Cigna Corp. announced its net earnings fell to $57 million or 20 cents per share in the first quarter 2013 down from $371 million or $1.28 per share last year, largely the result of a previously announced $507 million charge from its Febraury reinsurance deal with Berkshire Hathaway.
Excluding the reinsurance-related charge and other items, the compan posted quarlty earnings of $497 million or $1.72 per share, an increase of 39 percent from the $359 million, $1.24 per share earnings, reported last year.
Now with 14.3 million medical members, Cigna said first quarter premiums and fees increased by 20 percent over last year, along with increased revenue from the HealthSpring Medicare Advantage acquisition and "a continued shift by clients" to self-funding and administrative services products, which accounts for about 80 percent of the company's commercial U.S. business.
The company did take an after-tax charge of $507 million for turning over its reinsurance business to Berkshire Hathaway, for guaranteed minimum income benefits and variable annuity death benefits.
That aside, Cigna CEO David Cordani said the company's "diversified portfolio of individual and employer-based solutions" is focused "on quality and affordability" in a "dynamic and disrupted environment."
Particularly in Medicare Advantage -- a market Cigna entered in 2011 with a $3.8 billion acquisition of HealthSpring -- Cordani said "there is no doubt that the CMS guidance for Medicare Advantage will cause significant disruption."
CMS had proposed a 2.2 percent cut to Medicare Advantage reimbursements for 2014, only to end up increasing rates by 3.3 percent. But the disruption Medicare Advantage insurers and Wall Street analysts are expecting is likely to come from risk-adjustment model changes, aimed at bringing the coding of treatments in line with traditional Medicare.
Still Cordani and other executives sounded cautiously optimistic about Medicare Advantage and specifically HealthSpring and Cigna's accountable care models, which now covers about 1 million of the insurer's commercial and senior members.
Partnering with physicians for HealthSpring's Medicare Advantage members, Cordani said, is the "only sustainable way to improve health and lower healthcare costs."
At the same time, he said in response to one analyst's question about what may be some crowding in the Medicare Advantage market, "The competitive realities will play out in the coming months. There's a bias towards sustainability, so there is a bias to margin outcomes," he said.
More broadly for Cigna, under health reform and economic trends, a "disruptive backdrop" is going to create opportunities for both "organic and inorganic growth," Cordani added. Cigna is cautiously considering participating in public health insurance exchanges in metropolitan areas, moreso than states, in regions where the company already has accountable care and physician collaborative relationships, Cordani said.
"We don't have a book of business that we need to protect here," he said, referencing the company's lack of small group and limited individual products. The company has been running individual market pilots over the past three years, though, he said.
In other business areas, Cordani said that consumer-driven health plans "continue to grow and deliver attractive returns" and that the company was continuing its focus on employee wellness globally, recently hosting the Global Healthy Workplaces Summit.
For 2013, the company is now projecting earnings of $1.73 billion to $1.86 billion and is expecting a medical loss ratio of 82.5 to 83.5 percent in commercial insurance and 82 to 83 percent in Medicare Advantage. For the first quarter, Cigna had an MLR of 77.6 percent for commercial members and 84.3 percent for Medicare Advantage members.