Q4 2024 The Cigna Group Earnings Call
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Ladies and gentlemen, thank you for standing by for the Cigna Group's fourth quarter 2024 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 zone.
Speaker Change: 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 Giacobbe. Please go ahead.
Ralph Giacobbe: Thank you. Good morning everyone. Thanks for joining today's call. I'm Ralph Giacobbe, Senior Vice President of Investor Relations. With me on the line this morning are David Cordani, the Cigna Group's Chairman and Chief Executive Officer, Brian Evanko, Chief Financial Officer of the Cigna Group and President and Chief Executive Officer of Cigna Healthcare.
Speaker Change: and Eric Palmer, President and Chief Executive Officer of Evernorth Health Services.
Speaker Change: In our remarks today, David and Brian will cover a number of topics, including our fourth quarter and full year 2024 financial results and our financial outlook for 2025. Following their prepared remarks, David, Brian, and Eric will be available for Q&A.
Speaker Change: As noted in our earnings release, when describing our financial results, we use certain financial measures, including 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.
Speaker Change: A reconciliation of these measures to the most directly comparable gap measures, shareholders net income, and total revenues respectively is contained in today's earnings release which is posted in the investor relations section of thesignagroup.com.
Speaker Change: 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 Change: In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2025 and future performance.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.
Speaker Change: 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.
Speaker Change: Regarding our results, in the fourth quarter, we recorded net after-tax special item charges of $64 million, or $0.23 per share. Details of the special items are included in our quarterly financial supplement.
David: Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2025 outlook, we'll do so on a basis that includes the potential impact of future share of purchases and anticipated 2025 dividends. With that, I'll turn the call over to David.
David: Thanks, Ralph. Good morning, everyone, and thank you for joining our call.
David: Today, I'll discuss key headlines from the quarter and our full year 2024 performance. I'll also share more on the actions we are accelerating to build a better and more sustainable healthcare model. And then Brian will provide additional details on our financial results and our 2025 outlook. And we'll take your questions.
David: Before I get into our earnings I want to start by sharing a few comments on the current environment.
David: During my tenure as a leader of the Cigna Group, there have been a number of periods in our industry where we faced unique challenges, whether the financial crisis, the introduction of the ACA, the global pandemic, or several significant shifts in political, regulatory, and societal landscape.
David: At the Cigna Group, our resilience and the durability of our business models have allowed us not only to overcome obstacles, but to lead through change while focusing on achieving our long-term objectives for sustainable growth.
Speaker Change: In early December, we were all witness to the tragic murder of Brian Thompson, a leader at the UnitedHealth Group.
Speaker Change: The past several weeks have further challenged us to even more intensely listen to the public narrative about our industry.
Speaker Change: At the Cigna Group, we are further accelerating improvements and innovations to increase transparency, expand support, and drive even greater accountability.
Speaker Change: I'll come back to this important topic in a few moments.
Speaker Change: With that, let me start with a summary of our 2024 results.
Speaker Change: We delivered full-year revenue growth of 27% to approximately $247 billion.
Speaker Change: Full year adjusted earnings per share of $27.33 representing an increase of 9% year over year but short of our expectations.
Speaker Change: We return 8.6 billion dollars to shareholders through dividends and share repurchase.
Speaker Change: and our Board of Directors declared an 8% increase to our quarterly dividend to $1.51 per share and increased our share repurchase authority to $10.3 billion dollars.
Speaker Change: The Cigna Group also maintained a strong capital position in 2024. We're also nearly complete with the sale of our Cigna Healthcare Medicare business to HGSE and we continue to expect to close in the first quarter and plan to use the majority of the proceeds for share repurchase.
Thanks for watching!
Speaker Change: Now turning to our business results and actions, I want to cover just a few headlines.
First, our fourth quarter results were below expectations.
Speaker Change: due to higher than expected medical costs in our stop-loss product within Cigna Healthcare.
Speaker Change: We are taking corrective actions on this near-term pressure and expect to recapture margin over the next two years.
Speaker Change: This is a specific issue we identified and are mitigating, and I'll reinforce that we believe our U.S. employer and Cigna Healthcare businesses are strong and remain well positioned, and we're confident in our long-term growth strategy.
Brian will discuss this in greater detail in his remarks.
Speaker Change: The second headline from the quarter is that Evernorth continues to drive strong results in line with our expectations, primarily driven by our specialty and care services segment.
Speaker Change: Our continued leadership of biosimilars is a good example of how we are addressing some of the biggest challenges facing clients and patients today.
Speaker Change: We began dispensing our Humira interchangeable biosimilar last summer to eligible Macredo patients with zero dollar costs to our patients.
Speaker Change: We are pleased that biosimilar use for eligible Humira scripts reached nearly 50% by year-end 2024.
Speaker Change: We took another step forward as we announced that we will be offering an interchangeable Stellaro biosimilar, again for a zero dollar cost to our patients.
Speaker Change: Looking forward, we expect approximately 100 billion dollars of specialty drug spend in the U.S. will be subject to biosimilar and generic competition over the next five years.
Speaker Change: Our Humira and Stelara biosimilar offerings are just the start of this opportunity and Acredo is well positioned to lead and continue to deliver real savings for our clients, customers and patients.
Speaker Change: Now stepping back, prescription drug coverage is the most frequently used health care benefit.
Speaker Change: and how our nation and industry captures the full promise of prescription drug innovation while addressing affordability has been subject to continued debate.
Speaker Change: Pharmacy benefit managers are essential in helping patients access medications at fair and affordable prices.
Speaker Change: In fact, approximately 80% of Express Scripps patients spend less than $100 out-of-pocket per year for their prescriptions.
Speaker Change: Yet we recognize for those Express Scripts patients who pay more than $100, for some it's too high.
Speaker Change: For example, consider the increased use of GLP-1s in the United States. It is the number one driver of drug trends across employers of all sizes in 2024.
Speaker Change: Despite these medications being relatively cheap to produce, Americans are paying prices that are multiples higher for GLP-1s compared to other countries, even with full pass-through of rebates.
said otherwise.
Speaker Change: Even including all discounts and rebates, the end result is that the U.S. costs are multiples higher than other OECD countries.
This is not acceptable nor sustainable.
Speaker Change: That's Renovations, led by Evernorth and Express Scripts. We are proud that last year our EnCircleRx solution grew to approximately 8 million lives enrolled.
Speaker Change: where we are supporting the best possible patient outcomes by providing those on GLP-1's additional lifestyle support and tools to help sustain long-term improvement.
Speaker Change: Now the next headline I want to touch on a bit more is the current environment.
Speaker Change: We have long been on a path to evolve and drive continuous improvement. As we step into 2025, we have further strengthened our urgency and resolve on this path.
Speaker Change: That means we are accelerating investments that will positively impact the way our customers and patients experience healthcare.
Speaker Change: To that end, this week we announce actions we are taking in ExpressGrips, our pharmacy benefit service business within Evernorth.
Speaker Change: Our commitment will help patients directly benefit further from the negotiations we drive to lower out-of-pocket costs as well as work to further enhance transparency. Let me briefly recap the announcements
Going forward, our standard products will provide patience.
Speaker Change: lower prices at the pharmacy counter protecting them from paying full list prices for drugs.
Speaker Change: and they will fully benefit from our lower net negotiated prices. Next, patients will also have improved predictability, especially and importantly in their deductible phase, by receiving the benefit of Express Script's negotiated savings like their employer does.
Speaker Change: We will also expand the benefit summaries and disclosures we provide.
Speaker Change: Patients will receive a personalized summary that details their annual total prescription drug costs
planned paid amounts and the savings we delivered.
Speaker Change: And planned sponsors will also receive an enhanced report beyond what Express Scripts already provides, including additional transparency on costs and pharmacy claim level insights.
Speaker Change: We know that more can be done within our health plan offering as well for customers and patients as well as clinical partners to further ease access to care timeliness and expand support programs.
Speaker Change: More specifically, Cigna Healthcare will soon be announcing steps to improve value and address patient points of friction.
Speaker Change: Our focus is on making prior authorizations faster and simpler and expanding access to advocates for those facing complex health conditions to help them navigate every stage of their care journey.
Speaker Change: These initiatives will require that we incur additional costs but we firmly believe these are critical actions for the benefit of customers and patients.
Speaker Change: We will continue to take a prudent approach to these and future Cigna Healthcare and EverNorth actions in the weeks and months ahead as we are determined to continue to evolve for the benefit of those we serve and build a more sustainable healthcare model.
Now let me briefly summarize.
Speaker Change: And we return $8.6 billion to shareholders through dividends and share repurchase.
Speaker Change: Looking ahead to 2025, our EPS outlook of at least $29.50 reinforces the sustained growth and strength of our company and we are focused on taking the prudent steps necessary to ensure our company is well positioned for future growth.
Speaker Change: and we remain confident in our long-term 10-14% growth target fueled by our differentiated capabilities and portfolio businesses.
Speaker Change: Finally, we recognize the need for accelerated positive change in our health care system to make it simpler and more affordable for everyone.
Brian Thompson: and the Cigna Group is committed to continue to take action, strive for their accountability and transparency as well. With that, I'll turn the call over to Brian.
Thank you, David. Good morning, everyone.
Brian Thompson: Today, I'll review Cigna's fourth quarter and full year 2024 results and I'll provide our outlook for 2025.
Brian Thompson: For full year 2024, we reported consolidated adjusted revenues of $247.1 billion.
Brian Thompson: Adjusted after-tax earnings of $7.7 billion and adjusted earnings per share of $27.33.
Brian Thompson: Our performance within the Evernorth Health Services segment ended the year strong with particular momentum in specialty and care services.
Brian Thompson: Despite this, our enterprise earnings results fell short of our expectations.
Brian Thompson: driven by higher than expected medical costs and our stop-loss products within the Cigna Healthcare segment.
Brian Thompson: This resulted in a full year medical care ratio of 83.2% which was above our guidance range.
Brian Thompson: We are taking corrective action to recapture margin, and we remain confident in the long-term strength of our business despite this short-term pressure.
Now more specific to Cigna Healthcare's
Brian Thompson: 4th quarter 2024 revenues were $13.3 billion dollars. Pre-tax adjusted earnings were $511 million dollars.
and the medical care ratio is 87.9%.
Brian Thompson: As I noted, fourth quarter earnings fell below our expectations as we observed elevated medical costs in stop loss.
Brian Thompson: Results of our other products were in line with expectations, exhibiting a continuation of elevated trends that we had seen throughout the year.
Brian Thompson: Taking a step back, it's important to note that Stop Loss is a unique product within our portfolio where employers limit their risk from unexpected high cost claims by transferring that risk for medical costs above a specific individual or aggregate employer dollar amount.
We can see variability in this product at times.
Brian Thompson: This year, variability was more pronounced in the fourth quarter as we had an increase in the number of high-cost claimants.
Brian Thompson: related to cost pressures from the continued acceleration in the prescribing and use of specialty medications.
as well as elevated high acuity surgical activity.
Brian Thompson: The fourth quarter also tends to be when more client settlements transpire, including true-ups for the full calendar year of activity.
Brian Thompson: But did not capture the full extent of this trend acceleration that materialized in the fourth quarter
Brian Thompson: While this negatively impacts near-term margin, we expect to recapture approximately 100 basis points of margin in the overall Cigna healthcare segment over the next two years.
with the majority in 2026 and the remaining in 2027.
Brian Thompson: We will do this by balancing pricing action, affordability initiatives, operating cost efficiency, and continued investments.
Now turning to Evernorth.
Brian Thompson: 2024 highlighted another year of sustained growth, particularly within the specialty and care segment.
Brian Thompson: highlighting the attractiveness of our market-leading clinical capabilities and innovative solutions that create affordability for customers and patients amidst the growing trend of pharmacological innovation.
Brian Thompson: Adjusted revenues for fourth quarter 2024 grew 33% to $53.7 billion and pre-tax adjusted earnings grew 14% to $2.1 billion in line with expectations.
Brian Thompson: Moving to our businesses within Evernorth, specialty and care services adjusted revenue grew 18% to $23.5 billion and adjusted earnings grew 27% to $948 million.
Brian Thompson: This continues the pattern observed from last quarter, which reflects growth across our specialty businesses, driven by higher utilization of specialty medications.
Brian Thompson: as well as a continued increase in the adoption of Humira biosimilars.
Brian Thompson: By the end of the fourth quarter, we saw almost half of eligible Humira scripts transition to biosimilars.
Brian Thompson: Pharmacy Benefit Services also posted robust growth reflecting client wins and the continued demand for new drugs through our innovative products and solutions.
Brian Thompson: Free tax-adjusted earnings increased to $1.2 billion, as our differentiated capabilities continue to drive affordability and value to our patients, customers, and clients.
Brian Thompson: Overall, the fourth quarter capped another strong year for Evernorth, with full-year pre-tax adjusted earnings growing 9% for the year.
Brian Thompson: We are the industry leader in pharmacy benefit services and in specialty pharmacy, and our strong 2024 performance gives us confidence for sustained, attractive growth over the long term.
Now, turning to our 2025 outlook.
Brian Thompson: First, I'd note that the divestiture of our Medicare businesses to HCSC remains on track to close in the first quarter, and this is contemplated in our outlook.
Brian Thompson: We expect full year 2025 consolidated adjusted revenues of at least $252 billion.
Brian Thompson: and we expect full year 2025 consolidated adjusted income from operations to be at least $7.9 billion or at least $29.50 per share.
Brian Thompson: As David mentioned, we are accelerating investments that will positively impact the way our customers and patients experience healthcare.
Brian Thompson: Our outlook reflects up to $150 million in costs for these initiatives.
split between Evernorth and Cigna Healthcare.
Brian Thompson: When considering earnings seasonality, 2024 is not representative of typical patterns, given the dynamics I referenced with our stop-loss products.
Brian Thompson: Now, turning to our 2025 outlook for each of our segments.
Brian Thompson: In Evernorth, we expect full year 2025 adjusted earnings of at least $7.2 billion.
Brian Thompson: This represents year-over-year growth within our long-term growth target range on a normalized basis.
Brian Thompson: Within Evernorth we expect first quarter earnings to contribute slightly below 20% of full-year Evernorth earnings.
Brian Thompson: For Cigna Healthcare, we expect full year 2025 adjusted earnings of at least $4.1 billion.
This represents mid-single-digit year-over-year growth on a normalized basis.
Brian Thompson: Within Cigna Healthcare, we expect approximately 55% of full-year earnings to be in the first half of the year.
Slightly more weighted to the first quarter.
Assumptions in our Cigna Healthcare Outlook for 2025.
Brian Thompson: include our medical care ratio to be in the range of 83.2% to 84.2%.
Brian Thompson: This reflects the expectation that our stop-loss MCR continues to be above target levels for full year 2025.
Brian Thompson: We expect the first quarter 2025 medical care ratio to be below the low end of the full year guidance range to reflect typical seasonal patterns.
Brian Thompson: We expect approximately 18.1 million total medical customers at year-end reflecting the divestiture of our Medicare businesses to HCFC.
Brian Thompson: a reduction in individual exchange customers and growth within our U.S. employer select and middle market segments.
Brian Thompson: For the enterprise, we project an adjusted SG&A ratio of approximately 5.4% for 2025.
Brian Thompson: This percentage is lower in 2025, largely reflecting mix, due to the absence of our Medicare businesses, which carried a higher SG&A ratio compared to the consolidated average.
Brian Thompson: and we expect the consolidated adjusted tax rate to be approximately 19%.
Brian Thompson: Now moving to our 2024 Capital Management position and 2025 Capital Outlook.
Brian Thompson: Our fourth quarter cash flow is quite strong, and we finished full year by delivering $10.4 billion of cash flow from operations.
Brian Thompson: In 2024, we repurchased 20.9 million shares of common stock for approximately $7 billion.
Brian Thompson: In addition, the Board of Directors recently approved an increase of $6 billion in incremental share repurchase authorization.
Brian Thompson: bringing the company's total share of purchase authorization to 10.3 billion dollars as of December 31st 2024.
Brian Thompson: Finally, we returned 1.6 billion dollars to shareholders via dividends in 2024.
Now framing our 2025 Capital Outlook.
Brian Thompson: We expect to deliver approximately $10 billion of cash flow from operations with the strength of our efficient, service-based model.
Brian Thompson: We expect to deploy approximately 1.4 billion dollars to capital expenditures.
Brian Thompson: and we expect to deploy approximately 1.6 billion dollars to shareholder dividends.
Brian Thompson: reflecting our quarterly dividend of $1.51 per share an 8% increase on a per share basis.
Brian Thompson: Our guidance assumes full year weighted average shares outstanding to be in the range of 266 million to 270 million shares.
Our capital deployment priorities remain consistent with our long-term framework.
Brian Thompson: We expect some debt pay down in 2025 as we look to bring our leverage ratio closer to our 40% target.
Brian Thompson: As it relates to the sale of our Medicare businesses, we continue to expect a majority of proceeds will go toward share repurchase.
Now to close.
Brian Thompson: As we look to 2025 and beyond, we remain confident in our long-term strategy and our ability to deliver sustainable growth through a differentiated portfolio of businesses.
As David mentioned, we're operating in a highly dynamic environment.
David: But as we've demonstrated in the past, we have a proven track record of meeting challenges and taking the actions to deliver affordable and innovative solutions for our customers and patients.
David: We're confident in our ability to deliver full year 2025 adjusted earnings of at least $29.50 per share, which we believe is prudent at this time, given the dynamic environment.
David: And with that, we'll turn it over to the operator for the Q&A portion of the call.
David: 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 speaker phone, please pick up your handset before pressing the buttons. One moment please for the first question.
David: Our first question comes from Justin Lake with Wolf Research. Your line is open. You may ask your question.
Justin Lake: Thanks, good morning. I wanted to ask a couple things on the stop-loss business. First, on the seven billion of premium.
Justin Lake: was hoping you can give us some split between the aggregate versus specific.
Justin Lake: stop-loss premiums and then maybe tell us if there was any, you know, more margin pressure in one segment versus the other.
Justin Lake: in the fourth quarter, and then wanted to just make sure I'm understanding the magnitude of the miss correctly here. You know, you talked about the fourth quarter miss.
I'm getting to like 1,500 basis points.
Justin Lake: in the fourth quarter, that's, you know, in the ballpark, and then I think you said your margins overall are 100 basis points higher because of this or lower that you'll recapture, which would seem to indicate stop losses off by about 5% given the percentage of revenue.
Justin Lake: Just trying to make sure I understand all of that correctly. Any help, appreciate it. Thanks.
Justin Lake: Good morning, Justin. It's Brian. A number of components to your question, so I'll do my best to capture as much of that as possible. Let me just start with a little bit of context on the stop-loss business.
Justin Lake: And then I'll try to get to your very specific questions there on my way through here. So, obviously, we're disappointed by the shortfall that we reported in the fourth quarter. As I mentioned in my prepared comments earlier, the vast majority of the shortfall was driven by our stop-loss products within Cigna Healthcare.
Justin Lake: and the rest of the company performed broadly as we expected. Now, it's important to keep in mind that our stop-loss product performance in the quarter is really more representative of the full-year impact, because it's an accumulation product reflecting 12 months of healthcare activity for a given individual or an employer.
Justin Lake: And we continue to feel very good about the long-term fundamentals of our U.S. employer portfolio and the stop-loss products specifically. And the shortfall that we're currently experiencing represents an embedded earnings opportunity for the future.
And as we look back at 2024,
Justin Lake: The aggregate health care costs within the Cigna health care portfolio were broadly in line with our expectations reflecting the persistently elevated cost trend environment that I referenced.
which has a disproportionate impact on the stop-loss products.
Justin Lake: And given when we identified the magnitude of the 2024 stop-loss pressure,
Justin Lake: We were not able to fully recognize this in our January 2025 renewal pricing as much of that pricing work was completed in the fall. Now some of the later 2025 renewals will reflect the updated estimates.
Justin Lake: But the majority of the 2025 stop-loss pricing will not capture that elevated cost structure. So when you put all those pieces together, we would expect to see 100 basis points of margin improvement across the Cigna healthcare portfolio.
Justin Lake: by 2027, with the majority of that to be captured in 2026.
Justin Lake: Now, more specifically to your questions, when you think about the $6.7 billion of premium in our stop-loss book of business, there's a mix of individual and aggregate stop-loss in there, and there are a variety of attachment points.
Justin Lake: and different client choices embedded in there. You can think of it as more tilted toward the individual versus the aggregate, but we have a wide range of stop-loss offerings that are out there. And for full year 2024, the overall stop-loss MCR ran in the low 90s.
Justin Lake: in terms of the percentage, which you can think of as being a mid-single-digit percentage amount, worse than our expectations had been in 2024.
Justin Lake: So again, that's 6.7 of billion of premium multiplied by a mid single digit percentage miss
Justin Lake: get to you about the earnings impact that we're seeking to recover over time.
on the stop-loss.
Justin Lake: of the portfolio, but importantly, the balance of the Cigna healthcare portfolio ran broadly in line with expectations. Thanks for the question.
Speaker Change: Thank you. Our next question comes from Stephen Baxer with Wells Fargo. Your line is open. You may ask your question.
you know, these kind of larger above-trend increases for stop-loss.
Speaker Change: And, you know, can definitely appreciate, you know, why it takes until, you know, at least 2026 to get meaningful improvement. But when you're talking about some of this improvement leaking out into 2027 potentially, could you just help us understand a little bit why it could become, you know, even that far extended? Thank you.
Speaker Change: Hi Stephen, it's Brian again. So one thing that's critical to keep in mind as it relates to our stop-loss portfolio is that we don't write a sandal on stop-loss coverage. So our entire book of business
Brian Thompson: which ends up creating numerous opportunities for value creation and the associated value capture and even with the stop-loss claims pressure that we experienced in our 2024 results our overall client level relationships are profitable for those employers
who choose our stop-loss offerings.
Brian Thompson: When we look back historically over many years, decades in fact, we've been able to overcome
Brian Thompson: the short-term ups and downs of our stop-loss portfolio and generate attractive long-term returns.
Brian Thompson: And our clients value these long-term relationships and the associated budget certainty that our offerings can provide to them, which really is evidenced by the fact that well over 50% of our employer clients who choose our stop-loss products have been clients of Cigna Healthcare for five years or more.
Brian Thompson: So, the shortfall in our 2024 results offers a substantial embedded earnings opportunity for the company, and we're confident in our ability to execute against this, balancing the timing of margin recovery with client persistency.
John F.
Speaker Change: Thank you. Our next question comes from Charles Rhee with TD Cowan. Your line is open. You may ask your question.
Oh yeah, thanks for taking the question.
Speaker Change: Just related to sort of the stop loss again a little bit, you called out especially meds at the start, contributing to that. Is that related to GLP ones at all? And, you know, and related to it, as we think about the Evernote guide going forward, you're starting at a 3%.
Speaker Change: This part of the guidance seems pretty conservative, particularly given the growth you saw in specialty in the back half of 24. Thanks.
Speaker Change: Good morning Charles, Brian. So as it relates to the the stop-loss specific drivers, which I think was the core of your first question, you can think of this as being a situation where you had a greater frequency of high dollar claimants than we had been expecting.
Speaker Change: particularly driven by high-cost specialty pharmaceuticals and by high acuity surgical activity. Now within the specialty drugs, I would not point to GLP-1s as driver of this. Think of it as more specialty injectables.
Speaker Change: So when you look at the the nature of that particularly for the stop-loss books it's drugs like Keytruda or Crevice those sorts of specialty injectables that drove some of the
Speaker Change: Upward pressure and then on the high acuity surgical side think of that as more tilted to inpatient procedures
Speaker Change: for example, oncology and cardiac-oriented procedures. So that was really the core of the upward pressure on the stop-loss products. Now, as it relates to Evernorth's 2025 income outlook, just, again, I'd start by saying how pleased we are with the overall performance of that portion of the company.
Speaker Change: We delivered a strong result in 24, as you noted in your question.
Speaker Change: As it relates to 2025 specifically, our outlook for the income growth is within our long-term growth rate range of 5-8%.
Speaker Change: when a few adjustments are made, so specifically the absence of Village MD net investment income, which was recorded in 2024.
Speaker Change: as well as the Evernorth share of stranded overhead from the Medicare divestiture. And then as I noted in my prepared comments, we have earmarked up to $150 million across the company.
Speaker Change: for incremental 2025 investments in patient and provider facing initiatives and our guidance reflects a portion of that spending in the Evernorth segment. So adjusting for these factors, we look forward to Evernorth delivering income growth within our long-term average annual growth rate range.
Speaker Change: So overall, Evernard performing well, we're positioned for another good year.
Thank you for watching!
Speaker Change: Thank you. Our next question comes from Lisa Gill with J.P. Morgan. Your line is open. You may ask your question.
Lisa Gill: Thanks very much and good morning. David, I wanted to go back to the comments that you made around Express Scripts and some of the offerings that you now have, lowering the price at the counter, etc. And really tie that back to comments you've made in the past around roughly 20% of total profits coming from rebate retention.
Speaker Change: Can you talk about two things? One, are clients shifting more where they want more of the rebate retention? And if so, how do we think about that impact of profitability over time? And then secondly, the programs that you talked about, are those more of an opt-in? So you're selling those into the marketplace. And I'm just curious around, you know, what you're seeing on the uptake side. So, so really two questions here, how I think about the future and if we have changes, what that could do to the profit of the model. And then secondly, the uptake around this.
David: Good morning, Lisa. It's David. I'll start and I'm going to ask Eric to expand.
Yeah.
David: I think your latter part of your comment and question was the summary you were seeking. At the enterprise level, we do not see this as a change to our profit model.
David: So I'll come back to that headline in a moment. We've worked for an elongated period of time to, through innovation, through ongoing efficiency, to continue to deliver more value while maintaining an attractive margin and by maintaining it a stable low single-digit margin which we think is responsible given the nature of this book of business.
Coming back up to the top
David: I'd ask you to not think that your statement was 20% of the profit is correlated to rebate retention. The vast majority of rebates are passed through today. The model has evolved rather rapidly, with the vast majority of all rebates being passed through. We continue to offer choice in the marketplace. There are instances where employers, large sophisticated employers or collective bargaining arrangement unions want to continue to use rebates a little differently in their overall
David: And then to the core of the center part of your question, we're really excited about, and I couldn't be more appreciative and proud of the innovation of our team with the most recent innovations we announced this week, which take even more precision to identify those patients.
David: who, due to deductible phases or otherwise, have some financial dislocation. As I noted, 80% of all Express Scripts customers have less than $100 cumulative out-of-pocket through the course of the entire year. However, we recognize some have more.
David: and we need to bring more precision there and that's where some of the new innovations are targeted. So I'll ask Eric to expand a little bit more on those exciting innovations.
Eric Palmer: Great. Thanks, David, and good morning, Lisa. As David noted, as you noted, we announced yesterday a couple of additional enhancements to just build on our track record of innovations to make medicines more affordable.
Eric Palmer: So first we announce that customers will not have to pay list price at the pharmacy counter regardless of where they're at with deductibles. Our go forward approach will be to ensure that they get the benefits of the discounts we negotiate.
talk to you next.
Great, thank you.
Speaker Change: Thank you. Our next question comes from A.J. Rice with UBS. Your line is open. You may ask your question.
Hi, everybody.
A.J. Rice: Just to maybe get a little bit of clarification on a couple points with respect to the 2025 guidance
A.J. Rice: I think now, I mean you gave some preliminary comments on third quarter, I don't think you had incorporated this, but now you're incorporating the sale of the MA.
A.J. Rice: book by the end of the first quarter in The Outlook, as well as presumably some redeployment of that capital.
A.J. Rice: There was some pressure on the Evernorth margin at 24 related to the big new contract wins that you were absorbing, and there was presumably going to be some favorable step-up.
Speaker Change: are you assuming some level of step up on that or are you now sort of assuming it's sort of steady state margin?
Brian Thompson: Morning AJ, it's Brian. So let me do my best with your questions here. The former, in terms of the Medicare divestiture, as I mentioned earlier, on track to close in the first quarter. We've reflected that.
Brian Thompson: with one month of January revenue and then whenever the closing date happens to be in February or March. As it relates to capital deployment, as I mentioned earlier, we expect to use the majority of the proceeds for share repurchase, that's reflected.
Brian Thompson: in our share account guide. And then relative to the other contributions, when you think about the Cigna Healthcare Income Guide, the removal of Medicare is reflected in that. So maybe just to put a finer point on that, if you look at our segment income guide for Cigna Healthcare this year,
Brian Thompson: and you compare it to 2024. If you look at 2024's actual income and remove the contribution from the Medicare financials.
remove the stranded overhead from the divestiture.
Brian Thompson: and remove the favorable prior year development that we saw in 2024.
the normalized
Brian Thompson: Cigna healthcare earnings would have been slightly below four billion dollars in 2024
Brian Thompson: So that just gives you a basis to compare our 2025 outlook reflecting the removal of Medicare and the removal of the prior year development. We do not forecast a future prior year development.
Brian Thompson: Normalized growth rate that I referenced being within our five to eight percent long-term growth rate range reflects
Brian Thompson: the continued maturation of our large client contracts, so it's in there. The relationship continues to be very strong across the teams and we're pleased with the overall financial contribution of that relationship.
Okay, thanks a lot.
Speaker Change: Thank you. Our next question comes from Scott Fidel with Stevens. Your line is open. You may ask your question.
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Speaker Change: Do you think that the persistency of the clients may benefit from the fact that others
Speaker Change: in the market will also be needing to take similar pricing actions.
Speaker Change: You know, when we think about the sort of the renewal cycle of the clients that typically take stop loss for Cigna, which, you know, has always been a bit more weighted towards.
Speaker Change: selected in in middle market you know there's a different renewal cycle for those clients. They're not as entirely weighted to sort of Gen ones, for example. So basically if you also care to remind us
Speaker Change: for 25 basically, walk us through how much of the business you still have an opportunity to reprice on where you see an entire stop loss cost. Thanks.
Thanks for watching!
Speaker Change: Good morning Scott, it's Brian. So as it relates to your first question in terms of the the client relationships, the timing to recover, etc., and putting that into context, as I mentioned to the earlier question I think Stephen had asked me, important to keep in mind these are all integrated client relationships where we have both the first dollar and the stop-loss coverage. And if you look across the totality of the relationships, on average
about 20%
and Keith Wates.
a point of overall claim costs.
Speaker Change: Only 20% of that on the stop-loss, so there's a little bit more of a buffer here as it relates to repricing in terms of the overall client persistency, which in our estimation gives us an advantage being an integrated stop-loss carrier compared to standalone stop-loss carriers who might be competing up against this.
Speaker Change: Now, your question on the renewal cycles, the way that our stop-loss products happen to work, it's actually a little bit more tilted toward the beginning of the year.
So we have about two-thirds.
Speaker Change: of our stop-loss premium that renews in the first quarter, given that we also have large clients.
Speaker Change: uniformly distributed throughout the calendar year, as our select segment happens to be.
Speaker Change: And as a result of that, that's one of the primary reasons why we're not able to recapture more in 2025. But again, we have the confidence that we'll capture a majority of that 100 basis points at Cigna Healthcare Margin Expansion in 2026 with any residual in 2027.
Speaker Change: Thank you. Our next question comes from Erin Wright with Morgan Stanley. You may ask your question. Your line is open.
Erin Wright: Any sort of change in your thought process around the regulatory environment on that front or just your broader framework and thought process around acquisitions? I guess, has anything changed there? Thanks.
Erin Wright: supporting the ongoing growth of the business, including our CapEx, which we have a discipline process attached to that, and then evaluating both strategic M&A and ongoing deployment of targeted M&A activities, which I'll come back to in a moment. As both Brian and I noted, a distracted dividend sits in there as a part of it that continues to grow.
Erin Wright: Now, specific to M&A, first, our three growth platforms continue to perform well, and we just highlight and amplify how pleased we are overall with the sustained performance there and call out the specific significant growth opportunity we continue to see in the specialty and care platform.
Erin Wright: By way of just our actions and our words lining up, as we noted, we deployed an excess of eight and a half billion dollars in 2024, mostly for share repurchase, as well as with dividend payments, and our capital outlook and our cash flow outlook of greater than 10% cash yield for 2025 remains attractive. So as we look forward,
Erin Wright: We will continue to evaluate strategic, what we consider bolt-on acquisitions that will advance our portfolio, but our ongoing growth of our core platforms will be the underlying driver and we will support that with ongoing share repurchase as we believe that is a prudent ongoing investment back into the organization and we'll evaluate those targeted bolt-on acquisitions as they make good strategic sense for us.
Erin Wright: Thank you. Our next question comes from Andrew Mock with Barclays. Your line is open. You may ask your question.
Andrew Mock: Hi, I understand the different mechanics of the stop-loss business, but if you're seeing pressure in that part of the business related to higher specialty cost trends, I'm a little confused why you're not seeing that pressure on the fully insured part of the business. Maybe you could help clarify that. Thank you.
Good morning, Andrew. It's Brian.
as it relates to your question on the different...
Andrew Mock: and I'm going to be talking about the different pockets of the Cigna healthcare portfolio. Maybe I'll expand a little bit on the MCR performance for the different components. But again, I'd come back to something I said earlier where the all-in cost structure that we saw in 2024 was
Andrew Mock: comparable to what we expected it to be, an elevated cost structure, but comparable to what we had planned in price for in totality. But the mix of those costs shifted more toward high-cost claimants.
Andrew Mock: Than what we had been anticipating coming into the year. If you think about the Cigna healthcare portfolio in aggregate, you can think of it as
three broad components.
Andrew Mock: So, the largest portion of Cigna Health Care, which represents about 60% of the Cigna Health Care premium, and it's unrelated to stop-loss, unrelated to Medicare, so think of everything else.
Broadly in line with expectations and we ended the 2024
Andrew Mock: full year with an MCR of around 80% on that block of business. So that 60% ran at about 80% MCR.
Andrew Mock: and we're projecting a roughly similar MCR performance in 2025 for that portion of the book as our pricing yields are expected to track cost trends on that portion.
Andrew Mock: The second component is our Medicare business, which represents about 25% of the Cigna health care premium.
Andrew Mock: and ran broadly in line with expectations in 2024. And then the final 15% is the stop-loss products, or the stop-loss products. So for 2024, as I mentioned in Justin's earlier question, the overall stop-loss ran in the low 90s.
Andrew Mock: on that 15% portion of the book. So we ended up seeing...
within the total health care pie a shift toward more
Andrew Mock: For example, if you take facility costs for 2024, we saw a bit more moderation in lower dollar inpatient events.
but an acceleration of higher-dollar inpatient events.
Brian Thompson: And you can think about those as cardiac surgical events or oncological events, and the oncological events aided by specialty pharmaceuticals as they correlate against the oncological program. So that's an example where the aggregate inpatient may be closer to what we thought it would be throughout the course of the year because of the deceleration or the less growth on the lower dollar inpatient costs versus the higher dollar, it aggregates more in the stop loss component. That's just an illustration of what Brian was articulating.
Thanks.
Thank you
Speaker Change: Thank you. Our next question comes from Josh Raskin with Nefron Research. Your line is open. You may ask your question.
Josh Raskin: Hi, thanks. Good morning. Just on the pending Medicare sale, asset sale to Healthcare Service Corp, are there any potential adjustments to the purchase price based on revenues, membership, MLR, you know, just and maybe a comment on the strong membership to start 2025 and then any pending approvals or any sort of last-minute things you're looking for?
Speaker Change: Good morning Josh, Brian. So overall I just start by saying the Medicare businesses perform broadly in line with expectations in 2024 and we're on track to close the divestiture in the first quarter as I mentioned earlier.
We have a very collaborative, constructive relationship with HCSC.
Speaker Change: We've completed all federal antitrust approvals and nearly all state approvals, just one more state to get through. We have typical financial adjustments to the final purchase price in terms of subsidiary capitalization and things along those lines, but nothing else that I would note that's.
Speaker Change: particularly relevant to the core of your question. Now as we approach 2025 as we always do
We employed a local market, county-level bid approach.
Speaker Change: and based upon our final product positioning, we did see attractive growth in this business.
Speaker Change: specifically in the geographies and the products where we were targeting. In particular, we were pleased to see net growth coming primarily from HMO products in our more mature markets where we have years of experience and strong provider relationships. So, the business is on a solid footing. We're tracking for attractive growth in 2025 and we're ready to hand it off to HCSE.
Speaker Change: Thank you. Our next question comes from Adam Rohn with Bank of America. Your line is open. You may ask your question.
Adam Rohn: Hey, I'd like to dig a little deeper into the Ever North guidance I know we somewhat touched on already, but if you could distill it down into a couple of more specific items, so
Adam Rohn: Just curious like this time last year what gave you the confidence to raise the growth rate in the segment?
Adam Rohn: That has now come in worse than those higher expectations. Sounds like specialty growth in particular is coming in better, if anything. Are there any specific items like Village MD or on-trend guarantees that you gave customers that are driving the underperformance for 2025 in the Outlook? Thanks.
Brian Thompson: Adam, let me ask Eric just to start to talk about the strategic positioning of the business and the ongoing sustained growth of the the components in the business with our sustained strong performance of our PBS and to talk a little bit about the retention rates and the growth profile as well as the ongoing focus on the innovations within our specialty business and then Brian if you take it from Eric and just talk a little bit further around the number aspect of where Adam's question comes back to Eric
Brian Thompson: and many others. We're committed to delivering that. Brian walked through a couple of the specific kind of tactical items that were incorporated as we built up our 2025 specific guidance, and I think about those in the short term, but the long-term tailwinds in our positioning for innovation across both the pharmacy benefit services and the specialty and care services portfolio continue to be set up really well, and we're leaders in both of these spaces and we think there are real opportunities
Eric Palmer: Thanks, Eric. And Adam, just to reiterate, there are three unique items as you look at the 25 over 24 Ever North income growth rate. The Village MD recognition of the dividend that was in 24 will not be there in 25.
Eric Palmer: that David covered earlier. We've earmarked at the enterprise level up to $150 million split between the Evernote and Cigna healthcare segments that'll hit the 2025 P&L. So those three items are discrete 25 over 24 items, but the long-term megatrends remain very intact as Eric mentioned earlier.
Thanks.
Speaker Change: Thank you. Our next question comes from Anne Hines with Missoula Securities. Your line is open. You may ask your question.
Speaker Change: was off mid-single digit. So, if I do the calculation, that's maybe like around a $335 or $40 million hit versus expectation.
But when I look at the 2025 health care EBITDA,
Speaker Change: It's about $800 million below the street, so I'm just trying to figure out what the difference is versus our expectations. Thanks.
Speaker Change: Good morning Ed, it's Brian. So as it relates to the stop-loss dynamic we were discussing earlier, that was a 2024 reference when I described the low 90s MCR on the stop-loss book on the 6.7 billion dollars of premium.
Speaker Change: For 25, we're expecting a slightly higher MCR on the stop-loss book because of the timing of the repricing cycle.
And as I made reference, we're unable to capture
We expect a slightly higher
Speaker Change: MCR and stop loss in 2025 and that'll be on a higher premium base because that's 6.7 billion dollars
Speaker Change: will grow at an attractive rate again, so that dollar amount will grow in 2025. In addition...
Speaker Change: As I made reference earlier, we do not forecast future prior year development, which was a benefit to 2024. And we have earmarked up to $150 million at the enterprise level for the provider and patient-facing initiatives that David described and a portion of that.
Speaker Change: will be reflected in the Cigna Healthcare P&L. So those dynamics help to bridge, I think, where you were going with the 2025 prior expectations to our 2025 guidance we've initiated today.
All right, thanks, very helpful.
Speaker Change: Thank you. Our next question comes from Sarah James with Cantor Fitzgerald. You may ask your question. Your line is open.
Thank you.
Sarah James: Since you started seeing this stop-loss claims pressure in 3Q, was some of that pressure already included in the 3Q guide of more than 10% growth, and was any of the $150 investment spend included in that? Because I'm trying to run the math, bridging the 8% to the more than 10%.
Sarah James: And I kind of feel like I'm missing a few good guys, so I'm wondering if your outlook improved on some of your other businesses. Thanks.
Good morning, Sarah. It's Brian.
Sarah James: The third-quarter commentary that we made, again, was not meant to be formal guidance. It was meant to be just directional guidance. At the time, we had said at least 10 percent, which we felt was a prudent growth rate range at that point in time. You may also recall we had moved the MCR guide for the full year at that point in time toward the upper end of the range because we had started to see some indications of some pressure on the stop-loss, but not to the degree.
Sarah James: We have now factored in the up to $150 million of investment spend for the provider and patient-facing initiatives that David walked through. That's not new. The degree of the stop-loss pressure for the full year 24 was greater than what we had anticipated three months ago.
Speaker Change: That's not new and then to your point are there other things going
Speaker Change: better than expected across the company. Directionally, you should think of the growth is strong yet again. So if you remove
Speaker Change: The Medicare business we expect top line for the company will grow in the call it 6% range. So we expect to have another year of good growth across the enterprise. So broadly speaking, I would think of it in those different buckets. But again, the third quarter commentary was not meant to be formal guidance is just trying to give you some directional sense.
is a great story.
Thank you.
Speaker Change: Thank you. Our next question comes from Ben Hendricks with RBC Capital Markets. Your line is open. You may ask your question.
Ben Hendricks: Great. Thank you for squeezing me in here. I just was hoping you could put a finer point on your 2025 earnings cadence comments. I appreciate the commentary that
Ben Hendricks: You would expect earnings to look a little bit more like 2023 patterns versus 2024, but knowing that we're going to be recapturing the stop loss.
Ben Hendricks: Margins over a number of years, any reason not to expect elevated 4Q cost trend in 2025 as well. Just any comments on that seasonality.
Ben Hendricks: Good morning Ben, it's Brian. So just the nature of the stop-loss products as I was referencing earlier are really full-year products and so each quarter we're making estimates of where the final full-year MCR will land for stop-loss. In 2024
Ben Hendricks: When the pressure was identified was late in the year, which is why the earnings impact showed up predominantly in the fourth quarter, but you should take that earnings impact and kind of spread it over the course of the full year 2024.
Ben Hendricks: which is why we're saying that 24 seasonality is not reflective of what a typical year should look like.
Ben Hendricks: Cost-sharing seasonality will drive lower MCRs in the first half of the year and higher MCRs in the back half of the year, and we would expect the stop-loss MCRs to have more of a level cadence over the course of 2025. In addition to that, there are some dynamics unique to Evernorth. For example, the Village MD
Ben Hendricks: And the stranded overhead that I made reference to are more first half weighted, so they serve to depress the EverNorth income a bit on a year-over-year basis compared to the 2024 pattern. But again, the stop-loss dynamic, I think, is the most important point as you reflect on the seasonality of our expected earnings.
Thank you very much.
Speaker Change: Thank you. Our last question comes from George Hill with Deutsche Bank. Your line is open. You may ask your question.
George Hill: Yeah, good morning guys. Two more quick ones, I guess, to close it out on stop-losses. Number one, Brian, are there any other considerations on the stop-loss margin recovery besides price?
George Hill: As it relates, looking at the 26 or 27 that we should be meaningfully thinking about, like are there benefit design or kind of break point levers that get pulled here to get you guys back. And then the second one is you talked about high acuity surgical activity. I'd be interested if you could comment on whether this is elective versus non-elective and if there's any particular procedure types you would call out.
Thank you for watching!
Speaker Change: Morning George, Brian. So on the first question in terms of the stop-loss recovery and are there other factors to the comment I made earlier given these are integrated client offerings?
Speaker Change: The stop-loss is just one component of the conversation that we have when we go and renew with clients.
Speaker Change: it's not uncommon for a client to say I want to move my pooling points or my attachment points up to reflect the cost inflation
Speaker Change: That's happened over time which helps to mitigate the budget outlay for the employer client, so those types of dynamics often
Speaker Change: do work their way into the renewal conversations that I made reference to earlier. We have decades of experience with this business.
our stop-loss offerings.
Speaker Change: temporary and in the scenario where that assumption is incorrect and it is temporary then that will offer some upside to the outlook that we've provided here this morning but we don't we don't see it as heavily correlated to electives.
and Brian Giacobbe. Thank you.
Speaker Change: Thank you. At this time, I'll turn the call back over to David Cordani for closing remarks.
Thanks for watching!
Speaker Change: Thanks, I'll be brief. First and foremost, thanks for joining our call and of course for your questions today. A few headlines just to reinforce as we wrap up.
Speaker Change: Against the backdrop of what is indisputably a dynamic and challenging environment, we're confident in our ability to deliver EPS commitment for 2025 of at least $29.50 and remain convicted and committed to our long-term growth algorithm of 10 to 14%.
Speaker Change: our customers and patients with greater value, greater support and expanding transparency for the benefit of all we serve.
Speaker Change: And lastly, before I close, I want to express my personal appreciation and recognition to our colleagues across the globe.
Speaker Change: We have about 70,000 colleagues that wake up every day to make a positive difference in customers' and patients' lives, and by and large do that each and every day, and we're going to further strengthen our ability to make a difference for those who have yet even higher needs or at times we may fall short on. But sincere appreciation to our colleagues.
Speaker Change: Thank you. We look forward to furthering our conversation in the future.
Speaker Change: Ladies and gentlemen, this concludes the Cigna Group's fourth quarter 2024 results review.
Speaker Change: Cigna Investor Relations will be available to respond to additional questions shortly.