The paragraph is a transcript from Cigna Group's Fourth Quarter 2024 Results Review conference call. Ralph Giacobbe, Senior Vice President of Investor Relations, introduces the participants, including Cigna's CEO David Cordani, CFO Brian Evanko, and Eric Palmer, CEO of Evernorth Health Services. The call will cover the company's financial results for the fourth quarter and full year of 2024, as well as their financial outlook for 2025. They use non-GAAP financial measures like adjusted income from operations and adjusted revenues, with reconciliations provided in their earnings release. After the prepared remarks from David and Brian, there will be a Q&A session.

The paragraph outlines a company's forward-looking statements about its outlook for 2025 and future performance, emphasizing risks that may cause actual results to differ. In the fourth quarter, the company reported net after-tax special item charges of $64 million. The speaker introduces David Cordani, who will discuss quarter highlights, full-year 2024 performance, and actions to enhance a sustainable healthcare model. David mentions past industry challenges, such as the financial crisis and the ACA, and emphasizes the Cigna Group's resilience and ability to lead through change while focusing on sustainable growth.

The paragraph discusses several key points regarding the Cigna Group's performance and strategies. Following the tragic murder of Brian Thompson from UnitedHealth Group, Cigna emphasizes improving transparency and accountability. The company reported a 27% revenue growth in 2024, totaling approximately $247 billion, with adjusted earnings per share increasing by 9% to $27.33. Cigna returned $8.6 billion to shareholders and announced an 8% increase in the quarterly dividend, along with expanding share repurchase authority to $10.3 billion. Despite a strong capital position, Cigna's fourth-quarter results fell short due to higher medical costs within their stop-loss product. The company is addressing these issues and expects to recover margins over the next two years, reaffirming confidence in their U.S. employer and healthcare businesses and long-term growth strategy.

The paragraph discusses Evernorth's achievements in driving strong results through their specialty and care services segment, notably via the increased use of biosimilars like Humira and Stelara at no cost to patients. There is a significant opportunity for cost savings as specialty drugs face biosimilar competition in the coming years, with Accredo positioned to lead this effort. The paragraph also highlights the frequent use of prescription drug coverage and the role of pharmacy benefit managers in making medications affordable. Despite efforts to keep costs low, such as with most Express Scripts patients spending less than $100 annually, affordability remains a concern, particularly with the rising use of GLP-1 drugs influencing drug trends since 2024.

The paragraph discusses the high cost of GLP-1 medications in the U.S. compared to other countries, labeling it unsustainable. It highlights Evernorth and Express Scripts' EnCircle Rx solution, which supports patient outcomes with additional lifestyle tools. As they approach 2025, the companies are focusing on improving healthcare experiences by investing in initiatives that lower out-of-pocket costs and enhance transparency. This includes providing lower drug prices at pharmacies and expanding benefit summaries and disclosures to ensure patients benefit from negotiated savings.

The paragraph outlines initiatives by Express Scripts and Cigna Healthcare to enhance patient care and transparency in drug costs. Patients will receive personalized summaries of costs and savings, while plan sponsors gain detailed reports. Cigna Healthcare plans to simplify prior authorizations and offer support for complex health conditions, despite incurring additional costs for these improvements. The company aims for sustained growth, reporting adjusted earnings per share of $27.33 in 2024 and projecting at least $29.50 for 2025, while maintaining a long-term growth target of 10% to 14% through its differentiated capabilities.

The paragraph discusses Cigna's financial results for the fourth quarter and full year of 2024, as well as its outlook for 2025. Despite strong performance in the Evernorth Health Services segment, overall earnings fell short of expectations due to higher-than-anticipated medical costs in stop loss products within the Cigna Healthcare segment. This led to a full-year medical care ratio above the guidance range. Cigna is implementing corrective measures to address these issues. Specifically, for the fourth quarter, Cigna Healthcare reported revenues of $13.3 billion and pre-tax adjusted earnings of $511 million, with elevated medical costs noted in stop loss. The stop loss product allows employers to manage high-cost claims by transferring risk beyond a certain threshold.

The paragraph discusses the financial performance and future expectations for Cigna Healthcare and its Evernorth segment. Cigna Healthcare experienced increased variability in the fourth quarter of the year due to higher-cost claimants driven by the rise in specialty medication use and high-acuity surgeries. This resulted in a slightly higher Medical Cost Ratio (MCR) anticipated for stop loss in 2025, impacting near-term margins. However, they aim to recapture 100 basis points of margin by 2027 through pricing adjustments, affordability initiatives, operating cost efficiency, and continued investments. In 2024, Evernorth saw significant growth, particularly in the specialty and care segment, with a 33% rise in fourth-quarter adjusted revenues to $53.7 billion and a 14% increase in pre-tax adjusted earnings to $2.1 billion. The specialty and care services within Evernorth reported an 18% increase in adjusted revenue to $23.5 billion and a 27% rise in adjusted earnings to $948 million.

The paragraph discusses Evernorth's financial performance and future outlook. It highlights consistent growth in specialty businesses and adoption of Humira biosimilars, leading to increased pre-tax adjusted earnings of $1.2 billion for the fourth quarter and 9% growth for the year. Evernorth remains a leader in pharmacy benefit and specialty pharmacy services. Looking ahead to 2025, the company anticipates closing the Medicare business divestiture to HCSC and projects at least $252 billion in consolidated adjusted revenues and at least $7.9 billion in adjusted operational income. Investment plans will focus on enhancing customer and patient healthcare experiences, with costs shared between Evernorth and Cigna Healthcare. The earnings pattern in 2025 is expected to resemble 2023's, due to atypical seasonality in 2024.

The paragraph outlines Evernorth and Cigna Healthcare's financial expectations for 2025. Evernorth anticipates at least $7.2 billion in adjusted earnings for the year, with slightly under 20% contributing to the first quarter. Cigna Healthcare expects at least $4.1 billion in adjusted earnings, with about 55% occurring in the first half of the year, primarily in the first quarter. Key assumptions for Cigna Healthcare include a medical care ratio between 83.2% and 84.2% and an end-of-year customer base of around 18.1 million, influenced by a Medicare business divestiture and strategic growth areas. The enterprise anticipates a 5.4% adjusted SG&A ratio due to the Medicare business absence and a 19% adjusted tax rate. Additionally, in 2024, they achieved $10.4 billion cash flow from operations and repurchased 20.9 million shares worth $7 billion.

The Board of Directors approved an additional $6 billion for share repurchases, totaling $10.3 billion by the end of 2024. They returned $1.6 billion to shareholders through dividends in 2024. For 2025, the company projects approximately $10 billion in cash flow from operations and plans to allocate $1.4 billion for capital expenditures and $1.6 billion for shareholder dividends, with an increased quarterly dividend of $1.51 per share. The expected average shares outstanding are between 266 million and 270 million. The company aims to reduce debt towards a 40% leverage target and intends to use proceeds from selling Medicare businesses primarily for share repurchases. They anticipate achieving at least $29.50 per share in adjusted earnings in 2025, despite a dynamic environment, and remain confident in their long-term growth strategy. The Q&A session with Justin Lake from Wolf Research then begins.

In this paragraph, Justin Lake inquires about the specifics of Cigna Healthcare's stop loss business, particularly regarding the split between aggregate and specific stop loss premiums and any margin pressures experienced in the fourth quarter. He also seeks clarification on the extent of the fourth quarter shortfall, which he estimates at about 1,500 basis points, suggesting a 5% impact on stop loss revenue margins. Brian Evanko responds, acknowledging the disappointment in the fourth quarter shortfall primarily stemming from stop loss products but notes that the rest of the company met performance expectations. He emphasizes that the quarterly performance of stop loss products reflects an annual accumulation of healthcare activity and expresses confidence in the long-term fundamentals of the U.S. market.

The paragraph discusses Cigna Healthcare's portfolio and the challenges faced with their stop-loss insurance product due to higher-than-expected costs from high-cost claimants in 2024. This cost shift impacted the stop-loss product significantly, and due to the timing of pricing adjustments, the 2025 renewals couldn't fully account for this elevated cost structure. Only later renewals will reflect updated estimates, with substantial margin improvements expected by 2026. The stop-loss business, valued at $6.7 billion in premiums, primarily focuses on individual stop-loss but includes various coverage options. In 2024, the stop-loss Medical Cost Ratio (MCR) was in the low 90s, a mid-single-digit percentage worse than expected, leading to current and future earnings impact and opportunity for recovery.

The paragraph discusses Cigna Healthcare's approach to its stop loss insurance portfolio. It explains that Cigna doesn't offer standalone stop loss coverage but integrates it with first-dollar coverage for employers. This integrated approach creates multiple opportunities for value creation, despite recent stop loss claims pressure. Historically, Cigna has managed to overcome the short-term fluctuations in its stop loss portfolio and maintain long-term profitability. The paragraph also addresses concerns about retention and membership during above-trend stop loss cycles and suggests that meaningful improvement might take until 2026 or even 2027.

The paragraph discusses the long-term relationships and budget certainty provided by Cigna Healthcare's offerings, noting that over 50% of their employer clients using stop loss products have been clients for over five years. While there was a shortfall in 2024 results, it presents an earnings opportunity, and the company is confident in balancing margin recovery with client retention. The question posed by Charles Rhyee concerns the stop loss drivers, particularly specialty drugs, and the Evernorth guidance starting at a 3% operating income growth leading to a 9% increase by the end of 2024. Brian Evanko responds that the stop loss issue was due to unexpected high-cost claims, mainly from specialty injectables, not GLP-1s.

The paragraph discusses the factors contributing to upward pressure on stop loss products, specifically specialty injectable drugs like Keytruda and Ocrevus, and inpatient surgical procedures such as those related to oncology and cardiology. It also addresses Evernorth's income outlook for 2025, anticipating growth within a 5% to 8% range despite adjustments for the absence of Village MD net investment income and overhead from a Medicare divestiture. Additionally, up to $150 million is earmarked for investments in patient and provider initiatives in 2025, with some of this reflected in Evernorth's guidance. Overall, Evernorth is performing well and expected to achieve income growth within its long-term rate range. Finally, the operator introduces a question from Lisa Gill of JP Morgan.

In this paragraph, David Cordani addresses queries about client preferences for rebate retention and the potential impact on profitability. He clarifies that at an enterprise level, there's no expected change to their profit model due to these shifts. The focus has been on maintaining a stable low single-digit margin through innovation and efficiency while delivering value. Most rebates are passed through rather than retained, and choice is still offered in the marketplace. There are specific cases where large employers or unions might choose to incorporate rebates differently in their benefits programs.

The paragraph discusses recent innovations announced by Express Scripts to improve the affordability of medications for their customers. The company is focused on precision in identifying patients facing financial challenges due to deductibles. They introduced measures to ensure customers do not pay the list price at the pharmacy counter and benefit from negotiated discounts, regardless of their deductible phase. Additionally, they aim to offer the same price for those in deductible or coinsurance plans as their underlying plan would pay. The paragraph also mentions enhancements in patient and plan sponsor reporting for transparency. These innovations will be the default approach for employer solutions, offering clients choice in structuring benefits.

The paragraph discusses a financial update regarding the 2025 guidance from a company. AJ Rice from UBS seeks clarification on the impact of the sale of the Medicare Advantage (MA) book, expected to close by the end of the first quarter, on the company's earnings outlook. Brian Evanko responds, explaining the integration of this sale into the revenue and capital deployment guidance, noting a reduction of approximately $12 billion in revenue starting in 2024. Additionally, Rice inquires about the implications for Evernorth's margin, related to large new contract wins and their anticipated effect on margins in 2025.

The paragraph discusses Cigna's capital deployment strategy, focusing primarily on share repurchase and reflecting changes in their income guide due to the removal of Medicare contributions. It mentions that without these contributions and certain favorable developments, Cigna Healthcare's normalized earnings would be slightly below $4 billion in 2024. The discussion also highlights the expected growth rate within a 5% to 8% range, emphasizing strong client relationships and contributions, particularly with Evernorth. Following this, the conversation shifts to a Q&A with an operator introducing a question from Scott Fidel about stop-loss repricing efforts, noting that similar pressures were observed across other large stop-loss carriers.

In this paragraph, Brian Evanko discusses the impact of repricing on client relationships at Cigna, particularly regarding stop loss insurance. He explains that, on average, 20% of a client's costs are related to stop loss coverage, with variations depending on their risk appetite. This integration between first dollar and stop loss coverage provides a buffer during repricing, potentially enhancing client retention. He suggests that Cigna's integrated approach offers a competitive advantage over standalone stop loss carriers as the market undergoes similar pricing adjustments.

The paragraph discusses the renewal cycle of stop loss products, explaining that two-thirds of the stop loss premium renews in the first quarter, particularly due to large clients. This skewed renewal timing is a reason for not recapturing more in 2025. However, there is confidence in achieving significant margin expansion at Cigna Healthcare in 2026, with some residual expected in 2027. Following this discussion, Erin Wright from Morgan Stanley inquires about capital deployment strategies, particularly in relation to acquisitions amid regulatory considerations. David Cordani responds, affirming that their capital deployment priorities remain consistent, focusing on growth, strategic and targeted acquisitions, disciplined CapEx, and maintaining a growing dividend.

The paragraph discusses a company's growth strategies related to mergers and acquisitions (M&A) and capital deployment. The company is pleased with the performance of its growth platforms, especially in the specialty and care sector, and has spent over $8.5 billion in 2024 on share repurchases and dividends. They maintain an attractive cash flow outlook of greater than 10% cash yield for 2025. The focus remains on evaluating strategic bolt-on acquisitions while continuing to invest in core platforms through share repurchases. Meanwhile, the Q&A session begins with Andrew Mok from Barclays questioning the lack of pressure in the fully insured part of the business despite higher specialty cost trends affecting the stop loss business. Brian Evanko of Cigna responds by noting that the cost structure was as expected for 2024.

The paragraph discusses Cigna's healthcare portfolio costs in 2024, highlighting a shift towards high-cost claimants, particularly impacting the stop loss insurance segment. The portfolio is broken into three main components: a large portion unrelated to stop loss and Medicare (60% of premiums) which maintained an MCR of around 80%, a Medicare segment (25% of premiums) performing as expected, and a stop loss segment (15% of premiums) which faced pressure due to high-cost claims and ran in the low 90s MCR. The discussion, led by Brian and David Cordani, emphasizes changes in cost structures, with an increase in higher-cost inpatient events, such as cardiac and oncological surgeries, due to specialty pharmaceuticals.

The paragraph discusses the pending sale of a Medicare business to Healthcare Service Corp. (HCFC) and provides an update on the transaction's status. The Medicare business is performing as expected for 2024, and the sale is anticipated to close in the first quarter. Most federal and state antitrust approvals have been secured, with only one state pending. There will be typical financial adjustments to the purchase price related to subsidiary capitalization, but nothing significant affecting the core question. In 2025, the business is experiencing attractive growth, particularly in HMO products in mature markets with strong provider relationships.

The paragraph involves a discussion during an earnings call where Adam Ron from Bank of America asks about Evernorth's guidance and growth expectations. David Cordani and Eric Palmer address the question by emphasizing Evernorth's consistent track record and commitment to sustaining a 5% to 8% long-term growth rate. They highlight the strong performance and strategic positioning of the business, specifically pointing out the strength in specialty growth. There is no indication of significant changes affecting this growth outlook.

The paragraph is a discussion on financial guidance and projections for the year 2025. Brian and Eric mention that they are well-positioned for growth in the areas of pharmacy benefit services and specialty care services. Brian highlights three factors influencing Evernorth's income growth from 2024 to 2025: the absence of VillageMD's dividend recognition in 2025, stranded overhead from the Medicare divestiture affecting the Evernorth profit and loss in 2025, and enterprise-level investments of up to $150 million impacting both Evernorth and Cigna Healthcare segments. Ann Hynes from Mizuho Security seeks clarity on the discrepancy between the expected medical loss ratio (MLR) and healthcare EBITDA for 2025, compared to street expectations, estimating a $340 million impact versus an $800 million gap. Brian responds, indicating possible differences in projections or interpretations.

The paragraph discusses expectations for the stop loss insurance book, highlighting a modest increase in the Medical Cost Ratio (MCR) for 2025 compared to 2024, due to challenges in capturing the elevated cost trends within the timing of pricing cycles. The premium base is expected to grow beyond the 2024 level of $6.7 billion. It also notes that the benefit from prior year development seen in 2024 is not forecast for 2025. Additionally, $150 million is earmarked for initiatives related to providers and patients, impacting Cigna Healthcare's Profit & Loss statement. In a Q&A session, Sarah James from Cantor Fitzgerald inquires about third-quarter financial guidance and pressures on stop loss claims. Brian Evanko clarifies that the third-quarter guidance was directional, aiming for at least 10% growth, viewed as a prudent estimate at the time.

The paragraph discusses financial expectations and challenges for a company. It highlights that they had to adjust their Medical Care Ratio (MCR) guidance for the year due to unexpected pressure from stop loss, which was greater than anticipated. They've included up to $150 million for provider and patient initiatives in their plans, which isn't new. They expect strong growth for the company, excluding the Medicare business, in the 6% range. The third-quarter commentary wasn't formal guidance but aimed to provide a directional sense. Ben Hendrix from RBC Capital Markets questions about the 2025 earnings pattern, particularly regarding the stop loss margins and any anticipated seasonal cost trends. Brian Evanko responds by noting the full-year nature of stop loss products.

The paragraph discusses the financial projections and dynamics related to stop loss margin recovery and earnings seasonality for 2024 and 2025. It explains that the financial impact of stop loss margin pressure, initially identified late in 2024, should be considered evenly across the year. The expectation for 2025 is to have a more typical financial pattern with lower Medical Cost Ratios (MCRs) in the first half and higher in the second half. Unique factors such as VillageMD and stranded overhead will impact Evernorth's income in the first half of the year. George Hill from Deutsche Bank asks about considerations for stop loss margin recovery beyond pricing, especially for 2026 and 2027, and inquires about high acuity surgical activity, seeking clarification on whether it involves elective or non-elective procedures and specific types of procedures.

In the paragraph, Brian Evanko discusses their strategy surrounding stop loss insurance, emphasizing that client conversations extend beyond just pricing to include broader relationship considerations. Clients frequently adjust pooling or attachment points to manage cost inflation, and their experience helps maintain client loyalty despite market fluctuations. Evanko notes that recent high acuity surgical activities, particularly in inpatient cancer and cardiac cases, appear to be a structural trend rather than tied to elective procedures, likely to persist into 2025. If this assumption proves temporary, there could be an upside. David Cordani then briefly thanks participants and wraps up the call.

In the closing remarks of the Cigna Group's fourth quarter 2024 results review, the company expresses confidence in meeting its 2025 EPS commitment of at least $29.50 and maintaining its long-term growth target of 10% to 14%. Cigna highlights its focus on enhancing the healthcare ecosystem, delivering greater value and transparency to customers and patients, and appreciates its 70,000 global colleagues' efforts. The session concluded with contact information for investor relations and details on accessing a replay of the conference call.

This summary was generated with AI and may contain some inaccuracies.