November 2, 2017 / 10:13 AM / a year ago

Cigna tops profit estimates on low member medical costs

(Reuters) - Cigna Corp on Thursday said low member medical costs, particularly related to hospitalizations and prescription drugs, drove better-than-expected third-quarter profits and would continue in 2018.

Cigna shares rose 1.3 percent, to $2.60, $200.44 and were up about 50 percent since the beginning of the year.

The No. 5 health insurer, which specializes in managing employer-based insurance plans, also said it expects to grow 2018 profit by 7 percent to 9 percent from 2017 excluding adjustments, in line with its long-term targets.

Cigna now expects 2017 medical costs to rise 3 percent to 4 percent, 100 basis points below its previous forecast, and noted that in addition to hospital inpatient and pharmacy costs, it expected outpatient costs and physician costs to all rise in the low to mid-single-digit range.

Cigna’s results are similar to those of other health insurers, including Aetna Inc, Anthem Inc. and UnitedHealth Group Inc., who also have had better-than-expected third quarters.

Like those insurers, Cigna also said the industrywide health insurance tax of 3 percent that is part of former President Barack Obama’s Affordable Care Act, will be a drag on earnings. It put that figure at $50 million.

Cigna Chief Executive Officer David Cordani noted regulatory and legislative uncertainty as President Donald Trump tries to undo Obama’s healthcare law, often called Obamacare. But he said he does not expect that to affect business in 2018.

Cigna is among the few large insurers offering Obamacare health plans in 2018 as rivals have either scaled back or pulled out of the market after booking losses on the business due to higher medical costs than expected.

Cigna’s membership rose about 4 percent to 15.8 million as of Sept. 30, while its commercial medical loss ratio came in at 78.6 percent in the quarter, down from 79.4 percent a year earlier.

Medical loss ratio, a key performance metric, is the amount an insurer spends on medical claims compared with income from premiums.

Cigna lifted its estimate of 2017 adjusted income from operations to $10.20-$10.40 per share from its previous estimate of $9.75-$10.05.

The company’s net income rose to $560 million, or $2.21 per share, in the third quarter ended Sept. 30, from $456 million, or $1.76 per share, a year earlier.

Excluding items, the company earned $2.83 per share, above the average analyst estimate of $2.36, according to Thomson Reuters I/B/E/S.

Total revenue increased 5 percent to $10.4 billion.

Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Saumyadeb Chakrabarty and David Gregorio

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