Q2 2025 The Cigna Group Earnings Call

Uh huh.

[music].

Ladies and gentlemen, thank you for standing by for Signet group's second quarter 'twenty twenty-five 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.

If you should require assistance during the call. Please press star zero on your touch on its own as a reminder, ladies and gentlemen, this conference, including the Q&A session is being recorded we'll begin by turning the conference over to Ralph Jacobi. Please go ahead.

Thanks, Good morning, everyone. Thanks for joining today's call I'm, Ralph Jacobi Senior Vice President of Investor Relations with me on the line. This morning are David Cort Danny.

The group's chairman and Chief Executive Officer, Brian <unk>, President and Chief operating Officer, and Anne Dennison Chief Financial Officer.

In our remarks today, David Brian and Anne will cover a number of topics, including our second quarter 2025 financial results and our financial outlook for 2025.

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

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.

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 Dotcom.

We use this firm 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 2025 and future performance.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.

Description of these risks and uncertainties is contained in the cautionary note to 10.

This earnings release and in our most recent reports filed with the SEC.

Regarding our results in the second quarter, we recorded net after tax special item charges of $171 million or 64 cents per share.

Additional details of the special items are included in our quarterly financial supplement.

Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2025 outlook. We will do so on a basis that includes the potential impact of future share repurchases and anticipated 2025 dividends.

And with that I'll turn the call over to David.

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

We exited the second quarter with momentum and I'm pleased to report Sigma group delivered another quarter of differentiated financial results and recognizing the meaningful disruption in the industry. We're also pleased to reaffirm our guidance for full year 2025.

At the cyclic group, we continue to meet our financial commitments by delivering innovative solutions to improve access and affordability for our customers and patients and working to build a better more sustainable health care model at.

At the same time, we also remain laser focused on delivering every day for the benefit of those we serve.

Today for a discussion briefly I'll discuss how the strength and durable nature of our model enables us to continue to grow.

Brian will discuss the performance of our growth platforms and how we continue to expand our total addressable market.

After that and we'll provide details on our financial performance in the quarter and will take your questions. So let's get started.

In the second quarter, we delivered $67 $2 billion in total revenue and grew adjusted earnings per share to $7 in 'twenty.

This builds on our long track record of sustained attractive results where over the average of each of the last three five and 10 years, we've achieved our growth algorithm of 10% to 14% compounded adjusted EPS growth.

Our results are a direct reflection of our clear and deliberate strategy to position the Sigma group with differentiated services and integrated benefit capabilities, coupled with strong execution and led by the most stringent and capable leadership team in the industry.

At a macro level, we continue to operate with the assumption that the environment will remain dynamic.

We see eroding health status affordability and access challenges as key forces of change in the health care system in the U S and around the globe.

In addition, we have operated in and will continue to operate in this space with elevated regulatory and legislative activity as well as significant technological clinical and pharmacological advances.

We have a number of differentiators, which enable us to lead through these dynamic markets.

The first is our orientation toward anticipating and in some instances, creating constructive disruption, which better positions us to identify opportunities.

This is a foundational part of our strategy for us it means listening to our customers patients and clients.

And leveraging their feedback.

Basically here to evolve innovate and deliver even more value.

For example, as we stepped into 2025 and the forces of change the health care further accelerated our efforts to help shape, a more sustainable health care system and in part fueled our customer focus commitments and actions we announced earlier this year.

These commitments, which we refer to as our commitment to better call, let us deliver easier access to care.

Better support to help customers and patients navigate the health care system increased value greater accountability and greater transparency.

This quarter, we took another step forward with Cigna health care, introducing a new AI powered virtual assistant to improve our customers' experience during comedy interactions such as checking benefits.

Estimated costs and finding care.

As it relates to regulatory legislative activity, we continue to proactively lean in with a partnership orientation.

We continue to believe it and embrace public private partnerships, which are essential for the health care system to Canadian responses, all stakeholder needs.

And we are proactively working to bring forward new solutions with the current administration and Congress and within states.

The recent industry announcements to further streamline and simplify prior authorizations for the benefit of patients and physicians is a good example of this and we've partnered closely with HHS on this advancement.

Each of these actions represent a commitment from the Sigma group to build a better future and I'm pleased that we continue to make good progress.

Our second differentiator is our diverse portfolio of businesses, which provides us with strategic flexibility to pursue multiple avenues for delivering and capturing value.

This is made possible by our service based model, which provides us with significant amount of agility and nimbleness.

We have deliberately shaped our services based model over years and today. They are configured three strong platforms that together provide us with a diversified position in multiple pathways for growth serving employers.

Health plans governmental agencies and health care delivery systems.

Never noticed that include specialty care services, and our pharmacy benefit services business and then our Sigma healthcare portfolio, our integrated benefits offerings, both in the United States and globally.

Our proven approach leverages, the combined strength of capabilities to these platforms to create even more value for the benefit of those we serve.

Over the long term the way, we've architected our company, coupled with our strategic choices, including a capital light model has given us both the resilient model and the ability to pivot and evolve as the marketplace changes.

A third key differentiator for us is our relentless execution bolt fueled by our tenured and talented team.

Ultimately our results were made possible by our coworkers, including the most experience enterprise leadership team in the industry.

And along with a great depth and continuity of our leadership. We also continue to strategically infused talent into our company in areas such as technology and clinical.

The strength of our team continues to be a key differentiator in our ability to consistently execute on our strategy and deliver on our core fundamentals.

Our team has deep expertise in the health care industry and strong understanding of the competitive landscape enables us to adapt quickly.

This strategic agility helps us navigate challenging environments as well as to identify and seize new opportunities for growth.

We have drawn upon each of these differentiators time and time again to continue to grow in times of uncertainty.

The launch of the three eight to lead them through the global pandemic and during each of these events, we have sought to innovate through and deliver sustainable value for our customers patients clients and shareholders. As a result, we delivered 13% compounded adjusted EPS CAGR over the last decade.

Now to wrap up my comments against the backdrop of a dynamic environment, we continue to deliver and are well positioned for the remainder of 2025.

Our second quarter results underscore the strength of our diverse portfolio of businesses and our disciplined focus on innovation and partnership.

We are confident in our ability to sustainably deliver 10% to 14% compounded adjusted EPS growth over the strategic horizon, along with an attractive dividend.

And with that I'll turn the call over to Brian.

Thank you David good morning, everyone.

To underscore David's comments, we continue to execute well and deliver against our customer and shareholder commitments through a dynamic operating environment.

Our capabilities across our three platforms Cigna health care.

Pharmacy benefit services and ever North specialty and care services uniquely positions us in the market with strong assets and expertise.

Across our portfolio, we are leaders in serving employers health plans and government entities.

And we are increasingly entrusted to serve as health systems hospitals, and other providers with our ever north specialty and care services capabilities.

Now, let me go a bit deeper on our second quarter business performance.

Beginning with Cigna health care.

Take a health care delivered financial results that were in line with expectations, even as we've seen persistently elevated medical costs throughout the year.

Importantly, our flagship U S employer business continues to grow, particularly in our select segment.

Through a consultative approach with clients.

Overall, our performance reflects the medical care ratio of 83, 2% in the second quarter.

This is in line with expectations driven by our sustained disciplined execution against our commitments.

And we have intentionally positioned our cigna health care portfolio with a product mix that has proven favorable in the current environment.

As we have no exposure to Medicaid or Medicare.

Instead choosing to serve these customers through our <unk> services portfolio.

Our planning assumption within Cigna health care for 2025 is that we will continue to experience elevated medical costs throughout the year.

Within the second quarter, we experienced pressures in our individual exchange business that we were able to overcome due to the strength of our broader Cigna health care portfolio.

And the relatively small scale of our individual exchange business within that portfolio.

As a result of strategic choices, we've made to reposition this product offering.

Turning to <unk> earnings were slightly ahead of expectations. This reflects our strong momentum within the specialty and care services platform.

Coupled with continued good execution within pharmacy benefit services.

In our pharmacy benefit services business, we continue to see strong client retention with demand across diverse buyer groups from employers to health plans and other pbms.

And today, we are proud to serve more than 120 million Americans.

This includes longstanding client and partner relationships many of them being the largest and most sophisticated purchasers in the U S.

Who come to us for solutions that help them better serve their needs.

This demand for our services has resulted in a number of multiyear renewals and other ongoing agreements with large clients.

For example, we recently finalized a multi year contract extension with Prime Therapeutics.

Our clients also look to us for partnership around innovation.

This quarter cover North launched another first of its kind benefit option.

I will save patients money on their G. L. P. One weight loss prescriptions with greater choice and predictability.

Building on our in circle, and then reach offerings. This new benefit negotiated directly with two drug manufacturers.

Limits of patients' out of pocket cost to no more than $200 per months and.

And applies to their annual deductible.

This benefit offers our clients flexibility to cover these medicines in multiple ways to best serve customers.

As always we continuously explore new approaches and models to drive greater access affordability and transparency.

And in our <unk> specialty care services businesses, we delivered another quarter of strong growth led by accretive our industry, leading specialty pharmacy, which provides specialty medications for the treatment of complex and rare diseases.

Across the specialty and care services portfolio adjusted earnings increased 12% in the quarter when normalizing for the absence of the village empty dividend.

This was driven by increased specialty prescription volume and ongoing biosimilar adoption.

Further powered by the strong secular tailwind that we've discussed on prior calls.

Finally, our specialty distribution business, serving health systems hospitals, and other providers delivered significant growth in the quarter.

And our ability to serve these buyers with both distribution and our unique set of broader enabling capabilities drives future expansion opportunities I'm going to spend a few minutes unpacking. This team further.

David talked earlier about our ability to find opportunities in a challenging environment to expand our addressable markets.

Previously, we highlighted how our specialty pharmacy business uniquely supports patients through accredo and our other pharmacies with our clinical expertise and services such as our in home nurses.

Today, I want to share a bit more about the important addressable market expansion opportunity, we see serving health systems hospitals and other providers with our specialty services across the <unk> group.

As a reminder, the specialty space is more than a 400 billion dollar market today and is growing at high single digits annually in.

In 2024, approximately 70% of new drugs approved by the U S food and drug administration, where specialty medications.

These medicines flow through both the pharmacy and medical benefit with.

With the medical benefits segment, representing about 40% of the specialty space.

Specialty represents one of the highest growth areas in health care and within the city group.

And we continue to expect long term average annual income growth of 811% across our specialty portfolio.

Increasingly health systems and other providers are seeking to manage their in house pharmacy capabilities and inventory.

Most specifically within specialty drugs. As this provides an important source of revenue that can help to counterbalance pressures and other aspects of their business.

Let me outline a few of the unique capabilities within <unk> that positioned us to provide innovative solutions and support health systems hospitals and other providers as they seek to optimize their specialty pharmacy management.

First across the supply chain, we can help health systems and providers procure specialty medicines, including.

Including highly complex and limited distribution therapies.

Our specialty distribution serves more than 12000 providers today.

Distributing some of the most complex and critical medications to physician offices health systems and infusion centers.

We do this through curious script SD, which has seen double digit average revenue growth over the past three years and is now at $25 billion business.

Second our technology suite of services can support providers and hospitals as they navigate this complex specialty market.

And finally, bringing our exceptional range of clinical services to these buyers provides them with peace of mind and the assurance that best practices are being drawn from across our client base.

We offer specialty pharmacy in infusion services on behalf of more than 700 hospitals health systems and physician groups across the country.

Helping them expand their ability to offer a coordinated access and continuity of care.

Whether at home at the pharmacy or in a physician office or hospital. We are built to serve the needs of patients in any setting.

Delivering greater affordability and better clinical care.

Overall, we see the opportunity to serve health systems, and other providers holistically as a meaningful growth opportunity.

As I wrap up.

I want to reiterate some notable bright spots for the quarter that underscore our strong business performance and operational execution.

Cigna Health care earnings were solid and reflect the strength of our diverse portfolio and intentional choices around product offerings.

We continued our strong track record of client retention with large strategic client renewals and our <unk> pharmacy benefit services segment.

We delivered 12% growth in normalized earnings within our <unk> specialty care services operating segment.

Which has attractive growth exposure over the long term, particularly with health systems hospitals and other providers.

We continue to drive net growth in the U S employers select segment within Cigna health care.

And our ongoing innovation for clients includes new enhancements in the quarter associated with <unk>, <unk> and an AI powered virtual assistant with Cigna health care.

Across our businesses I'm excited about the ongoing growth opportunities we have.

Now I'll turn it over to Ed.

Thank you, Brian and good morning, everyone.

I will review Cigna's second quarter, 2025 results and discuss our outlook for the full year, which we reaffirmed this morning.

As David and Brian mentioned, our second quarter results underscore the strength of our diversified portfolio of businesses in a dynamic environment and demonstrate continued execution against our operating and financial commitments.

Key consolidated financial highlights for the second quarter include revenue of 67 $2 billion and adjusted earnings per share of $7 20.

Our solid performance and disciplined execution in the first half of the year reinforce our confidence in delivering our full year 2025 adjusted earnings per share outlook of at least $29 60.

Now turning to our segment results.

Start by commenting on our services chassis, which now contributes over 60% of our enterprise earnings.

<unk> results reflect sustained strength across our pharmacy benefit services business and specialty and care services business.

Second quarter 2025 revenues grew to $37 $8 billion pre tax adjusted earnings grew to one 7 billion slightly ahead of expectation.

Specialty in carrier services demonstrated strong growth with revenue up 13% to $25 9 billion.

Normalizing for the impact of lower net investment income due to the absence of the village empty dividend pre tax adjusted earnings increased 12% year over year.

This performance showcases the power of a robust and unique specialty capabilities as we delivered broad based growth across both our credo and curious scripts.

Pharmacy benefit services delivered another quarter of solid growth pre tax adjusted earnings increased to $833 million as we continue to drive affordability for our patients customers and clients through innovative product offerings, while continuing to invest to drive long term growth.

Turning to Cigna healthcare second quarter, 2025 revenues were $10 $8 billion pre tax adjusted earnings were $1 $1 billion and the medical care ratio was 83, 2%.

These results were broadly in line with expectations and reinforced the strength and stability of our portfolio of businesses, which as David mentioned, we're strategically constructed for sustainable long term growth.

I'd now like environment.

Cost trend for our commercial business, including stop loss remained elevated in the quarter consistent with expectations.

Our individual business utilization was higher than expected, reflecting an increase in medical costs across the ACA marketplace.

However, this pressure pressure was manageable due to the smaller relative size of our AC APAC aided by our disciplined pricing actions over the past two years.

Overall, Cigna health care delivered consistent results underscoring the strength of our execution and environment that continues to present challenges across the industry.

Now turning to our outlook for the full year 2025.

And the overall disruption in the industry. We are pleased to reaffirm our full year 2025 expectation for consolidated adjusted income from operations.

At least $29 60 per share.

Regarding the cadence of earnings we expect the third quarter adjusted earnings per share to be slightly above 25%, that's a full year outlook.

Now turning to our 2025 outlook for each of our growth platforms.

And even with we continue to expect full year 2025 pre tax adjusted earnings of at least $7 $2 billion.

And we expect the third quarter adjusted earnings for Agronomic to be slightly about 25% at the full year outlook.

First taking a health care our outlook continues to assume elevated cost trends to persist throughout the year. We continue to expect full year 2025 pre tax adjusted earnings at least for $1 billion to $5 billion.

And we expect that third quarter adjusted earnings per Cigna health care to be slightly below 25% of the full year outlook.

We continue to expect the full year medical care ratio within the range of 83.2 to 84, 2%.

Additionally, we expect the third quarter medical care ratio to be toward the upper end of the full year range, reflecting typical seasonality.

Turning to our 2025 capital management position.

It is important to note that our operating cash flow can vary from quarter to quarter influenced by timing specific factors such as the payment of supply chain receivables and payables as well as changes in inventory levels, particularly within our credo and curious scrapped.

Second quarter operating cash flow was impacted by working capital timing within every night.

We expect the timing related impact to reverse and continue to anticipate strong cash flow generation in the second half.

Now to recap our first half 2025 results reflect disciplined execution across both ever north of Cigna Health care. Our 2025 outlook reflects the sustained momentum and strong fundamentals of our broth platforms, which gives us the confidence to reaffirm our full year 2025 adjusted earnings per share.

Outlook of at least $29 60.

And with that we'll turn it over to the operator for the Q&A portion of the call.

Ladies and gentlemen at this time if you do have a question. Please press star one on your Touchtone phone.

If someone ask your question ahead of you you can remove yourself from the queue by pressing star two.

So if youre using a speakerphone please pick up your handset before pressing the buttons and one moment. Please for our first question.

Our first question comes from AJ Rice with UBS. Your line is open you may ask your question.

Hi, everybody.

I appreciate.

The comments about the innovative products that evercore has brought to the market, particularly around <unk>.

It makes me think even a little more broadly about <unk>.

Our positioning in the commercial market.

Insurance.

And how you use potentially at <unk> P M.

Pharmacy services business.

You have insight on what's happening in those markets.

It's probably the biggest pressure point for commercial.

Trends these days.

That insight is not something that's set for example, your big Blue Cross competitors have.

Just maybe try to flesh out a little bit more how you're using bad how much of an advantage.

Think that is.

Any thoughts on any of that.

P. J good morning, it's David maybe just a couple of macro comments and I'll hand, it over to Brian first I appreciate your broad framing to protect.

Contextually as we step back you go back a decade or so ago.

Aggregate pharmacy services was low double digit percentage of the total medical cost equation.

Fast forward to today, the pie is both larger and aggregate pharmacy services, including specialty is mid twenties growing.

Potentially a 30% slice of the pie in short order. So one to reinforce your point, it's a more significant part of the overall care equation too is the interdependency between medical pharmacy, both traditional pharmacy specialty pharmacy, I would simply add mental health further further.

<unk> in terms of a lot of our capabilities to be able to look at the whole person both the predictive nature of more complex medical issues based on pharmaceutical consumption as well as give the dependency between the mental health aspect, which includes pharmacy as well as medical so I'll turn it across the Brian, but I just wanted to amplify the interdependencies.

Of those three areas not just the two secondly, the size of the overall health care equation of what pharmacy is today 25 plus percent of the overall pie honest way to 30 on a larger pie versus 10% to 12% in just a decade ago or so Brian.

Good morning, Hey, Jake So I would certainly agree with.

Thesis underneath your question here that our three growth platforms Cigna healthcare pharmacy benefit services in every north and our specialty care services platform and <unk> are mutually reinforcing and create value for one another so that's indisputable and to your point specialty pharmacy continues to be one of the highest trend category.

Trees across the health care system that and mental health services in particular, where a large contributors to the overall cost trend environment that we've seen year to date.

As Ann mentioned in her comments overall, though cost trends have been elevated but in line with our expectations. So having the ever north and say certainly has been helpful for our Cigna health care team.

We were able to manage the health plan MCR to the levels that we've committed.

As David was just making reference to 20% of an average employers total cost of care is specialty drugs today.

All in the drug benefit a portion of that is in the medical benefit. So one of the things we really like about the way we've constructed the company as we can see a specific patient have their care journey started the medical benefit and transitioned over into the pharmacy benefit. So patient may have a specialty injectable that starts in the medical benefit that moves to a self injectable onto the drug benefit.

We're able to manage that longitudinally given our suite of services across the second groups. So all things considered the core of your question. We're really pleased with the way we've constructed the company and has helped us to manage the Sigma healthcare financial performance.

Okay, great. Thanks.

Thank you. Our next question comes from Lisa Gill with Jpmorgan. Your line is open you may ask your question.

Thanks, Terry Martin Good morning.

Can you maybe comment on the 2026 selling season I heard you talk about specifically the renewal time therapeutic but really a couple of components to this one what do you have a pre new law on the pharmacy benefit side too what do you see as opportunities and what are people looking for and then if I could just also add on to that we have.

The Arkansas ruling and the injunction can you maybe just comment.

How youre thinking about that and as to how youre thinking about legislation generally speaking on the <unk> side. Thanks, so much.

Yeah.

Good morning, Lisa, It's Brian I'll start with some of the selling season themes and then I'll turn it over to David If you could talk a little bit about what's happening with the legislative and regulatory dynamics. So maybe to kind of round out. The first picture I'll give you a sense for each of our growth platforms. Some of the dynamics that we're seeing and then I'll get into some of the themes so within our express scripts.

Pharmacy benefit services business. We're currently tracking toward mid nineties are better retention for 2026, which overall is strong retention level consistent with prior years.

As I noted earlier, the largest and most sophisticated buyers a pharmacy benefit services continue to trust us and appreciate our value creation with an example of that being the multiyear renewal of Prime Therapeutics that was recently completed within the Cigna health care portfolio, It's still pretty early in the season for small employers, but we do have some good insights on the loss.

<unk> entered the market.

And we continue to view the national account space as one that will be a flat to shrinking market over time and our strategy in the national account space is to maintain our share in Sigma healthcare and at this point, we're not seeing anything unique for 26 that would cause us to deviate from that multiyear expectation within Sigma healthcare, we do continue to be a net share winner in the under 500.

Select segment, which is a function of our affordability improvements that we've driven coupled with our our consultative employer engagement model.

And finally in the.

Specialty and care services platform, we do continue to benefit from secular tailwind, there, which leads to more patients utilizing specialty drugs, along with our Accredo specialty pharmacy being included as a network option and more unaffiliated PVM offerings in terms of some of the market dynamics are of themes that apply more holistically across our businesses.

First of all I would characterize this as a pretty active sale season, both as we compete for 2026, new business, both amongst our existing client base, but also new business opportunities for us.

Affordability continues to be the number one area of focus for employers, particularly with the persistent persistently high cost trend environment that the industry has been experiencing and part of that is driven by.

The question that a J asked around specialty injectables as well as <unk> and the continued growth we're seeing in mental health spending and amongst larger employers were seeing some elongated decision making timeframes.

Particularly as employers are seeking reassurance that their benefit decisions are appropriate given the continued pressures on affordability.

Second theme is personalization. This we're seeing across our buyer groups, which can take the form of network solutions product offerings clinical programs and service experiences and during the quarter, we announced our new AI powered virtual assistant for our Cigna health care customers to help them navigate the complexity of the health care system with the most modern digital.

<unk> and the feedback there has been very positive and finally, we're hearing more of our larger employers seeking to reduce the number of point solutions in some cases, finding that the rois in there or in other cases, finding that there are gaps in integrating these point solutions, which drives a level of fragmentation.

Individuals' health care journey, so a lot that I just covered there in a few minutes, but taken all together, we're well positioned to meet all of these market needs and we expect 2026 to be a year of attractive results. David maybe you can comment on Arkansas and the associated PVM dynamics. Good morning, Lisa So, yes macro and specific to Arkansas.

So at a more macro level as I noted even in my prepared remarks, we believe that the industry will continue to operate in an active legislative and regulatory environment and we believe the sustained environment requires a very strong and collaborative public private partnership and relationship and highlighting back to the industry leading it.

On evolving prior authorization more broadly with 50 health plans coordinating a direction and a solution and collaborating with HHS. That's not the declaration of success as a positive indication of public private partnership and collaborating to drive sustained improvement and I would say just broadly underlying mostly all of the legislative and regulatory.

<unk> activity there is.

Orientation around the affordability challenge everybody is confronting federal government state government employers and individuals so desiring improvements and affordability, while balancing access and quality has to actually get square together when you're over architect on one you potentially push too hard or the other specific to Arkansas to be.

Clear, we're quite pleased with the expeditious and clear decision of the court, thus far to put <unk> in place.

Because the legislation while potentially well intended.

Is contrary to what we believe society needs and if you look at the legislation that legislation essentially arbitrarily constrains access.

Bill inflation would assets configured break continuity of care.

Legislation would restrict choice and the legislation would have an undoubted will positively impact our upward impact in a negative way on affordability. So we're pleased with the outcome and the temporary restraining order to look at the facts relative to that we will continue to stay engaged both at the state level or federal level, and then come back to the impaired.

The imperative is sustainable improvements to overall affordability that hardest choice and innovation don't Architected away arbitrarily have to harness choice and innovation and then balance appropriate access and drive sustained quality and we're confident as Bryan noted our capabilities are well positioned to be able to drive that thanks for your questions.

Okay. Thank you.

Thank you. Our next question comes from Josh Raskin with Nephron Research. Your line is open you may ask your question.

Hi, Thanks, Good morning could you provide an update related to the exchange business on your risk adjustment accruals. It just looked like revenue jumped into Q on a P. M. P M basis by a decent amount and so I'm. Just curious if there was any specific adjustment for 2020 for a final settlement or as you're thinking about mortality for this year and then.

Can you provide maybe broader commentary on expectations for that book in 2026, and how your pricing how you are approaching the pricing environment.

Good morning, Josh, It's Brian I'll start with maybe a little bit of context for the individual exchange market and then ask Anne to take the question you ask more specifically about risk adjustment accruals and such.

I think it's important to step back and rewind the clock a couple of years to 2023 at that point in time, we served nearly 1 million customers in the individual exchanges of albeit with mixed financial performance.

Upon our performance as well as our forward view of the market, we made the strategic choice to prioritize margin over growth.

Which included adjustments to product and network strategies refinements to our geographic footprint.

And increased prices, where necessary and this decision to prioritize margin over growth in the individual exchanges has helped us to navigate some of the industry wide pressures that have emerged here in 2025, and we now serve fewer than 400000 customers in this business down materially from the nearly $1 million. We served in 2023.

Additionally across both the 2020 for 2025 pricing cycles, our nationwide price increases were roughly double the industry average in each of those years.

So as a result of those actions.

Some of our competitors showed meaningful growth in their individual exchange businesses, while we chose to reposition our portfolio, which resulted in fewer individual exchange customers for Cigna health care. So again just to summarize what's transpired over the past few years and the individual exchanges. We made the choice to prioritize margin over growth, which resulted in a reduction of our customer base from nearly one.

Millions of customers in 2023 to fewer than 400000 customers today.

Meanwhile, across the industry individual exchange enrollment is up nearly 50% over that same time period.

As it relates to 2026, we expect to take further price increases were in the process of working through the re filing of that.

As we speak and again, we will prioritize margin over growth for the 2026 year and the individual exchanges and maybe you can pick up on the risk adjustment component of this question sure. So specifically.

A question related to risk adjustments. So there's a couple of things to note.

Reflected in our results. This quarter is it 2023, wrapping adjustment, which we had visibility into coming into building our expectations for the year. So that was already built into our expectations beyond that we had a very modest positive adjustment to the 2020 for risk adjustment.

That helped offset some of the pressure we saw related to utilization that I mentioned in my prepared remarks.

Okay. Thanks.

Thank you. Our next question comes from Justin Lake with Wolfe Research. Your line is open you may ask your question.

Thanks. Good morning wanted to ask you about your views on the impact of a more sophisticated hospital billing and coding through commercial tried right. We're hearing about this all over curious what youre seeing here and do you think this might have an above average impact on stop loss and then lastly, just with rate increase.

Is running double digits for employers David loved to hear what you're hearing from employers on their ability to absorb it and what they are addicted here. Thanks.

Justin Good morning.

Let me take a portion of the question and ask Brian to give you. Some insights in terms of what we're experiencing specifically in terms of our our stop loss actions from a marketplace standpoint. So we have several questions here first.

Are we seeing elevated billing sophistication harnessing AI or other capabilities broadly speaking, we think the answer to that is yes.

I'm Gonna part on our side, there's a significant number of AI related activities that we are driving as an organization in terms of driving efficiency and effectiveness and productivity driving accelerated speed precision and personalization and working to design new capabilities and there's a series of price.

Within that some of those capabilities help us to count.

Counteract address and proactively engage them very differently in terms of some of the force we're seeing but to your first part of your question. We believe the answer to that is indisputably yes.

We engaged in that in terms of hospital contracting and provider contracting engagement modifications, our own AI and technology capabilities.

Seeking to get balanced.

Balanced net outcome on the back side of your question before I hand, it back to Brian to talk more specifically about the marketplace in southwest there is no doubt that affordability is pressuring everybody and before we come to the employers. It's important just to articulate it is impacting the federal government as a payer it's impacting state government as a payer.

It is impacting employers as payers and it's impacting individuals which is why we always come back and articulate the impact of affordability as the number one issue to be able to drive forward. The precision that personalization new program designs and in many cases integration of point solutions or opportunities to mitigate some of that and what I would say from an employer.

Standpoint, what this is doing is it's raising the decision criteria in the C suite even higher.

Essentially increasing openness to what may have been deemed to be more disruptive solutions. So more precise network solutions or more aggressive adoption of some of our new innovations sharp pathway programs are palpable specialty program, which as an example to H H question of significantly more precision of net.

Configuration around specialty infusions at deliver exponentially more volume and affordability. So there is pressure there no doubt we see it is actually opening the door for more innovative conversations and bringing more precision to the solution. Brian can I ask you to talk about the soft launch traction we're seeing in the marketplace and some of the fibers there sure David Good morning, Justin I know you have.

It's a very specific question on stop loss I'm, just zoom out for a bit and kind of remind of the big picture in terms of where we are with that product line.

Our stop loss offerings are a very important part of our U S employer portfolio within Sigma healthcare and working complement with our other products and solutions for employers who choose to self fund their health benefits and importantly, they provide employers with budgetary protection against unexpected large claim activity your aggregate cost levels being higher than projected.

For us all of the stop loss business that we write is through an integrated offering with the employer. We also administer their overall medical benefits and we continue to see very strong market demand for these solutions as evidenced by the 13% growth in stop loss premiums in the second quarter as.

As we've talked about on prior calls we are working to improve the margin profile on this business over the course of the next two renewal cycles.

And we're confident in our ability to deliver against this and over the past few months, we have been able to make progress on this plan with the revised cost structure being reflected in our later 2025 client renewals and we've been able to execute this while preserving typical client retention levels and in fact, our solid rate increases for 2025 coverage effective day.

<unk> after January are higher than our January 2025 sold increases underscoring that our recovery plan is in motion and it's important to keep in mind that about two thirds of our stop loss portfolio renews on January one so the pricing work for that cohort will be completed in the fall and that will inform our 2026 outlook, but thus far.

Through the first six months of the year. The stop loss portfolio is performing broadly in line with expectations and the more sophisticated or intensive billing that you made reference to while it is impacting our U S. Employer book does not have an outsized impact on the stop loss portfolio. So thanks for the question.

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

Yeah. Thanks, Thanks for taking the question, maybe I would like to add.

Ask Brian if you could expand a little bit more you talked about a lot on tour script and just curious.

Sort of what does this market look like when you are selling into health systems. In particular do you have to go through the GPO like innovation.

Does a contracting cycle, there looks like and.

Who are the incumbents are we talking about maybe some of the more traditional drug distributors like mckesson or suncor in this market.

And then.

Added to that.

<unk> talked about Biosimilars in the press release, just curious sort of what the.

The experience you've had so far with maybe something like Biosimilars to Lora.

Through quality and is this something youre also selling to health systems through call us. Thanks.

Good morning, Charles There is a lot in there so I'll try to hit each of those components as best as I can.

So I appreciate you asking about carrier script, and a part of our company because many people are not familiar with that then we decided to spend a few minutes of my prepared comments on this opportunity that we see in further expanding the addressable market to serve more health systems hospitals and provider groups with their specialty pharmacy capabilities and this is one of the most exciting growth opportunities though.

We have across the Cigna groups going forward. If you think about what are the core problem statements here for these providers is margin compression in our core business is often driven by some combination of payer mix wage inflation clinician burnout and other factors. So as a result providers are increasingly looking to their in house pharmacy.

Capabilities, most notably specialty medication management is an alternative revenue source and we're able to support these providers both through distributing specialty medications to them along with offering clinical coordination inventory management and other enablement services to help providers manage their specialty pharmacy capabilities the special.

The capability is fulfilled by our curious grip business, which is already a $25 billion business and has been growing at a double digit annualized rate in recent years and the curious group business is primarily focused on the provider oriented or medical benefit oriented component of the specialty market, which represents about 40%.

The over 40 $400 billion specialty pharmacy addressable market going forward curious Scripps got multiple avenues for growth both through serving these unaffiliated health systems and other providers along with increasing its distribution reach to our Accredo specialty pharmacy now the wholesalers that you made reference to we don't compete with us directly.

In this space they tend to be more focused on the prescription drug or the pharmacy benefit side of the specialty market, which is where our curious group business.

Has very little volume today. So we are almost exclusively focused on serving providers through through carrier script, and so our value prop.

It's been more holistic because we're able to offer those other enablement services that I made reference too as well to the health systems and other providers.

As it relates to Biosimilars, obviously, we're really pleased to see the building momentum of Biosimilars across the U S, particularly in the last 18 months as Humira biosimilars have become more mainstream and we see this as part of a multi year wave for biosimilars more broadly.

Beyond Humira, we expect another $100 billion of specialty drug spend to be subject to competition from Biosimilars and generics by 2030, representing a tremendous opportunity to reduce net cost for patients and clients.

Shortly each biosimilar will have different rates of adoption based upon factors such as interchange ability dosage levels, Brandon alternatives and other dimensions and so far we launched our zero dollar patient out of pocket Biosimilar for Stora and May leveraging the learnings we had from Humira Biosimilars. The returns are very early but we're <unk>.

Encouraging signs already a biosimilar adoption here and we do expect to see gradual growth in store of Biosimilars over the balance of the year all of which is contemplated in the <unk> outlook and to your point Importantly, curious script is a distribution vehicle for a quality biosimilars to many of the health systems and other providers that I made reference to.

I appreciate the question hopefully that captures the essence of what you were hoping to hear.

Thank you.

Thank you. Our next question comes from Kevin Fischbeck with Bank of America. Your line is open you may ask your question.

Great. Thanks, I guess, one of your larger competitors talked about how it was.

They are under earning on the commercial side of the business and need to reprice over the next couple of years I was wondering if you could just give us a little bit of color on what youre seeing within the competitive pricing environment within commercial broadly and then if you can give any color between the sub segments that you focus on versus.

Maybe the segments that you'd be emphasized a little bit.

Good morning, Kevin It's Brian I'll start and then and can pick up some of the questions around margin as such.

So overall I would characterize the market is pretty firm right now from a pricing standpoint, meaning there doesn't appear to be a lot of appetite for competitors to go out and under priced business to try to pick up volume.

And as we talked about earlier, our planning assumptions for the balance of 2025. They do assume a continued elevated cost trend environment and for 2026, our pricing assumptions assume another year of elevated cost trends and at the current point in time, our expectation is that we will secure price increases for 2026.

Would exceed what we achieved in 2025, which we're already at high levels compared to historical norms.

This is prior to clients, making adjustments to their benefit designs are network strategies, which could serve to mitigate some of the price increase without impacting our margins.

As a reminder, the vast majority of our U S employer business is self funded or it's priced using client specific experience as opposed to being <unk>, which is one of the differences potentially from some competitive comments that you made reference to but again the market overall is firm and rational at the current point in time as it relates to the pricing environment.

Talk a little bit about the margin dynamics sure. Thanks, Bryan so.

As Brian mentioned earlier, we continue to see elevated cost trend, but those are in line with our expectations, most notably we see it in the specialty Injectables and behavioral health services trends that it remain high and continues to be the primary contributors to the trend last quarter. We saw some favorability on surgery trends. This quarter, we saw a more normalized trend.

In line with our expectation.

So when you think about the impact across the Cigna health care portfolio. The businesses are generally performing as expected and then the target margin range I'd note two exceptions to that to the exchange business given some of the pressure we're seeing there around utilization, we would expect to run below target margins for 2025, and then Brian talked early.

Earlier about the stop loss business and our journey to recover at a run rate margins through 2026 and into 2027.

But overall performance across the health care businesses was in line with our expectations and we're really pleased to reaffirm our full year guidance.

Thank you. Our next question comes from Jason <unk> with Guggenheim. Your line is open you may ask your question.

Great. Thanks, Good morning, I wanted to ask about ever north margins in the quarter, you talked about the investment income headwind, but if we completely back out in the investment income across both of your sub segments within ever North It looks like a specialty care margins were relatively consistent year over year, but the <unk> margins were down a little bit I know you've discussed investment.

Spend the crossover north, but maybe can you just walk us through the margin paradigm and the drivers in the quarter just given the revenue strength and then you spend some time talking about the medical side of the specialty business in your prepared remarks can you give us a sense on how to think about margins as you go after that.

Tam opportunity would be very helpful. Thank you.

Great Hi, Jason So I'll start on the margin question as it relates to <unk> and pharmacy benefit services, then I'll pass it over to the back Brian for the second part of the question and so just just at this stage. So our perform our performance in R&R continues to reflect strength.

Across the board.

Pharmacy benefit services and specialty and care considering.

The breadth of the business there are a few dynamics to consider with respect to margin and I would point to two things that are are contributing to some of the dynamics that you see so one is client mix.

We've had some bringing on some large clients some large client renewals and our largest clients are growing the fastest and they generally come with lower margin profiles. So that is a contributor to why youre seeing the second thing that I'd point to drug mix. So.

We're seeing higher priced drug sales.

Higher price drive sales create a larger impact on revenues than on margins. So you put those two things together and that's really what's creating the dynamic that is coming through the numbers.

Taking into account those two things we feel really good about the strength of the business and the ability to drive sustained growth across both of those businesses, but I'll turn it over to Brian for the second part of the question on health care.

Thanks, Dan and good morning, Jason So as it relates to the medical side of specialty and the <unk> services that we provide there I'd encourage you to think of it in two buckets. So category. One is our distribution business <unk> scripts I made reference to that's a $25 billion business today and growing at double digits. In recent years has a lot of runway ahead of it.

You can think of that as a <unk>.

Low margin business call it low single digit type margins not that different than what the wholesaler margin profile is although we provide a little bit more complexity alongside the distribution that we do so we're able to earn a slightly higher margin, but think of that as a relatively low margin business.

The second category of enablement services, you can think of that as a fee based oriented business. So relatively little revenue contributions, but high margins on those on those fees. So you can think of that.

<unk> not yet as noticeable in the P&L from a revenue standpoint, but we have quite a bit of long term opportunity. There is that addressable market continues to grow and we continue to build out our capabilities in that space.

Thank you. Our next question comes from Erin Wright with Morgan Stanley. Your line is open you may ask your question.

Okay. Thanks could you give us an update on some of the changes that you're seeing in the retail reimbursement model in landscape with more of a cost plus model Q.

That's a large portion of the government business to start moving in that direction as well on top of that commercial that started to move in that direction in 2025, and <unk> and if so kind of how do you embrace that on the Pbms side.

And just talk about how you're navigating that now thanks.

Good morning, Eric It's Brian so as it relates to retail reimbursement in more of the cost plus and other alternative style models that are being.

Advanced there's certainly market curiosity around these topics I would note that these types of solutions really aren't for everyone.

As David mentioned earlier, we continue to prioritize choice as it relates to how our clients choose to pay us we've got a variety of formularies that clients can choose from some of which are customized to a client and we have a variety of network configurations available spin.

Specifically on cost plus style offerings as we hear from our pharmacy benefit services clients. There has been relatively limited appetite for this thus far.

Because many of them see this as paying more for the same thing in comparison to the more aligned incentive models that we've been able to drive historically and concerns around well I still have incentive for generic replacement continue to come up. So these are challenges with some of the cost plus style models.

That had been advanced that said, we do have certain.

Network arrangements that are contracted on that basis to your point on government business, we have not seen a wholesale shift from one line to another as you think about commercial versus government versus other payer types within the ever North Platte platform. David you want to get into this question sure just amplify a port you're in here and I. Appreciate your question.

When you think about the cost plus terminology, sometimes its use as a broader monitor for the industry.

But to Brian's point, there is pressure on paying more for the same Conversely evolution to more fee based models evolution to more enhanced performance based models evolution to enhance transparency there in support of fee based models. Those are all part of the bigger ecosystem and our team continues to lean into that heavily and offer.

Increased choice and opportunities for clients. So I'd ask you to maybe step back and think about the theme. The theme is another push towards increased affordability, while managing choice and cost plus is may be used as a broader moniker of heading down that path.

Fees, but they needed to be performance based there needs to be a performance based dimension here to drive additional efficiency effectiveness and value of on a go forward basis and our team continues to be putting up some significant innovations in the marketplace out of responsiveness I. Appreciate your question.

Thank you our last question comes from Andrew Mok with Barclays. Your line is open you may ask your question.

Hi, good morning, there's been a lot of developments in the <unk>, one market, including your announced partnerships with Lilly and Novo this quarter in one of your peers called out a headwind from <unk> pharmacy services. This year. So can you give us an update on your <unk> products and how we should be thinking about the dispensing economics for those drugs given the recent deals. Thanks.

Good morning, Andrew It's Brian So maybe I'll talk.

For a minute about the most recent innovations that we've introduced and then get to the core of your question on dispensing economics and such.

The headline I would ask you to take away, though is broadly speaking the GOP one contributions to ever North in 2025 are in the range of what we expected coming into the year and our guidance does contemplate that which reflects some decelerating growth in overall scripts, but still.

Strong growth year over year compared to the 2024 volumes would've been but when you step back from the <unk> one space broadly.

Cigna were proud to introduce these solutions for some of health Care's biggest challenges and GOP ones are clearly an example of that and during our first quarter call you heard US talk about a series of programs that we introduced earlier in the year to create new value in the <unk> one space.

Namely in circle and reach in and guide these combined access affordability clinical safety as well as longer term lifestyle changes all for the benefit of our clients and patients and to your point on economics, we earn fees for those programs as part of our client relationships and helping them manage <unk> clinical safety and cost levels Subsys.

Introducing these programs we noted that many employers remained reluctant to provide access to <unk> drugs for weight management due to the price. So the net cost of a GOP one weight management prescription after reflecting the discounts we had negotiated from drug manufacturers in the patient cost sharing was still high and would incrementally pressure employer budgets.

We challenged ourselves to develop a solution that would further reduce net costs for employers, while ensuring that patient out of pocket costs will be lower than if they purchase the GOP one drugs directly. So in May we announced a new program that targeted employers who were not yet offering G. L. P. One coverage for weight management and the new solution is coupled.

With a maximum out of pocket cost of no more than $200 per month for the patient, while allowing for patient and physician choice and that generated some win win dynamics. The net cost of the employers reduced by our negotiated rates and by the cost share from the patient.

Sure patients cost sharing being capped at $200 per month offered a more affordable option than other pathways for FDA approved treatments and the drug manufacturers would benefit from higher volumes. So we introduced this program in late May again, the most recent in a series of innovations and we have a couple of months of market feedback. The feedback has been very positive thus far although.

I would note changes to benefit offerings associated with this new program are more likely to be incorporated a client renewals as opposed to us seeing mid year benefit changes, but again. This is another example of the innovation we brought to the <unk> one space again, we continue to see growth in this market the client adoption rates continue to be flattish in our book of business.

This between 2024 and 2025.

But the economic contribution is broadly in line with what we had anticipated coming into the year forever North.

Thank you I'll now turn the call back over to David <unk> for closing remarks.

Thanks, just briefly wrap this up first I want to thank you again for joining our call to highlight a couple of headlines we continue to build on our momentum and we have confidence in our ability to deliver on our commitments, which include our attractive adjusted EPS outlook of at least $29 60.

For full year 2025, I also want to say how proud I am of our co workers across the globe.

And their dedication and commitment to making sure we serve.

Our diverse stakeholders do we have the privilege to support as an enterprise, we really focused on executing on our growth strategy by leveraging the strength of our diverse businesses.

Continue to foster partnerships and drive innovation and systematically worked to expand our addressable markets. Thank you again and have a good day.

Ladies and gentlemen, this concludes the signet groups second quarter 2025 results review.

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

This conference will be available for 10 business days. Following this call you may access the recorded conference by dialing 8008358067 or 2033693354.

There is no pass code required for this replay.

Thank you for participating we will now disconnect.