Q4 2021 Cigna Corp Earnings Call

Ladies and gentlemen, thank you for standing by for Cigna's fourth quarter 2021 results review at this time all callers are in a listen only mode. We will conduct a question and answer session. Later during the conference and review procedures on how to enter queue to ask questions at that time, if you should require assistance during the call. Please press star zero on your Touchtone phone.

As a reminder, ladies and gentlemen, this conference, including the question and answer session is being recorded we'll begin by turning the conference over to Mr. Ralph Giacobbe. Please go ahead Mr. Jacobi.

Great. Thanks, Good morning, everyone and thank you for joining today's call I'm, Ralph Jacobi Senior Vice President of Investor Relations with me on the line. This morning are David core Danny Cigna's, Chairman and Chief Executive Officer, and Brian of Banco Cigna's, Chief Financial Officer.

In our remarks today, David and Brian will cover a number of topics, including Cigna's fourth quarter and full year 2021 financial results as well as our financial outlook for 2022.

As noted in our earnings release, when describing our financial results Cigna 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 GAAP 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 Dot com.

We use 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 will the amendment, we will be making some forward looking statements, including statements regarding our outlook for 2022 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations a.

A description of these risks and uncertainties is contained in the cautionary note of today's earnings release and in our most recent reports filed with the SEC.

Before turning the call over to David I will cover a few items pertaining to our financial results and disclosures.

First as previously disclosed with our form 8-K filing an investor call on January 24th we announced changes in our segment reporting effective for the fourth quarter of 2021.

These changes were made to align with the company's organizational structure as a result of the pending divestiture of sickness international life accident, and supplemental benefits businesses and seven Asia Pacific markets.

Effective in the fourth quarter Cigna as a results will be reported through the following three groups ever North Cigna healthcare and corporate and other operations.

The international businesses that will be divested pending the close of the transaction will now be reported in other operations, which is included within corporate and other operations in our earnings release and quarterly financial supplement.

The international health business to be retained by Cigna will join our U S commercial and U S government offerings in a new segment called Cigna Health care.

This segment replaces the prior U S medical segment.

Second regarding our results in the fourth quarter, we recorded an after tax special item charge of $119 million or <unk> 36 per share related to our strategic plan to further leverage the company's ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use.

The automation and shared services.

We also recorded an after tax special item charge of $70 million or 21 per share for integration and transaction related cost.

As described in today's earnings release special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results.

Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2022 outlook. We will do so on a basis that includes the potential impact of future share repurchases and anticipated 2022 dividends.

Also our full year 2020 outlook assumes that the pending divestiture of Cigna's International life accident and supplemental benefits businesses will close in the second quarter of 2022, but does not assume any impact from other business combinations or divestitures that may occur after today.

Finally, I would like to announce our intention to host an investor day in June where we will discuss our long term strategic growth and value creation story, we look forward to share more details in the coming weeks with that I will turn the call over to David.

Thanks, Ralph Good morning, everyone and thank you for joining our call today.

As we step into 2022, our clients customers and patients continue to face a rapidly changing landscape with new Covid variance.

<unk> testing and treatment protocols and pressures on the global economy.

Throughout these challenges we remain focused on addressing and balancing the evolving needs of all of our stakeholders.

As a result, our 70000 plus colleagues around the world continue to deliver differentiated value for those we serve and also continue to grow our businesses.

Today, I'll share perspective around our 2021 performance and the sustained growth opportunities, we see for our organization in the year ahead.

And Brian will provide additional details about our 2021 financial results and our 2022 outlook then we'll take your questions with that let's get started in.

In 2021, we grew full year adjusted revenues to $174 billion a.

A second consecutive year of growth above our long term target.

We delivered full year adjusted earnings per share growth of 11% to $20 47.

And we returned over $9 billion to shareholders in dividends and share repurchases.

Additionally, we continue to invest in our capabilities to ensure we are positioned for sustained growth in 2022 and beyond.

Our growth is and will continue to be fueled by our two high performing platforms.

Our health services business, including pharmacy care benefits and intelligence services, and Cigna Health care, which includes our portfolio of U S. Commercial U S government and international health businesses.

Our urban north in Sigma healthcare platforms complement each other through the breadth of their capabilities and the ability to serve multiple buyer groups.

Here, we typically lead with either a medical or pharmacy solution.

And then we build on those relationships by innovating and delivering new services.

We have a proven track record with this approach.

A diverse high performing portfolio of solutions and a sustained commitment to continued innovation to expand that portfolio.

Additionally, we are positioned so that accelerated growth in one area can compensate for temporary pressure in another business within our portfolio.

We see this as extremely valuable in a dynamic environment.

Relative to our 2021 performance it was a very strong year for ironwood.

We grew adjusted revenues by 14% in 2021 as ever notes corporate clients health plans governmental agencies and health care delivery system partners increasingly recognize the value of our health services, including in our specialty pharmacy business, which we'll discuss in more detail in just a moment.

And our virtual health capabilities, which have been expanded through MD life to include urgent and dermatology care as well as behavioral services.

In our core pharmacy services portfolio, which continues to generate outstanding results for our clients.

And we are further broadening our reach through deeper and new partnerships.

For Cigna healthcare, we had sustained growth leveraging the strength of our U S commercial U S government and international businesses.

As we previously discussed we also experienced elevated medical costs, we had higher claims costs in our commercial insured and stop loss businesses and continued higher claims from our special enrollment period customers within the individual individual business. These included the impact of elevated Cobra costs for testing treatment of vaccines.

The elevated trend continued throughout the year as a result of our medical care ratio for Sigma healthcare was 84% for full year 2021.

As Brian will discuss in further detail, we took targeted pricing and affordability actions earlier in 2021 for 2022 impact as we continue to prioritize margin expansion for 2022.

As I highlighted earlier, the breath and complementary nature of our portfolio enabled us to exceed our revenue and EPS outlook and returned over $9 billion of capital to our shareholders.

Looking forward to 2022, we expect to continue to capitalize on emerging growth opportunities and achieve sustained attractive performance.

We see additional opportunities to drive growth by leveraging <unk> capabilities to respond to three forces that we believe are fundamentally reshaping the future of health care there.

Their pharmacological innovation the increased recognition of the link between mental and physical health and third the growing trend toward alternative sites of care.

I'll start by highlighting however, north will lead the way to capitalize on the first train pharmacological innovation.

New drugs represent one of the most promising areas for medical innovation in the coming years, and we are seeing a dramatic growth in specialty pharmaceuticals gene therapies and vaccines.

These potentially lifesaving and life changing advances also bring intensifying pressures on affordability.

This creates significant opportunity forever north to provide customers patients and clients with the most innovative new therapies in ways that are accessible affordable and predictable.

By 2025 for example, 66 biologic drugs currently in the market, we'll have the patent expire opening the door for increased Biosimilar competition, and an increasing opportunity to decrease health care spending by an estimated $100 billion.

Importantly, this trend is already unfolding in 2022 and will accelerate further in 2023.

We are positioned to lead and fully intend to capture a large portion of those savings for the benefit of our customers patients and clients by combining and coordinating capabilities that include our accredo capability, which provides differentiated specialty pharmacy care for a number of specific conditions.

Also highlight that today, especially pharmacy already drives fully one third of every north revenue and Accredo as one of the fastest growing parts of our health service portfolio.

Additionally, leveraging express scripts, which draws upon its expertise in delivering improved affordability, leveraging our broad network supply chain expertise as well as clinical and service capabilities.

Managing biologics and specialty drugs is also a priority focus for our Sigma healthcare business last year, we launched an innovative program to leverage biosimilars in the medical benefit that included incentives that improve access for integrated clients and customers. This illustrates just one way we will continue to leverage <unk> capabilities to drive greater.

Portability and value for our Cigna healthcare clients and customers.

<unk> will also continue to grow from the significant demand for more mental health services as well as the rapidly changing access to care models.

For example, <unk> has continued to expand our virtual care services by leveraging our MD life platform as well as expanding our behavioral care network.

We know how important this is for both patients as well as clients are.

<unk> research reinforces that total health care costs decrease when people who are diagnosed with behavioral conditions received coordinated sustained treatment.

We're seeking to health care in 2022, we expect to drive customer growth in each of our U S commercial market segments.

And grow earnings as we continue executing on our affordability and pricing actions throughout 2022.

Additionally, Cigna health care will continue to partner and leverage our <unk> innovations.

For example, we're continuing to expand digital experiences that help our customers connect with the highest performing and most affordable medical care.

Our recent approach we developed for patients diagnosed with orthopedic and muscular skeletal conditions provide highly personalized and actionable information to guide their choices and support improved health care outcomes and affordability.

U S government business as we've noted previously we are operating in a more competitive environment stepping into 2022 for cigna aided by the strength of our broad portfolio, we have prioritized pricing discipline for U S government business for 2022 for.

For Medicare advantage, we will start the year with flat membership looking forward to 2023, we are confident in our position to accelerate growth further as our customer satisfaction metrics are high our stars ratings are very strong and we steadily expanded our addressable market by entering new geographies.

In our individual and family plan business as noted previously 2021 customers grew meaningfully in part due to the extended special enrollment period.

We expect a decline in customers in 2022.

In part driven by our product and price positioning that will adjust for the special enrollment surge. We saw in 2021, we do continue to view this as an attractive long term opportunity and to support that growth. We continue to enter new markets for 2022, we entered three new states and 93, New counties with these markets.

For example, we have the ability to reach an additional $1 5 million additional customers.

And international Health, we are sharpening our focus and we'll continue developing our services for the globally mobile as well as go deeper into domestic health and health services. One of the key ways. We will do this is with innovative partnerships such as honeysuckle health and analytics, driven health service company, establishing our joint venture with the nib.

Group in Australia.

Taken as a whole 2022 will be another year of attractive growth for our company, our EPS outlook of at least $22 40.

And the increase of our quarterly dividend by 12% reinforces the sustained growth and strength of our businesses.

Now before I wrap up I want to reinforce a key aspect of our sustained performance is our positioning strategically to further expand our reach in addressable markets overtime here, we will leverage organic.

Partnerships and targeted inorganic opportunities to further strengthen our proven growth platforms.

We see three areas of continued focus here.

First in U S government, we will seek additional growth opportunities.

And our ability to win in these markets is further enhanced by our current and expanding <unk> service capabilities.

Second we will further expand our revenue with service portfolio. This includes for example, our <unk> north care capabilities, including virtual home and behavioral services.

And third and international Health, our decision to divest our life accident and supplemental benefits business in seven markets reinforces our discipline to focus on the health portion of our portfolio.

Now to wrap up looking back on 2021, our business performed in a dynamic environment.

We delivered adjusted EPS of $20 47.

And returned over $9 billion of capital to our shareholders in dividends and share repurchase.

2022 will be another year of growth across our business and we will continue to invest in innovation to position us for sustained long term growth with that I'll turn the call over to Brian .

Thanks, David and good morning, everyone.

Today I'll review key aspects of Cigna's fourth quarter, 2021 results and I'll provide our outlook for 2022.

Key consolidated financial highlights for full year 2021 include adjusted revenue growth of 9% to $174 billion.

Core growth of 12% when adjusting for the sale of the group disability and life business.

Adjusted earnings of $7 billion after tax and adjusted earnings per share growth of 11% to $20 47.

We delivered these results despite an elevated medical care ratio in the quarter, partly driven by COVID-19 related claims.

Our enterprise revenue and EPS results were slightly better than our expectations, reflecting the resilience and breadth of our portfolio with particularly strong performance in <unk>.

Regarding our segments I'll first comment on <unk>.

Fourth quarter 2021, adjusted revenues grew 15% to $35 1 billion.

While adjusted pre tax earnings grew to $1 6 billion.

<unk> strong results in the quarter were driven by organic growth, including strong volumes in specialty pharmacy, and retail along with ongoing efforts to improve affordability and deepening of existing relationships.

In the quarter. We also continued to increase the level of strategic investments to support ongoing growth of the <unk> portfolio.

Such as our Accredo specialty pharmacy, or virtual care platform, and our technology, including digital capabilities.

Overall, <unk> delivered a strong year, focusing on driving value for clients and customers, while achieving strong revenue and earnings growth above its long term growth targets.

Okay.

Turning to Sigma healthcare, which as a reminder, now includes the prior U S Medical segment, plus our retained international health business.

Overall fourth quarter adjusted revenues were $11 2 billion.

Adjusted pre tax earnings were $472 million and the medical care ratio was 87%.

During the fourth quarter, we experienced elevated medical costs driven in large part by dynamics related to COVID-19 , including higher testing treatment and vaccine costs specifically.

Specifically the higher than expected fourth quarter costs are attributable to three primary areas.

Higher stop loss claims, particularly in policies with lower attachment points that were triggered by the accumulative impact of Covid and non COVID-19 costs throughout the year.

Continued pressure in our individual business, particularly the special enrollment period customers, who were added in mid 2021 and higher claim costs in our commercial insured book.

The elevated medical costs were partly offset by better than expected net investment income and fee based specialty contributions.

Neither of which are reflected in the medical care ratio metric.

For full year 2021, we finished with the medical care ratio of 84% the.

The unfavorable fourth quarter medical cost informed and sharpened our 2022 assumptions.

We now expect full year 2022 medical cost to run above the corresponding 2022 baseline at a relative level that is consistent with full year 2021.

This 2022 medical cost outlook is now higher than our previous expectations.

And specific to stop loss, we assume the pressure experienced in the fourth quarter will persist in 2022.

And we will take appropriate future pricing action as this book of business renews throughout the year.

Helping to offset these pressures as we step into 2022 are.

Our targeted pricing actions, we've taken in our U S commercial business as we saw claim costs emerge in 2021 high.

Higher U S commercial enrollment and retention than previously expected in our fee based business.

And incremental affordability actions, which I'll elaborate on in just a few moments.

Turning to membership we ended the year with $17 1 million total medical customers an increase of approximately 430000 customers for the full year.

2021 customer growth was driven by middle markets in select within U S commercial individual and Medicare advantage within U S government and international Health.

Overall, Cigna health care supported and delivered for our customers clients and partners during a challenging year.

And is well positioned to both grow membership and expand margins in 2022.

Turning to corporate and other operations the fourth quarter adjusted loss was $115 million and now includes positive earnings contributions from our international life accident and supplemental benefits businesses held for sale pending divestiture.

As Ralph noted during the fourth quarter, we reported a special item charge of $119 million after tax related to actions to improve our organizational efficiency.

These actions will capitalize on our scale and the progress we have made through automation increased use of digital tools and continued innovation to better enable us to grow and expand in this dynamic marketplace.

Overall, cigna's 2021 results reflect our balanced portfolio and our commitment to accretive capital deployment to augment our organic growth.

As we turn to 2022.

Our affordability initiatives pricing actions and focus on operating efficiencies will drive income growth and margin expansion in Sigma healthcare.

This performance coupled with continued growth in <unk>, north and accretive capital deployment will drive attractive EPS growth.

For the full year 2022 outlook I'd like to first remind you that our outlook assumes the divestiture of our international life accident and supplemental benefits businesses will close in the second quarter of this year.

In total for the company, we expect consolidated adjusted revenues of at least 177 billion.

Representing growth of approximately 4%, excluding the impact from previously announced divestitures.

We expect full year consolidated adjusted income from operations to be at least $6 95 billion.

We're at least $22 40 per share consistent with our prior EPS commentary.

We projected expense ratio in the range of six 9% to seven 3% further improving upon our operational efficiency and ensuring continued affordable solutions for our clients and customers.

And we expect the consolidated adjusted tax rate in the range of 22% to 22, 5%.

I'll now discuss our 2022 outlook for our segments.

Forever.

We expect full year 2022, adjusted earnings of approximately $6 1 billion.

This represents growth of about 5% over 2021 within our targeted long term income growth range.

Reflecting strong growth in Accredo specialty pharmacy.

All while we continue to increase investments in order to drive new innovative solutions to the market.

For Cigna healthcare, we expect full year 2022, adjusted earnings of approximately $3 9 billion.

This outlook reflects the strength of our value proposition and focused execution in our business driven by organic customer growth and disciplined pricing in order to expand margin.

Some key assumptions reflected in our Cigna health care earnings outlook for 2022 include the following.

Regarding total medical customers, we expect 2022 growth of at least 575000 customers with the vast majority coming from an increase in U S commercial fee based customers.

Within our U S. Commercial book organic customer growth is driven by national middle market and select market segments.

We expect Medicare advantage customers to be relatively flat compared to 2021, reflecting the competitive backdrop.

And as David shared we expect a decrease in our individual customers.

We expect the 2022 medical care ratio to be in the range of 82% to 83, 5%.

As I noted earlier this outlook assumes total medical cost will be above baseline in 2022.

Importantly, we are actively managing overall medical costs with a range of affordability actions.

Including identifying opportunities such as guiding customers to more effective and efficient sites of care. For example, we're focused our evercore subsidiary on incorporating site of care review to our existing processes. These.

These improvements encourage the use of non hospital settings, which can substantially reduce costs for customers, while increasing patient satisfaction.

This action has contributed to results within our commercial book of business, where we are now seeing fewer than 20% of all knee and hip replacements occur in an inpatient hospital setting.

From over 75% in 2019.

We are also continuing to promote preventive care.

The targeted use of virtual care through our <unk> subsidiary and access to behavioral services to provide meaningful support to patients and moderate overall medical costs over the longer term.

Through these affordability initiatives and our disciplined pricing actions, we expect to expand margins in 2022.

While growing our medical customer base.

Now moving to our capital management position and outlook, we expect our businesses to continue to drive strong cash flows and returns on capital even as we increased strategic reinvestment to support long term growth and innovation.

In 2021, we finished the year with $7 2 billion of cash flow from operations.

Additionally, we returned over $9 billion to shareholders via dividends and share repurchase in 2021, a significant increase from 2020.

And now for ending our capital outlook for 2022.

We expect at least $8 to $5 billion of cash flow from operations up more than $1 billion from 2021, reflecting the strong capital efficiency of our well performing business. This positions us well to continue creating value through accretive capital deployment in line with our strategy and priorities.

We expect to deploy approximately $1 $25 billion to capital expenditures, an increase from our 2021 capex levels.

The investments will be heavily focused on technology to drive future growth.

We expect to deploy approximately $1 $4 billion to shareholder dividends, reflecting our meaningful quarterly dividend of $1 12 per share a 12% increase on a per share basis.

And we expect to use the proceeds from the divestiture of our international life accident and supplemental benefits businesses, primarily for share repurchase.

Our guidance assumes full year 2022 weighted average shares to be in the range of 308 million to 312 million shares.

Year to date as of February 2022, we have repurchased two 5 million shares for $581 million.

Our balance sheet and cash flow outlook remains strong benefiting from our highly efficient service based orientation that drive strategic flexibility strong margins and attractive returns on capital.

So now to recap our full year 2021 consolidated results reflects strong contributions from our focused growth platforms led by ever North.

Our 2022 outlook reflects meaningful contributions from each of our two largest segments ever north and Cigna healthcare along with accretive capital deployment.

We are confident in our ability to deliver our 2022 full year adjusted earnings of at least $22 40 per share consistent with our prior EPS commentary.

Finally, as Ralph noted we are looking forward to speaking with you in more detail at our upcoming Investor day in June .

And with that I will turn it over to the operator for the Q&A portion of the call.

Ladies and gentlemen at this time if you do have a question. Please press star one on your Touchtone phone. If someone asked a question ahead of you you can remove yourself from the queue by pressing star two.

Also if you're using a speakerphone please pick up your handset before pressing the button.

Finally, we ask that you. Please limit yourself to one question to allow sufficient time for some questions from those remaining in the queue. One moment. Please for our first question.

Our first question comes from Mr. Scott Fidel with Stephens you May ask your question.

Hi, Thanks, good morning I.

Why don't you just absolutely ask you're thinking about seasonality for both MLR and adjusted EPS in 2022 relative to 2021, and maybe sort of a typical historical seasonality and just in particular thinking about the fact that Army Corps, obviously still having an impact here in the <unk>.

First quarter likely on the commercial book of business and then also as you talked about given that you are planning to re price.

Some of the stop loss business throughout the course of the year.

I'm interested in how youre thinking about the sequencing of the MLR over the course of the Euro as a result of that thanks.

Good morning, Scott, It's Brian So I'll start with the seasonality component.

As it relates to to the EPS cadence as well as the MCR for purposes of what we expect relative to quarterly EPS. The 2021 pattern is actually a reasonable starting point as we think about the 2022.

The EPS that will that will emerge for us. So it's more specifically, we would expect a little bit less than half to transpire in the first half of the year and are.

Based on what we're seeing so far in January the impact of <unk> et cetera, working its way through our book there is actually quite a bit of a resemblance in terms of January 2022 to <unk> 21, which again reinforces that 'twenty. One is a reasonable framework to use in terms of what to expect relative to EPS seasonality as it relates to MCR.

The full year guidance is as I indicated is between 82% and 83, 5% for the Cigna Health care book of business. So the mid point of that.

You can view as a.

Is a reasonable starting point for the first quarter, we would expect to run a little bit below that in the quarter just based on again, what the early read is here in January coupled with the pattern. We saw last year. So again think of political lesson.

50% of the overall EPS in the first half of the year think of the first quarter MCR being a bit below the midpoint of our full year guide for for Cigna healthcare as it relates to the stop loss book of business.

Within the quarter and importantly, you need to think of this as a <unk>.

Full year accumulation products, so what ends up transpiring with this.

Businesses over the course of the year planes are accumulated in the fourth quarter of the policy period. There is essentially a true up in what we had.

<unk> in the fourth quarter of this year is particularly at the smaller end of our stop loss book.

Some of the lower attachment points peers slightly.

Slightly more heavily than we had been anticipating and so that created a round numbers you can think of it as about $70 million of medical cost pressure in the fourth quarter importantly, though that's an annual number because it reflects the accumulation over the course of the year in 2021, So that's $70 million of it in the fourth quarter is really a full year 'twenty one.

<unk>, we have assumed that that $70 million of pressure will recur in 2022. So we have not assumed that we'll be able to recover that and thats embedded in our $3 9 billion.

Income guide for Cigna health care, so to the extent, we're able to reprice. Some of the cases with later effective dates in 'twenty two that could provide some level of upside relative to the $70 million assumption that's embedded in the guidance.

Thank you Mr. Fidel our next question comes from Mr. Steven Valiquette with Barclays. You May ask your question.

Hi, Thanks, good morning, everybody.

I apologize if I missed the details around this but just regarding your commercial membership outlook for 'twenty. Two can you remind us of your assumptions related specifically to potential additional members from the industry shift of Medicaid members to commercial around Redetermination commencing later this year.

Hey, good morning, Steve, It's Brian I'll start and David can add some color. So as I mentioned, we're expecting net customer growth in Sigma healthcare of at least 575000 customers.

In 2022, which we're really pleased with and it's actually above what we would've expected a few months ago based on stronger than expected enrollment and retention and as I noted the vast majority of that will come through in the form of fee based ASO related customer relationships, our membership outlook for 'twenty two does not anticipate.

Any growth.

Medicaid Redetermination and either the commercial book or the individual book. So as you know we don't continue to participate in the health plan space today in Medicaid and therefore, as we think of the impact of Redetermination, it's only upside relative to our customer outlook, we have not modeled anything in terms of benefit in there anything you want voice over David.

Oh, Yes, I would say is as we noted my prepared remarks within the commercial segment. We're pleased that our full year outlook for 2022 has growth in each of our three employer sub segments. So we're pleased with the outlook as we start the year, we're pleased with the outlook for the full year.

Okay, great. Thanks.

Thank you Mr. Valiquette. Our next question comes from Mr. A J rice with credit Suisse. You May ask your question.

Yes, hi, everybody.

Maybe just a comp.

Comment about you're obviously continue to prioritize expanding in the government side.

Two aspects to my question, one is that still primarily on the Medicare side.

Or is there any change in the thought about.

Medicaid opportunities I know, you've always said the more.

Acute into Medicaid was of interest, but just an update on that and then theres been a lot of discussion about from an organic standpoint, what's happening in the distribution channels for MAA.

Maybe get your assessment of where the market is today.

Is your organic growth strategy.

Taking advantage of maybe distribution channels in a different way than what you've done historically.

A J good morning, it's David.

Specific to the government expansion.

Back first we continue to see the government space is interesting and attractive growth space for us.

We define that as.

MAA individual exchange, we view as part of the government programs as well as Medicaid and when we look at the space more broadly.

Date, we focused in terms of using our levers and our focus more heavily on M&A and on the individual business and we're pleased to highlight the fact that within our <unk> service portfolio.

<unk> service portfolio continues to be able to expand its Medicaid proposition through servicing health plans and other intermediaries. Additionally, as I noted in my prepared remarks, as we expand our avenues service capabilities, we see that as a meaningful value creator to MAA to the individual marketplace as well as to the Medicaid marketplace and we think all.

All of which are going to continue to evolve and be attractive specific to the distribution channels no doubt. Some headlines have been produced relative to a little different dynamic in our posture coming into 2022 was at 2022 was going to be a bit more dynamic year from an M&A standpoint, hence we manage our portfolio to reduce.

Our internal expectations of life growth and focus heavily on margin expansion with an eye towards 2022, or 2020, three's growth being a more accelerated growth environment and I think we'll see a little bit more shakeout relative to some of the channels that are evolving.

For us our channel traction on our retention has been pretty darn reasonable for 2022, we saw less new business growth.

Year over year for Medicare advantage, and we expect it to be less new business growth in Medicare advantage, given our product and our pricing position.

Okay, great. Thanks, a lot.

Thank you Mr. <unk>. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open you may ask your question.

Hi, good morning.

One question and one clarification.

<unk> is or maybe they're both clarifications.

I just wanted to go back to the commercial membership growth I thought Brian It said, mostly.

Based.

And then David you had said growth across.

The segment. So I was just trying to piece together what your outlook was horse for select where you've had really the strongest.

Growth and I would think would lean more towards risk versus fee.

Gary It's David.

Youre Youre starting part of your frame is helpful. So when we think about it we think about national regional or made in select each of the segments have attractive growth for 2000 and <unk>.

'twenty, two with national and regional having very attractive growth outlook and all being thing about that is all fee based.

To your point within the select segment. The <unk> segment has been and continues to be a very attractive growth segment for us in any given year the amount of new business. We've written in that segment has varied anywhere between 70% <unk>.

So stop loss and 30% risk to greater than 50% risk and less than 50% of ASO stop loss. It varies so we'll continue to write.

ASO stop loss within the select segment and we're right some guaranteed cost business and there are no doubt, but the aggregation of all the segments together and the strength of all three segments going into 2022 has a significant portion of our net customer growth being in the fee based environment.

Okay that makes sense I'll ask mother clarification offline. Thank you sure. Thanks.

Mr. Taylor. Our next question comes from MS. Lisa Gill with Jpmorgan you May ask your question.

Thanks, very much good morning.

Can you give us some update around that the PVM on the north side as we think about 2022 and 2023. So first up on 2022 did you see any material changes as you think about contracting or programs that you are offering and then as we think about this selling season for 2023 I know, we're pretty early on but.

Now any insights that you can give us as far as renewals.

Book of business, that's up for renewal or how we think about how your ppm is doing.

Sure Good morning, Lisa.

Let me start with.

The 23 selling season.

And put a backdrop of it we're pleased with the performance we have carried out over multiple years within that subsegment of <unk> in 2023 is guiding towards another attractive year for us as it relates to when you think about the growth equation youre asking about we start with retention we would expect at this point our retention levels for 2000.

And in 'twenty three to be at or above our 2022 retention levels. So we would see that as an attractive outlook.

For 2023 growth, we have an active pipeline.

And so we would see net new business adds coming through and then context for you.

And our listeners if you think about that business portfolio over the last several years, we've essentially had a net add of about 20 health plans into our portfolio of services. So.

Positive and continued I would say sustained attractive performance importantly in the early part of your comments in terms of you said contracts and programs I think I'd draw your attention back to the programs.

Cornerstone part of that business is to continue to innovate programs and services set otherwise, it's not just a base PVM.

Access offering there is an evolution of programs that you would know as safeguard programs and evolution of safeguard programs that continue to enhance clinical programs and clinical engagement and clinical care coordination leveraging both was express scripts has the ability to do with Accredo has the ability to do an increasingly what we were able to leverage off of some of the Cigna health care.

Capabilities working in both directions on the medical side of the proposition. So expansion of the services using your term programs has been mission critical and the final note I would say is our PBF team as you call. It does a really good job of working client by client be a corporate client or in the case of health plans to co collaborate the innovations at work for.

Them and.

And by doing so helping them our clients drive growth, which is mutually beneficial to both organizations. So wrapping up we see 2023 as being another positive year, both from a retention as well as our new business growth standpoint.

Great. Thank you.

Thank you Ms. Gill. Our next question comes from Mr. Justin Lake with Wolfe Research you May ask your question.

Thanks. Good morning wanted to ask so you gave us a $70 million number and it sounds like youre going to reprice fully for that in the stop loss book I know it would be the rest of the commercial risk book you'd had some issues in 2020, while you were pricing some of them in 2022, but not fully is there a number that you could share with us that you are.

Hope to get back for 2020 22 for 2023.

Arms, a repricing there so we could think about maybe some of the earnings momentum that we could see ahead as you get those books were priced.

Good morning, Justin It's Brian . So I think your question was really specific to the fully insured part of the commercial book of business and as I noted in my comments there in the fourth quarter, we saw some elevated medical costs.

All in you can think of that is also in that same general zone as the stop loss pressure I mentioned of about $70 million of the three drivers of the pressure.

Stop loss the individual exchange in the fully insured you can think of them as about a third a third a third in terms of the.

The medical care ratio pressure, we had relative to our expectations in the quarter. So the fully insured component of that.

Going forward as David indicated in his comments, we started to see pressure emerge in the second quarter of 2021.

If you if you recall, our second quarter MCR was elevated relative to our expectations and that began a cycle of margin expansion on this book of business. So we've been repricing over the course of 'twenty one into 'twenty two with the expectation of expanding margins as we've talked about before we don't expect that all of the transpire in one year and so when you look at the.

Cigna Health care income guide for next year or this year actually at $3 9 billion.

That's up about $300 million from where we ended in 2021 that will improve our margin profile, but it doesn't get us all the way to our target margins in one year. So we have more opportunity in 'twenty three and thereafter for further repricing actions. So in the fully insured book of business in particular.

The sold business. So far has revenue yields in excess of cost trends and you can think of that in the range of 100 to 150 basis points as we step into 'twenty. Two so we'll get some margin expansion in that portfolio. We would expect more in 'twenty three is more of the business is repriced.

Alright.

Thank you Mr. Lake. Our next question comes from Mr. Matthew Borsch with BMO capital markets you May ask your question.

Yes, I was hoping you could just comment a little bit more on the competitive questions excuse me in Medicare advantage.

What point did you come to realize that those were going to meaningfully impact your enrollment outlook and just sorry, just related to that partly empty Kim maybe keep one comment Tom on me.

The advance notice on their 2020 to be rates, we got last night.

Hey, Matt it's David so specific to the Medicare advantage MBR.

The environment for 2022.

We were mindful of our willingness to trade if you will volume for margin.

We're establishing our pricing for 2022 earlier in 2021 there'll be a perfect insight of course, not but we're mindful of that.

To answer your question more specifically clearly when the competitor competitive pricing by market became visible as you get ready to step into the annual enrollment period, we were able to look at market by market and we're able to broadly see most markets our level of benefit in price point positioning clicking down 1% to three notches by.

Market. So that gives you a context.

And that's in an environment with.

Local scale with our attractive medical costs configuration, and where the stars rating deep into the Eighty's. So as we looked at that environment again, we were mindful of what was transpiring and at that point, we were able to see that there would be more more volatility as I noted before we saw reasonable retention a little bit of pressure on retention, but less new business sales that.

Came through now specific to your point, it's early folks or are combing through what was posted last night, but big picture I put the headline number of side it looks like a little over 4% net yield for the industry.

And our assessment of ourselves when you look at mix kind of shaking it through is about 4% yield with an eye towards 2023, we view that as a positive taking.

Taking our current proposition taking our current stars rating, taking our current net promoter score taking the geographies we've expanded in <unk>.

Our disciplined orientation of stabilizing the environment for 2022, so we're looking forward to a very attractive growth opportunity for the Medicare advantage portfolio business in 2023.

Thank you.

Thank you Mr. <unk>. Our next question comes from John Mr. Josh Raskin with Nephron Research you May ask your question.

Hi, Thanks, and good morning, I'll congratulate Ralph for for joining.

I want to get back to the comments that you made about the inorganic growth specifically in the government segment and I think and perhaps this is the answer understanding that there are significant potential synergies with ever north four new blocks of business in the government segment, but maybe just help us what in.

What's changed over the last couple of years, what is most attractive for potential targets in your mind, how important is scale large scale and do you consider the organization prepared for large scale M&A at this point and then lastly last big one I think about in the government segment was held spring that that asset growth.

It Hasnt really kept up with the markets I'm curious if there are lessons learned or things that you think are different this time around in terms of cigna.

Sigma operating at larger scale in the government segment.

Jeff Good morning, when you think about our inorganic priorities first ever integrated our inorganic priorities augment.

Our organic growth and then our disciplined focus to extending and expanding partnerships and then identifying inorganic opportunities we have for categories and I'll come to your core point in the second four categories of focus.

Furthering our international proposition in key markets on the health space furthering our U S government capabilities, furthering our care delivery and management capabilities more oriented toward the digital the home.

The behavioral side of the equation, and then digital and technology support for our organization as it relates to inorganic opportunities in the government space I'm not going to call out any one is our priority. There is multiple sub segments, but as we look at inorganic priorities to your point of scale. We have to conclude that of course they are strategically attract.

<unk> then we have to conclude the financially attractive and then we have to conclude that we could essentially closed them or create a level of certainty. So within the context of that we take into consideration all of the items in your question regulatory we recognize the environment quite fluid right now from a financial attractiveness.

This includes the organizational readiness and our ability to create and capture value. We have to conclude for a larger transaction that the transaction will be accretive in its first full year of operations and generate an attractive ROIC.

So that's an important part of the equation for us in terms of the way in which we would approach a transaction from that standpoint and on a final note we built a diverse portfolio.

Within.

Demonstrating that our services portfolio is well positioned for continued growth and then within our Cigna health care portfolio, we have multiple growth levers from commercial to government tour International's capability. So we'll be opportunistic here, if we see a significant value creator quite disciplined considering the points I referenced relative to the.

Strategic value creation, the financial value creation, which we are quite disciplined on and of course mindful of the regulatory environment.

Thank you.

Thank you Mr. Raskin. Our next question comes from Mr. George Hill with Deutsche Bank, You May ask your question.

Yes, good morning, guys and David I wanted to pull on a spread that you just mentioned in the last comment which was.

Demand for digital and I guess I would ask for demand for digital X telemedicine I think before you guys bought ESI. They had started to build a digital formulary.

Brian talked about increased investments in technology to drive future growth. So I guess I would talk about or any of these initiatives material yet.

Again ex telemedicine.

So are any of the digital initiatives really moving the needle at the bottom line and I guess could you talk about where future capital can be deployed to grow and fill out the white space here.

So.

First just a calibration point the digital formulary you made reference to.

Transpired as were combined entities and I think it's a good reinforcement of innovation. So I agree with you we're using that as an example of innovation to I do appreciate you broadening the leverage and the value creation of digital beyond although virtual health is massive beyond that as we look into the organization we see.

<unk> opportunity to leverage digital capabilities beyond so.

Two examples just to be succinct, one of which I made reference to in terms of supporting our customers and patients with specific highly personalized immediately actionable information as they make their personal health decisions around consumer care and I cited an example in.

Phoenix and muscular skeletal where there is a significant amount of preference and choice that the consumer patient has exercise and we've learned over time delivering information that is personalized and actionable at the moment that matters. When decisions are being made as mission critical and we're able to improve value for that patient.

And through better quality, better affordability, and then share some of that benefit back to the client. So that's an example on the carrier side of the equation on the administrative side of the equation, we talked about our ability to harness further leveraging the franchise off of shared services.

As well as our continued growth of our revenue portfolio of digital first framework as mission critical within that we have the ability to bring more personalized services on the administrative side of the equation both to our customers as well as to our physician partners and most of that lies upon a digital first philosophy and framework and we continue to invest there.

On a final note some of the Capex that Brian made reference to goes toward both of these dimensions, whether it's in the care enablement side of the equation or whether it's in the administrative service side of the equation, we see it as a meaningful value creator and I appreciate you calling that out.

Thank you Mr Hill. Our next question comes from Mr. Ricky Goldwasser with Morgan Stanley You May ask your question.

Hi, This is Michael on for Ricky.

A couple of really quick questions. One question about the $119 million charge related to the strategic plan to drive operational efficiencies I was curious what the expected side of the cost savings cadence timing is that baked into guidance and then second question on the M&A right now I know you.

A couple of times on the call, but just given how strong it was.

In two.

22 membership, perhaps falling a bit short of expectation starting flat.

Any implications.

Dynamic next year, Jeff preference for maybe reinvestment could benefit richness.

Marketing distribution channel. Thanks.

Good morning, Michael It's Brian I'll take the first question and David can pick up on the Medicare advantage component. So.

As we announced this morning, we are taking a charge in the quarter associated with.

Organizational efficiency and you can think of that the charge amount itself was about $168 million pretax over time that'll run rate to a number in the $200 million to $225 million range and you can expect that that full run rate will be achieved by 2023, a portion of that will come through in 'twenty two of course I won't.

Dropped to the bottom line a portion of that will be redeployed in the form of more competitive prices and premiums out into the market and just to give you a little more context, there I talked about automation and digitization.

So a piece of this will be essentially removing unnecessary work and some of that will be.

Personnel. There is also a significant piece in here associated with real estate. We made the decision. After a couple of years into the pandemic that some sites should be closed permanently <unk>. Some floors re stack. So there's a component here associated with real estate optimization as well David you want to pick up on the Medicare advantage component sure it Michael.

Transition from Brian's point I'd point, you to the fact that our.

SG&A ratio for 2021 was a very attractive number and our outlook for 2022 is a further improvement so back into embedded in our outlook is a further improvement to the SG&A ratio relative to the Medicare rate notice into 2023 environment. We view it as just macro a positive environment for us to lean into I.

I think the core of your question do we do we view it negatively or do we have regret relative to our growth posture for 2022, as we look to the rate notice for 2023 My answer to you is yes or no clearly we would like more lives that are sustainable to be able to serve but we believe being disciplined in this more fluid.

Environment, a 'twenty one 'twenty two what was a better answer and better decision and I would remind you were talking about numbers off of our book of business of about 550000 lives. So within our portfolio. That's about 10% 5% of the enterprise revenue, we're able to make those trade off decisions looking to 2023, we see more opportunity.

See that opportunity off of our base, we see the opportunity off of our geographic expansion off the last two years and we see that opportunity being further enabled by.

The rate environment for 2023, so we're excited by that.

Thank you. Our next question comes from Kevin Fischbeck with Bank of America, You May ask your question.

Great. Thanks, maybe just wanted to follow up with that and maybe broaden it a little bit to the exchanges as well I guess.

I understand.

When you price for margin Youre going to grow below average, but MH growing high single digits, you're flat the exchanges as having one of the best growth rates.

We're probably going to see in your down and in both cases, you're expanding geographies. So the other companies who have talked about conservative pricing.

Are still growing so I just wanted to see a little bit more if you can talk about both I may on the exchanges as far as what gives you confidence that.

Your your products are going to be competitive and be able to grow and I guess when you think about 2023 growth.

You're just talking about Reacceleration off a flattish or are you talking about getting back to industry level growth rates in those businesses for next year.

Kevin.

I appreciate your questions two very different markets in two different very different market environments.

Specifically to the individual exchange environment, our point of view is.

Adding more lives at zero or negative margin is not a shareholder prudent posture too in a marketplace that is fluid year in year out we've been able to prove that as that marketplace is unrelated.

Our discipline has played through save for the special enrollment period that played through in 2021. Our discipline has played through in a net positive ways, we've been able to build more geographies more focus in geographies and yield a sustainable proposition, but to be very clear. Our conclusion is that adding additional lives in a marketplace that's fluid year.

And you're out at zero or a negative.

Margin in a capital intensive.

Sub segment of the marketplace is not prudent.

Looking forward that marketplace will shake itself out as it has in the past and we see attractive growth off of our existing geographies and new geographies relative to Medicare advantage. Your challenge is fair.

Resistor macro challenge, but we see that as opportunity versus downside relative to us we broadened our reach over the last couple of years meaningfully in terms of new Msas as well as new counties. Our star performance is deep within the eighties on a sustained basis and our net promoter score is quite high so the cornerstone of the value proposition needs to play through.

Remains very attractive in the marketplace.

I would remind you that we've only participated in the individual market and we've recently only participated in the individual HMO and PPO market over the recent vintage. So we looked within inside our strike zone was small less than 20% of the addressable market, we've expanded that to about 30% of the addressable market now continue to grow that over time.

So we.

We look at this current environment for both of these businesses, where in 2022, we're able to be disciplined for both of those businesses and not chase low or zero margin business and yield attractive revenue and earnings growth for the franchise and put ourselves in position for what should be a very attractive 2023 for both of those busy.

Mrs.

With attractive meaningful sustainable growth outcomes.

Okay, great. Thanks.

Thank you Mr. Fischbeck. Our next question comes from Mr. Nathan Rich with Goldman Sachs. You May ask your question.

Hi, Good morning. Thanks for the question, Brian I, just wanted to go back to the MCR guidance for 'twenty two.

It implies I think about 50 to 200 basis points of improvement.

Utilization now is expected to be above baseline.

I think if I heard you right on the first quarter.

MLR will be up a little bit year over year. So could you maybe just talk through the tailwind that you see over the balance of the year as it relates to MCR.

Thank you.

Good morning Nathan.

I'll do my best to tackle different aspects of that question and importantly, the guidance is on the Sigma healthcare basis, so and for purposes of comparability.

It is important as you go back and look at our historical financials that what Youre looking at the Sigma healthcare basis and not the prior U S medical basis.

But in aggregate for full year 'twenty, one we landed at 84% for the full year MCR and to your point. The guidance is <unk> 82 to 83, 5%. So take the midpoint of that it is 125 basis points of improvement from from 'twenty one into 'twenty. Two so all in as I mentioned in my comments and you mentioned in your question.

We are expecting the absolute level of medical costs relative to baseline in 2022 to be similar in full year 'twenty two to what we saw in full year 'twenty, one and so we were previously assuming that there will be some level of cost abatement in 'twenty. Two we are no longer assuming that we think that's a prudent posture to take stepping into 2022 and <unk>.

Of the year that just ended so as a result of that the MCR improvement year over year is attributable to both our revenue outlook, our affordability actions and some mix of business changes so to give you a little more specificity. There. If you were to decompose the 125 basis points think of about 75 basis points of that.

<unk> with revenue yields in excess of our cost trends predominantly in U S. Commercial so as Justin asked earlier about the fully insured book, we are seeing revenue yields in excess of cost trends as well as the other sub segments of that portfolio.

We expect about 25 basis points of improvement to come from our Medicare advantage book, specifically the risk adjuster headwind that we incurred in 2021 will fully unwind here in 2022, we've got a good level of visibility on that and then the final 25 basis points is associated with our individual and family plans book in particular.

The special enrollment period loves that we described earlier, we expect the level of normalization and the medical care ratio from that book both from a combination of the pricing actions. We took the improvement in terms of risk adjuster coding in 'twenty, two less pent up demand and some industry wide risk pool normalization all of that contributes to about 25 basis points.

Improvement on the individual and family plans. So you put that altogether and you get 125 basis points from the final 21 to the midpoint of our 2022 guide those are the big chunks I would encourage you to think about.

Thanks, that's helpful.

Thank you Mr. Rich. Our next question comes from Mr. Stephen Baxter with Wells Fargo, You May ask your question.

Yeah, Hi, Thanks, just to follow up on Kevin's question on the exchanges I guess I wanted to take a little bit more of a short term orientation about 2022, obviously youre working are repriced. This business in what remains a pretty competitive and price sensitive market. So I was hoping you could give us a sense of how much. This membership is set to decline in 2022, basically what we're going to see when you report your <unk>.

Q1 results and then such because it's such a big swing factor for.

For 2021 are you expecting this business will be at least breakeven for 2022 within the guidance youre, establishing thank you.

Yes, Steven it's Brian I'll start and if David wants to pick up on any aspects feel free to jump in here.

So we ended the 2021 calendar year with 378000 lives and as you know the open enrollment period just ended a few weeks ago. So there is there is still some dust to settle in terms of who will follow through with first premium payments.

We've extended grace periods on some of the customers et cetera. So pinpointing. The exact number is a bit of a challenge for the first quarter, but for the full year based on how the open enrollment period. Just ended up we would expect lives to be down in the range of 20%, 25%. So you can think of the $3 78 that we ended at year end 'twenty, one coming down by that sort of math.

<unk> by year end 'twenty, two intra year, there's likely to be some net attrition. So I won't try to pinpoint the Q1 number but you can expect it will be down from the year end number and then we will see some further attrition over the course of the year based on the pricing actions we took.

We've seen our competitive position.

<unk> down in most geographies. So the renewals that we did get we were pleased with because the prices are certainly firmer than they were in 'twenty, one which gives us good confidence in the margin expansion and following up on the question that Nathan just asked me we would expect all in MCR improvement on this book of business of several hundred basis points.

When you think of the loss of the special enrollment period lives and the revenue yields that we were able to achieve.

So therefore margins expanding in the book to your point.

Quite app, but approaching more reasonably what our target margins are for the book of business, but not quite at that for 2022.

Thank you Mr. Baxter. Our next question comes from Mr. Dave Windley with Jefferies. You May ask your question.

Hi, good morning, Thanks for taking my question.

David I wanted to come back to Medicare advantage and ask what key levers do you think or what key changes do you need to make in the Medicare advantage business to enrich benefits for <unk>.

Competitive purposes lower cost structure.

In particular to be profitable or closer to profitable at price points that you're talking about the current environment.

And what might ever north.

Might you invoke ever north to help in that regard.

So Dave.

Again, let's start with Big picture Big picture.

The performance of that book of business as we step into 2022.

As a pretty reasonable retention level retention points, a couple of points below where we would like it to be given the competitive environment, just less new business sales. So from a value proposition for those we are serving today largely off of an individual HMO chassis and increasing off of an individual PPO chassis the value proposition resonates for them.

That are consuming our services, but the new business side of the equation, a little bit more challenging given the dynamics in the marketplace.

We always enhance the value proposition so to the core of your point.

Point toward two areas one.

The ability to continue to accelerate and enhance the.

The collaboration between the pharmacy specialty pharmacy, and the behavioral sub component of the proposition and two the ability to further leverage some alternative site of care opportunities for the benefit in this case of the senior beneficiary to deliver both better.

Overall affordability and convenience. So you can think about that as alternative side of care being digital home care or extending the services that can be delivered in a coordinated.

<unk> physician relationship from that standpoint, we see both of those as net additional added value opportunities for both affordability as well as personalization for the individuals we serve and both of those are enabled through further expansion of our north.

Got it thank you.

Thank you Mr. Windley. Our next question comes from Mr. Lance Wilkes with Bernstein, you May ask your question.

Yes. Good morning, just wanted to ask a question about outlook for the.

North P. B M sort of business and had three components here one was interested in the amount of contribution in 'twenty, one and the outlook for 'twenty, two and beyond from especially products going generic and how thats impacting margin than on a group and was interested in your what's the further upside with respect to potentially penetrating the.

The Cigna book of DSO business, and then lastly, just on Prime therapeutics.

Just interested in what the outlook as far as renewing that.

Contracts, obviously, you've been expanding and deepening the relationship but just was interested in your kind of how we should look at the security of that.

Lance it's David Good morning, you packed a lot into one question, let us try to touch upon each I'll take the prime question I'll take the upside on the Cigna book and I'll ask Bryan to take the specialty and specialty generic pieces equation first specific decline.

Just at a more macro level I'm not going to go through a detailed renewal.

The situation with the <unk>.

A line here, but if you take two steps back prime is a great reinforcement of our orientation around partnering.

Our health plan business has continued to grow I referenced previously we've had net growth in our health plan portfolio of about 20 health plans over the last several years.

Specific to prime we're proud to be able to serve our prime both organization health plans within it and the members we've been able to expand the relationship and broaden the relationship over time and importantly, Lance we co collaborate and co innovate with the health plans within prime to help to drive further growth for them. So.

It is a positive and it's a reinforcement of.

The meaningful and attractive sustained growth we've had in our health plan portfolio of businesses.

As it relates to upside within the Cigna portfolio, we continue to drive leverage between the Cigna health care portfolio and the <unk> portfolio. For example, our growth recently with <unk> as an example of leverage between the two organizations.

We leveraged some of our Cigna health care capabilities within the <unk> relationship.

A strategic long term partner and we were able to expand their relationship in that way specific to your I think the traditional part of the way you're asking the question I'll wrap up here is on the <unk> penetration within the select segment always deemed that to be fully penetrated within the middle market segment. The level of penetration varies based on client relationship.

We see some additional penetration as having been achieved and then within national accounts at an account by account relationship that is determined. So overall, we're pleased with our current state of penetration for Pbms insignia health care. It can move a little bit more but I wouldnt have you look at it as a big barometer movement, rather the leverage of the relationships that <unk> has.

A great example of Youre using the word penetration we will use the word cross leveraging cross value collaboration Brian .

Brian I'll actually take the specialty and specialty generic piece, yes, good morning.

Overall, just kind.

Big picture specialty generics and Biosimilars are both really important mechanisms to drive affordability for our clients and customers over time, because they drive competition and Thats, a really important part of the landscape here and specialty was a meaningful driver of our results in 2021, and it will be in 2022 and the ever north space So well.

Specifically size the contributions from specialty generics.

Helpful contributor over a multiyear period now to our to our ultimate P&L forever, North and as we step into 'twenty. Two I mentioned in my prepared comments specialty wood will drive revenue growth in every north all in we would expect our ever north growth to be within our long term targeted growth range, meaning at least 4% revenue growth.

Howard heavily by specialty specialty generics will be a part of that as will biosimilars and other parts of the drug space. So all in we would expect <unk> revenue to grow at least 4% for the coming year, and we expect income growth of 5% with specialty generics being a component of that.

Thank you Mr. Wilkes our next and last question comes from Mr. John Ransom with Raymond James You May ask your question.

Hey, good morning, Thanks for going a little long seems picked up.

The question I have is if.

I know you guys aren't breaking out COVID-19 costs anymore, but.

If we were to assume.

More of a normal cost.

Not from a cost reset in 'twenty three.

Could you please give a ZIP code for what that would mean.

Quantitatively.

Good morning, John It's Brian .

Youre right, we found it increasingly difficult to try to segregate COVID-19 and non COVID-19 .

The commentary we had earlier in 'twenty, one about COVID-19 headwinds, particularly as you're finding more and more situations, where an individual might be admitted to the hospital with one condition and then found to have Covid later on or the situation with our special enrollment period lives.

It is tough to determine is that a COVID-19 related issue or not so we found it increasingly difficult which is why we talk about all in medical costs relative to the baseline as I mentioned earlier for full year 'twenty. One we ran above the baseline persistently for all four quarters across the book and we've carried that assumption forward into 2002.

<unk> two and so you should think of that as when I say above the baseline not 1% above the baseline, but a few percentage points above the baseline so think of low single digit to mid single digit above the baseline and then over time. If there is some moderation that will provide tailwind relative to our 2002 <unk> subsequent outlook.

And then just one for David I mean, just strategically I get to.

Help out our benefit committee and betting vendors and things like that and so we've been going through this cycle.

What strikes me and we're a pretty large ISO plan what strikes me is.

What we're hearing from the consultants that we use is everybody's hot on using these navigators.

They are and so we're talking about like yet another overlay.

On top of the PPO, which now needs to become a tpa. So you can steer and then theres quality information we changed the number on the back of the card. So we're calling the navigator and the reaction from our management was gosh that looks like it can save some money, but why do we need yet another layer on top why or why are the health plans not able to do this with all of the reserves then.

And everything that they have and so I'm just curious if youre a large ASO player I just wonder what's your thought as long term.

About the planning that function or do you think that's just we're just going to add yet another function on top so that we can take three points out of the cost trends.

Yes efficient efficient work on grabbing another question there I think your question points towards the criticality of sustained innovation.

And if you as I know you do if you go back and look at the space over the last couple of decades, there continues to be periods of time, where.

Specialists will take a slice of the value proposition and I don't see that as being an immaterial or an unimportant sites at a value proposition, but we will take a slice of the value proposition and tried to drive super specialization within that.

Typically what that results in is either consolidation of those capabilities or accelerated innovation to those capabilities to be coordinated. So we don't think the picture you articulate is sustainable. We don't think you are co workers want to have multiple touch points coordinating them. We don't think medical professionals want multiple touch points coordinating them, but rather.

The theme of a navigator is totally on strategy for us we have generations of that within our portfolio within different solutions that have been in the marketplace for quite some time, one guide capability in certain clinical team capabilities in certain service capabilities and having a digital first philosophy, which is what I discussed previously would reinforce to you that we can.

Not only expand programs, but expand the capabilities and a digital first standpoint that can be able to do the navigation for our customers in a much more coordinated way. So we view that is on strategy, we view that as part of our Capex, we view that as part of our our capabilities within our portfolio and we have multiple positive proof points of how we've been able to.

Or is that today, but we do not view that as an opportunity for the marketplace. In addition to remediate over a long period of time, because that fragmentation is not sustainable so opportunity for us.

Hey, David if I hadn't not getting that question you wouldn't have been able to give that answer. So I know you are happy with it.

I appreciate your effectiveness John do you have a great day.

Alright, thank you.

Yeah.

Thank you Mr. Ranson, I will now turn the call back over to David <unk> for closing remarks.

Thank you John reinforces that the operators are suggestions are guidelines, but John I do appreciate it very much we want to thank everybody for your questions and importantly, your time this morning, and before I wrap up I just had a couple of comments first I want to say, how appreciative and proud I am of our more than 70000 colleagues for continuing to serve our clients our customers and patients in a very challenging.

We have all gained an even greater appreciation of the importance of health and wellbeing. During this prolonged pandemic and at Cigna, we are committed to continuing to innovate to deliver more affordability simplicity and predictability of solutions for our customers our patients and our clients are <unk> and <unk> health care platforms are well positioned for sustained growth and were caught.

That 2022 will be another strong year for Cigna, Thanks, and have a great day.

Ladies and gentlemen, this concludes cigna's fourth quarter 2021 results review.

Investor Relations will be available to respond to additional questions. Shortly.

<unk> of this conference will be available for 10 business days. Following this call you may access the recorded conference by dialing 86635937 709 2033690147. There is no pass code required for this replay. Thank you for participating we will now disconnect.

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