Dive summary:
- Express Scripts, Cigna’s massive pharmacy benefit manager, could see lower profits next year due to its transition to a new no-rebate model and discounted contracts for three major customers, the company said Thursday in conjunction with the release of its third-quarter results.
- But “in general, we hope [earnings per share] growth in 2026,” Chief Operating Officer Brian Evanko told investors. Earnings should rise due to growth in Cigna’s specialty pharmacy and higher margins in its health insurance business, executives said.
- Both Cigna’s healthcare business, Evernorth, and its insurance division, Cigna Healthcare, beat analysts’ expectations. in the quarterand Cigna reaffirmed its 2025 outlook following the results. Still, the company’s shares fell more than 17% in morning trading after the results were released.
Diving information:
Cigna posted revenue of $69.7 billion in the third quarter, up 10% year-over-year. The Bloomfield, Connecticut-based company’s net income was $1.9 billion, down from $739 million in the third quarter of last year, when Cigna posted a significant investment loss. However, Cigna’s adjusted operating income, which does not include that charge, was flat year over year at $2.1 billion.
JP Morgan analyst Lisa Gill called the results “solid” in a note Thursday.
Evernorth, which accounts for 60% of Cigna’s profits, reported adjusted operating income of $1.9 billion, up 1% year over year, on revenue of $60.4 billion, up 15% year over year.
Revenue growth largely missed the division’s bottom line due to higher spending on Express Scripts. That margin pressure in Cigna’s pharmaceutical benefits segment should continue over the next two years, executives said. That is due to two factors.
On the one hand, Cigna issued better contract terms to three large customers (Centene, Prime Therapeutics and the Department of Defense) to renew their businesses through the end of the decade. That will reduce margins on those contracts, which together represent $90 billion in annual revenue, according to Evanko.
Second, Cigna is investing in technology and other operations to transition customers to its new default pharmacy benefit model starting in 2028. The model, which Cigna announced earlier this week, will pass on savings it negotiates with drug makers to members at the point of sale, rather than returning those rebates to customers after the fact.
Executives touted the model on Thursday’s call, saying it will lead to patients paying less at the pharmacy counter, more stable reimbursements for pharmacies, and a simplified payment structure and budget certainty for employer clients.
And, more importantly for investors and the company itself, the new model will have profit margins “comparable” to Evernorth’s other pharmaceutical benefit products, around 4%, according to Evanko.
“We would expect strong contribution levels from our new zero-rebate model,” the COO said.
Meanwhile, Cigna’s health insurance division, which accounts for about 40% of its profits, has managed to avoid the worst of the higher costs hitting its payer peers, largely thanks to its business structure. Cigna Healthcare covers more than 18 million members in employer-sponsored health plans and plans on the Affordable Care Act exchanges.
The insurer also used to offer Medicare Advantage and Medicare prescription drug plans, but sold that business earlier this year, exiting a market that has been generating significant expense for insurers.
That divestiture reduced Cigna Healthcare’s adjusted revenue for the quarter by 18%, to $10.8 billion. Excluding impacts from the sale, Cigna Healthcare’s revenue would have increased 6% as it raised premiums to cover rising medical costs, the company said.
Still, those premium increases were not entirely enough. Cigna reported a medical loss ratio, an indicator of spending on patient care, of 84.8% in the quarter, up from 82.8% in the same period last year and above analysts’ expectations.
The main culprit for the MLR increase was Cigna’s Affordable Care Act business, executives said. Stock market plans have struggled to absorb higher costs this year, and since the rise in enrolledHealth needs affect essentially all issuers and are not covered by normal checks and balances against cost increases.
Cigna’s “updated view of risk adjustment” in its ACA business drove the brunt of the MLR increase, Evanko said.
Executives also attributed the increase to higher stop-loss medical costs that have hit Cigna since late 2024. There is often variability in spending on stop-loss insurance, which protects self-funded employers from health insurance costs above a certain amount.
However, Cigna saw its loss prevention spending soar in the fourth quarter of last year as workers in employer-sponsored plans used more expensive specialty medications and received more high-acuity surgeries.
Although the loss limitation trend remained elevated in the third quarter, it remained within the company’s expectations, executives said. Cigna repriced its stop-loss products earlier this year and expects business margins to improve in 2026.
“Overall, our performance in 2025 is in line with our expectations, with the exception, as we noted beforehand, of some of the pressure we saw in the individual exchange business,” CEO David Cordani said on the call.
Overall, Cigna Healthcare’s adjusted operating income fell 12% year over year to $1 billion in the quarter.
