Q2 2020 Cigna Corp Earnings Call
Ladies and gentlemen, thank you for standing by for Cigna's second quarter 2020 results review.
Just Tim I'll call, there's going to listen only mode.
We will conduct a question answer session later during the conference and review procedures on how to enter Q to ask questions at that time.
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A reminder, ladies and gentlemen, this conference, including the question and answer session is being recorded.
I will begin later in the conference over to Mr. without please go ahead Mr. Mcdowell.
Good morning, everyone and thanks for joining today's call I am willing Downey, Vice president of Investor Relations.
With me on the line. This morning, our David Cordani, our President and Chief Executive Officer, and Eric Palmer, Cygnus, Chief Financial Officer.
In our remarks today, David Arc will cover a number of topics, including Cigna's second quarter 2020 financial results as well as an update on our financial outlook for 2020.
As noted in our earnings release, when describing our financial results Signet uses certain financial measures adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States otherwise known as gap.
A reconciliation of these measures to the most directly comparable GAAP measures shareholders net income and total revenues respectively is contained in today's earnings release, which is posted in the Investor Relations section of Cigna Dotcom.
We used the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance.
In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2020 and future performance.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.
A description of these risks and uncertainties is contained in the cautionary notes in today's earnings release and in our most recent reports filed with the FCC.
Before turning the call over to David I will cover a few items pertaining to our financial results in disclosures.
Regarding our results in the second quarter, we recorded an after tax specialists in charge of $99 million or 27 cents per share for integration and transaction related costs.
We also recorded especially them charge of $11 million after tax worth three cents per share for cost associated with the early extinguishment of debt.
As described in today's earnings release, especially items are excluded from adjusted income from operations in our discussion of financial results.
Also as we previously noted prior development is now disclose on a gross basis consistent with industry practice, our financial supplement now includes a roll forward of year to date unpaid medical claims liability for the six months ended June Thirtyth, two dozen 20, and 2019 as well as for full year 2019.
Additionally, please note that when we make perspective comments regarding financial performance, including our full year 2020 outlook. We will do so on a basis that excludes the impact of any future share repurchases.
Finally, our outlook for 2020 assumes a full year earnings from Cygnus group disability and life business. We continue to expect our divestiture of that business to be completed in the third quarter of 2020.
With that I will turn the call over to David.
Thanks will and good morning, everyone. Thank you for joining our call today.
The current environment that we all living and working is more dynamic more unsettled and more complex than anytime a recent history and cigna's mission tumor into health, well being and peace of mind. Those we serve has never been more important and it continues to guide the options as we move forward.
In recent weeks or months, we have taken decisive steps to support employers who are the driving force of a thriving economy to withstand and emerge from the Kobin 19 pandemic anticipate a communities customers in patients, including our efforts to combat systemic racism, which we view as a critical health issue as well.
Today, a lot for several recent examples of how we continue to differentiate ourselves in the marketplace and with our key stakeholders by delivering into promises and working to make health care more affordable predictable in simple by creating innovative solutions to solve for health Care's, most complex challenges and by partnering with our clients some of whom.
Our viewed as competitors, but we see a strategic partner is capable of extending our reach to make an even greater impact for customers around the globe.
We do all of this with the goal of maintaining and improving the health and vibrancy of our clients communities and customers.
I will also give you an update on our financial results that we deliver for the quarter and how these results provide a further testament to the strength of our businesses and the value we create for a customer to clients as well as if your comments on a growth path forward.
And then I'll conclude with a brief update on our outlook before turning the call over to Eric.
Cigna's longstanding commitment to our clients communities in customers is fundamental to who we are is it a little bit Isle service company and it's been a critical in shaping your ongoing response Koby 19 crisis. This response begins with their more than 70000 colleagues around the globe, who have worked tirelessly and with great empathy.
Throughout this pandemic, they wake up each and everyday with the sole focus to serve the needs of our customers patients in clients around the globe and I'm proud to be teamed up with engine talented group of coworkers and I. Thank them for what they do to positively impact millions of lives each and every day.
[noise] nowhere is their commitment more evident then in or deep support of our employer clients large or small public private these businesses have always been critical to a robust economy and today more than ever companies will play an essential role in serving individuals.
Reenergized, our communities and returning economies around the world to economic vibrancy.
From the old typically cokemaking crisis, cigna's leverage our breadth of solutions strength of our team and our consultation of approach and our broad data analytical capabilities to support our employer clients and their employees in numerous ways.
From taking rapid and decisive steps to eliminate cost as a barrier to testing equipment to expanding access to care to helping them safely worked return their employees to Worksite. Most recently for example, with the launch of our Koby 19 high risk dashboard.
This new suite of innovative analytical tools combined our data predictive models in clinical expertise to help clients project, how covert 19 might impact the health and safety of their employee populations and some other ford impacts of different pandemic stereos go scenarios going forward.
For example, the dashboard compiled and analyze this coburn 19 case data on the health of that claims specific employees at National State and county levels, giving them essential insights to guide their decision, making for bringing employees back to work safely.
In cases, where employers see concerning trends in the reports cygnus prepared to help them take action for instance throughout takeover 19 testing and trash services delivered from our Cigna onsite health solutions.
Our Cokemaking Highbridge dashboard represents just one powerful example of how cigna's, helping employers navigate the complexities and the endemic.
And serves as a reinforcement of why employers rank cigna highest on since competitors for driving health care quality value as reported at recent study conducted by the Leap group, an independent national organization representing employers.
Turning to our support of communities, where we live work and play each and every day. Our commitment is reflected in our efforts to increase understanding of the impacts of and to drive positive changes to combat systemic racism.
And only systemic racism an issue of human rights. We also do you as a critical health issue contributing to well documented disparities and helps treatment and outcomes that disproportionately impact community to color.
Two weeks ago, we launched a new fiber initiatives are building equity and the quality program, which commenced a mix of local community Grand scholarship funds in employee volunteer hours to continue to drive cigna's efforts to eliminate racism bias and health and economic disparities for people that color.
This new initiative is another important part of cigna's ongoing commitment to partner with their communities and government leaders to affect positive sustainable change and we will continue to expand and evolve our engagement programs going forward.
Oh cigna's efforts to partner with our clients in communities is ultimately rooted in our mission to for the health well being a peace of mind of those we serve specifically focused on customers of patients.
Today more than ever they are looking for us to make health care more affordable predictable in simple we continue to Andrew introduced new innovative programs and solutions designed to deliver on this promise for example, our customer protection program, which safeguard our customers from unexpected costs from covert 19 through surprised or belts bills.
About a network providers.
In addition, our pharmacy solutions leverage existing and newly created tools to but resources and medicines and treatments in the hands of those who need to most for example, we help Americans who lose their prescription coverage from recent job loss to secure their medications at affordable predictable prices through our express scripts Paris.
Pharmacy program.
Further as demonstrated by our most recent drug trend report, we also deliver affordability and predictability to or health service customers and clients, who in 2019 experienced an overall rate of increase of truck spending of just 2.3% resulted in line with the consumer price index.
An important to note more than one third of our commercial plans experienced a decrease in overall spending in 2018.
Taken altogether. These examples I've shared with you today are reflective of how Cigna is and will continue to deliver on our promises great innovative solutions and partner actively to further reach and drive impact.
Now turning briefly to our results. We once again delivered strong financial performance in this quarter and we remain on track to complete our integration and reach or de leveraging objectives by yearend.
Our consolidated revenue of $39.2 billion, an after tax earnings of $2.2 billion reflect continued strong execution of our strategy and the fundamental strength of our four well position diversified growth platforms. In particular that continued strong performance of our health service segment demonstrates the range of services in value.
We provide to diverse health plan employer federal and state government clients.
Our integrated medical segment results reflect lower consumption medical services as individuals have deferred some services during the coping 19 pandemic.
Additionally, integrated medical customers continue to track much better than the national unemployment figures as many employers that maintain benefits through this disruptive time and importantly, because our client mix is less weighted industries that have been most impacted by coker 19.
As our employer clients have continued to support their employees health and wellness needs. We have provided hundreds of millions of dollars in assistance to our employer clients, both through direct financial support and by leveraging our flexibility of our full suite. The funding alternatives all of which are already reflected in our second quarter results.
I'd also note that our self funded medical clients have directly benefited from well in excess of $2 billion of reduced spending this year.
Overall, I'm pleased that I, maintaining the strength of and health of our franchise, we've effectively balanced and responded to the needs of our stakeholders in this challenging environment.
That'd be my comments to close the current environment, we live and work and is highly dynamic unsettled and complex and as I noted more than any time in recent history.
Cigna's strong second quarter results, reflecting continued strong execution of our strategy and the underlying strength of our four well positioned diverse growth platforms.
We have confidence that we will continue to effectively support our clients communities customers are patients all working to deliver on our EPS and revenue outlook for 2020, as well as or 2021, EPS target of 20 to $21 per share.
This is driven by our sustained culture of innovation in the organization the value we deliver to the marketplace, each and every day and aided by the financial strength and flexibility of our franchise and with that I'll turn the call them and Eric.
Thanks, David Good morning, everyone.
First we recognize that the current environment, even more dynamics' disrupted a complex than usual as we navigate the ongoing cobot 19 pandemic.
And I'm proud of them anyway. The cigna's responded as we drive to be the champions for affordable predictable and simple healthcare.
Today, I will review key aspects of Cigna's second quarter results, including the impact of Cobot, Nike and on our business and discuss our outlook for the full year.
Regarding our second quarter consolidated results a few key financial highlights include adjusted revenue of $39.2 billion adjusted earnings of $2.2 billion. After tax adjusted earnings per share a $5, maybe one cents and continued strong operating cash flow.
$3.3 billion.
Within the second quarter, we continued to execute on the fundamentals of our businesses as we delivered value for customers and clients.
Regarding our segments I'll first comment on health services.
Second quarter, adjusted revenues grew 22% to $29 billion and adjusted pre tax earnings grew 7% to $1.2 billion.
These results were driven by growth in customers in script volumes favorable impacts from supply chain initiatives strong specialty performance as our leading accredo specialty pharmacy proactively worked with patients and complex and with conflicts and chronic conditions to maintain continuity of care for their medications.
We offset by an increase in operating expenses to support growth.
[noise], we fulfilled 364 million adjusted pharmacy scripts in the second quarter of 2000 and.
An increase of 24% over second quarter 2019, driven by the in sourcing of integrate a medical script volumes and strong organic growth, partially offset by somewhat lower retail network scripts related to acute needs due to the covert 19 pandemic.
Overall health services delivered another strong quarter, because we continue to deliver value for our customers clients.
Turning to our integrated medical segment second quarter, adjusted revenues were $9 billion and adjusted pre tax earnings were $1.5 billion.
In the quarter, we experienced significantly lower utilization of the medical services, both commercial and government as individual deferred care due to the pandemic.
By month compared to baseline expectations utilization was 30% to 35% lower in April.
20% to 25% lower than may and closer to normal in June at approximately zero to 5% lower.
We also experienced strong customer retention as our clients maintained coverage for furloughed employees and our commercial book of business less weighted to the most economically impacted industries.
In response to the pandemic the tremendous burden is placing on those we serve we're financially supporting our customers and clients through a series of actions, including early on we have in all cost sharing for covert 19 testing and treatment.
And for Medicare advantage in individual and family plan. Additionally, waving cost sharing for in office in telehealth visits for primary care specialty care and behavioral health.
Additionally, we provided premium relieved programs for clients and financial assistance programs to support providers.
All in our results for the quarter include approximately $270 million of charges related to these initiatives.
It's also important to note that we serve 85% of cigna's us commercial customers through self funded arrangements.
As such our medical cost performance is highly aligned with our clients obscene savings well in excess of $2 billion here today related to deferred medical costs.
Turning to our international markets business second quarter, adjusted revenues were $1.4 billion and adjusted pre tax earnings were $319 million, reflecting deferred medical utilization, primarily in our global health benefits business.
Claims volumes as well as sales activities increased throughout the quarter as global economies reopened.
For our group disability and other operations segment second quarter adjusted revenues were $1.3 billion.
Second quarter adjusted pre tax earnings for the segment were $132 million reflect an elevated life claims primarily due to the pandemic.
Partially offset by favorable performance in disability.
Overall, our businesses remain focused and delivered strong performance in the second quarter as we work to rapidly innovate to serve our customers in patients in this disruptive environment.
Now looking forward to our outlook for the full year.
We continue to focus on driving strong performance across our businesses to continue to be able to improve health well being a peace of mind of those we serve.
Aided by our strong and diverse portfolio of businesses. We continue to expect full year 2020 consolidated adjusted revenues in the range of $154 billion to $156 billion. As we continue to expect to deliver full year adjusted earnings per share in the range of $18 to $18 in 60 cents.
As we look to the balance of the year, we expect medical utilization to increase.
We expect additional cobot 19 treatment costs, and we expect lower enrollment as well as continued lower net investment income due to recessionary pressures.
Incenting our guidance, we considered a range of scenarios regarding the rate and pace of the return of medical utilization as well as the rate and pace of the reopening of the U.S. and global economies and subsequent impact unemployment and customer levels.
Our ability to deliver in a range of scenarios underscores the strength diversity of our portfolio of businesses, which continued to deliver solutions directly aligned with marketplace needs.
We will continue to dynamically manage our businesses ensuring that we're delivering on the fundamentals and meeting our customers' needs. While also continuing to provide financial support to our customers and clients at a thoughtful and deliberate manner.
Taken as a whole we continue to expect full year consolidated adjusted earnings per share in the range of $18 $18 and 60 sites.
I would remind you that our financial outlook excludes the impact of future share repurchases and assumes a full year contributions from our group disability and life business. Although we continue to expect our divestiture of that business to close in the third quarter.
Overall these expected results are driven by strong underlying fundamentals and disciplined expense management and deployment of capital.
Now moving to our 2020 capital and liquidity position and outlook or capital efficient businesses generate a substantial amount of cash flow, which provides us with significant capital in financial flexibility.
In the second quarter, we generated $3.3 billion of cash flows from operations due to strong fundamentals as well as the timing impact of approximately $900 million of delayed tax payments permitted under the care that.
Through the end of the second quarter, we also deployed $1.1 billion debt repayment.
And on a year to date basis, we have repurchased 8.3 million shares of stock for $1.5 billion.
For 2020, we continue to expect greater than $7.5 billion of cash flow from operations, reflecting the strong capital efficiency of our well performing businesses.
And as of June Thirtyth, we had $1.7 billion of cash available at the parent.
Finally, we remain on track to close the sale of our group disability and life business in the third quarter generating $5.3 billion in net proceeds, which we expect to deploy the share repurchase and debt repayment in 2020.
Our debt to capitalization ratio was 43.5% as of June Thirtyth, an improvement of 170 basis points from December 30, Onest of 2019, and we remain on track to return our debt to capitalization ratio the upper thirtys by the end of 2020.
Our balance sheet and cash flow outlook remains strong benefited from our highly efficient service based orientation, the drive strategic flexibility strong margins and returns on capital.
No to recap through the exceptionally dynamic and disruptive environment associated with global banking segment as remains intensely focused on delivering affordability predictability and simplicity for the benefit of our customers patients and all of our stakeholders.
We are fully committed to helping create vibrant diverse high performing communities, whether through partnerships with our employer health plan or government clients with our provider partners or with our customers directly.
We've delivered strong fundamental performance. This year, we'll also see lower medical costs from deferred care and we continue to provide financial support to our clients and customers.
We expect our strong fundamentals across a diverse portfolio of growth businesses to enable us to manage through the various impacts of the current environment and as such we continue to expect 2020 full year adjusted EPS of $18 $18.60 per share and remain on track to deliver on our target of 20 to $21 of adjusted earnings per share.
Here in 2021.
With that we'll turn it over to the operator for the viewing a portion of the golf.
Ladies and gentlemen at this time, if he would like tax a question. Please press star one on your Touchtone phone.
I'm going ask a question ahead of you you can or maybe yourself in the queue by pressing star tail.
Also if you're using a speakerphone please pick up your handset before passing the mens finally, we ask that you. Please limit yourself to one question to allow sufficient time for questions and those remaining in the Q.
One moment, please far first question.
Our first question comes from Ralph Jacoby with City you May ask your question.
Thanks, Thanks, good morning.
I guess can you can you give us a sense your conversations with existing employer customers, an appetite if any for sort of revisiting funding scenarios.
I think in the past you've talked about shared return models any of that resonating and then you know SL enrollment was down slightly but you had a more pronounced decline and fees can you just help reconcile that and if that's at all related to some of those changing and in those funding scenarios would be helpful.
Ralph Good morning, it's David I.
I'll take the first part I'll ask her to take the second part of your question.
At a macro level yes.
To the way you stated the first part of your question so lot of dynamic interaction back and forth with employer clients of as a regular part of our business even more elevated in the current environment a lot of proactive engagement and the change relative to.
Maximizing value for them through using our broad array of alternative funding mechanisms and even the intra year conversation given the uniqueness out this year is playing out bringing more choice to clients. So.
Yes continuation of we see it as a strength.
And can you see movement in the use of funding mechanisms to best align ourselves with employers.
In that place to a strength of our company I'll ask Eric to comment on the second piece relative to the fee dynamic yeah, Ralph It's Eric would know two items as it relates to there's a few dynamics first and most significantly we had a reclassification of certain revenues that we implemented actually back at the beginning of year. So effective January onest didnt have not have an impact on the pm.
Now, but it reduced revenues and had an exact offset lower us DNA as well so that's showing up in the comparison of this year versus last year and second as you know we did see some declines and self funded enrollment up but just thinking that it's consistent with the impacts of though over the next year and economic environment overall.
Okay. Thank you.
Thank you Mr. Jacoby. Our next question comes from Matthew Borsch with BMO capital markets you May ask your question.
Hi, yes. Thank you.
Maybe I could ask about the utilization trends you're seeing.
Yeah I assume that's.
Like I talked to a fairly steep decline in April.
How you saw the month of June.
Coming into July.
Surge cases.
South East and West how that has in fact teacher be looks like.
Yeah, Matt It's Eric I'll give you a couple of of perspectives here as I noted in my prepared remarks, and we saw the the decline of 30% to 35% back in April.
And utilization is uptick since then.
You've called out geography, and that's a really important dimension here is looking at this play out market by market and having the local perspective is is important and we're certainly seeing this play out the different rates some pieces in different geographies.
Noted also in the prepared remarks, we saw June.
Much closer to normal level of utilization I'd say, our early indicators for July are pretty consistent with June so still some impacts.
Moving through different geographies, but at this point, we'd say July looks an awful lot like Jim.
Have you seen.
Yeah.
You know things settle down applicants.
Flow through of deferred alike.
There.
But a lot it simply pureed higher than normal 12, and tell me, how meaning the weakness.
I wouldn't call anything out on that yet, Matt I think again, our outlook for the full year does assume some additional utilization coming in the back half of the year, but I think it'd be too early to defend that we've seen anything like that within the second quarter.
[music].
Thank you Mr. watch our next question comes from Justin Lake with Wolfe Research you May ask your question.
Thanks, Good morning.
To focus on the PBM here.
Typically two things one youre. Your first you have growth is in a significantly ahead of at least the additional guidance than the for the full year.
But my bad it implies about 3% growth in the back half versus about 8% growth or staff. So I'm just curious are you.
I know you haven't updated the guide. So are you do you expect this first half performance would be indicative of the full year or not what's that swing factors first at the start going out and then also your script horizons.
Our running try to better than I did a lot of people would have expected given slowed down scripts in the second quarter. Overall, so can you give us some color there and maybe any color on a mail order mix and the second quarter and the tethered Bob profitability drivers there. Thanks.
Adjusted its Eric Good morning, So on the first part of your question the health services and kind of the pattern of the earnings would just step back the normal pattern for this business is for income to grow throughout the year. As you know I'm. Just reflects overall utilization patterns are the effects of our efforts to manage the supply chain and we think that will continue to play.
Throughout the course of 2020 I'll remind you in 2019, the pattern was a little bit extra weighted towards the back half of the year, just given the timing of the supply chain initiatives. So so when you're comparing 2020 to 2019.
You'll see the impact of that kind of play out through the year. We think of 2020 is being more of a normal pattern. This year. We think of 2019 was a little bit backend way that so that'd be the biggest a dynamic I'd call out as it relates to the pattern now.
As it relates to the the script volumes overall, we're executing very well and very much in line with the with the pattern that we would expect it to play itself out as I noted back at our call a quarter ago. We did see we estimated to be about 5 million scripts get rebuild a little earlier that moved from the SEC.
One quarter into the first quarter and since that played out and Additionally, we've seen nice utilization within our home delivery pharmacy to know there's a lot of benefits due to the mail order pharmacy and such.
Our customers and clients and we've seen the adoption continue to.
To be yet to be good, but again nothing else I'd call out in terms of major dynamics.
Okay.
Thank you Mr. like our next question comes from Kevin Fischbeck with Bank of America, You May ask your question.
Great. Thanks.
I would ask about the commercial membership trends I guess that you're thinking about for the back half of the year I appreciate that.
You mentioned that furloughs has impacted as well as your customer exposure, but maybe you could go down to both of those a little bit have you had any conversations with clients about.
Membership at risk from Furloughs, just decided size what that might mean in the back half of the year and then the comment about being less exposed to the markets most.
Impacted by coded are you seeing a differential in trend are you seeing those customers in the segments, you expect to be impacted seeing larger declines enrollment.
Already versus the other sectors, so any color there.
Kevin Good morning, it's David.
So let me try to paint the 2020 picture and then maybe even lean a little bit of comments in terms of how we expect to unfold beyond that going into 2021, So first and foremost up a significant amount of interaction with clients.
Always part of our comprehensive approach elevated even further in the current environment in the dynamism. So we're looking at this as best we can three client by client framework. As we noted previously a high percentage of clients have maintained benefits either through the use of the word that we're talking about as furloughs or layoffs would benefit cost.
Annuity I'm, taking place and I think Thats, a testament to how committed employers are to health safety and well being of their employees and the optimism. They continue to hold onto to return employees back to work keep their businesses running on a go forward basis as it relates to the second half a year, we expect the following.
We expect to see those employees, who are furloughed or with continuity of benefits, we expect to see those furloughs dissipate or go away and wanted you to think transpire either eight no benefits from the employee in the transition to cover or other alternatives or be a returning to full employment.
And client by client, we're going through patterning of what the expectations are relative to that therefore, we expect to see the effect of lower levels of employment across our book.
Continues throughout the second half in the year, that's fully factored into the outlook that Eric made reference to and then finally, maybe at the most macro level. The way we're thinking about it is essentially over the next 18 months second half a 20 and 2021, we expect to see a slow recovery to the overall employment marketplace.
In the United States, and that's what's factored into our thinking set otherwise we expect to see pressure.
The second half of this year in 2021 to what would otherwise be normal course, a business from a from a membership standpoint, and that's factored into our thinking for 2020 as well as 2021.
Thank you Mr. fishing.
Sir.
Thank you you have any color about the impact on the.
Members, who are you we've heard sectors most.
Yeah impacted by Kogut versus those sectors that you don't see it disrupted.
The difference in trend there.
Kevin Sand. The line are you asking the question of medical trend or employment dynamic.
His employment that now the second part of my My question was.
Are you seeing a differential in employment locker job losses in markets, where you said that Youve got a little exposure to those segments that are impacted by Kogas. Just wanted to see if you are seeing differential.
Alignment trends.
The answer that definitely yes, so as we as we parse our business bye bye.
By sector.
An employer by employer, there's no doubt there are some employers that are having.
Either de Minimis impacted their employee employee base as a result of Kobe or there are some sectors that you're seeing actually the need for more employees up given the environment. So there is no doubt the phenomenon. We're talking about is incredibly uneven or unique not just to sector, but to employers within the sector. That's why.
Our approach is a client by client approach so yes to that portion unequivocally high variability there.
Okay. Thanks.
[noise] as a reminder, we ask that you. Please limit yourself to one question to allow sufficient time for questions from those remaining in the Q.
Thank you Mr. fish back. Our next question comes from Ricky Goldwasser. Your line is open Morgan Stanley.
Hi, Good morning, Thank you for taking my question.
Yes, David going back to one common prepared remarks, he talks about partnering with from competitors.
Yes.
Could you just I'm sure. Some details then we should partnership Oscar how do you think about developing curious what's your appetite for exchange market.
[noise] Ricky good morning, So appreciate you're referencing the prepared remarks up but my remarks that of what some view as traditional competitors, we view as strategic partners. So stepping back you know our philosophy is that we seek to be the and speed a partner of choice.
And our view is that the ability to partner with others and work to create shared value presents an opportunity for mutual growth, which means more customer to serve into larger impact. So now stepping back whether that's through.
Expanding portfolio health plan clients through our health service portfolio, where we challenge ourselves to continue to bring additional innovations for the benefit of our health health plan clients up to help them deliver better affordability better value and continue to grow more specifically to come to your question with Oscar.
We have an exciting partnership with Oscar where we're bringing mutual capability to the table.
Bring some initial innovation to the small employer market a marketplace that both organizations feel has been under served as it relates to benefiting from more innovative programs are our health engagement personalization value based care more comprehensive clinical engagement programs and together, we're going to be able to bring the best of.
Both companies together and as a lot of part of this year, we'll be opening up some additional markets, where we're already quoting today jointly so the philosophy of the corporation is defined mutually align organizations, where it could create leverage value together and then pursue that an Oscar is a wonderful example of it in.
Actually we had a checking with the team.
Earlier this week, Eric and the team is working exceptionally well to get there around the innovation here.
Thank you Ms. loss, Sir our next question comes from Frank Morgan with RBC Capital markets. Your line is helping me ask your question.
Yes, just one question around the deferral could you distinguish any difference in what you saw a regarding deferrals in the commercial versus the Medicare book. Thanks.
The Frank it's Eric Yes.
To the pattern was.
With similar in terms of how we progressed through time, we wouldn't know what we saw more of a deferral percentage in the commercial book than what we saw the Medicare advantage about but again kind of the progression month to month has been a pretty consistent just up more a more significant impact in the commercial business.
Thank you.
Thank you Mr. Mark in our next question comes from let me you would see me ask your question.
Mr Mail, please check your mute teacher.
Sorry about that can you maybe appreciate the question can you maybe.
Help us understand the impact of commercial each on the PBM I'm just trying to cross walk the two and dig through what percent of your risks members are with your PBM and presumably all the self funded or but I'm not sure that this is necessarily a one to one relationship. So any help would be be great. And then also maybe just on the Medicaid enrollment.
We're seeing sort of nationally I know this isn't really impacting you per se, but maybe just the overall impactful the PBM given its exposure to the Medicaid.
Well, it's David can you repeat the first part of your question because arrogant I Didnt hear a couple of your words, we want to make sure we understand the core your CLO, yes.
Yeah, I know I'm, just trying to sort of cross walk the impact of commercial leakage. So the decline in commercial membership across risk in India, So and how that impacts your your PBM and I think that the majority of your risk members are probably.
You know not with your with your PBM and presumably the self funded our so I'm just trying to square the commercial leakage with the PBM.
Great I'll ask her to take the first party question and I'll come back and take the second part of your question on Medicaid. Good morning went on the on the the leakage as you turn that maybe step back I think the way I think about that is we have kind of spectrum across our different customer segments. So within our select segment.
Offer and really think about all of our select segment as having a comprehensive bundle of our services. So pharmacy behavioral disease from care management et cetera, all tied together with stop loss the administration or in our fully insured product, but two after that point I'm thinking about the select segment has been.
Effectively 100% penetrated with our pharmacy off right as you move into the middle market segment.
Reasonably high degree of penetration there, but you see more buyers that.
I have small apart.
Offerings are purchasing and such we provided some statistics on this at the path and some of our best Investor day material, but think about Oh, a meaningful portion, but but not all of the middle market.
Having purchased a and integrated offering which that flows through the PBM and then that same dynamic holds true in the national segment, it's even more of a card. If you will in terms of the pieces there, but again I think about more along the segment line that I would around just kind of the funding on it's true that the sure business also carries a.
Hi degree of penetration, but I'd encourage you to think about by segment.
And it relative to Medicaid. We currently serve a very attractive portfolio of Medicaid relationships through a health service portfolio as result of our diverse and high performing health plan a portfolio of businesses. We see that is growing and we've grown that successfully of notwithstanding the kobe.
Pandemic ramifications and looking forward, we see that is a continued growing base of an opportunity for us to expand into servicing the Medicaid population, but servicing them through the health service platform.
Yeah. Thanks.
Thank you Mr. Miao next question comes from doing Taylor with JP Morgan you May ask your question.
Hi, Good morning, I have a two part question about your similar.
Expectations than your I think relatively appropriate.
Conservatism or you know caution as we head into the back half, but the question is do you anticipate higher in the law in the back half is that explicitly from an expectation around deferred electives coming through our around an expectation about.
Sure acute care being required because of the necessary deferred here during the pandemic and do you have any evidence around those that's the first part the second is just given where you stand on your three year rolling.
Commercial MLL R minimum positions.
Yes, if we don't pick ups and similar transpire should we still can we should we assume that in the second half.
There are still pretty substantial flow through of them alert yes.
[noise] tick area, it's Eric So I'll take that one a couple of different dimensions, you talked about their first of all stepping back we expect the loss ratio to be somewhat elevated in the back half of the year, let's think about that as 150 to 200 basis points increase over what we previously would have expected for the second half of the here.
You mentioned that off a couple of things one we do think that there will be some deferred care utilization and the potential for higher acuity coming back here and then to the ongoing effect of the programs. We've put in place to the up to reduce copayments or make care more accessible and affordable with involves the dry.
Some additional utilization I don't have a precise.
Head of identification of of each of those components, but think about those are the biggest drivers for our outlook over the course of the back half of the or on the minimum emel ours.
You know, it's a three year calculation for the minimum animal ours for the commercial business.
So again, we generally speaking do have.
A margin between where we're at and the minimums now I would note that we increased our accrual on in the second quarter by $95 million and we've got $175 million on the balance sheet for this as a provision at this point.
And so it's something we watched by would still a note that there's across the board still a margin there before we've done.
Not see the impact kind of flow through to the bottom line.
Thank you.
Thank you Mr. Taylor I next question comes from Josh Raskin with Nephron Research you May ask your question.
Hi, Thanks, and good morning, it's Josh here, there are true as well.
See as more permanent changes as a result to the code that pandemic and what are you doing it to make sure that signets position to take advantage or capture those opportunities going forward.
[noise] just good morning, it's David.
Identified to what in terms of access to in terms of programmatic.
As it relates to access the it's indisputable that the Kobin pandemic has either required caused or push.
More utilization of technology as a mechanism to access care coordinate care et cetera.
You recall that our view is bad for some time that we believe a meaningful amount of care can be delivered through a combination of of technologies and call. It telly virtual et cetera, but it needs to be highly coordinated care and then further augmented by in home care that has also aided by.
Acknowledging so what.
We believe that they rate and pace of adoption and acceleration of Reformatting care access utilizing technology to coordinate care and deliver care and a personalized high quality basis, and then augmenting it with Revisioning what could take place in the home hub is a mission critical in accelerated by code.
That's on strategy for us and Oh, we're aggressively investing in and innovating in those categories off a variety of our platforms. Secondly, a lot of what we talked about before it's a little back to the future, but cobot re highlights for all societies around the globe that as challenging as Cove. It is it's exponent.
The more challenging for individuals who have chronic conditions or who are polychronic. So presents another opportunity to engage with employers with health policymakers and from a public health policy standpoint to make sure we're investing in and innovating programs with physicians and individuals to lower health risks or increase help quality for it.
Those who are chronicle polychronic, because all things remaining equal if you have a better health status, you're more likely to withstand covert 19 or the next generation a decade from now and be on and that's an area where cigna excels.
On our current state basis in terms of what we're able to bring to bear from that standpoint.
As well as with our health service portfolio, and then putting it all round that up over 19 highlights the mental health dimension.
That is highlighted in society is around the globe, where the mental health and the physical health needs to come together to best manage overall wellbeing. So we reformatting utilizing technology.
Chronic condition management and improving overall health risk and then taking the mental health in the fiscal held together all areas, we see as being accelerated because im covert and additional opportunities and areas that signet has heavily investing it.
Thank you.
Thank you Mr. masking. Our next question comes from land Smokes with Bernstein, you May ask your question.
Morning, guys.
Just wanted to get your updated views on your strategic capital deployment priorities and in particular was interested in how you're prioritizing buybacks given the the group sale and then if you've had any change in perspective or evolution and thought in Medicaid.
Positions or other aspects of though he was here and how you're looking at global now.
That's good morning, it's David I'm going ask Eric to comment on the portion your question specifically because of the uniqueness of the group sales and then I'll come back and talk about.
M&A priorities more broadly yeah last good morning, So just on the group sales specifically as a first of all we do expect that transaction to close of within the third quarter reminder, we expect $5.3 billion of after tax proceeds up once that transaction closes so.
So that that this coming into the relatively near term as we've talked about four for sometime now we've had a goal of and are committed to up to me that are achieving it that's capital ratio of under 40% by the end of the year, we're driving toward that and we've committed to deploying the of a significant amount of the proceeds.
It's from the group transaction to share repurchase to offset the dilution the effect of a of the not having the group insurance business for a portion of the or so so good at the most macro level. Those are the pieces. We're navigating yeah. We do continue to fund significant organic growth, we continue to have a capital.
Instead of after capabilities, but that but we see share repurchases are really excellent use of capital to drive shareholder value in the near term for the last thing I'd note is just that our recent board meeting our board increase the share repurchase authorization consistent with our expectation of flows into New York transaction later this quarter lenses.
We sit here today, we have $4.4 billion of share repurchase or authority outstanding and Lance relative to the portfolio of businesses today and going forward first to be Claire.
We like our portfolio and the strategic positioning and are pleased with its performance from a growth standpoint from a service standpoint and from a capital in fiscal flexibility standpoint that portfolio is positioned to deliver sustained six 8% revenue growth as it relates to M&A priorities. We continue to remain focused on five specific M&A priorities.
One to further strategically and smartly or global footprint second up to further enhance our U.S. seniors capabilities third.
Continue to broaden our digital information capabilities fourth looking to.
Can you expand our care coordination capabilities and five as we've talked before exploring state based risk program capabilities as we see states who are under budgetary pressure for within their Medicaid programs seek to further sub segment of their programs and seek either high credit high cost complex.
Critical programs to be able to perform on their behalf and deliver more value. So we see opportunity going forward, but building off of a very strong base and well performing portfolio.
Great. Thanks.
Thank you Mr. Whelks. Our next question comes from Sarah James with Piper Sandler You May ask your question.
Thank you.
Can you talk about any slowdown that you've seen in the pace.
Seating claims from the date of service and then on your risk business what impact that's need on your reserving policy or any impact and the lie.
[noise], it's Eric you know probably wouldn't call out any change in terms of in terms of impact.
Okay, and nothing that that would.
Rise to a bit and notable up with respect to our reserving approaches and policies. It's been very consistent at the same team in the same approach to after working through those calculations first for sometime it served us really pretty well. So so when I wouldn't know anything unusual here.
But are you seeing a slowdown in claims receipt timing.
No.
Thank you.
Thank you Ms. James So next question comes from AJ Rice with Credit Suisse. You May ask your question.
Hi, everybody I'm, just wondering some discussion about the selling season, that's in your press release, you're talking about it.
Health Services Division vary.
I Wonder if you could does.
Talk through a little bit what you're seeing for the 2021 selling season related to integrated medical and the health services.
Vision and how the code that impact is on that promises will it slows it down or cause people to defer decisions and if I could just slip in as well on the health care services Division.
So you're not seeing much attrition in the in the integrated medical but how is the economic slowdown impacting the PBM side as a business if at all.
Hey, Jay it's David.
I'll take the selling season I'll ask Eric comment briefly on the of your equivalent of addition enrollment on the integrated medical what we're seeing on the health service portfolio.
As broadly on the selling season I. Appreciate you asked about multiple segments of business headline is what we're not guiding for 2021, yet we will expect another year of attractive revenue growth for the franchise in 2021.
For the health service portfolio that will be anchored in a third consecutive year of truly outstanding client retention.
And where our clients continue to reward us by staying with us and expanding the relationship because of the services were delivering because of the continued innovation, we're delivering and because of the outstanding.
Affordability or market trends were delivering on their behalf up before I jump over to integrate it medical.
Comment on a Medicare advantage, we would expect another Europe attractive customer growth within our Medicare advantage portfolio and I'll remind you we set a strategic objective to grow medical our Medicare advantage customers tend to 15% are tracking well to that objective in 2020, and we would expect another year of contribution in 2021.
And specific to the integrated medical our visibility in 2021 is largely through the national accounts at this point in time and to remind you we define that as commercial employers with 5000 or more employees, where a multi state at this point in time, we expect to see that tracking to a bit higher retention rate than recent past at wells.
We have some new business wins, we expect in new business wins to be a little less them recent past taken as a whole probably before me a little better as we step into 2021 off of that portfolio and then the middle market a regional in select segment are currently in the throws up there.
Growth trajectory is as we look into 2021 wrapping it up we would expect again another year of very attractive.
And profitable revenue growth for 2021, Eric maybe just a little color on the health services dynamic of an equal them Disenrollment Yep. Thanks, David Good morning, AJ. So I'll now services business, you know even up with within the segment as we've talked about in the past we've got a really diversified.
Book of business here with a with customers through a variety of channels employers other health play on government relationships out some direct programs and the like we've had really strong degree of client retention and we've had a high degree of continuity in terms of enrollment within those clients as well. So noted in my prepared remarks, we did have a bit of as dip of.
Retail acute scripts, especially earlier in the quarter, but I'd be really the only thing I would call out as a as particularly impactful overall the enrollment levels within our client said within our health plan clients have held up quite.
Quite nicely.
Okay, great. Thanks, a lot.
Thank you Mr. Rice. My next question comes from Stephens now with SCB Leerink you May ask your question.
Hey, good morning, guys things and the question, maybe just one really quick follow up on strategic M&A.
And then an actual questions I just wanted to understand what would you say, we should expect with respect in the size any future deals you might choose to do and your willingness to do another large scale just following up on that question earlier and I also just wanted to get your latest thoughts obviously, an executive order last Friday I wondered HHS that put out the read it will again, but it was can do.
And not being able to demonstrate no increase in premium or really any kind of cost any payers, which looks pretty unlikely given the CBS guarding the first time around but just given the prospect I guess in the outflow. If you could just remind us how to think about that rule and it's essential effect on the economics of the PBM business and Medicare that'd be helpful. Thank you.
Sure. Good morning, it's David I'll take both questions.
On the first question as I noted before we're really pleased with the configuration of our business portfolio today and its performance.
Im not going to comment on sides of assets.
We've been quite disciplined over long period of time relative to strategic alignment financial line that relative to 'em assets, we would pursue and it would be inappropriate to to say that there's an asset at a certain type or size from that standpoint.
That we would limit ourselves too specific to the executive order stepping back first at the more macro level, we share the administration's objective to further improve affordability prescription drugs, there's no doubt about that and concrete examples, including we were the first to step into.
They need to reformat that diabetes and insulin environment with a patient assurance program the caps cost at $25 for 30 day supply they truly creates affordable simple predictable or embarked program that focuses on high cost specialty drugs or recent launch of our parachute program for workers, who been displays. So we will continue to drive innovation.
And our clients are benefiting from that relative to our market leading trends specific to the rebate rule.
Youre up overall framing I think is right specifically, we didn't believe the rebate rule if implemented in its current configuration would have a material effect on cigna. It focuses on of the government programs and as you know as designed today the government run programs require in or facilitated by full pass through full transparency Reba.
Hey, economics to start with they're designed into pricing scheme is dictated by.
Government rules that we all comply with as an industry. The result of this rebate rule changes designed would result in increasing cost all seniors as an example, and thereby decreasing cost for some depending on their point in time drug utilization.
And the rule is written today would create a conflict in terms of what will transpire around that but from a signal perspective, we do not see that is having an impact on our book of business.
And our overall performance, even if that rebate rule was implemented.
Okay. Thanks.
Thank you Mr. Tao My next question comes from Bob Jones with Goldman Sachs. You May ask your question.
Great. Thanks, Thanks for taking the questions I guess, Eric maybe just go back to one on the PBM a comment you made earlier in Q in a bad not pulling anything major as far as dynamics. It was just wondering how the prime roll on has been going at that any major impact on the quarter.
Is that kind of going according to plan and then maybe just do you have done a lot of time on Accredo, maybe just any kind of parsing out of how volumes of the traditional pharmacy business have trended relative to the specialty pharmacy.
Any seen any differential impact there as a result of the coven environment.
Yeah, It's Eric good morning, so with respect to Prime we announced that our collaboration with Prime last December work.
Quite diligently over the ended the year and through the first quarter to get ready for that when we began servicing of that that collaboration on April 1st It's really performed very well and very much a consistent with our expectations. Both in terms of services provided the timing of the volumes in the light so to get off to a two groups.
We're delighted to have the relationship there in terms of specialty I. Appreciate you calling out Accredo credo continues to be industry, leading capability here and it does continue to want to drive.
Growth as we see more and more specialty.
Products and the more and more clinical needs.
The clients those we serve both of those things driving additional growth within the within a fritos. It's a good continued strong growth there as well and that's a real bright spot of even in the strong health services results.
Great. Thank you.
Thank you Mr. Jones, our last question comes from Charles Green with Cowen You May ask your question.
Yeah. Thanks for squeezing me in here, maybe I could ask a question about the international segment, David you cut it. So I don't really does her lower claims volumes are benefiting in the quarter.
But maybe you can give us some sense on what your expectations.
Our sort of made for the back half and give a sense on what the trends you're seeing globally, yeah related to cold it and if there's anything that you can take from that as we think about you know how Ah coping they progress here in the states. Thanks.
Yeah.
It's Eric.
I'll start here with respect to international because we know there was a strong result year to date in the segment overall continues to perform really well we've got as as I think you know two platforms within the international business, a global health benefits platform that serves employers and then a award individually oriented or a platform that.
It's both kind of held down supplemental needs and such within the employer book of business I would say globally. The dynamics are pretty similar to the dynamics that we talked about in our integrated medical segment. So we saw.
Deferral less utilization earlier in the quarter, if some of that's come back up over the balance of the quarter, we continue to expect to see.
Slower recovery in terms of employment levels and the like within this business, but I think of it as a as having a lot of parallels with the with the U.S. medical business on an individual business.
Think through here, we saw disruption back in first quarter event in terms of both sales and in terms of claims experience and such really seemed a lot of that come back in Asia, and our Asian markets already and very much kind of back to normal and a lot of our individually oriented businesses at this point. So so again.
Looking forward from here, we would see.
Continued strong performance in the business continued to the trajectory from a up from a growth perspective dividends what else you would I like that just add in the learning category mix, we're learning in the United States State by state, we're seeing around the globe the imperative of being flexible as the the pandemic ebbs and flows from that standpoint from community sample.
I think from health access standpoint from a the academic standpoint from the employer standpoint, and secondly, we've seen have consistently around the globe a more aggressive adoption of as I referenced before technologically enabled health access solutions.
Even in environments, where they previously where they really low adoption rate.
Less desire to go to physical proximity to access care. If it can be delivered through technology, and we see an elevation of that those services being utilized around the globe or we think that trend will continue.
Great. Thank you.
Thank you Mr. green.
And just how much in the call back over to David Cordani for closing remarks.
Thanks, just briefly wrap up I want to first and foremost again acknowledge and thank cygnus more than 70000 colleagues around the globe who've worked tirelessly with great empathy throughout this pandemic serving the needs of customers are patients work within our communities and support our clients around the world at Cigna, our mission to improve health, well being and peace of mind of those we serve has never been more.
And that continues to guide our actions and we'll as we go forward.
In recent weeks and months, we've taken decisive actions to support our employers who we believe are the driving force to a thriving economy to withstand and emerge from the coven 19 pandemic as well to support the communities and customers. We were concerned each and every day, including our efforts to combat systemic racism, which we also view as a critical health issue.
From a results perspective, we once again delivered strong financial performance this quarter and we remain on track to complete our integration and reach or de leveraging objectives by the end of this year.
We continue to expand and innovative programs and services to support our clients our customers are patients in our communities and we are on track to deliver our revenue and EPS outlook for 2020 as well as our 2021 EPS target of 20 to $21 per share with that I. Thank you for joining our call today, and we look forward to a future.
Discussions.
Ladies and gentlemen, this concludes cigna's second quarter 2020 results review.
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