Q4 2022 Cigna Corp Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by for Cigna's fourth quarter 2022 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 touch tone phone.
Speaker 2: 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 Ralph Jacobi. Please go ahead. Great. Thanks. Good morning, everyone, and thank you for joining today's call. I'm Ralph Jacobi, Senior Vice President of the Master Relations. With me on the line this morning, our David Cordani, Signus Chairman and Chief Executive Officer, and Brian Ivanko, Signus Chief Financial Officer. In our remarks today, David and Brian will cover a number of topics, including Signus Fourth Quarter and Full Year 2022 financial results.
Speaker 3: in today's earnings release which is posted in the investor relations section of Cigna.com.
Speaker 4: 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.
Speaker 5: In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2023 and future performance.
Speaker 6: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.
Speaker 7: A description of these risks and uncertainties is contained in our cautionary note in today's earnings release and in our most recent reports filed with the SEC.
Speaker 8: Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures.
Speaker 9: Regarding our results, in the fourth quarter, we recorded after-tax special item charges of $17 million, or $0.06 per share, for integration and transaction related costs. We also recorded an after-tax special item charge of $56 million, or $0.18 per share, for costs associated with the sale of businesses.
Speaker 10: 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.
Speaker 11: Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2023 outlook, we will do so on a basis that includes the potential impact of future share of purchases and anticipated 2023 dividends.
Speaker 12: With that, I'll turn the call over to David.
Speaker 13: Good morning everyone and thanks for joining today's call.
Speaker 14: 2022 was a pivotal year of performance and growth for our company.
Speaker 15: Evernote further expanded its health service reach and impact, and Cigna Healthcare demonstrated tremendous resilience in the dynamic market.
Speaker 16: Together the breadth and capital-led tree nature of our portfolio, enabled us to exceed our revenue and earnings outlook and return meaningful capital to our shareholders.
Speaker 17: This provides us with momentum as we begin 2023 and we expect another year of customer and earnings growth as we innovate and expand our broad portfolio of services and capabilities.
Speaker 18: Today I'll provide perspective about our key drivers for a 2022 performance.
Speaker 19: and how we're positioned for sustained growth going forward.
Speaker 20: Then, Brian will walk through additional details about our 2022 financial results and discuss our 23 outlook.
Speaker 21: Then we'll take your questions. Social media.
Speaker 22: As we reflect on our performance for 2022, I'm proud of what our company and Cigna team delivered overall. We grew full year revenues to approximately $181 billion. We delivered full year adjusted earnings per share of $23.27, reflecting a 14% rate of growth.
Speaker 23: We returned $9 billion to shareholders through a combination of share repurchase and dividends.
Speaker 24: And we sharpened the health service focus of our international business through the divestiture of our life accident and supplemental benefits businesses across seven markets.
Speaker 25: This performance demonstrates how well or ever North and signal healthcare platforms are strategically positioned for sustained attractive growth.
Speaker 26: In 2022, Evernote delivered strong top and bottom line growth and also won, renewed, and expanded several large multi-year client relationships for 2023 and beyond.
Speaker 27: The depth of Evernote's capabilities and expertise is highly valued by our clients and partners.
Speaker 28: and enables us to deepen existing relationships across our entire portfolio of businesses. Cygnet Healthcare, our health benefits platform, also had a strong year delivering customer growth along with differentiated medical cost performance for the benefit of our customers and clients.
Speaker 29: Our US commercial business had a standout performance, achieving outsized customer growth while maintaining pricing discipline and driving margin improvement.
Speaker 30: This reflects our ability of our Cigna commercial team to work consultatively to help employers of all sizes manage affordability all while we support healthy, highly engaged employees for the benefit of their businesses.
Speaker 31: Overall, we're pleased with the strength of our 2022 performance across our enterprise.
Speaker 32: As we looked at 2023,
We continue to deliver and capture meaningful value in multiple ways. First, we expect sustained growth through our foundational businesses.
Pharmacy Benefit Services, US Commercial and International Health.
These are mature, skilled businesses that have established core relationships with corporate clients, health clients and governmental agencies.
The value proposition for these businesses continues to resonate very well in the marketplace.
Informancy Benefit Services, we expect continued contributions in 2023 through the strength of our unique solutions and partnership orientation.
With a strong selling season across our employer, health plan and governmental agency portfolio, we will continue delivering greater affordability to more customers and patients.
Additionally, we are investing meaningfully to put in place the teams and resources to make prescriptions more accessible and affordable for approximately 20 million Centene customers starting in 2024.
In a US commercial business, we also had a strong 2023 selling season across all our market segments and across all funding types. So I'll fund it, risk, and shared return arrangements.
As a result, we anticipate driving another year of earnings, customer, and revenue growth.
And in international health, we expect continued revenue and earnings contributions through our leadership in meeting the health and well-being needs in attractive growth markets and for the globally mobile.
Second, we expect outsized growth from our accelerated businesses.
Credo Specialty Pharmacy, Evanworth Care Services, and U.S. Government.
These businesses have differentiated capabilities and platforms addressing accelerated secular growth trends.
With the Credo, we were able to lower costs for patients and plans while preserving choice and flexibility for those who could benefit from new drugs.
This includes our work to increase the availability of biosimilars.
We've seen a handful of these lower cost alternatives for biologic drugs launched in the past few years.
and understand the exceptional value they deliver for the benefit of clients and customers.
2023 will mark the start of a growing market opportunity for biosimilars, a trend that we expect to continue ramping up in 2024 and beyond.
This includes Humira, a treatment for a range of inflammatory conditions and one of the top selling drugs globally over the past decade.
Now there's a biosimilar alternative that we've co-preferred on a National Preferred formulary creating significant savings opportunities for clients and customers.
We will continue our leadership in advocating for greater availability of biosimilars, which over time we expect to drive even more savings and benefit for patients and clients.
In Evernote Care Services, we are continuing to enhance and expand our portfolio of capabilities in care management and care delivery.
We expect this partnership to begin rolling out over the course of this year. In the US government, another accelerated business, we expect strong growth in 2023 as we expand services and our geographic presence across a large and growing addressable market. This includes Medicare Advantage where we will introduce enhanced services and benefits and we nearly double the size of our provider network over the last two years as we expanded to new geographies. Additionally, as we have demonstrated continued consistent commitment to participating in the ACA exchange marketplace,
In a dynamic environment, our individual and family clients business will see outsized customer growth in 2023. The third growth driver for us in 2023 and beyond is enterprise leverage.
This is where businesses work together to create or capture more value than anyone could achieve on their own.
Here, think about our ability to look across our enterprise and client relationships to broaden and deepen them by leveraging our entire suite of capabilities.
A great example is a new large service-based relationship for Cigna Healthcare where we were able to expand our support for a long-serve Evernote client.
Additionally, the depth of clinical expertise, success in advancing innovation, and breadth of solutions within Evernorth all combined to help further improve signal health care runtime fatulation.
For example, in 2022, by harnessing Governor's capabilities and programs, Cigna Healthcare delivered exceptional affordability, a key reason it continues to be a competitively attractive option for employers of all sizes.
Disability to deliver meaningful value is what makes Evernor the partner of choice to a wide range of health plans, large employers and other clients.
Another way we generate enterprise leverage is with our longitudinal portfolio data, which enables us to accelerate innovation and create new solutions for our clients and customers.
we're able to integrate Cigna Healthcare's high-performing provider networks and benefits management with Evernote's analytical and clinical expertise as well as personalized digital support. This equips PathWell to lower costs while connecting patients with the right care, anticipating their...
future needs and helping them recover more quickly. Pathful focus in 2023 includes musculoskeletal conditions and patients who take injectable or infusible biologic drugs.
Early feedback here has been very positive and we expect to support millions of patients throughout these programs with better experience.
Clinical quality, costs, resulting in improved overall value.
These examples illustrate to some of the impact we've already achieved with our cross-enterprise leverage and will continue acting on additional opportunities in the years ahead to expand relationships, accelerate innovation for the benefit of our customers, patients and clients.
Now I'll briefly summarize. 2022 was a strong year of performance and growth for our company.
With our Evernorth and Signaled Healthcare platforms and our durable growth framework, we are well positioned to meet the needs of our customers' clients and partners as we look to the future.
We are delivering on our commitments to our shareholders.
with a 2022 adjusted EPS of $23.27 and returning $9 billion in share repurchase and dividends.
And we are also responding to evolving needs of those we serve in the coming years in the healthcare environment of accelerated change.
We have a different innovation pipeline that will allow us to build on our momentum and create value, continue to advance our growth strategy.
We are confident 2023 will be another year of strong performance for our company as we expect to deliver customer and earnings growth.
Our EPS outlook of at least $24.60 and the 10% increase of our quarterly dividend reinforce our commitment to sustained impact and growth for the benefit of all of our stakeholders.
And with that, I'll turn the call over to Brian .
Thanks, David. Good morning, everyone.
Today I'll review key aspects of Signance Fourth Corp and Full Year 2022 results and I'll provide our outlook for 2023.
We're very pleased with our strong performance in 2022, reflecting focus, execution, and growth across both Evernorth and Signal Healthcare, with each segment achieving pre-tax adjust that earns growth in line or above our long-term targets.
This positions us well for continued growth in 2023.
Looking at full year 2022 specifically, key consolidated financial highlights include total revenues of approximately $181 billion.
and adjusted earnings of $7.3 billion after tax, or $23.27 per share, reflecting 14% growth from 2021. This is above the high end of our 10-13% long-term average adjusted EPS growth target.
Regarding our segments, I'll first comment on Ever North.
2022 marked another year of sustained growth and profitability in Evernote.
as our innovation, market-leading clinical capabilities, and proven track record of delivering for clients and customers continue to resonate in the market.
Turning specifically to fourth quarter results for Ever North.
Revenues grew to $36.2 billion, while pre-tax adjusted earnings grew 6% over fourth quarter 2021 to $1.7 billion.
Similar to the first three quarters of 2022, Ever North's strong results in the fourth quarter were driven by continued expansion of our accelerated growth businesses led by our specialty pharmacy.
as well as our focus on affordability and delivering lowest net cost solutions for our clients and customers.
We also continue to make meaningful strategic investments which serve to strengthen our client relationships, expand our services portfolio, and advance our digital capabilities.
Overall, Evernote delivered another strong year.
focusing on driving value for clients and customers.
and expanding our partnerships and relationships.
all while achieving strong revenue and pre-tax adjusted earnings growth in line with our long-term growth targets.
A recently announced collaboration with Centene that begins in 2024.
As well as other large multi-year contracts we renewed for 2023,
further demonstrate the strength of our value proposition and proven partnership orientation in the market.
providing long-term opportunities to grow while driving lower costs for our clients.
Turning to Cigna Healthcare.
As we entered 2022, we shared with all of you our goals of both growing our customer base and expanding margins.
I'm pleased to report we ended the year accomplishing both of these goals.
as we grew our medical customer base by 5% or 923,000 lives to 18 million total customers.
while improving full year pre-tax adjusted margins to 9%.
A year over year improvement of 90 basis points.
Fourth quarter, 2022 performance contributed to full-year results with adjusted revenues of $11.1 billion.
pre-tax adjusted earnings of $500 million, and a medical care ratio of 84%.
Despite an elevated flu and RSV season, our medical care ratio was slightly better than our expectations.
particularly within our stop loss products.
vehicle care ratio for full year 2022 of 81.7% improved 230 basis points compared to the prior year.
Both full year and fourth quarter results benefited from pricing discipline and affordability initiatives including our clinical programs.
Overall, signal healthcare delivered for our customers, clients and partners, all while driving a strong year of customer growth and margin expansion.
with full year pre-tax adjusted earnings growth of 13%.
which is above the high end of our long-term target range of 8 to 10 percent.
According to corporate and other operations, the fourth quarter 2022 pre-tax adjusted loss with $382 million.
As a reminder, this segment previously included earnings contributions from the international life accident as supplemental benefits businesses that we divest the Chubb on July 1st, 2022.
Overall, Cigna's 2022 results were strong, reflecting focused execution for the benefit of our clients and customers.
As we turn to 2023, we continue to expect underlying growth in both EverNorth and Cigna Healthcare while continuing to make strategic investments to drive future growth.
For the full year 2023 outlook, we expect consolidated adjusted revenues of at least $187 billion.
We expect full year consolidated adjusted income from operations to be at least $7.33 billion.
or at least $24.60 per share.
consistent with our prior EPS commentary on our third quarter earnings call.
I'd like to remind you this outlook includes a headwind from cost we will incur in 2023 to prepare for serving Centines customers.
This contract starts on January 1, 2024, and we look forward to many years of partnership and collaboration as we drive affordability for their customers.
Additionally, with regards to earnings seasonality, we would expect a different cadence this year when compared to historical patterns, with earnings more back half weighted.
and first quarter representing slightly above 20% of the full year EPS.
For full year 2023, we project an adjusted SG&A expense ratio of approximately 7.3%.
And we expect a consolidated adjusted tax rate in the range of 21% to 21.5%.
I'll now discuss our 2023 outlook for our segments.
For Ebernard, we expect full year 2023 adjusted earnings of at least $6.4 billion.
Tailwinds and headwinds are largely consistent with the points we highlighted on our third quarter earnings call.
These include tailwinds from a strong selling season and value creation from the increased availability of biosimilars, building in the second half of 2023 and ramping in 2024 and beyond.
These are partly offset by headwinds from additional cost to support future growth.
including implementation costs associated with onboarding SENTIN prior to receiving revenue.
strategic investments in our accelerated growth businesses, and the expansion of our relationships with the Department of Defense in Prime Therapeutics.
In consideration of these tailwinds and headwinds...
We expect adjusted earnings within Evernorth to be weighted more towards the back half of the year.
with low single digit year-of-year earnings growth in the first half, followed by mid to high single digit year-of-year earnings growth in the second half.
For Cigna Healthcare, we expect full year 2023 adjusted earnings of at least $4.4 billion.
Representing growth of at least 8% year over year.
We expect 2023 Cigna Healthcare earnings to be split closer to 50-50 between the first half and second half of the year.
This outlook reflects the strength of our value proposition and focused execution in our business.
driven by organic customer growth and discipline pricing.
Keyest assumptions reflected in our SIGNA Healthcare Earned Exile look for 2023 include the following.
Regarding total medical customers, we expect 2023 growth of at least 1.2 million customers.
with growth across each of our US Commercial Medicare Advantage and individual businesses.
Within US Commercial, we expect organic customer growth across each of our national, middle and private and select market segments.
In similar to 2022, the growth will primarily reflect sea-based customers.
We expect Medicare Advantage customer growth of at least high single digits.
And we expect growth in our US individual business of at least 300,000 customers.
driven by geographic expansion, strong industry growth, and the exit of competitors from certain geographies.
We expect the 2023 medical care ratio to be in the range of 81.5% to 82.5% in part reflecting an increased mix of government business.
which tends to have a higher medical care ratio compared to US commercial and international health.
Additionally, we would expect the first quarter 2023 medical care ratio to be within the full year guidance range.
As it relates to corporate and other operations,
This segment has evolved given the divestiture of a portion of our international business last year that had been a positive earnings contributor in the first half of 2022.
As a result, we expect the full year 2023 pre-tax adjusted loss to more closely reflect annualized 4th quarter 2022 results.
Now, moving to our capital management position and I look.
In 2022, we finished the year strong and delivered $8.7 billion of cash flow from operations.
We returned $9 billion to shareholders via share purchases and dividends in 2022.
Specific to share buyback, we repurchased 27.4 million shares.
for $7.6 billion.
Additionally, our debt-to-cap ratio finished the year at 40.9%, an improvement of 80 basis points from year end 2021.
Now, framing our capital outlook for 2023.
We expect at least $9 billion of cash flow from operations, reflecting the strong capital efficiency of our enterprise.
This positions us well to continue creating value through a creative capital deployment in line with our strategy and priorities.
We expect to deploy approximately $1.4 billion to capital expenditures.
These investments will include substantial commitments to our accelerated growth platforms.
of specialty pharmacy, Ever North Care, and US government.
We expected to deploy approximately $1.45 billion to share older dividends, reflecting our increased quarterly dividend of $1.23 per share, up 10% from 2022 on a per share basis.
Year to date, as of February 2, 2023, we have repurchased 1.6 million shares for 510 million dollars.
And our guidance assumes full year 2023 weighted average shares to be in the range of 296 million to 300 million shares.
Our balance sheet and cash flow outlook remains strong, benefiting from our asset life framework that drives strategic flexibility, strong margins, and attractive returns on capital.
And now to recap, our full year 2022 consolidated results reflect strong contributions and execution from both Evernor and Signaled Healthcare.
Our 2023 outlook reflects continued momentum across our segments as we invest to support long-term attractive growth.
We are confident in our ability to deliver our 2023 full year adjusted earnings of at least $24.60 per share. And we continue to expect to deliver 2024 adjusted EPS of at least $28.
Consistent with our prior EPS commentary.
With that, we'll 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 1 on your touch tone phone. If someone asks your question ahead of you, you can remove yourself from the queue by pressing star 2. Also, if you're using a speakerphone, please pick up your handset before pressing the buttons.
One moment please for the first question.
Our first question comes from Mr. A.J. Rice with Credit Suisse. You may ask your question. You may ask your question.
Hi, everyone. Thanks a lot. I might ask a little bit more about where you're at in the rollout of the village MD value based contracting arrangements. I know when the deal was signed, contracts had to be signed in the various markets with the village MD.
this year, but as you look out over the next few years.
Good morning, AJ. It's David. So first and foremost, stepping back, we're pleased with the relationship and the ability to partner with a proven organization that has a nice growth track record. Two, think about the work taking place collaboratively in phases.
with the first phase well underway, working through and successfully securing approvals and contracts with Building Momentum, whereby we will put in place with village capabilities such that we could enable more targeted access to preferred or higher performing spaces.
or otherwise. There's a second phase of work, so the innovation will continue whereby we'll work with Village to codify and build some new products that have exclusivity relative to their proven physician leadership and physician-directed programs.
that have even a more targeted value proposition, not just for the benefit of Cigna Healthcare on the benefit side, but offered for the benefit of health plans we serve in a broader sense and for Village. One of the wonderful parts of the way the relationship is built through leveraging the Evernote capabilities, we'll be building a lot of the shared savings together with Village and as such,
But we will see progress in 2023, especially through the second half of the year, and in building contributor in 2024. And we look forward to providing you more of an update as we look to 2024.
Okay, thanks a lot.
Thank you, Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open. You may ask your question.
Thank you, Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open. You may ask your question.
excuse me, good morning.
I also wanted to ask about VillageMD, so David, we'll keep you on that track just a little bit longer.
My questions, I guess I have a couple questions about it. One is I know historically your inclination was Cigna didn't need to own
delivery assets even though your peers are increasingly moving in that direction and this investment does obviously give you some ownership of a delivery asset, so just wanting to understand how much your thinking has evolved along those lines and then secondly I just kind of want to understand a little better long-term you know
you know, preferred primary care network or how do we think about the next several years like what that relationship means to the Cigna Healthcare and to ever north.
Sure, Gary. A lot in there. Let me try to address the points, all important points, and I appreciate your question. First and foremost, to be clear, our strategy remains consistent. Our preferred approach on the core medical fulfillment of care is to partner and enable. I'll come back to that.
As we've discussed before, there are parts of the healthcare delivery or service fulfillment equation that we seek to own, and we're very clear relative to that. Examples include virtual, behavioral, specialty, pharmaceutical fulfillment, and select aspects of home care. Meaning them to be like those that need to be Imagineering in healthy countries while
unique, highly differentiated, and an ability to leverage over multiple geographies in an efficient way. Our notion of partnering continues through, we'll call it core value-based care, where today about 75% of our MA customers have a value-based care relationship. About 50% of our exchange customers have a value-based care relationship.
and about 40% of our commercial employer business has a value-based care relationship. Now, to the village relationship. First and foremost, it's also a clear depiction, as we discussed at our investor day, that we see the healthcare delivery system community as an addressable market for us.
We see it as an addressable market to bring additional services, to help to extend their reach, their care coordination, curation of high performing specialty networks, and overall continuity of care, including digital aspects of the care equation. So the village relationship, we see it as an extension of partnering.
We see that payer agnostic orientation that you articulated as a positive because Ever North serves a broad portfolio of clients including most of the large health plans in America today in some way shape or form and we see the ability to grow collectively and collaboratively with Village.
as a positive but through a partnering set of relationships. So, to reiterate, there are aspects we will seek to own. We will continue to use our current process of incentive alignment and care coordination to extend our core value-based care offerings. And now with EverNorth, we will seek to deepen those services.
with select provider partners for the benefit of the totality of their panel, not just for the signal healthcare lives that go through, however there may be some unique programs that are designed from a signal healthcare standpoint. So we see this as a great win-win and an additional growth opportunity for Ever North.
providers, partners for the benefit of the totality of their panel, not just for the signal health care life that go through, however there may be some unique programs that are designed from a signal health care standpoint. So we see this as a great win-win and an additional growth opportunity for Ever North. Gary Hope that helps.
Thank you. Thank you, Mr. Taylor. Our next question comes from Ms. Aaron Wright. Morgan Stanley , you may ask your question.
Great, thanks. You mentioned some of the headwinds in Tillland forever north into 2023 and obviously there's a 17 implementation cost but you also mentioned some other strategic investments and can you quantify those or what is that exactly and in the back and waiting across the segment and is that largely attributable to those?
associated costs or is that a little bit of the Humira benefit as the interchangeable comes available mid-year? Thanks.
Morning, Erin, it's Brian . So as it relates to the Edwin's and Tailwinds, you're right to call out these strategic investments. So we continue to invest in outside the amount of money in areas such as our Evernor of Care Services platform to enable things like Village MD that David just discussed alongside our specialty pharmacy business, which continues to grow.
As it relates to the cadence of Evernorth earnings, you should think of the back half weighting that I referenced is primarily driven by the biosimilar ramp effect that I described, but not entirely. There's also some effect of the cadence of operating expense spending over the course of the year that also impacts the timing.
But the biosimilar contributions we do expect to be more back half-weighted, which is a key driver of the difference in the cadence.
Thank you, Ms. Wright. Our next question comes from Mr. Kevin Fishback with Bank of America. You may ask your question.
Great, thanks. I wanted to ask a little bit about the customer growth. Those are a pretty strong number there. And so when you think about the enrollment growth, I guess, first on the ACA side, how comfortable are you about the risk profile on the pricing on that type of growth? And then as far as the commercial growth.
I know it's ASO, so I'm less worried about risk there, but just want to understand your thought process around how redeterminations impacted your growth expectations there, maybe how much of that growth you expect there is in-group versus kind of new customer wins. Thanks.
Good morning, Kevin. It's David. Let me start, just frame it a bit more broadly, and then ask Brian to peel back your question a little bit. First, we're pleased with the strong performance we delivered in 2022, and now being able to step into 2023 with a very attractive outlook.
and it continues to reinforce that our signal healthcare platform, including our commercial employer portfolio, continues to perform very well. I just highlight three areas quickly in terms of the underlying drivers or enablers of the continued growth for us. One, especially in the commercial employer portfolio.
If a consistent intense focus, we have, we are, we will continue to have a consistent intense focus on this segment as we see it as a growth segment. Hence, we focus and innovate for its benefit. Second is a track record of excellent total cost or total medical cost.
That is resulting from very good work from our network management team, our clinical programs and the returns they deliver, and our growing suite of site of care optimization programs that all contribute to good clinical quality, good service and overall affordability.
And then finally, what we've talked about before, but maybe it's sometimes forgotten. Our orientation on consultation and putting solutions in place. So whether it's an employer of 100 or an employer of 10,000, we take an orientation of consultatively working to put the right solution suite in place for them. I'm going to have Brian peel back the drivers of our outlook, I'll put one after it on it. We can't.
uncertain in terms of the rate and pace of state activity to adjudicate the redeterminations we don't have that factored into this very attractive outlook of course we'll present updates to you as the year unfolds as states go through the redetermination process I'll ask Brian to unpack the drivers of our membership growth a little further
Sure, David. Good morning, Kevin. So maybe just a little bit more detail here in terms of how to think about the 1.2 million plus net customer growth, and then I'll hit your question on the ACA exchange profitability as well. So, first off, I'd be remiss if I didn't say we're really pleased with another year of strong growth that we expect here in 2023, following growing almost 1 million net customers.
or 5% in 2022. And as we mentioned earlier, we expect net growth in 2023 across all of our major US business segments with the individual exchange business expecting at least 300,000 net customer growth. Our MA net growth has started strong. We expect at least.
a high single digit percentage growth rate for 2023 in line or better than industry growth rates. And we expect at least 250,000 net new customers generated by core growth across our US commercial portfolio. So you take those three components together. They represent about half of our expected full year net growth of
1.2 million plus customers. And then the balance of the 2023 customer growth, you can think of as the net effect of some moving pieces, including the larger client relationship expansion that David mentioned in his prepared remarks. And we have good line of sight into this 1.2 million plus to David's point, we are not banking on.
any meaningful amount of volume from Medicaid redeterminations. As it relates to the morbidity and or risk pool of the IFP business or individual business that we're adding, our 2023 customer growth outlook reflects a combination of a few things being industry growth, our own new market entry, as well as competitors exiting certain geography.
geographies that we participate in, and is he think about where our margin profile stands? In 2022, the margins on this book are below our long-term goal, our long-term goal to remind these four to six percent. We took a step forward in 22 from where we were in 21, given that 21 was a depressed margin year, but we're still below our long-term goal.
And for purposes of 23, we continue to expect the margins on this book will run below our 4-6% long-term goal and our signal healthcare income and MCR guidance reflects this. Just given the substantial amount of new customers we've added, we thought it was prudent to assume margins will be below our long-term target.
for this calendar year. But this is a book of business that does represent a source of future embedded earnings power that will help to contribute toward the long-term growth in the Cigna Healthcare segment income.
Thank you, Mr. Fishbach. Our next question comes from Mr. Scott Fidell with Stevens. You may ask your question. delay's sound
Hi, thanks. Good morning. I guess you guys get the first crack to comment on the preliminary 2024 M.A. rates. And just interested in your initial observations on those. Obviously, we still have the final rates ahead and whether that influences your thoughts on your 10 to 15%.
long-term Medicare Advantage enrollment growth target at all. Next.
Good morning, Chuck. Clearly the initial or preliminary rate letter came out. Before I comment on that, just stepping back for a moment, it's clear that Medicare Advantage has represented and continues to represent a significant both market opportunity as well as a growth opportunity for the U.S. today serving about 30 million people.
anemic revenue will await the final rate letter that comes forward relative to that. Having said that, I think it's a little bit early to presuppose what 2024 Growth Outlook may look like because you compete on a relative basis. Having said that, this will create if it stays in the range.
of what the rate letter looks like. It'll create some revenue dislocations. So the sophistication of benefit management that's going to be necessary, market by market, the leverage of value-based care relationships, which, as I noted earlier, about 75% of our MA lives are in a value-based care relationship, will all come into play. I reinforce the fact that...
The 10 to 15% is our objective to have 10 to 15% customer growth over time on average. We're stepping into this year with a very good customer growth outlook already that we feel good about. And as a final note, I would remind you that while an attractive long-term growth opportunity for us today this represents, or MA represents,
less than 5% of the enterprise portfolio. So any dislocation 2024 we deemed to be manageable with the strong performing portfolio that we have in front of us.
Thank you, Mr. Fidele. Our next question comes from Mr. Justin Lake with Wolf Research. You may ask your question.Speaking of which yourOV.
Thanks, good morning. Just want to follow up first on the membership guide. Any color on the piece of that membership, how much comes in Q1 versus the rest of the year. And then, you know, healthcare margins certainly did a lot better there in 2022.
Just wondering what ballpark you're expecting to be in 2023 there relative to your long-term guidance. Thanks.
Good morning Justin. A little color roll at the pacing and then I'll ask Brian to talk about more to your second question. Is Brian noted we have good visibility into the the membership volume and when you think about the outside of the individual exchange business?
What we've seen growth across all of our funding types, still the lion's share of it is ASO, including the service-based relationship with a large customer. So, in essence, a meaningful portion of that volume will be realized in the first quarter of 2023, and then they'll be puts and takes throughout the course of the year.
that we'll look forward to providing you updates on. Now, individual lines of business will move throughout the course of the year, but by and large, you can think about our expectations that will have good performance relative to that on the first quarter of the year, and then some puts and takes throughout the course of the year with some additional growth, and maybe some...
additional disenrollment as we factored in some impact in our outlook for a bit of an uptick in disenrollment as we look at the current fragility of the US economy. So, good visibility for Q1. I'll ask Brian to talk a bit more around the margin.
Morning, Justin. So, as it relates to the Cigna Healthcare margin profile, we're first off really pleased to finish 2022 with a 9% Cigna Healthcare margin, which is 90 basis points of year-over-year expansion, which allowed us to return to the low end of our target margin range of 9 to 10%. Stronger than expected 2022 performance certainly increases our...
a lower profit margin profile than the US commercial and international health products. So you consider all of this and our continued investments in our accelerated growth platforms, such as MA. We'd expect our 2023 signal healthcare margins to land within our target 90-10% range, but at the low end.
Thank you, Mr. Lake. Our next question comes from Ms. Lisa Gill, with JP Morgan. You may ask your question. I think we're going to be more. I just wanted to come back to the PVM. David, you made a comment that Humara would be on the formulary imperative with the biosimilar.
Just curious as we think about ABBYY potentially increasing the rebates around that product, is it better for the PBM if it shifts to the biosimilar or are contracts now set up in a way that you're going to share in the overall cost savings where it doesn't really matter? And then secondly, when we think about plan design, anything of note...
the transition.
preserve and expand choice with aligned economics back to our clients and for the benefit of our customers and patients. I also note that that's our national preferred formula, which is our largest single formula. We support and administer multiple formulas that are customized.
for individual clients from that standpoint and avail choice. I'd also suggest that this will be fluid. It'll flex over time. Third, as we've demonstrated within our PBM and our broad-pharmacy portfolio of services, we have the tools to align the incentives whereby when we enable choice and create value, meaningful portions of that value are passed back to.
clients, customers, and patients, and a sustainable portion of that value is retained by us, and the current position that we've taken aligns in that way. So it's not we have to have briefs on a avowed brand drug versus a biosimilar. We have the mechanisms to afford additional choice, additional flexibility, and to align the incentives.
As it relates to the second part of your question, I would just give you by way of trend as opposed to an individual benefit design configuration or change. Buyers in the space, be they corporate buyers, health plan buyers, etc., are seeking to push for more of what we talk about internally all the time, coordination of services.
and continue to challenge point solutions. That plays very well for us. So when you think about an illustration of that, the PATHWAL program around biosimilars, the PATHWAL programs around biologics, the PATHWAL programs around injectables, is a way to further coordinate services with precision for a subset of patients and deliver more value from that standpoint.
You have to harness data, you have to harness clinical capabilities, you have to harness digital capabilities, you have to harness network and benefit management capabilities. And again, the combined organization is well positioned for that. So I would say more precision in benefit programs on a go-forward basis that bring more targeted coordination.
Harnessing data and harnessing specific subsegments and again we are well positioned for that and Pathwell is an illustration of that direction.
harnessing specific subsegments and again we are well positioned for that and PathWell is an illustration of that direction.
Thank you, Ms. Gell. Our next question comes in Mr. Josh Raskin with Neffron Research. Me, ask your question.
Thanks, and good morning. I want to go back to Village and the partnership there, and I'm just trying to think about how Village and Cigna HealthCare work together and sort of how you have impact on their strategy and, you know, are there targeted growth strategies in markets that may be stronger and say your MA book.
And then David, I think you said 75% of the Medicare Advantage businesses in some sort of value-based care. How much of that is actually full risk or full capitation relationships?
Good chat with you this morning. So let me think your second question first. In aggregate, a small proportion is in full cap. As we've discussed before, our preferred approach typically has a shared risk relationship. Some of it is in global cap for sure, but a minority of it is in global cap. A majority of it.
is in a shared risk, longstanding shared risk program, and then another minority would be an upside-only P for P in terms of new relationship pay for performance. So if you think about it in terms of a suite of capabilities, our suite spot and our preferred approaches, a shared alignment program, not a global cap program, but we have some global cap.
So the first part of your question, you came back to the village and CHE side of the equation. So I'd ask you about first and foremost, the relationship with village that was built out and expanded is an evidence of the relationship. That's not the take away from CHE. I'll come to the court of your question in a moment. I'll come to the court of your question.
And that relationship, as I discussed it with a previous question, is around helping to broaden and target the reach, and then target with precision around subspecialty and then coordinate services in an even more precise way off of their already highly performing value proposition. For additional information, visit seeing operates. retriva.gov Christopher
Now, that will be benefited to Cigna Healthcare, but also other health plans and, broadly speaking, Village's patient panel over time. Now, specific to Cigna Healthcare, this relationship presents the opportunity to design certain benefit alternatives or unique product alternatives in collaboration with Village because of our closer relationship.
precision for the breadth of their panel. Cigna Healthcare will benefit from that. It presents the opportunity in targeted geographies to bring specific benefit alternatives forward for the benefit of Cigna Healthcare. And all that is on the docket relative to co-collaboration right now. That's why we're so excited about the partnership with Cigna Village.
Perfect, thanks. Thank you, Mr. Raskin. Our next question comes to Mr. Steven Baxter with Wells Fargo. You may ask your question.
Hi, thanks. This is Nick on Furski. One to ask about the in-group trends you're seeing in commercial, given the number of different data points we're getting on the labor market. I know the last time you guys spoke about it, you said that while you were starting to feel some of the headlines manifest, employers were generally still in net hiring mode. I wanted to see if that was still the case and if there was anything to call out between
select, middle market, national. Thanks. Good morning, Nick and David. I'll just give you a little directional indicator here. So throughout 2022, broadly speaking, we saw the kind of net effect of hiring still be the lead dimension in terms of playing through. Although as we've talked quarter to quarter throughout the course of...
I mentioned in a prior comment, our projection for 2023 assumes a further uptick or further softening of disenrollment as we look at the economy. We don't aid within our book as we go case by case and relationship by relationship. We don't see large dislocations, but we think it's prudent to plan for some further softening throughout the course of the year. That's...
think about. We believe we've taken a prudent outlook in our full year membership outlook by further dampening the disenrollment throughout the course of the year and we think that's an appropriate approach.
Thank you. Our next question comes from Mr. Steven Valicat with Barclays. Let me ask your question.
Great thanks. Good morning. So, just back on Evernote again within that context of the earnings growth being more back half weighted and faster growth in the back half.
Just if you can remind us again how you're thinking about the cadence of recognition of the the centene PBM onboarding cost between the first half versus the second half You're wondering if that's still kind of fluid for you guys Just how that might flow it during the year Is that kind of set in stone as far as the weighting of that expense in the first half versus the second half. Thanks
Morning Steve, it's Brian . So as it relates to the Centene related implementation costs in 2023, we do expect there to be an uptick over the course of the year in that spending. So you can think of it as growing from the first quarter through the fourth quarter modestly. So as you think about the total spend, so we've incurred a small fraction of the total we expect to.
as well as the other SG&A patterns that will emerge over the course of the year. But you should think of the Centene-related cost as growing over the course of the year and a small fraction of that already spent.
Okay, thanks. Thank you, Mr. Ralkett. Our next question comes from Mr. Nathan Rich with Goldman Sachs. You may ask your question. You may ask your question.
Great. Good morning. Thanks for taking the questions. I wanted to follow up on the bio-similar ramp and how you're approaching formulae changes this year and going forward. I guess specifically to the negotiations with manufacturers, is that something that we should think about happening, you know, once per year on an annual basis or does the entry of the...
and kind of access to different therapies. Thank you.
Good morning, Nate. It's David. You should think about, broadly speaking, the formula decisions are made in the latter part of a calendar year, so deep into Q4 of a given year for the next year with the best insights. Two, there's always some fluidity relative to drug launches that manifest themselves throughout the course of the year. In the case of a similar...
plans, et cetera, obviously on a consultative fashion. So, if you have the decisions are largely made in advance of the year, however, you have the flexibility to go back and make adjustments. My comments are not specific to your specific question around manufacturer specific contracts through that lens. So, the latter part of your question...
By and large, employers, health plans, et cetera, are focused on clinical efficacy and comparative effectiveness. So the fixation relative to first and foremost is it should be clinical efficacy making sure when there's any alternative that's available in terms of the best external validation of the clinical equivalence.
of the impact of a pharmaceutical is evaluated properly, and then comparative effectiveness, looking at the economics and then getting to a total low cost of care or best value equation. And then the employer or health time may make some trade-offs in terms of which levers they want to use to achieve that.
But ultimately comes down to the best total cost equation. Once the clinical efficacy hurdle is crossed, and as I mentioned in a prior question, we have the tools, we have the services, we have the flexibility to avail employer by employer, health plan by health plan, to be able to get them to the right balance that they want. But ultimately it's the low total cost equation.
with the clinical outcomes that are preferred from that standpoint that drive the net conversations and the net decisions by employers and by health plans.
Thank you, Mr. Rich. Our next question comes from Mr. Lance Wilkes with Bernstein. Let me ask you a question.
Yeah, good morning. Just wanted to follow up David on the comments he made on.
the village MD relationship which were really helpful to kind of frame that and where I was trying to understand is
From the Evernorth side, it would seem that Evernorth could be a distribution partner, or Evernorth could be helping Village to enable itself to better manage costs, either through providing MDLive or networks or Evynorth PBM services, et cetera. I'll give you a little more color on.
what is the primary role that Evernorth is playing there? And then just secondarily for the MCO, how important and what is the opportunity for, in addition to new product design, for you to cross-sell into your ASO block, the, you know, Village MD.
sort of value-based care services services. Thanks. Good morning Lance. So I think your framework is quite helpful. If you think about the building blocks you articulated, you laid them out quite nicely. I just would play with the order a little bit. Job one for us with Village.
is to work in partnership, right? It's not to push a product. It's to work in partnership to avail additional capabilities off their already strong-performing platforms to further improve affordability or clinical quality. So, let's take an example.
take the opportunity to curate in an individual market or submarket for larger markets the highest-performing oncology providers for certain tumor types or certain diagnoses.
Our longitudinal data sets enable that in a very differentiated way, be able to bring a bit more precision. The net result of that is, therefore, for a village patient, a higher probability of getting the best possible evidence-based care and coordinated care and, therefore, best overall value, of which then village benefits from that.
The patient obviously benefits from that, and what we've designed is the Ever North enablement benefits from that. Point two is you went to distribution. We can bring more access and volume flow through the high-performing opportunities that exist here. There's no doubt around that, and we will seek to do so. And then third, we will seek to deliver more access to the high-performing opportunities that exist here. We will seek to deliver more access to the high-performing opportunities that exist here.
where you came back to, we will absolutely help to enable these capabilities back, which is a subset of your distribution in the way, back to our large, well-performing portfolio of ASO clients by bringing yet even more precision of care coordination for their benefit.
But in this case, we have through the Evernorate Services and through the collaboration with the ability to be rewarded in addition to the value we would be creating for their benefit. So there's multiple building blocks here, which is why we're quite excited. At the end of the day, if you put a big circle around Atlanta, it all comes down to, how do we harness more data? How do we harness more clinical coordination?
to bring even greater clinical quality and overall affordability one patient at a time with a platform that is performing well, that is Village, and then creating extenders and some care coordination that comes along with it. And through Ever North, we have both the service mechanism and then the sharing mechanism built that will work in conjunction with Village for.
quality and overall affordability one patient at a time with a platform that is performing well that is Village and then creating extenders and some care coordination that comes along with it. And through Evernote we have both the service mechanism and then the sharing mechanism built that will work in conjunction with Village for it. Thanks.
Thank you, Mr. Wilkes. Our last question comes from Dave Winley with Jeffries. You may ask your question.
Hi, thanks for sneaking me in. Scott asked the Raich question. It's been a couple more days since the Radv rule. I thought I'd ask you, David, to provide your thoughts on Radv and navigating through that in addition to a tighter rate environment for next year.
Sure, good morning, Dave. So relative to Radby and the new information that came out, first and foremost, we deem that risk adjusters are and remain an important tool for the program. And as I noted before, a program that has worked obviously for quite some time for the benefit of seniors and delivering excellence.
clinical quality, value, and service. Additionally, from a Cigna perspective, we remain committed to executing, obviously, this program in a highly compliant fashion. Now, specific to the RADV actions, we're pleased. The CMS concluded that they're not going to extrapolate their actions prior to 2018.
We're concerned that we continue to question a couple of decisions. For example, the elimination of the fee for service and just so that we've deemed to be foundational to the program. And in we await specific sullity to the methodology that is going to be used in some aspects of the extrapolation and work.
as we have in the past and as we always will, we will work closely with CMS to seek to get further clarity relative to the open items that are here. So, a bit of a fluid environment, but we see progress relative to the lack of extrapolation beyond 2018, and we see some open questions for the industry at large.
that still remain, and we will collaborate with CMS to get more visibility on that over the near term.
so remain, and we will collaborate with CMS to get more visibility on that over the near term. Great. Thank you.
Thank you, Mr. Winley. I will now turn the call back to David Cordani for closing remarks. Thank you. Just to briefly recap, 2022 was a strong year of performance, growth, and positive impact that our company brought forward. With Evernote and Cigna Healthcare, we demonstrated that we are serving the current needs of our customers, clients, and partners.
difference in healthcare and they're demonstrated commitment to building on the momentum we've delivered to have a larger impact as we look to the future as we strive to improve the health and vitality that those were privileged to serve. With that we thank you for joining our call today and we look forward to our continued conversation as we go forward. Have a good day.
Ladies and gentlemen, this concludes Cigna's fourth quarter 2022 results review. Cigna investor relations will be available to respond to additional questions shortly. Recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 800-839-7
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