(Recasts to focus on costs)
July 31 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
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
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
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