Cigna raised its full-year outlook after a third strong quarter, although the company's executives and investors are worried about sustaining earnings from Medicare Advantage, which saw high quarterly claims costs.
Cigna's third-quarter earnings grew 12 percent over last year, to $536 million, or $1.89 a share, on revenue that grew 10 percent, to $8.1 billion, and the company raised full year 2013 income expectations, now estimated to reach up to $1.96 billion, or $6.70 to $6.90 per share.
Cigna CEO David Cordani attributed the results to a lower operating expense ratio, and growth in premiums and fees in three business segments -- global healthcare (a 7 percent year-over-year increase), global supplemental benefits (a 29 percent increase) and group disability and life (a 9 percent increase).
However, those results were "partially offset by pressure in Medicare Advantage," Cordani said, calling Medicare Advantage and its federal rate reductions one of several "structural headwinds" the company is facing over the next year -- along with the rest of the industry.
In the third quarter of 2013, Cigna's Medicare Advantage insurer HealthSpring had a medical loss ratio of 85.5 percent -- a 5.5 percent increase over last year's third quarter and a 2 percent increase over this year's second quarter.
Citi analysts Carl MacDonald took those numbers as a sign that Cigna's expectations of an 82-83 percent Medicare Advantage MLR for 2013 may not pan out. Cigna's commercial MLR also increased by two percentage points to 82.9 percent, although that should leave the company within its full year guidance of up to 82.5 percent, as last quarter's commercial MLR stood at just under 79 percent.
Headwinds aside, "We feel good about the position we have for 2014," Cordani said in an earnings call. "We're quite confident that the engaged physician and beneficiary model is a sustainable one."
In Medicare Advantage long-term, Cordani said the company is focused on "driving differentiated care coordination" through provider engagement and value-based reimbursements. Already, 75 percent of Cigna's two million Medicare Advantage customers are covered through value-based physician reimbursement models, and the company has 75 accountable care partnerships across insurance segments nationwide, after adding 9 in the third quarter.
Cordani also commented on Cigna's global diversification strategy, started in 2009, of "going deep, going global and going individual."
As the company takes a "very selective approach to the first phase of public health exchanges" here in the U.S. (participating in five states), it's rolling out products for emerging middle-class consumers internationally. In late September, Cigna started selling personal accident and health insurance in Thailand through a brokerage partnership with Tesco Lotus, a Thai retailer distributes a range of consumer and financial products.
And eying a global presence in mobile health, Cigna recently inked a deal with Samsung to provide Cigna health engagement content to Samsung Galaxy users in the United States, the United Kingdom, France, Germany, Italy and Spain, with more functions and features planned for Samsung devices worldwide in the coming years.