The leaders of Cigna Corp. expect the higher claims costs they have seen for several quarters to stick around this year, when they nonetheless expect the Bloomfield, Connecticut-based company to generate $1 billion more in cash than in 2021.
Cigna produced a net profit of $1.1 billion in the fourth quarter on revenues of $45.7 billion. Adjusted income from operations came in at nearly $1.6 billion versus roughly $1.3 billion in late 2020, with the biggest increase coming from the newly organized business unit housing its commercial, government and international health operations. Those increases came despite ongoing higher medical costs driven primarily by COVID-related claims and higher claims costs from both its commercial book of business and from individual customers brought on during the special enrollment period in the middle of last year.
For the year, Cigna’s healthcare group finished 2021 with a medical care ratio of 84 percent, up from 78.3 percent the year prior. Speaking to analysts and investors on a conference call Feb. 3, President and CEO David Cordani and CFO Brian Evanko said those numbers and the factors underlying them have “sharpened” their assumptions for 2022.
“We were previously assuming that there would be some level of cost abatement in ’22,” Evanko said. “We are no longer assuming that. We think that's a prudent posture to take stepping into 2022 in light of the year that just ended.”
For 2022, Evanko said, Cigna is forecasting a medical care ratio between 82 percent and 83.5 percent, with the improvement from 2021 coming in the form of higher rates from three sources: U.S. commercial customers – which is expected to provide more than half of the gains thanks in part to the addition of 575,000 customers – as well as Medicare Advantage and individual/family plans. Evanko also said the Cigna team is, through its eviCore unit and elsewhere, working to steer more plan members to less costly sites of care. For example, he said, commercial plan members getting knee and hip replacement are today getting just 20 percent of those done in hospitals proper, down from 75 percent in 2019.
Cigna last year generated $7.2 billion in cash from its operations and Cordani and Evanko are looking to grow that number to at least $8.25 billion. That target, they said, will let them push capital expenditures — many of them focused on technology projects – to $1.25 billion this year while also hiking its dividend (12 percent to $1.12 per share per quarter) and buying back some of the company’s stock.
Shares of Cigna (Ticker: CI) were up 1.5 percent to nearly $221 in midday trading Feb. 4. They are still down about 5 percent over the past six months.