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Cigna says costs drop but keeps eye on Obamacare spending
[NEW YORK] Cigna Corp reported a higher-than-expected second-quarter profit on Friday due to a decline in medical costs, underscoring an industrywide trend reported by rival health insurers including Aetna Inc and Anthem Inc.
Uncertainty about spending in the second half of the year by individual insurance members, including those in the Obamacare program, held the company back from lowering its 2017 cost expectations further, executives said during a conference call.
Cigna has 336,000 members in individual insurance, a sector that was overhauled after the Affordable Care Act was passed in 2010 with new minimum healthcare benefits and income-based subsidies. The company focuses on large and medium-sized corporate healthcare and sells international insurance as well as government-backed Medicare plans.
Future funding for former President Barack Obama's signature healthcare law, often called Obamacare, is up in the air after Republican leaders' attempt to repeal and replace it failed in the US Senate last week and barely passed the House of Representatives in May. Now there are some bipartisan efforts in both houses of Congress to stabilise healthcare markets, but it is unclear how far these will advance.
Cigna echoed comments about late-year individual insurance spending from Aetna executives, who said customers uncertain about the availability of coverage in 2018 might use medical services more often later this year than they otherwise would.
Cigna plans to offer individual coverage in 2017 under Obamacare but is waiting for a final look at federal policy in September before making an ultimate decision, Chief Executive Officer David Cordani said on CNBC on Friday.
"It is a challenging market as we look at 2017 and as we look to 2018," Cordani said. He made similar remarks to Reuters in June.
Cigna shares were down 0.6 per cent at US$174.95 in morning trading.
The company said its commercial medical care ratio, which compares what it spends on claims with its income from premiums, came in at 78.7 per cent. Under Obamacare, insurers must target a ratio of 80 per cent and pay back customers when the figure falls below that.
"The beat follows similar results from peers as we continue to see a low-cost trend quarter that we believe will persist through the remainder of the year," Piper Jaffray analyst Sarah James said.
Cigna's net income rose to US$813 million, or US$3.15 per share, in the second quarter from US$510 million, or US$1.97 per share, a year earlier.
Excluding special items, earnings of US$2.91 per share beat the analysts' estimate of US$2.48, according to Thomson Reuters I/B/E/S.
Operating revenue rose to US$10.27 billion from US$9.89 billion, in line with estimates.