Q2 2022 Cigna Corp Earnings Call
Ladies and gentlemen, thank you for standing by for Cigna's second quarter 2022 results review at this time all callers are in a listen only mode.
We'll 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 Q&A session is being recorded.
We'll begin by turning the conference over to Mr. Ralph Jacobi. Please go ahead Mr. Jacobi.
Great. Thanks, Good morning, everyone. 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 Vanco, Cigna's, Chief Financial Officer.
In our remarks today, David and Brian are going to cover a number of topics, including Cigna's second quarter 2022 financial results as well as an update on our financial outlook for the year.
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.
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, 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 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.
Regarding our results in the second quarter, we recorded after tax special item charges of $26 million or <unk> <unk> per share for integration and transaction related costs and $17 million or <unk> <unk> per share related to a strategic plan to further leverage the company's ongoing growth to drive operational efficiency.
We also recorded an after tax special item benefit of $20 million or <unk> <unk> per share associated with litigation matters.
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 and excludes the impact of any business combinations or divestitures that may occur after today.
As a reminder, we completed the sale of our international life accident and supplemental businesses to Chubb on July 1st which is contemplated in our perspective statements with that I'll turn the call over to David.
Thanks, Ralph Good morning, everyone and thank you for joining our call today.
In the second quarter, our company continued delivering differentiated value for our clients customers patients and partners as we execute on our mission to improve the health well being and peace of mind of those we serve.
And we posted strong results for the quarter and continue to build on our momentum from the first quarter.
Now today I'll briefly discuss our quarterly performance and the key strategic drivers of our growth then Brian will review additional details about our financial results during the quarter, our increased outlook for the rest of 2002 as well as our strong capital position and then we'll take your questions. So let's get started.
In the second quarter, we delivered total revenues of $45 $5 billion and.
Good EPS of $6 22 per share.
Our differentiated capabilities and innovative approaches are resonating in the market and we achieved another quarter of strong performance across our growth platforms.
Overall, we're pleased with the way our solutions are continuing to gain traction with health plans large commercial employers governmental agencies health care delivery systems and medical professionals.
Today more than 180 million individual customers have access to our <unk> solutions.
We're also encouraged by the progress during the selling season for 2023, and we are on track for another year of high client retention levels.
And Sigma healthcare, our disciplined execution is driving a balance of sustained customer growth.
And continued progress with expanding margins.
Our medical care ratio during the quarter was 87%, which was better than expected and a substantial improvement over the same period last year.
Similar to last quarter, we continue to see a positive impact from the targeted pricing and affordability actions, we've put in place last year and in early 2022.
Overall results during the first half of the year, including the strength of our ongoing performance give us confidence in delivering our increased full year 2022, EPS guidance of at least $22 90.
Additionally, we recently completed the divestiture of our life accident and supplemental benefits businesses in six markets across Asia Pacific to Chubb.
And we launched the $3 $5 billion accelerated share repurchase program at current levels. We view this as an attractive use of our capital.
When combined with our previously completed activity, we remain on track to repurchase at least $7 billion of our shares in 2022.
Overall, we delivered a strong first half of 2022 and.
And we are positioned to deliver on our increased outlook for revenue customer growth and EPS for this year.
Our performance is a direct result of our ability to leverage our expertise capabilities and ongoing commitment to innovation.
All focused on the most pressing needs of those reserve.
Affordability remains first and foremost a top need for all of our stakeholders.
In response to this we continue to drive targeted innovations, including for example, a new solution launched in June that Leverages, our capabilities in Evercore to support post acute care for Cigna Medicare advantage patients.
As a patient prepares for discharged from a hospital our team draws upon the extensive evidence based guidelines as well as analytics, we have to work closely with providers and patients. The result is that we're able to determine the most appropriate side of care and services to support a patient's recovery.
Which improves health outcomes drives meaningful cost savings and provides better patient experience and satisfaction.
We've also launched a number of programs that address the rising cost of vital medications.
Sigma healthcare <unk> patient assurance program is an industry first innovation capping out of pocket cost for insulin.
In 2021 alone, we provided more than $42 million of financial relief to approximately 220000 patients with diabetes.
We've continued to broaden the impact of this program by expanding it to other chronic conditions drawing on the strength of our expertise as well as our relationships with pharmaceutical manufacturers.
Building on the success of this program last month, our U S commercial business introduced Cigna path while specialties.
<unk> approach to specialty care.
<unk> specialty leverages, our specialty capabilities in SYGMA and ever North and provides enhanced support to patients for better outcomes, while also controlling rising specialty costs.
We plan to extend this offering to additional groups of clients later this year.
At our Investor Day in June we talked about how we're able to consistently deliver sustained attractive healthy growth even in challenging economic environments.
Our company is built to perform in a variety of market conditions, including economic slowdowns.
It starts with the growth framework that positions us to expand our addressable markets and capture value in three specific ways.
First foundational growth.
So our businesses that are mature scaled and contribute steady predictable results for our company.
These businesses currently contribute about 60% of our annual revenue and include express scripts U S commercial and international Health business.
Second is accelerated growth through our businesses with differentiated capabilities aided by secular trends, creating very attractive addressable markets.
These businesses represent about 40% of our company's revenues and we expect to grow. These further with momentum from our specialty pharmacy and care services businesses with <unk> and our U S government business and <unk> healthcare and third cross enterprise leverage where our businesses work together to create value and capture more value.
And then any one of them could achieve on the road.
Putting it altogether this growth framework translates into continued strong top and bottom line contributions from <unk>.
Our health service platform continues to providing industry, leading pharmacy solutions, while also building out our <unk> care capabilities to address the growing demand for behavioral services health coaching and care delivery.
<unk> strengthens our ability to support customers and clients with the forces facing reshaping healthcare today, including the significant societal shifts, bringing widespread and growing recognition of the connection between mental and physical health.
This has resulted for example in the rising demand for services.
We've continued to expand our traditional network for example ever with behavioral network has more than doubled in size over the past five years.
We're also supporting enhanced services by providing virtual care recently relaunched confide behavioral health navigator to improve the way we guide people to the right behavioral care at the right setting at the right time.
We also have an extensive and growing portfolio of solutions supporting both virtual and digital first solutions, including our MD life platform.
For health care growth framework translates into strong performance driven by ongoing customer growth in U S. Commercial as we continue to improve affordability in key geographies, including through advancing our value based care and site of care service programs.
Also accelerating Sigma healthcare as adoption of <unk> solutions with to create even greater value for our customers and clients and as a driver of attractive sustainable revenue growth revenue.
And international Health following the divestiture of our international life accident and supplemental benefits portfolio. We are intensifying our focus on health and health service offerings.
And in U S government, both for Medicare advantage and individual and family plans, we are delivering strong value for those we serve while we're investing in markets, where we see sustained path for growth and a clear right to win over the long term.
This balanced and diversified approach to growth together with our substantial capital generation affords us a significant level of strategic and financial flexibility that positions us for sustained differentiated growth under a variety of scenarios.
Now to wrap up we delivered under customer client commitments in the first half of the year. Looking ahead, we are well positioned to drive continued attractive healthy growth across our <unk> and Sigma healthcare platforms by leveraging our portfolio of foundational assets.
Accelerated growth businesses and fueled by the power of our cross enterprise leverage we are encouraged by our strong retention outlook for the start of 2023 as well as new business wins for the start of the year.
We are on track for our continued delivery of our commitments and as a result, we are increasing our full year outlook to $2 at least to $22 90 per EPS, which represents a growth rate of 12%, which is within our long term average annual adjusted EPS growth target of 10% to 13%.
We're continuing to deliver significant value for our shareholders and we expect to deliver at least 7 billion through share repurchase in 2022 as well as continue to pay a meaningful dividend.
Also continue to make strategic investments to strengthen our capabilities and broaden our reach in both of our foundational and accelerated growth businesses.
With that I'll turn it over to Brian .
Thanks, David and good morning, everyone.
Today I'll review key aspects of Cigna's second quarter, 2022 results and discuss our updated outlook for the full year.
We have delivered strong customer revenue and earnings growth in the first half of 2020 to continuing our momentum from the first quarter with second quarter earnings per share exceeding our expectations.
With that we are again, increasing our full year adjusted 2022 earnings outlook to at least $22 90 per share.
Representing growth of 12% off of our reported full year 2021 adjusted EPS.
This updated outlook reflects the strength of our foundational and accelerated growth businesses, coupled with cross enterprise leverage between ever North and Cigna health care.
Looking at the quarter, specifically some key consolidated financial highlights include total revenues of $45 5 billion.
After tax adjusted earnings of $2 billion, representing growth of 10% over second quarter 2021.
And adjusted earnings per share of $6 22.
These results reflect a better than expected medical care ratio in Sigma healthcare and continued strong performance within our <unk> portfolio.
Regarding our segments I'll first comment on <unk>.
Second quarter of 2022, adjusted revenues grew 7% over second quarter 2021 to $34 9 billion.
And pre tax adjusted earnings were $1 5 billion.
In line with our expectations.
<unk> results in the quarter were driven by the expansion of our accelerated growth businesses led by our high performing specialty pharmacy.
As well as our continued focus on affordability by delivering lowest net cost solutions for our clients and customers.
We also continue to make meaningful strategic investments to both sustain and create new sources of differentiation.
These include investments, which serve to deepen our client relationships develop new solutions and enhanced digital capabilities to expand our services in the <unk> care business.
Overall <unk> continues to deliver strong results consistent with our expectations.
Turning to Sigma healthcare second quarter 2022, adjusted revenues were $11 3 billion.
Pretax adjusted earnings were $1 2 billion.
The medical care ratio was 87%.
The better than expected medical care ratio in the quarter was the primary driver of Cigna Health Care's earnings results exceeding our expectations.
The strength of our MCR was driven by a combination of strong pricing actions taken over the past 12 months.
Our continued affordability initiatives to lower cost for our clients.
And lower than expected utilization within the quarter.
Non COVID-19 costs in the quarter were better than expectations across most service categories.
Driven by lower levels than inpatient.
Emergency room care and surgeries.
And direct Covid costs were also lower than projected.
Importantly, leveraging our customer engagement model, we are seeing preventive care utilization in line with pre pandemic levels.
Clothing items, such as annual exams, colonoscopy and Mamograms.
Turning to medical customers. We ended the quarter was $17 8 million total medical customers growth of approximately 725000 customers or 4% year to date.
Our select market segment within U S. Commercial has already grown 6% year to date and remains on track for high single digit growth in customers by the end of the year.
Total medical customers for the quarter were above our expectations as we've seen continued growth and strong retention in our U S commercial and international health businesses.
Overall Cigna healthcare results reflect continued execution against our commitment to increasing both customer relationships and profit margins in 2022.
The margin improvement reflects our pricing actions and affordability initiatives taken over the course of the past year.
For corporate and other operations the second quarter 2022 pre tax adjusted loss was $168 million.
Overall, we delivered strong second quarter financial results that exceeded our expectations.
<unk>, our momentum with contributions across our diversified portfolio.
Now with respect to our outlook for full year 2022.
We are increasing our outlook for full year adjusted revenue and adjusted earnings per share.
At <unk>, we expect continued strong execution driving attractive top and bottom line growth all while investing in innovation for the future we.
We are now raising our ever lower full year adjusted earnings to approximately six $1 billion to $5 billion.
And Cigna healthcare, we are pleased with our performance in the first half of 2022, and we are now updating our 2022 medical care ratio outlook to 81, 5% to 82, 5% an improvement from our prior range.
We're also raising our expected full year 2022, adjusted earnings outlook to approximately $4.0 billion to $5 billion.
And we are raising our medical customer outlook to growth of at least 800000 customers, which includes strong new business growth and attractive retention levels in our foundational U S commercial and international health businesses.
Turning to enterprise revenue, we now expect full year 2022 consolidated adjusted revenues of at least 178 billion.
Enabled by continued growth and deepening of customer and client relationships in both of our north and Cigna health care.
Our full year 2022, SG&A ratio is now expected to be in the range of seven 1% to seven 3%.
An increase compared to our prior guidance as we continue to make strategic investments in our business.
Taken as a whole we are raising our adjusted earnings per share guidance to be at least $22 90 per share.
Representing growth of 12% over reported full year 2021 adjusted EPS.
Now moving to our 2022 capital management position and outlook.
Our businesses continue to generate strong cash flows and attractive returns on capital.
Year to date as of June 32022, we have repurchased nine 7 million shares for approximately $2 3 billion.
Additionally in July we received an initial delivery of 10 4 million shares of our common stock in accordance with the accelerated share repurchase we announced in June .
We also continue to expect to deploy at least 7 billion to share repurchases for the full year 2022.
We have also increased our outlook for full year cash flow from operations to at least $8 5 billion.
Generating a very attractive cash flow yield.
And we now expect full year weighted average shares of 312 to 314 million shares.
Representing an increase of 1 million shares at the midpoint from our prior guidance.
Primarily due to the sale of our international life accident and supplemental benefits businesses being completed slightly later than we originally had anticipated.
Our balance sheet and cash flow outlook remains strong benefiting from our efficient asset light framework that drives strategic flexibility strong margins and attractive returns on capital.
Now we would be remiss, if we didn't acknowledge the macroeconomic environment.
Which carries potential risks, but also opportunities.
We have a strong and resilient enterprise with a diverse service based framework spanning broad addressable markets.
And our first half results demonstrate the resiliency of our portfolio and strength of our execution in a dynamic environment.
We continue to proactively prepare with a variety of actions and tools to respond to evolving economic conditions and we remain confident in our ability to continue to grow and deliver strong value to our customers clients and shareholders.
Now to recap results from the second quarter were above our expectations, reflecting strong fundamentals across our diversified portfolio with particularly strong performance and Cigna health care.
<unk> continues to deliver attractive results, while Cigna health care continues to grow and expand both customer relationships and margins, giving us the confidence to deliver on our increased 2022 adjusted EPS guidance.
$22 90.
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 you. A question ahead of you you can remove yourself from the queue by pressing star two also if youre using a speakerphone. Please pick up your handset before pressing the button.
We ask that you. Please limit yourself to one question to allow sufficient time for questions from those remaining in the queue. One moment. Please for our first question.
Our first question comes from Mr. Matthew Borsch with BMO capital markets you May ask your question.
Yes, I was wondering if you could just maybe elaborate a bit on this.
The strong selling season or.
New sales that you alluded to along with high retention.
That covering both.
Medical large employer group and also the PVM outlook.
Good morning, it's David So yes is the simple answer so relative to my comments on the selling season more specifically focus on the.
Both in the north side of the house, the large employer large health plan side of the business in the commercial side the national account side of the business. So a headline there is on the <unk> piece of the equation another year of strong client retention overall for the portfolio as well as attractive new business wins.
Importantly to underscore as well we continue to see traction in what we call enterprise leverage so opportunities to deepen and expand relationships.
First within the traditional urban north portfolio. The successful renewal of the Dod also presented the opportunity to win and secure the exclusive specialty services and then beyond that we're broadening and deepening relationships with key health plan clients by leveraging the best of ever North and Cigna healthcare on the commercial national accounts.
We see 2023 looking.
Looking up to be a very strong retention year, and some really attractive new business adds so.
Good good performance on both sides of the equation as Brian noted in his prepared remarks also just continued strong performance in the commercial side of the select segment.
Okay. Thank you.
Thank you Mr. Borsch. Our next question comes from Mr. Kevin Fischbeck with Bank of America, you May ask your question.
Great. Thanks, I wanted to understand how you guys are thinking about the outperformance on the medical cost side as it relates to kind of getting back to target margins are you guys viewing the outperformance. So far this year is kind of a.
New sustainable base or is this just kind of fluctuations of cobot and hasn't really changed how you thought about moving from 2021 to 2023 pricing and margin expectations.
Good morning, Kevin It's Brian .
Thanks for the question on the Cigna Health care margin trajectory just to maybe rewind the clock a little bit. If you look back at 2021 that part of our business generated a margin of eight 1%, which was below our long term margin goal of 9% to 10% and when we.
We step back and talk about where we stood in 'twenty, one we decided to intensify a series of pricing actions as well as affordability actions in the middle part of the year and the last 12 months have resulted in the strong performance that we saw here in the second quarter of 2022 and with our increased 2022 outlook. We're now projecting.
<unk> for the profit margin and Cigna health care to run in the high 8% just south of 9% relative to our long term margin goal of 9% to 10% you should view that as a sustainable place to jump off of and we would expect as we as we step into 'twenty three that we'll be able to deliver within our torrey.
Good margin range of 9% to 10% for Sigma healthcare, but likely at the lower end of that range. Given the continued long term margin opportunities, we have and the accelerated growth platforms, such as Medicare advantage, but the stronger than expected 2022 performance, we've seen increases our overall confidence in executing against our margin goals.
While also reducing a little bit of the year over year opportunity for further margin expansion opportunity in comparison to where we stood a quarter ago.
Okay. Thank you.
Thank you Mr. Fischbeck. Our next question comes from Mr. Josh Raskin with Nephron Research you May ask your question.
Thanks, and good morning, just wanted to focus on Medicare advantage.
Little bit of attrition continued this year and so now with bids submitted what are some of the action steps directly for 2023 to reverse those losses do you think you can grow more in line with the market next year and specifically any changes in your network development ore.
It's on value based care and capitation.
Good morning, Josh its David So our Medicare advantage business remains a key point of focus for us and as you recall from our Investor day conversation, we view it as one of our accelerate platforms. So a platform where we have the opportunity for outsized growth over the long term, we continue to make investments in that business both in the core <unk>.
So the business as well as in the geographic expansion. Our 2022 results are not indicative of what we would expect to see over the long term and importantly in your question, which I think you touched upon insightfully one of the pieces, we did a bit of network reconfiguration to put us in some key markets in a position for longer term growth, where we had.
Protracted network positions, but not growth outlooks from that standpoint shifting to 'twenty three.
We would expect a year of growth.
To reaccelerate for ourselves in the Medicare advantage business as we discussed that's aided by in geography growth today existing geographies beginning to leverage the hard work that was done in 2021 and 22 in terms of geographic expansion target and further investments in distribution and marketing as well as <unk>.
Turning to harness more yield out of what we think about in terms of our inside or more captive opportunities. Those are commercial agents that we've talked about before we've had a low conversion rate or.
Our PDP conversions or med sup convergence, so headline yes. Some network reconfiguration of lot of that was addressed in this current year harnessing the benefit of the geographic expansion work that was done and then harnessing some benefits that we would expect to see out of the channels I made reference to therefore, we expect 2023 to be a year of growth for us.
Okay. Thanks.
Thank you Mr. Raskin. Our next question comes from Mr. Dave Windley with Jefferies. You May ask your question.
Hi, a follow up to Josh there. Thanks for taking my question I wondered if David with those expectations.
Excuse me in growth and M&A.
You expect to do that while maintaining margin or would you just stimulate growth expect margin to backup and MAA at all and then if you could remind us.
Your star scores and MAA will progress over the next couple of years and if.
The disaster relief benefits to the calculation were impactful for for signal or not.
Good morning, Dave.
As Brian made reference to.
Prior answer I think it was to Kevin's point relative to the Sigma healthcare margins.
He referred to the Medicare advantage margins as being below our target margin so as we.
Gross margin in the overall portfolio of business that business is running at below target margins. We would expect to see margin improvement in 2023 to be very specific off a 2020 twos results and be able to grow although that portfolio will run below our target margins for a variety of reasons, including our investments in growth initiatives I'm looking for.
But specifically, we expect growth and some margin expansion in that business, yes. It will run below our target as we continue to invest in growing that portfolio as it relates to the second part of your question and stars and I think you are identifying the phenomenon for 2024 first off of the present.
Feel really good about our president star configuration, and the strong value that that reinforces that we provide to look for 2024 seems to indicate that the industry as a whole we will have some stars dislocation for the reasons you articulated the disaster relief configuration, the prolonged impact of Covid.
Data transfer that comes across with that and the changes within the disaster relief program. So.
So we would expect to have some adjustment to our stars consistent what transpires for.
For the industry at large and obviously that will become clearer towards the latter part of this year for the industry as a whole as well as for ourselves.
Alright, thank you.
Thank you Mr. Windley. Our next question comes from Mr. Ricky Goldwasser with Morgan Stanley You May ask your question.
Hey, Thanks, guys. This is Michael on for Ricky I, just wanted to get more.
More comments in your commercial repricing efforts clearly assume improved MLR performance year to date membership growth appears healthy which suggest stickiness positive receptivity to you from a pricing I'm just curious in your thoughts about where its taking that.
<unk> targeted repricing efforts.
Good morning, Michael It's David Let me just briefly start and hand, it over to Brian .
First to underscore we are quite pleased with the results our teams are executing quite well.
Brian will come across the pricing, but he underscored in his prepared remarks as well as the affordability. It's two dimensions working together so it's getting first and foremost consultative lead the right solutions in place employer by employer within all of our segments, whether they're select segment employers.
With the market knows as middle market employers from a national account employers and then it's executing the right affordability initiatives to be able to give to deliver the right value and then executing from a pricing standpoint, so I want to underscore it's both of those pieces coming together to create the sustainability and our attractive underlying both retention and new business growth coupled with the margins we're quite pleased with.
Brian I'll ask you to speak a little bit more towards the pricing dimension sure David Good morning, Michael.
As it relates to pricing in the commercial book of business. This year 2022 medical care ratio performance has resulted in a higher margin profile for Cigna health care and Thats driven largely by our commercial employer book of business. So we've recaptured a bit more margin in 2022 than we originally anticipated. The good news is that means.
Theres less correction that's needed on a prospective basis. So we'll certainly be pricing to our forward look.
Cost trend as we head into 2023, but we don't need a a meaningful step change as it relates to the commercial employer margin profile. The one nuance in that is our stop loss portfolio as we talked about in our fourth quarter results.
It did have some pressure in 2021 that pressure has continued at the level. We expected in 2022, so as we step into 2003 there'll be a little bit of a re price on some of those clients, but we were able to get again more margin recapture here in 'twenty two than we had anticipated in our commercial employer book of business.
Alright, Thank you guys.
Thank you. Our next question comes from Mr. A J rice with credit Suisse. You May ask your question.
Hi, everybody.
Maybe just following up on the talking about the selling season, and what Youre seeing out there I guess the employers are faced with a lot of crosscurrents macroeconomic questions.
We see their own labor issues questions about providers wanting relief on their labor challenges and other inflationary costs.
How are those playing into the discussions I'm wondering what innovative products.
Our wood products, particularly resonating.
Also.
One of your peers said that they were seeing some people postpone.
Loan Rfps.
Just given everything thats going on and maybe delaying in for a year would you characterize the selling activity is pretty normal or are you seeing any of that.
Hey, Jay Good morning, it's David.
Two dimensions to your question first on the second piece we.
We see a very active pipeline.
We've seen an active pipeline.
As I noted previously our retention results have been strong and importantly, underscoring even in 2022.
Accommodate relative to 'twenty three start but in 'twenty two our retention results were strong even with the right execution.
Brian made reference to so.
Good retention within our portfolio quite an active pipeline across very aspects of various aspects of our business on the first part of your question.
It's a really long conversation, let me boil it down there is no doubt that the environment remains dynamic disrupted challenging from an employer standpoint to be able to attract retain have the engagement levels for their co workers a couple of phenomenon I would underscore to your 0.1.
In the prolonged pandemic environment employers are dealing with the call it the nomadic lifestyle or more of their employees. So first and foremost on the commercial side truly having a seamless commercial network.
For the employees because a higher percentage of the co workers are consuming care in various locations as opposed to more more traditional or centralized locations geographically secondly.
Seeking to advance as aggressively as possible.
Behavioral health services and the connection of behavioral health services with physical health services and I highlighted several of those in my prepared remarks that remains front and center third on the cost and the affordability side of the equation.
Open mindedness, even push to more aggressively adopt whether their site of care optimization programs. So how do you get better affordability with existing or even improve quality by optimizing side of care for an individual patient or bringing more services closer to the individuals both dealing with.
A nomadic lifestyle as well as side of care virtual digital first closer intimacy and those are areas that have been high on strategy for us. So youre correct. There is a lot of dynamism in the marketplace today being consultative in terms of putting the right solution suite together mission critical having the services between our <unk> and Cigna health care.
<unk> mission critical right now and then being able to optimize that national network the site of care optimization.
Multimodal virtual coordinated care is mission critical right now a J I hope that helps.
Yeah, that's great. Thanks.
Thank you Mr. <unk>. Our next question comes from Mr. Justin Lake with Wolfe Research. Your line is open you may ask your question.
Thanks, Good morning.
I wanted to talk about the $22 90 this year.
You've answered some of the questions in terms of the commercial business, specifically, but just in terms of the jump off point for 2023 earnings anything we should think about in terms of whether this may or may not be a reasonable starting point versus.
Is that 10% to 13% target growth and then any headwind tailwind you want us to consider when thinking about that 10% to 13% kind of target thinking into next year.
Good morning, Justin It's Brian I'll start and then David I think maybe I'll chime in on the on the headwinds tailwind component.
A macro level you should not think of there being massive amounts of nonrecurring items favorable or unfavorable in the 2022 performance. So you should view the $22 90 is a reasonable jump off point is.
As we look back at prior year development, which has been largely in line with prior calendar years.
Mount of activity, we're seeing in the second quarter Cigna Health care book of business as it relates to.
Fundamental strength is.
Hi, so meaning there is not any meaningful things we'd call out that are substantial and that would be 2022 specific for purposes of doing those adjustments at this point in time that could change as the year unfolds, but broadly speaking I jump off the 2290, David as you think about it it was a tailwind you want to jump in on that piece sure Brian . Thanks.
And Brian maybe one to three.
Therefore, we seldom talk through a re basing framework Justin.
As it relates to headwind tailwind, we would typically go through that in more detail in the third quarter call and then.
<unk> guidance in the fourth quarter call, but maybe step back to as you may recall from Investor Day, we talked about a few of the more macro.
Opportunities for 2023, so first and foremost think about foundational fundamental growth across our businesses.
As we commented today, we would expect another year of growth for the organization both on the health care side of the equation as well as every node side of the equation.
Secondly, a topic, we have not discussed here, but we discussed previously at Investor day.
Expect to see further contributions from the Biosimilar trend, which will begin to accelerate in 2023 accelerate further in 2024, but some contribution from the biosimilar trend of which we are well positioned and configured to.
To deliver value for our client customers and patients on as well as benefit for our shareholders.
Headwinds side, just to give illustrations we've highlighted setup, what we'll call setup cost for very large clients, whether they're very large client renewals or expansions. There's a set of caution in gestation cycle relative to that and then lastly, the.
The rate and pace of our strategic investments that we choose to make given the rapid changes in the environment.
Create a little bit more headwind year over year, which we would highlight but net net we would expect.
Another positive year for 2023 off of what is shaping up to be very strong year for 2022.
Great. Thanks.
Thank you Mr. Lake. Our next question comes from Mr. Gary Taylor with Cowen You May ask your question. Your line is open.
Hey, good morning, guys.
Just wanted to ask a little more about.
Medical loss ratio.
Which was so favorable so congrats on that but just a few different questions if I could.
One the sequential decline in <unk> pretty unusual for your books seasonality I know, we have international health care in there now and I'm just wondering.
That contributes to any different view.
A few of seasonality sequentially from <unk>.
Also a year ago, you had highlighted.
Behavioral and substance abuse is putting a lot of pressure on <unk> I just wondered if that's <unk>.
Change at all and then also just on stop loss you had talked about still believing that would be a pressure all the way through.
22 with pricing initiatives taken having more effect in 'twenty. Three so just wondering are you producing this strong.
<unk> on the lower than expected utilization still with stop loss being a bit of a headwind inside of it.
Good morning, Gary It's Brian I'll do my best to take each of those components of your question and I appreciated the lead in <unk>.
Started with there were really pleased with the strength in the medical care ratio in the second quarter. So.
It really was fundamental strength across the portfolio.
With our U S commercial employer book really being the primary driver of the strike and as I mentioned earlier in my comments, we saw favorability both in non Covid.
And in Covid related costs in the quarter, so strength in both parts of that portfolio again, which reflects our affordability initiatives as well as a lesser utilization than we had been forecasting as it relates to the sequential decline you should not think of the international health business is a material driver of that.
This was really a quarter, we had favorable cost experience relative to our prior expectations as opposed to anything unique or nuanced by adding the international book in there as it relates to behavioral health Youre right last year, we saw a higher than typical cost trends in our.
Our behavioral health book of business, which we actually viewed as a good thing from the standpoint of people getting the care that they needed that's moderated a bit here in 2020 to meet our cost trends, we're seeing on behavioral are lower than they were in 2021.
And as a result of that that's provided a little bit of quarter over quarter year over year favorability and then finally on your point about stop loss as I mentioned on the earlier question. Michael asked the 2022 stop loss MCR performance is largely in line with our expectations.
When we reset the 2021 MCR pick at the end of the year given the pressure. We saw we had said we would not be able to reprice. Most of the 22 book just given the timing of when that emerged and so.
That's our expectation and that's what we're seeing in the actual so the MCR outlook for 'twenty, two and stop loss is very similar to the MCR outlook for 'twenty, one which gives us a repricing opportunity in 2023. So you kind of step back from all of this and the favorability we're seeing in commercial is largely not stop loss related.
It's largely related to the non COVID-19 and Covid related costs on first dollar coverage is in our fully insured another risk businesses.
Yeah.
Got it thanks.
Thank you Mr. Taylor. Our next question comes from MS. Lisa Gill with Jpmorgan you May ask your question. Your line is open hi, Thanks very much. Good morning, I just wanted to follow up with a couple of questions around the Pbms one when we think about the selling season, David you talked about very strong retention should I assume that that in the very high 90%.
Range would be first second as we think about you talked about Biosimilars, we think about plan design for 2023.
You're starting to put biosimilars on the formulary in 2023, where we'll see that impact in 'twenty, three or whether it's really been more about 'twenty for opportunity and then just lastly, there has been some changes on the manufacturing type of $3 40, BP I didn't hear you call that out as a headwind I'm just curious if you had any headwinds.
As it pertains to third party B and the express script book of business.
Good morning, Lisa David.
You packed a lot in there let me try to run through them first from a retention standpoint think about 95 plus.
We believe anything in the mid Ninety's pluses, a quite strong results given the diversity of our business for that portfolio and as I noted on our prior comments.
In addition to that thinking about us continuing to deepen the relationships, we have with broadening of services as they noted whether it's Matt.
Adding specialty exclusive or otherwise as well as the enterprise Leverages, we have some relationships that are becoming deeper with leveraging sigma healthcare capabilities.
For legacy <unk>, north relationships or vice versa, but think retention 95, plus is something that we view is quite attractive as it relates to the Biosimilars. Your specific question on formulary that Finalization typically takes place as we approach the fourth quarter, So theyre dynamism being managed through.
As you know with your background relative to this space, there's a lot of dynamism relative to that as it relates to choice client by client as well, but think about our national preferred formulary finalization more approaching the fourth quarter versus in the current dynamic and timeframe and specific to the timing of the opportunity as we discussed previously I would think about the biosimilar.
Celebration, while there is some movement. Obviously in 2022 23 is a very active year with fixation and focus on Humira and the transition.
That will begin to ramp in 2000 and contributions.
I'll begin to ramp in 2023, but accelerate much further in 'twenty, four and obviously going to 25.
Lastly, relative to $3 40 b.
As folks know 30, 40 bps, a really important program.
A lot of health care delivery systems benefit from as they serve disadvantage in underserved populations to help them get the right level of affordability, there's been some dislocation in that program.
Pharmaceutical manufacturers have unilaterally decided to.
Top or decrease or create tension for health care delivery systems participation in that as it relates to cigna, specifically through our <unk> portfolio not a material driver of 2022 results, hence we didn't call it out.
Any change or disruption and that is not a material driver.
To 2022 results from that standpoint, although there has been some activity and we've seen some deceleration in volume.
The data transfer retention had grown.
<unk> seen that a little bit trough in the second quarter, and we see emergence of some improvement or acceleration.
In those activities in the beginning in the third quarter here as we work with health care delivery systems, just trying to help them get the data across that pharmaceutical manufacturers are challenging them to deliver but again not a material driver for us thus far and Lisa.
Thanks for all the detail.
Thank you Ms. Gill. Our next question comes from Mr. Kevin Kelly <unk> with UBS you May ask your question.
Thanks, I guess.
I'd like to ask you about sort of potential drug price.
Legislation.
It looks like it it may actually passed this time in Congress. So I was wondering if you've taken a look at it and what the potential impact could be on either positively or negatively from from what's being proposed.
Good morning, Kevin It's David.
You are correct.
Once again some proposed legislation that's manifesting.
And the builders orientation relative to pharmaceutical pricing stepping back Big picture. If you look at the breadth and the shape of our <unk> portfolio as well as the diversification of services, we have both on the core pharmacy services, especially pharmacy services.
The innovation, we've been able to bring to the market. The clinical programs. We have the significant amount of transparency, we have with clients of a variety of choices. There is no item that we see currently in any of the proposed legislation that we view as a.
A unique or a significant dislocation to our business that doesn't mean, there's not an environment of change.
But back to managing the portfolio the breadth of our services. The continued commitment to innovation the evolution of our clinical programs the evolution of our financing and funding mechanisms affording more choice to our commercial clients health plan clients et cetera from that standpoint positions us as we best see well even with the.
This legislation and we continue to track the emergence of that day to day.
Thank you.
Thank you Mr. Kelly Endo. Your next question comes from Nathan Rich with Goldman Sachs. You May ask your question. Your line is open.
Hi, good morning, Thanks for taking the question.
I just wanted to ask a follow up on some of the MLR commentary from earlier in the call and I guess, specifically with regards to the outlook for the back half of the year I guess does the raise to the MLR outlook.
Outlook.
Kind of embed any favorability.
In the back half and I guess.
Have you seen any indications of any sort of pent up demand or.
Does sort of the macro environment that were seemingly in does that influence your view of how utilization might trend over the balance of the year.
Good morning, it's Brian .
As it relates to the MLR outlook for the back half of the year.
Stepping back again in the second quarter, we saw a very favorable result relative to our prior expectations and if you recall from our first quarter earnings release, we felt that it was prudent to assume that 2022 medical cost performance would look a lot like 2021, when you look at the all in <unk>.
Bind effect.
Covid and non Covid costs. So the terminology if you recall, we would use the time was above baseline.
For purposes of the back half of the year, we have assumed that the medical cost performance will be largely consistent with our previous planning assumptions meeting we have not assumed the second quarter favorability will run rate or extend it through the back half of the year. So.
If the remaining two quarters, where to run more in line with what we saw in the second quarter there'll be favorability in the second half of the year results from the standpoint of the MCR and as such the income outlook.
We're not yet seeing on the second part of your question any meaningful signs of pent up demand or acuity.
Building and the book of business. So as I mentioned earlier, when we look at blood screening preventive exams Mamograms colonoscopy is all of those on a per capita basis are very much in line with where they were in 2019 and we continue to see.
Things like when cancers present, the percentage that are metastatic is very consistent with where it was in.
In 2019.
So the favorability we're seeing in our results, we don't attribute to a meaningful amount of care not being consumed that needs to be.
That's helpful. Thank you.
Thank you Mr. Rich. Our next question comes from Mr. Stephen Baxter with Wells Fargo. You May ask your question. Your line is open.
Yeah, Hi, Thanks, just wanted to follow up quickly on the MLR commentary you provided there.
We think about the upside in the quarter I guess any sense you can provide on how much of that was driven by paper favorable intra year development versus your current period accruals and then as we think about the MLR progression through the balance of the year I appreciate the commentary that you're expecting.
Consistent with your prior plan cycle for above baseline utilization should we also be thinking about.
Potentially a tailwind for mid year renewals that you wouldn't necessarily see in a typical year and just remind us how much your Florida book re prices mid year. Thank you.
Good morning, Steve It's Brian again relative to what we saw in the second quarter MCR as Ed mentioned earlier U S. Commercial was the primary driver of the favorability our government products largely ran in line with our expectations and within the commercial employer book of business.
We did have some favorability from first quarter reserve development, but that was the minority of.
If in key geographies, we believe the way in which should deliver the sustained outcome and approaches to own physical delivery of care and we will own but that will be a geographic configuration.
For physical ownership.
Added to that and consistent we seek to own care delivery assets that we believe are highly differentiated over the long term in terms of clinical capabilities as well as leverages <unk> multi geographic internationally, what do I mean by that specialty pharmaceutical behavioral care virtual care delivery are great examples of that.
And Lance coming to the last part of your question those services, we're more likely than not be ever north care capabilities that are offered to cigna healthcare commercial or Medicare advantage, but also offered to the open broad marketplace from that standpoint, and customized to the needs of large standalone.
Lawyers integrated delivery systems and health plan clients. So you should expect as those programs continue to grow they will be even north care programs.
<unk> two Sigma healthcare, but also offered broadly speaking.
Im proud of addressable market, we have outside of a signal of care throughout the north.
Great and then could you just comment on.
Your tier alloys, and Sigma medical group capabilities are those.
North and would those be kind of integrated in with these sorts of efforts or are those focused on something else.
Great.
Credit to sneak a follow on there so it take the second part of your piece.
Cigna Medical group is now Evercore of care, it's an ever.
With medical groups rebranded as ever North so it would be the actions and the words lineup from that standpoint.
<unk> remains currently focus intensely on the Cigna healthcare portion in the Medicare advantage portion and the value based care relationships within our Medicare advantage or currently in support of the MAA only so two different postures given the gestation of those programs, but the Cigna Medical group is fully functioning as part of.
The <unk> north care platform today.
Okay. Thanks.
Thank you Mr. Wilkes.
Question comes from Mr. George Hill with Deutsche Bank. Your line is open you may ask your question.
Yes, good morning, and thanks for taking my question David Most of my questions have been answered I guess I would come back to the Everglades segment and focus on the pharmacy network relationships I guess I would ask is there anything worth noting or any pressure points. There as your pharmacy partners always seem to be under pressure and are looking for ways to generate value.
As it relates to pharmacy services or clinical value. So I guess, just it seems like we've had stability pharmacy network relationships for a while just wondering if there's anything there to talk about.
George It's David Good morning.
There's nothing unique I would call out.
That doesn't mean, it's nothing is happening as you referenced it's a dynamic.
<unk>, but theres nothing unique I would call out and our team continues to work.
With our pharmacy partners to make sure we get the right balance of access accessibility, obviously servicing clinical quality and affordability for our clients and our patients and customers, but no unique pattern or pension point or information I would call out.
Okay.
Most of my other question different topic. Thank you.
Thank you Mr Hill, our last question comes from Mr. Ben Hendrix with RBC capital markets. You May ask your question. Your line is open.
Hey, Thanks, guys for fitting me in I was wondering to what degree the MLR favorability ex prior year development is unique within your commercial insured book I guess I am wondering if the drivers of that favorability that you noted are also being realized by your ASO customers to the same to the same degree and to what extent that is helping retention. Thank you.
Good morning, Ben It's Brian .
As I think I mentioned it.
Fair question. The prior year development was not material to our results for the quarter. So you should kind of take that off of.
List here in terms of considerations.
And the majority of the strength in the quarter and the medical care ratio was in the commercial employer book of business, which by definition will be the risk oriented products to your point there is extensibility to our self funded clients of course, because the same programs that are in place for our risk book are also utilized by many of our.
So in self funded clients, although the affordability initiatives span the entire.
Cigna Health care segment and in many instances, Dave do you want to pick up on the traction with the marketplace. So just to reinforce the only gets you created.
The favorability yields lower medical cost trend and therefore, better affordability for our clients and that is a positive contributor to both retention as well as our ability to get responsible rate increases. It's also importantly, not only contributed to retention when.
When we're able to validate the value we were able to deliver it puts us in a position to deepen relationships. So they brought in services from that standpoint, but the linkage created was absolutely correct.
Thank you Mr Hendrix.
I'll now turn the call back over to David <unk> for closing remarks.
First thanks for everybody for joining our call today and just to reiterate a few pieces. We built good momentum through the first quarter, we carried into the second quarter and therefore, we are confident in our ability to deliver increased EPS outlook of at least $22 90 for 2022 as well as our increased revenue and customer growth outlook. Additionally, before I close I want.
This pause and recognize and express my personal appreciation to our more than 70000 coworkers, who demonstrate through their continued focus and dedication and support our ability to deliver for all of those we have the privilege to serve our customers our clients our patients our partners and ultimately to convert that for you our shareholders. We look forward to talk to.
To you again soon about how we continue to advance our mission of improving health, well being and peace of mind of those we serve and our continued approach to make health care services and solutions more affordable predictable and simple thanks and have a great day.
Ladies and gentlemen, this concludes cigna's second quarter 2022 results review Cigna Investor Relations will be available to respond to additional questions. Shortly a recording of this conference will be available for 10 business days. Following this call.
You may access the recorded conference by dialing 80093 490 697.
20336933, 95, there is no pass code required for the replay thank.
Thank you for participating we will now discuss Matt.
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