Q2 2023 Cigna Corp Earnings Call

Ladies and gentlemen, thank you for standing by for the <unk> group's second quarter 2023 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.

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Reminder, ladies and gentlemen, this call, including the question and answer session is being recorded.

Begin by turning the conference over to Ralph Jacobi. Please go ahead.

Thank you 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 the Cigna group's chairman and Chief Executive Officer, Brian <unk>, Chief Financial Officer.

Eric Palmer, President and Chief Executive Officer of ever North Health services.

In our remarks today, David and Brian will cover a number of topics, including our second quarter financial results and our updated financial outlook for 2023.

Following their prepared remarks, David Brian and Eric will be available for Q&A.

As noted in our earnings release, when describing our financial results, we use certain financial measures adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States otherwise known as GAAP.

A reconciliation of these measures to the most directly comparable GAAP measures shareholders' net income and total revenues respectively is contained in today's earnings release, which is posted in the Investor Relations section of the Cigna group 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 2023 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 to today's earnings release and in our most recent reports filed with the SEC.

Regarding our results in the second quarter, we recorded after tax special item charges of $5 million or one seven per share for the integration and transaction related costs.

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 repurchases and anticipated 2023 dividends.

With that I will turn the call over to David.

Thanks, Ralph good morning, everyone and thanks for joining our call today.

For the second quarter again, we delivered a strong performance fueled by continued growth across our diverse portfolio of businesses today.

I'll review key strategic drivers contributing to our momentum and while we believe we are well positioned to sustain our growth as we continue to support the health and vitality of those we serve with a differentiated solutions and capabilities.

Brian will cover additional details about our financial performance in the quarter and our 2023 outlook.

As part of our ongoing effort for you to hear more from members of our leadership team, Eric <unk>, President and Chief Executive Officer of Aeronautical services will be joining our call and is available to take your questions with that let's get started.

In the second quarter, we delivered total revenues of $48 6 billion.

Adjusted earnings per share of $6 13.

And cash flow from operations of two 5 billion.

We're pleased with our performance overall during the quarter and through the first half of the year.

With focus on affordability and innovation, we're continuing to strengthen our competitive position and grow our businesses.

You never know in health services, we saw another strong quarter of our market, leading pharmacy care and benefits portfolio.

Express scripts, our pharmacy benefits business harnesses are deep relationships.

<unk> clinical expertise and is delivering innovations and innovative solutions for those we serve.

We've long been a leader in supporting access to prescription drugs and to further enhance our efforts. We took a series of actions in the quarter, including launching copay assurance to support further affordability for patients.

And Claire care Rx to provide our clients with broader choice.

We also introduced independent Rx, which is a first of its kind support program for rural pharmacists that recognizes the critical role they play in improving access for millions of Americans.

We will continue to lead the way to the current environment of elevated legislative and regulatory activity and we're encouraged by the positive recognition of our work to make safe effective and affordable access to prescription drugs within reach for millions of people who need them.

Our client retention is also strong and we're continuing to build and expand new relationships.

For example, we're making good progress where implementation with 19, which begins in January of 2024.

Our teams are working collaboratively and we are on track as we prepare to further improve affordability and serving 20 million 17 customers.

In the quarter, we had strong growth in Accredo, our specialty pharmacy business in a moment, our profiled the deep clinical expertise and capabilities that make accretive a differentiated leader in the space.

Turning Cigna health care, we delivered another quarter of organic customer growth reinforcing how well our consultative approach and capabilities continue to resonate in the market.

Our U S commercial business continues to build momentum.

We've had sustained success with commercial customer growth outpacing the overall market in 2023 is shaping up to be another very strong year for this business.

Within our affordability initiatives and deep consultative sales approach, we are delivering highly competitive total cost of care for employer clients as well as providing programs supporting healthy engage workforces that they need.

And U S government, our Medicare advantage business is achieving above market customer growth with high quality affordable payments.

Targeted investments that we continue to make to further strengthen our network and offerings.

And our individual exchange business, we will continue taking a focused approach by engaging customers to improve health outcomes and managing risks in the expanding population we serve.

In the quarter, while our medical care ratio is generally in line with expectations. We did have an increase to our 2023 risk adjustment payable.

Relative to the risk adjuster impact we expect this to be a 2023 event and we've already taken actions for 2024.

And they are in Nashville Health business, we drove continued innovation growth in target markets with solutions for the globally mobile population and employees of multinational corporations as well as inter governmental organizations.

Overall, our second quarter results showed that CME group is performing well with underlying strength in our complementary businesses.

We believe we are well positioned to continue growing our company and delivering on our commitments with the strength of our results. We are increasing our outlook for full year revenue and customer growth as well as cash flow from operations and we are reaffirming that we are on track to deliver adjusted EPS of at least $24 seven for full year 2023.

Now I will talk about how we're working to sustain our momentum with our differentiated and diversified capabilities and our global strategic growth framework.

Our framework guides us in continuing to respond to customer patient and client needs as well as capturing growth opportunities within our foundational businesses and our accelerated growth businesses.

Additionally, we harnessed the power of our talent client relationships and partnerships as well as an expanding technology portfolio for cross enterprise leverage.

Technology increasingly provides us with opportunities to accelerate innovation and growth.

Artificial intelligence and machine learning towards network capabilities further enhancing ways for us to support patients in the clinical care teams as well as drive additional efficiency initiatives.

Today I'll talk more about one of our accelerated growth businesses Accredo, our flagship specialty pharmacy, where we have a competitive advantage in an area of growing need and opportunity.

Earlier this summer we welcomed a group of investors to Warrendale, Pennsylvania at one of our Accredo clinical care sites.

The visit provided an opportunity to see the breadth of our specialty capabilities and the depth of our clinical expertise a critical driver for the positive outcomes and impact we achieve for patients requiring complex and high class treatments for chronic conditions.

Here are a few headlines from the day Warrendale first Accredo has a proven track record of growth.

Five years ago, when express scripts combined with Cigna accretive was approximately $30 billion business.

Today, Accredo has grown to approximately $60 billion.

And in 2023 serves approximately 900000 patients with some of the most complex conditions and needs Accredo.

Accredo now represents about 40% of <unk> total revenue and.

And because of its unique strengths accretive has grown faster than the overall marketplace.

Second is secular tailwind in the market create significant growth opportunities as we look to the future.

Those who need specialty drugs makes up about 5% of the population and they drive more than 40% of total health care costs across medical behavioral and pharmacy services.

This is fueling expected mid to high single digit annual growth in what is already a specialty pharmaceutical market of approximately $380 billion.

Biosimilars represent a force of change and a substantial opportunity for further growth and impact and we will leverage them for greater affordability for clients and patients.

We've long been a leader in supporting greater adoption of Biosimilars as we did with the wave of generic medications when they became available decades ago.

Like generics, we believe Biosimilars will drive much needed affordability improvements for those we serve and thereby create more financial capacity to pay for new pharmaceutical innovation today and as we look to the future.

Third is the breadth of our clinical capabilities and use of data that further fuels precision and impact.

We've built and strengthened our clinical capabilities and far reaching operating model over decades within Accredo, we have therapeutic resource centers with clinical teams of pharmacists nurses dietitians and social workers specializing in different disease states, such as blood and neurological disorders and multiple types of cancer.

<unk>.

Unlike many of our competitors, we directly employ hundreds of field based infusion nurses today. They are located within 75 miles of approximately 90% of the U S population.

As they care for patients inside their homes, they provide better more coordinated and personalized experiences, including addressing social determinants of health.

With the clinical care model focused on each individual patient, we're able to provide a level of personalized clinical support that is vital in specialty pharmacy.

Many of the high cost drugs for oncology gene therapies in rare conditions are coming to market further pressuring affordability for clients and requiring greater support for patients that take these complex medications safely and effectively.

I would note drug manufacturers also recognize our expertise and capabilities as well as our superior outcomes that we produced with our unique coordinated clinical model.

Putting all this together we're excited about the accelerated growth opportunities, we have with accretive differentiated specialty pharmacy.

And view it as a powerful growth engine for our company to date and into the future.

Now stepping back to the enterprise level I'll briefly recap we drove strong earnings that built on our momentum from the first quarter and last year.

We delivered adjusted EPS of $6 13 sets strong customer revenue and cash flow growth.

Our progress gives us confidence to reaffirm our guidance of adjusted EPS of at least $24 70 for full year 2023, and we also remain on track for adjusted EPS of at least $28 in 2024.

This reinforces how we're creating value for our customers and clients and leveraging differentiated capabilities to give us flexibility to continue performing well in a dynamic environment.

Now Brian will share additional perspective about our performance in the quarter and our outlook for the rest of the year right.

Thank you David good morning, everyone.

Today, I'll review Cigna's second quarter, 2023 results and discuss our updated outlook for the full year.

Second quarter results were strong reflecting continued execution across the enterprise.

Looking at the quarter, specifically some key consolidated financial highlights include revenue growth of 7% to $48 6 billion.

After tax adjusted earnings of $1 8 billion.

Adjusted earnings per share of $6 13.

And cash flow from operations of $2 5 billion.

Revenue and cash flow both exceeded expectations.

While adjusted earnings per share were slightly ahead of expectations.

Our two platforms continued to perform well.

With ever North posting solid top and bottom line growth while.

While segment health care delivered results in line with expectations, Despite an unfavorable risk adjustment impact and our individual exchange business, which I will discuss shortly.

First turning to <unk> results.

<unk> continues to deliver strong performance.

With second quarter, 2023 revenues growing 10% to $38 2 billion.

And pre tax adjusted earnings were $1 5 billion.

<unk> results in the quarter were driven by continued strong performance in our differentiated specialty pharmacy business, which had year over year revenue growth in the mid teens.

And our focus on providing a variety of solutions that drive affordability and lowest net cost for our customers and clients.

Additionally, we continue to build out our cross enterprise leverage capabilities, harnessing data and technology to accelerate innovation for customers and clients.

And we also continue to make strategic investments to further enhance and expand our client relationships.

Diversify our portfolio of products and services.

Prepare for new clients in 2024.

And advanced our technology capabilities.

Overall <unk> has delivered strong first half results and we are well positioned as we look to the back half of the year.

Our diversified solutions allow us to sustain momentum by delivering differentiated value to our customers and clients.

Helping them overcome key health care challenges.

Turning to Cigna healthcare second quarter 2023, adjusted revenues grew 12% to $12 7 billion.

Pre tax adjusted earnings were $1 2 billion.

And the medical care ratio was 81, 2%.

The medical care ratio reflects some items specific to our individual exchange business that largely offset one another in the quarter.

After receiving our first view of industry wide risk adjustment data in early July .

We increased our full year 2023 estimated individual exchange risk adjustment payable.

It's important to note. This was primarily driven by two states.

Within those two states the unfavorable impact from the first half of 2023 was about $80 million.

And was recognized in the second quarter.

We expect a similar magnitude of impact in the back half of the year.

Additionally, this impact is isolated to the 2023 calendar year as we have taken corrective pricing actions and the impacted geographies at our 2024 rate filings.

Specific to the second quarter, the unfavorable risk adjustment payable impact was largely offset by a favorable update to our 2022 risk adjustment receivable within the individual exchange business.

Underlying fundamentals across the Cigna healthcare segment continued to perform well as we further expanded our relationships and delivered affordability for our customers and clients.

As we have mentioned on prior calls, we planned and priced for more normalized levels of utilization this year.

Our year to date claims experience has been broadly in line with this expectation across both commercial and Medicare advantage.

Turning to segment health care medical customers, we ended the quarter with $19 5 million total medical customers.

Growth of approximately $1 5 million customers year to date across all businesses.

Within our government business.

Medical customers grew sequentially and year to date Medicare advantage has grown 12%.

Overall, Cigna health Care's results in the quarter were solid as we demonstrated strong underlying fundamentals. Despite the increased 2023 individual exchange risk adjustment payable previously mentioned.

And we continue to grow our customer and client relationships, providing differentiated value and driving affordability.

Now turning to our outlook for full year 2023.

We have increased our expectations for full year 2023, consolidated adjusted revenues to at least $190 billion.

Driven by continued strength in our businesses as we continue to deliver innovative services and solutions for the benefit of our customers.

And clients.

We are reaffirming our adjusted earnings per share outlook of at least $24 70 per share.

And we expect adjusted EPS to be split approximately evenly between the third and fourth quarters.

And ever North we continue to expect full year 2023, adjusted earnings of at least $6 4 billion.

With respect to ever North earnings cadence, we expect mid single digit year over year adjusted earnings growth in the third quarter and.

And mid to high single digit adjusted earnings growth in the fourth quarter.

Let's take the health care, we continue to expect full year 2023, adjusted earnings of at least $4 $45 billion.

We expect third quarter Signet healthcare adjusted earnings to be slightly below 55%.

Second half adjusted earnings to reflect seasonal patterns as well as the rate and pace of investments.

This incorporates the impact from the estimated individual exchange risk adjustment payable in the second half of the year.

Which is offset by other items and cigna healthcare, including expense efficiencies.

Additionally, we continue to expect our 2023 medical care ratio to be within the range of 81, 5% to 82, 3%.

Switching gears, let's move to our 2023 capital management position and outlook.

Year to date through August <unk> 2023, we have repurchased approximately three 8 million shares of common stock for approximately $1 1 billion.

The continued strength of our cash generation gives us the confidence to increase our full year 2023 expected cash flow from operations by $500 million.

To at least $9 5 billion for the full year.

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

Now to recap.

Second quarter results were strong, reflecting high quality underlying fundamentals and our foundational and accelerated businesses.

Giving us confidence to deliver on our 2023 adjusted EPS guidance of at least $24 70.

And we continue to expect 2024 adjusted EPS.

Or at least $28 consistent with our prior commentary.

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

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

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

One moment please for first question.

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

Hi, Thanks, Good morning, I appreciate the color on the risk adjustment dynamics I think that helpful. Helps also explains some of the rate increases that we've seen.

In your filing and some of those partnered states like Georgia for 2024.

The question is if we if we back out the risk adjustment impacts from both 'twenty two and 'twenty three kids can you give us an update on how you view sort of underlying utilization and cost trends.

In the marketplace in the individual business.

Our 2023.

And how you would say sort of core I guess six exchange margins are tracking towards your.

Your longer term view in 'twenty, three and as you put these price increases and for 'twenty for how that will sync up.

Relative to the long term.

As it relates to the profit margins and how to think about where we are in 23 and the rate increase impact on 24.

For some context here you can think of this business being approximately a $5 billion block for us in 2023 in terms of premium revenue and we'd shared on a prior call that we were anticipating the individual exchange book to run below our target margins within 2023 as you noted our long term target for this business is 4% to six person.

For the remainder of this year, we're expecting another $80 million of risk adjustment payable impact across the second half, which as I mentioned will be offset by the strength across the broader cigna health care portfolio, including expense efficiencies, but when you put all this together the individual exchange margins in 2023 will be below our prior.

Estimates.

And for 2024, we have taken sizable price increases in our two largest states. So we would expect some degree of margin expansion in the individual exchange book overall, and 24 relative to 'twenty three.

The exact amount of that margin improvement will end up being a function of our geographic and customer mix in 2024, as we are likely to have fewer customers in the individual exchange business in 2024 relative to where we are in 2023. So thanks for the question hopefully you can follow all those moving pieces.

Thank you Mr. Fidel.

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

Hi, everybody I know at this point in the year, a large employers or.

Well on their way to thinking about their 24, our outlook as both from health benefits and then also on the pharmacy benefit side I wondered if you.

Given you've got a great window on all of that anything interesting to call out in terms of priorities for employers around.

Benefit design focus on particular.

Categories of healthcare mother died I know, sometimes its diabetes, sometimes family planning.

Anything on the cost management focus I know, there's a lot of discussion about DLP ones and wonder whether they're focused on trying to manage that more effectively and then just overall expectations.

Customers around cost trends and.

Are they assuming it's sort of a more normalized outlook going into 'twenty four are they making any assumptions.

Assumptions about pent up demand or anything.

A J good morning, it's David.

Let me describe a little bit of the let's say the buying.

Characteristics in the areas of focus in the market more broadly and then I'll ask Eric to give you a little bit more color in terms of the pharmacy specific space.

Using your <unk> as an example, so stepping back.

And towards the latter part of your comment to reinforce it.

[laughter] behaviors continue to have an intense focus on what I would call base buying needs focus on affordability, coupled with consistent high quality service levels. There's two additional dimension I would say that have intensified recently relative to need state one as employers because you come at it with you.

<unk> continued to intensify their focus on having healthy engaged highly productive workforce. They are intensifying their focus and need an awareness of the complex behavioral health needs from their population.

Inclusive of but also beyond the more intense behavioral health dimensions. This includes anxiety stress depression, and complexities that come along with that here I would note that within our Cigna group portfolio of solutions, we are well positioned to meet the needs because theres a lot of coordination that's necessary to advance there the <unk>.

<unk> trend I would highlight is what the market places, sometimes calling point solution fatigue, where over time employers have aggregated. Many individual point solutions that made sense at any given moment in time, but they find themselves stepping back and looking at that inventory questioning whether or not either a they're getting all the value out of each individual solution or.

B the friction abrasion for their coworkers or medical professionals is worth the value of the fractured point solutions, and therefore are challenging more opportunities to coordinate or integrate solutions get more value leverage and better service from that standpoint, and again our portfolio.

Who is really well positioned there and continues to resonate in the market as evidenced by our growth I'll ask Eric to provide a little bit of color of areas of focus for buyers more broadly and pharmacy, including the G. L. P. One great. Thanks, David and good morning, I'll start with the G. L. P. One G O P ones are definitely top of mind for many of our clients, there's been a meaningful uptick in utilization.

Here and as I think you know we have coverage for these medications on a formularies from early on for value based arrangements with pharma manufacturers see the contributions for the benefit of patients and our clients by bi result of those the structures. We have recently launched a program.

Called in Circle, Rx, which brings together management of of the GLC one cardiac diabetes.

Conditions obesity.

Conditions, often tend to be interrelated to bring together a benefit plan design, the clinical support necessary and the overall resources. We can bring to help these patients better manage their health and ultimately get to a better plant cost. So at <unk>, one and the broader cardiac obesity diabetes space is a real area of focus would also.

As David touched on in his comments our continued interest in behavioral solutions and that's an area that we've got a strong expertise within ever north and were.

Excited about the opportunities in that market and the need to help manage behavioral care more effectively that would probably be the top couple of specific themes I would call out at this point.

Alright, Thanks, a lot.

Thank you Mr. <unk>. Our next question comes from Mr. Justin Lake with Wolfe Research you May ask your question.

Thanks a.

Couple of quick questions one just.

Sure.

Comments on cost trend, but did see a pretty big pick up in medical costs payable in the quarter relative to reserve growth just curious what drove that and then just stepping back the stop loss business has seen a nice acceleration this year up in the <unk>.

Teams, just curious what youre seeing there and do you expect that to be kind of the trajectory after we'd seen a bit of a slowdown over the last few years.

Hey, Justin it's Brian I'll start and I think David I'll pile on in terms of the stop loss component.

As it relates to our medical costs payables or reserves.

Nothing particular I'd flag here, we continue to employ a consistent methodology as it relates to how we set our reserves.

There'll be some natural variability in this metric is product mix shift tends to occur from quarter to quarter and I know the days claims payable metric is one that is commonly looked at we don't target or forecast any specific level of D. C. P. Rather this is more of the output of our detailed assumption setting that's been aggregated up to the enterprise level. So.

We remain comfortable with our reserving methodology and confident in the adequacy of the balance sheet.

As it relates to stop loss you are right. We are seeing nice growth in that product line, we've got 13% year on year premium growth. We're on track to achieve our target profitability in that business. This year. So a nice performance and it continues to resonate with our clients David anything you'd want to add in that regard, yes, thanks, Brian and good morning, Justin.

They might amplify is just as you recall from prior conversations part of our consultative approach and go to market approach is when you work with clients of a variety of sizes around their benefit design that matches their strategy. The clinical programs in support of that Metro strategy. The service support program to Master strategy. The final thing we work on is the funding that.

And as the market conditions change, we have the ability to flex between risk or guaranteed cost shared returns <unk> self fund it with stop loss and a stop loss program, which we call out continues to perform well grow well and resonate in the marketplace because it provides that peace of mind and predictability.

For employers around their cash flow and any dislocation that may happen in a given year, so our specialists in that space.

High performing book it continues to resonate well and Youll see ebb and flow over time based on market buying conditions, but continued growth.

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

Very much good morning, I, just wanted to come back to that the pharmacy side of the business for a minute and ask a couple of questions. One when I think about the quarter can you talk about the margin impact.

One C. L. P wines I know you talked about strength there to the ship to Biosimilars and.

And three the Centene implementation costs can you just talk about how each of those had an impact on the margin in the quarter and then just as a follow up when you talked about the 2020 for selling season more specific on the P. B M side can you, maybe just give a little more detail as to how renewals win and retention rates are expected.

For 24 thanks.

Accordingly, so it's Brian I'll start I think Thats, a multi parter and then Eric can chime in with some comments on the sales season, but you know as it relates to the quarter.

Overall <unk> continues to perform really well so I'd start there.

While largely in line with our expectations when you put all the different moving pieces together.

The individual components, you kind of called out there Eric referenced earlier T. O P. One utilization does continue to build.

Which in the ever North business is a positive contributor to our or earnings at this point in time, whether that be for diabetic indications or non diabetic indications. So that's certainly a net positive relative to the <unk> business in 2023 on the Biosimilar side of the house, you should think of thus far relatively low adoption.

<unk> done the first half of the year on the second half of the year. We obviously added two additional biosimilars into the national preferred formulary and one of the reasons, we expect acceleration and income growth in the third and fourth quarter is the impact of greater biosimilar adoption as well as improved overall.

All positioning relative to the the dynamics of competitiveness across the four drugs that will be on the national preferred formulary, but in the second quarter I wouldn't characterize biosimilars as a particular driver of the margin profile on the Centene impact we remain very much on track relative to the implementation against our commitment.

Quarter to quarter over the course of the year and so the money's being spent as we speak and all of those factors did impact the second quarter, but again nothing in particular I would call out being significantly deviating from our expectations compared to what we expected three months ago, Eric maybe you can pick up both on centene in the selling season.

Great. Thanks, Brian Good morning, Lisa Yeah, just a couple of other comments at island countries I'm really pleased with how we were working together to deliver unemployment implementation program to serve some of these customers we are on track and theirs.

As for our January 24 implementation, so so continue to be.

I'm excited about that opportunity with respect to the selling season more broadly and we operate in a competitive market and the strength of our solutions really continues to resonate we will deliver another strong retention rate as we look to 2024th at midnight or higher.

And consistent with our prior commentary around what a strong retention rate looks like.

Additional new growth, new new client wins.

On top of the large <unk> win as well so we're feeling good as we kind of wind down the 2020 for selling season at this point, we will provide more detail on that when we provide our 2024 guidance.

Later on okay.

Thank you.

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

Great. Thanks.

Wanted to get a little more color on increased enrollment outlook.

I guess you indicated in the past that you are being a little bit concerned about recessions and determination.

But those did anything change there to drive that or was it new customer growth just a little color. Thanks.

Good morning, Kevin It's Brian So I'll start.

And I think your question specific to Cigna health care, which is where well go so.

So first off we're really pleased with the strong growth momentum across the Cigna Health care book, If you look at our year to date customer growth is it's running ahead of expectations at 1 million and a half net growth and it builds off of our strong performance. We had in 2022, where we added nearly 1 million customers across the Cigna health care platform.

As it relates to our refreshed membership outlook for the year you can think of the primary driver of that being an elevated expectation for individual exchange customers by year end 2023, the other components of the Cigna health care customer outlook are broadly unchanged from our prior projections.

We're not yet seeing meaningful signs of any economic pressure within our commercial book of business, but that said, we have assumed some elevated dis enrollment in the U S commercial business in the second half of 2023 in order to be prudent we continue to exclude any potential Medicaid redetermination lives from our commercial.

<unk> forecast for the balance of the year.

And taken altogether I'm again pleased to see our full year outlook of 8% growth in total medical customers across Cigna health care.

One minor refinements, we made this year or this this quarter relative to the individual exchange business. As we are now forecasting some level of Medicaid redetermination coming in through the balance of the year. So you should think of the commercial business, excluding Medicaid redetermination of the individual forecast now, including some level of redetermination for the balance of the year.

Great. Thanks.

Thank you Mr. Fischbeck. Our next question comes from Josh Raskin with Nephron Research you May ask your question.

Hi, Thanks, just clarification on the exchange true ups and the impact I just want make sure I get this right I assume.

You've got a bigger payable, but that probably means that your claims costs are coming in a little bit better. So I just wanted to see if theres actually and the offset from the receivable from last year. So just want to see if there is actually an EPS impact expected for this year and then my real question is just could you speak to your MA bid strategy for 2024, I'm, specifically interested in how you're thinking about <unk>.

<unk> design and <unk>.

Light of rates and the risk model changes and then if there's anything to talk about the village M D partnership, but that impacts any way you're bidding in certain markets.

Good morning, Josh It's Brian So I'll take the first one and then David will pick up on the on the Medicare advantage question. So as it relates to the the different payable dynamics, let me try to.

Give you the full picture here. So just for some context, we ended the quarter with about 820000 customers in the individual exchange business that was up significantly from where we were at the end of 2022 and during the 2022 year, we were in a risk adjustment receivable position on this business. So when we stepped into 'twenty three we.

I had been anticipating that that would switch over and that will we be in a payable position for 2023. The first look we got at the industry wide risk adjustment data that we received in early July indicated that will be an even greater payable position for the 2023 plan year that was driven by two large states those two large states represent about <unk>.

Of the individual exchange premium base and the adjustment in the first half of the year that came through the second quarter was an $80 million increase in the payable now that was offset largely by a favorable true up on the 2022 receivable you can think of that in the range of about $50 million.

And then the residual is primarily driven by favorable claim costs in 2023 relative to our expectations. So that favorability in the 2023 claim costs partially offset.

Increased payable that we have that ran through the second quarter. So hopefully that helps to square the picture a little bit on the individual exchange business, David you want to pick up on I'm sure. Brian . Thanks. Good morning, Josh. So you had two questions specific to M&A in.

And I've been trying to you all.

Just speak more broadly I'm not going to go into detail, specifically, Josh just to manage expectations, given the time cycle and the competitive nature.

First and foremost as I noted, we're pleased with our growth in $2023. One two as we look to 2024 to some of the points you made reference to we expect to see larger than average local market variability in terms of offering and positioning by competitors.

And at this point I would highlight and reinforce that we remain convicted to and comfortable with our bid assumptions relative to underlying medical cost based upon what we've seen through the first two quarters of the year and our outlook for the year. I'd also note that our stars position coming into this cycle is consistent and strong and our early look at the stars on a go forward.

Initiating the relationship with village, we seek to have a long term strategic positive impact I would note that day, one for the benefit of our customers who are experiencing village in summit relationships. They began to see benefits immediately by the nature of the structure of our relationship and then we continue to collaborate innovate and <unk>.

Based care, whether it's leveraging some of our north capabilities like behavioral virtual or other services and or go more deeply into individual markets around more precisely leveraging data and insights to cure rate subspecialty networks to get the best possible quality and cost and affordability that benefit will continue to Mount as we go forward.

And to the core of your question contribute to market by market our posture in MMA, but specifically we are driving this initiative with village and with our <unk>.

Team to benefit our commercial space as well. So we're pleased with the early traction a lot of work to do.

Due to yield dividends, both today and into the future. Thanks, Josh.

Thank you.

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

Great Good morning, and thanks for the questions.

I wanted to go back to Biosimilars, how is the pricing of Biosimilar humira compared to expectations as more competition has come to market in <unk>.

Given.

What appears to be a very significant reduction in pricing does that pull for the benefit from the humira biosimilar at all and for the different options that you added to the formulary should we think of the economics of each of those as being similar to ever North and then just a quick follow up on the Cigna health care segment.

Bryan could you maybe help us think through the seasonality this year and maybe why that's different than a typical year end.

Good morning, guys and it's Eric I'll start so as you noted an implied in your question on Biosimilars are a really important opportunity to drive competition.

<unk> through affordability is the high cost specialty medicines now in 2023.

To cope on her humira on the formulary.

In terms of those to drive to the best available cost the best available expense for our clients and we have visibility into that pretty early on so so we've navigated.

Navigated and made our arrangements.

And constructing the placement in such.

As we came into this year and so wouldn't want you to think about there being.

Dynamics kind of playing out simultaneously. These are things we have.

Come into the market and we work to leverage the competition to continue to improve affordability for the benefit of the clients. We serve overtime as we drive even if this is even more products more competition will work to continue to bring improved levels of affordability to our clients and continue to construct our offerings in a way that best meet their needs.

Over to Brian on the second part of your question.

Good morning, it's Brian so as it relates to the Sigma healthcare seasonality.

Relative to the MCR component of that our prior expectations on the MCR seasonality have not changed so what I mean by that is the directional pattern. We saw for example in 2022 on MCR is a reasonable proxy for what we would expect that 2023 quarterly pattern to be.

And as a result, the fourth quarter MCR is likely to be the highest quarter of the year as we see more customers meet their deductible and out of pocket maximum obligations. However, we do expect the pace of SG&A spending to look different than it did last year. For example, we had a step up in SG&A in the fourth quarter of 2022 that we would not expect to recur in the fourth quarter of 'twenty three.

The other item that I'd call your attention to is our net investment income in the fourth quarter of 'twenty two was considerably weaker than what we're expecting to see in the fourth quarter of 'twenty. Three so those are the primary things to think through as it relates to the seasonality pattern as it relates to 24 at this point in time, there's nothing I'd call your attention to that will lead us to think theres any abnormal pattern.

Thank you Mr. Rich. Our next question comes from Mr. Steven Valiquette. Your line is open you may ask your question.

Great. Thanks, Good morning, So I guess to the extent that your Medicare advantage book is seeing a more normalized utilization trend. This year that you baked into your pricing guidance I'm. Just curious if you have any additional color just for the second quarter on weather normalized more in the outpatient setting versus in patient just want to hear a little more color on some of the yields.

The trends by cost category, just give them a topical this is for the industry this quarter. Thanks.

Good morning, Steve It's Brian So as you noted we plan and price for more normalized utilization levels in 2023, and our claims experience is largely consistent with that expectation. So within the enabled specifically to the core of your question, we have seen elevated utilization of both outpatient and professional services.

Year, but important this should be viewed in the context of what we had forecasted and priced for so the overall cost trends are largely in line with our expectations in both our second half 2023 guidance and our 2024 bids anticipate that that dynamic will continue as it relates to specifically with an outpatient and <unk>.

Fennell surgeries or the area that I'd call your attention to in particular orthopedic and cardiovascular we did see some level of favorability and inpatient. So those are a few of the subcategories that I'd call your attention to but all in line with what we had anticipated coming into the year.

Okay, Alright, thats perfect. Thanks.

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

Yeah, Hi, Thanks, I wanted to ask about some of the moving parts in the P&L this year for ever North in the first half there is a pretty notable divergence in the growth of revenue and gross profit and then what you're seeing drop through to earnings I know that Centene is a big part of that and the investments you're making there, but the trend underneath that still feels like it's pretty notable any additional color on whats going.

Within ever North SG&A would be helpful, whether that's investments or mix or anything else that we should be keeping in mind. Thanks.

Hey, Steve It's Brian So a few things I would call your attention to in regards to the the profitability merchants relative to revenue we had an expansion of our relationship with the department of defense that was effective on January one and we had some additional spending that we're kind of working our way into in terms of growing into that so that.

That certainly weighed down the income growth a bit in the first half of the year to your point the rate and pace of investments, particularly around the accelerated growth businesses than ever north both the health care services as well as the Accredo specialty pharmacy also impacted the income growth and then for the back half of the year, we expect accelerated income.

Growth again mid single digits in the third quarter mid to high single digits in the fourth quarter.

Largely driven by the increased ramp for Biosimilars and I would note that that's not predicated on any meaningful share shift we have strong visibility to that.

With your question.

Okay.

Yes, John Ransom. Your line is now open you may ask your question.

It looks like he is not responding we'll go ahead, Mr. George Hill with Deutsche Bank you.

You May ask your question your line is open.

Good morning, guys and thanks for taking the question guys I know, it's a small piece of the business, but the other revenue inside of ever North grew 35%.

This quarter accelerating actually versus the prior quarter I guess, it's becoming to some degree a meaningful portion of the segment I guess could you talk about what's driving that growth and how should we think about the margin profile that's attached to that business.

Morning, George It's Brian I'll start and then Eric can pick up a bit so yeah, the fees and other revenue and ever North is a strong driver of growth granted off a low base. So important to keep that in mind as you think about the overall P&L multiple areas of growth underneath. This line one I'd call out is we're seeing increased demand for P. B.

M service based solutions meeting more fee oriented relationships as we have more and more clients looking for those types of mechanisms. We also contributions from our ever North care businesses reflected here. So for example M D lives.

Evercore are both contributing to that and then if you're looking at pharmacy other revenue to kill the script specialty distribution business has been a strong grower year on year.

You'll also recall from some of our prior conversations that we're very focused on driving cross enterprise leverage between the Cigna health care business and ever North So as Cigna healthcare procure as more and more services from ever North we have some benefit that comes through the fees in the other revenue lines.

In our north from that as well so Eric anything you want to add in terms of further color Bryan. Thanks.

Hit the headlines in terms of the main drivers here from a financially with just noted on the fee based portion of the PJM in particular.

This is an area that we've continued to accelerate David made referenced in his prepared remarks around our <unk> program. This builds off of a couple of years of experience that we've got in providing debased fully.

Fully aligned mechanisms in terms of providing the pharmacy benefit.

So those types of arrangements will come through there I would say if you think about the margin profile for that business is very consistent with our other businesses.

Express scripts and the like and then likewise the growth in our MD.

MD life and behavioral platforms.

<unk> to be an area of real focus for us and continued momentum in and so that's a driver as well and would have you think about those margins is also generally in line with the segment. Overall, so continued to be excited about the opportunity and the momentum that we're building in.

All of the different lines across north portfolio, and Youre seeing that grow.

There are come through that line.

Thank you.

Thank you Mr Hill.

Next question comes from Mr. Lance Wilkes with Bernstein. Your line is open you may ask your question.

Great. Thanks.

I just had kind of three elements to one was what sort of utilization trends you were seeing in behavioral dental and some of the other areas, where you're taking some risk.

And then a broader question just understanding how much specialties contributing to the earnings power of the business versus just the core medical and what you think the cross sell opportunities might still remains for that business. Thanks.

Good morning, It's Brian I'll start and then David if you want to chime in with anything feel free.

You know our specialty products within Cigna health care have been a really core part of the value proposition as we seek to expand.

A few clients that only purchase medical services from us more and more purchase the full suite because we've demonstrated over time, our clinical models perform best when we have a fuller suite of services.

As it relates to what we're seeing in terms of trends in terms of utilization behavioral health has certainly been growing at a strong clip not just this year, but for the past few years part of that is by design as we engage with our customers and over time, that's a good thing because the more utilization, we see a behavioral health services it helps to defray.

Our core medical costs over time, we've also seen an uptick in dental utilization this year as well, but all of these things are within the again the boundaries of what we had forecasted and planned for and priced for within our Cigna Health care book of business, which is why youre seeing our commercial employer business continue to perform so well financially.

<unk> trend and as you would expect and over a prolonged period of time I think the last three to five years and you click down and think about the professional services as such we continue to innovate new products new programs expansive expansion of network. Both physical network, we operate the largest virtual behavioral network in America today, and then expanding.

Behavioral services, even further in our value based care programs to help medical professionals be a first line of screening and support from that standpoint. The last part of your question around the <unk>.

Expansion opportunities within our portfolio.

Our portfolio well in terms of the health care side of the equation you think about the old monikers of select I think under 500 employees middle market 500 to 5000 old monitors and national above 5000, multi geographic select we still think about that is totally cross sold the penetrated we go to market with bundled solutions, it's a big part.

Part of our value proposition helps us generate a predictable high quality low trend in outcome middle market remains and has a high level of penetration yet through our cross cross sell opportunities and national accounts, a lower level of penetration versus the other segments. However, as I noted a j's question the point.

<unk> fatigue in the marketplace presents it even further opportunity as you coordinate those services. The last note I would make is as we leverage the breadth of the <unk> capabilities today and into the future. We're innovating new solutions. So you'll hear us talk more about path more programs to take specific diagnoses and look at reengineering those episodes of.

<unk> end to end any cases to your phraseology, we take risk based on the performance, where we hold ourselves accountable based upon the clinical service and financial outcomes. So strong penetration down market opportunities upmarket market buying behaviors are evolving because of point solution fatigue, and importantly continued innovation will continue to drive growth.

For us there thanks mines.

Thank you Mr. Wilkes I will now turn.

Thank you for your engagement and questions today I just want to highlight a few items, we start into 2023 with strong growth and have been successful in building on that momentum throughout the first half of the year, we remain confident they will deliver on our commitments, including our adjusted EPS outlook for 2023 of at least $24 70.

And our commitment for at least $20 of EPS in 2024, I'd also note how proud and appreciative I am of my colleagues around the world, who continue to be dedicated to driving innovation and delivering on the programs and solutions as well as partnerships that support everyday the health and vitality of our customers our patients and our clients.

As always we look forward to talking to you again soon about how we're working to sustained growth of our company and capture more opportunities to serve more lives and achieve a greater impact and we continue to invest in our future everyday to drive further innovation.

Great day.

Ladies and gentlemen, this concludes Cigna's group second quarter 2023 results review Cigna Investor Relations will be available to respond to additional questions. Shortly.

Accordingly, This conference will be available for 10 business days. Following this call you may access the recorded conference by dialing 8008391335, what is your all 33693357. There is no pass code required for this replay. Thank you for participating we will now disconnect.

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