Cigna Faces Headwinds Amid Rising Medical Costs
Cigna Group's (NYSE: CI) shares plummeted in pre-market trading on Thursday after the health insurer reported disappointing fourth-quarter results due to higher-than-anticipated costs.
The stock plunged as much as 10% at the open, marking its steepest intraday decline since November 2022. The drop erased Cigna's year-to-date gain of 9.8% as of Wednesday's close.
Investors' concerns were fueled by the company's rising medical costs, which also impacted UnitedHealth (NYSE: UNH). Cigna's health benefits segment, which covers private health plans, was previously believed to be less exposed to the expenses plaguing Medicare and Medicaid plans.
However, the segment's medical expense ratio reached 87.9% in the fourth quarter, exceeding analysts' estimates. Cigna cited "stop loss" plans as a contributing factor to these costs, as they cover employers' losses from high-cost claims.
"We had a greater frequency of high dollar claimants than we had been expecting," said Cigna CFO Brian Evanko.
Cigna anticipates these elevated costs will weigh on its margins over the next two years. The company expects its medical expense ratio to range from 83.2% to 84.2% in 2025, compared to the consensus estimate of 81.8%.
Adjusted income from operations fell to $6.64 per share in the quarter ended December 31, below analysts' estimates. Cigna also projected lower-than-expected earnings for 2025, at least $29.50 per share, compared to the consensus estimate of $31.50.
"These results are likely to get the most attention today given solid recent performance of Cigna shares," said Jared Holz of Mizuho. "The forecast looks more conservative than not but need to see how this shakes out."
Cigna's pharmacy benefits manager (PBM) operations, which negotiate drug prices, have also come under scrutiny from regulators and lawmakers over concerns about potentially contributing to higher drug costs.