(Recasts, adds CEO and analyst comments, share move)
By Caroline Humer
May 1 U.S. health insurer Cigna Corp on
Thursday said that early enrollees in new plans created under
President Barack Obama's healthcare law used medical services
more than it expected, confirming early forecasts it would lose
money on the business in 2014.
The loss tied to Obamacare, which accounts for 3 percent of
Cigna's revenue, did not prevent Cigna's first-quarter earnings
from beating Wall Street expectations.
Company shares gained 3.5 percent as its much larger
employer-based and government Medicare businesses improved, due
to stronger cost controls and relatively light use of medical
services by customers, partly due to a moderate flu season.
The report by Cigna follows earnings beats by larger
competitors WellPoint Inc and Aetna Inc for the
first quarter as well. They also said visits to doctors and
hospitals were light.
Cigna Chief Executive Officer David Cordani said the company
now expects to sign up about 116,000 people for 2014 health
plans that have the new benefits required under Obama's Patient
Protection and Affordable Care Act, about 20 percent more than
it had expected.
The mix of new members who signed up close to an April
deadline for coverage matched Cigna's expectations in terms of
age and type of plans selected, Cordani said. But people who had
signed up earlier in the enrollment process, which began in
October, are accounting for higher medical costs than the
company had planned for.
Nationwide, more than 8 million have signed up for Obamacare
plans, according to federal data. The Obama administration is
expected to give a final tally soon.
"The early look at results from the Wave 1 enrollees ... is
less attractive versus our expectation and less attractive than
any of our business norms as relates to medical cost and medical
service consumption," Cordani said in an interview, referring to
people who signed up in the first few months of enrollment.
Cordani said Cigna may expand into several new Obamacare
markets in 2015 on the expectation that there is long-term
opportunity in the business. Health insurers are due to submit
their proposed plans, including pricing, to regulators by the
end of next month.
OBAMACARE'S BUSINESS MODEL
Cigna's commentary on Obamacare adds to a developing picture
on whether the exchanges will be sustainable in the long run.
Their insight on the shift in enrollee age - and possibly health
- matches those from larger competitors Aetna and WellPoint.
But it was the first to provide details on medical use by
early customers. Aetna has only said it expects the Obamacare
business to be a "headwind" this year while WellPoint said on
Wednesday it will earn a profit of 3 to 5 percent.
The differences could reflect each company's own experiences
in the individual market, which has long been dominated by Blue
Cross Blue Shield plans, one analyst said. That can help with
setting the right level of plan premiums to cover costs.
"The individual market relies heavily upon how much of your
presence is in the market currently. So WellPoint tends to have
a lot of deep membership in certain markets. Cigna may not have
that advantage," Morningstar Research analyst Vishnu Lekraj
Cigna's overall quarterly financial performance improved
from the previous quarter, when it missed analysts' earnings
estimates, saying costs in its Medicare business were higher
Cigna reported first-quarter net income of $528 million, or
$1.92 per share, up from $57 million, or 20 cents per share, a
year earlier, when it took a charge for exiting a business.
The company reported earnings of $1.83 per share, excluding
investment gains. On that basis, analysts on average were
expecting $1.54, according to Thomson Reuters I/B/E/S.
Revenue grew in the quarter as the company added members and
collected more premiums. It also beat expectations, reaching
$8.5 billion, compared with analysts' estimates of $7.7 billion.
Cigna ended the quarter with 14.17 million medical
customers, up from 14.08 million at the end of 2013.
The company raised its 2014 earnings outlook to a range of
$7.05 to $7.35 per share. In February, it said it had expected
$6.80 to $7.20.
(Reporting by Caroline Humer; Editing by Michele Gershberg,
Lisa Von Ahn and Chris Reese)