UPDATE 3-Cigna's individual customer costs rise in qtr; shares fall

Thu Jul 31, 2014 12:05pm EDT

(Recasts to focus on costs)

July 31 (Reuters) - U.S. health insurer Cigna Corp said on Thursday that medical costs for its individual customers were higher than expected in the second quarter, adding to investor worries that spending is on the rise.

Cigna shares fell 5 percent, and a sell-off begun early this week in other insurers including Aetna Inc and WellPoint Inc continued. Investors are on the watch for any signs that medical spending, long at historical lows, is on the rise, which could limit insurer profits. Aetna's and Humana Inc's quarterly results this week had also raised cost concerns.

Cigna said medical costs as a percentage of total premiums collected from its fully insured commercial business came in higher than it had expected, driven by the rise in use among individual customers.

Even so, Cigna lowered it overall medical cost growth expectations for 2014.

Cigna has more than 100,000 individual customers with policies created by President Barack Obama's national healthcare reform law. The balance of its 275,000 to 300,000 individual customers are in plans that do not comply with the law but which have been extended for a year or more.

Some insurers like WellPoint are profiting from the new individual business created by the law, but many including Cigna and Aetna say they are not.

Cigna said that the first group of customers who signed up under the law are using more services like oncology and maternity than expected. There are some signs that customers who signed up near the April 1 close of enrollment on the exchanges are younger and healthier, it said.

Still, Chief Executive Officer David Cordani said he sees long-term possibilities in the business and plans to offer plans in three additional states in 2015 for a total of eight.

The declines in share prices for health insurers came even as Cigna's profit beat analysts' expectations, in line with the trend this quarter from larger competitors.

Much of Cigna's healthcare business comes from fees it charges large corporations to manage plans for their employees. The company, which also has Medicare and Medicaid customers and sells dental, life and disability insurance, said growth in second-quarter profit was driven by higher revenue and by management of expenses and medical costs overall.

Cordani said he expects a continuation of a trend of low use among employer-based customers, in part due to collaborative efforts with doctors and more preventive services.

Cigna lowered it medical cost growth expectations for 2014 to a range of 4.5 percent to 5.5 percent this year, below competitors. The company had previously forecast cost growth at 5 to 6 percent.

For the quarter, Cigna's net income rose to $573 million, or $2.12 per share, from $505 million, or $1.76 per share, a year earlier.

Excluding investment gains, the company earned $1.96 per share. Analysts, on average, expected $1.84, according to Thomson Reuters I/B/E/S.

Revenue rose 9 percent to $8.7 billion.

Cigna had 13.8 million people in its commercial business, up from 13.6 million a year earlier. (Reporting by Caroline Humer; Editing by Jeffrey Benkoe and Leslie Adler)