those we serve.”

The Cigna Group analyst ratings and price targets are on MarketBeat.