Cigna CEO: Obamacare marketplace remains ‘challenging’ for 2017, 2018
- Cigna’s stock reached an all-time high on Friday, on the heels of an earnings beat.
- Cigna has raised its profit outlook for the full year, but uncertainty about spending by insurance members has prevented the company from lowering its 2017 cost expectations, management told analysts and investors.
- Cigna hasn’t decided if it will participate in the Obamacare exchanges in 2018.
Will Cigna participate in the Obamacare health exchanges next year? It depends.
CEO David Cordani told CNBC’s “Squawk on the Street” Friday that the company is waiting for a final verdict from the Trump administration about whether it will continue to make cost-sharing reduction subsidy payments.
“We will make a decision based on that,” Cordani said.
These crucial payments compensate insurers for offering low- and moderate-income Obamacare customers reduced charges for out-of-pocket health costs, such as co-payments and deductibles. Millions of people who buy their health coverage on HealthCare.gov and other government-run insurance marketplaces qualify for the subsidies.
Lately, there has been increased debate about continuing these payments. In 2014, the GOP-led House of Representatives sued the Obama administration over the reimbursements, saying Congress hadn’t appropriated money for the payments. Republicans in Congress, opposed to Obamacare, refused to vote for such spending.
A federal judge in 2016 sided with the House but agreed to let the payments continue as the Obama administration appealed the decision. But once Donald Trump took office, he was free to drop the appeal. So far, he hasn’t.
Recently, however, Trump renewed his threat to cut the payments. In a message on Twitter, Trump said that bailouts for insurance companies and members of Congress “will end very soon” if a new health-care bill isn’t approved swiftly.
This leaves insurers wondering if the government will continue at all to fund the subsidies.
For now, Cigna says it will offer individual coverage in 2017 under Obamacare but it is waiting for a final answer by the government before saying anything about 2018, Cordani told CNBC. The company has until late September to make a final decision.
“It is a challenging market as we look at 2017 and as we look to 2018. … We haven’t provided 2018 guidance,” Cordani said.
Cigna entered the Obamacare market in 2014, to try to find a “solution” that worked. Now, only about 4 percent of Cigna’s revenue is made on the exchanges, Cordani said. And the company offers insurance on exchanges in seven states.
“We are losing money. … We expected to lose money,” he said.
Some providers have already fled the program. Health insurer Aetnasaid Thursday that it will completely withdraw from the Obamacare exchanges in 2018, having watched earnings soar after trimming its participation throughout this year.
Aetna’s CEO has taken a vocal stance on the issue. “The ACA cannot be repealed, period, end of sentence,” Mark Bertolini told CNBC on Thursday. Congress needs to move on from repealing the Affordable Care Act, he said.
“What we should do is fix it,” Bertolini added. “So either everyone gets their heads together over in the Senate and the House and does the job that the American people needs them to do, and fix what we already have, or they should move on to something else.”
Meanwhile, Cordani said Cigna will focus on the “bright spots” of the individual-marketplace model, and apply those to other markets going forward.
On Friday, Cigna reported a better-than-expected quarterly profit, driven higher by a stronger commercial business, the company said. Cigna also raised its profit outlook for the full year, sending its stock to an all-time high in early trading.
Net income came in at $813 million, or $3.15 per share, in the second quarter, up from $510 million, or $1.97 per share, a year ago. Cigna earned $2.91 a share, adjusted, topping analysts’ forecast for earnings per share of $2.48, according to a Thomson Reuters consensus estimate.
But uncertainty about spending by insurance members throughout the remainder of the year has prevented Cigna from lowering its 2017 cost expectations, management said during a call with analysts and investors.
Cigna expects 2017 adjusted earnings to fall within $9.75 to $10.05 per share, higher than its previous forecast of $9.35 to $9.85 apiece. “It’s all based on our diverse business,” Cordani told CNBC about the upbeat outlook.
Cigna’s stock has climbed more than 35 percent over the past 12 months and is up about 17 percent over the past six months. Shares were recently falling a little less than 1 percent Friday morning.