QUOTE AND NEWS
Jutia Group  Nov 19  Comment 
[Business Wire] - Cigna , a global health service leader, has once again scored a perfect 100 percent on the HRC’s 2015 Corporate Equality Index and has been recognized by the Human Read more on this. Cigna Corp. (CI), valued at $26.84B,...
Jutia Group  Nov 18  Comment 
[Business Wire] - Cigna and Primary Partners LLC, a physician owned and managed accountable care organization, have launched a collaborative care initiative to improve patient access to h Read more on this. Cigna Corp. (CI), valued at $27.29B,...
Market Intelligence Center  Nov 14  Comment 
With bullish technical indicators and a 5 STARS (out of 5) strong buy ranking from Standard & Poor’s, CIGNA Corp. (CI) could be an attractive play for investors according to MarketIntelligenceCenter.com's patented option-trade picking...
Jutia Group  Nov 12  Comment 
[Business Wire] - The Cigna Foundation today awarded its largest new World of Difference grant for this year to Arogya World, an India-headquartered non-profit company dedicated to preventing non-communicable diseases through health education and...
Jutia Group  Nov 10  Comment 
[Business Wire] - Every 67 seconds, someone in the United States develops Alzheimer’s disease, with 11 million Baby Boomers currently at risk of developing the disease. More than five million Americans currently live with this progressive and...
Wall Street Journal  Nov 8  Comment 
Facing allegations of discriminating against people with HIV and AIDS, Cigna Corp. agreed to restructure the HIV prescription drug benefits in its 2015 plans in Florida, making them less costly and burdensome for such patients
New York Times  Nov 7  Comment 
Under the settlement with Florida regulators, the insurer will limit to $200 a month what patients have to pay for some commonly prescribed drugs..
Jutia Group  Nov 7  Comment 
[Business Wire] - The Maryland Center for Health Equity in the School of Public Health at the University of Maryland and the Cigna Foundation recently announced a partnership to encourage colorectal cancer screening among African-Americans through...
Forbes  Oct 30  Comment 
Health insurance giant Cigna (CI), beating profit forecasts for the third quarter, raised its earnings forecast for the rest of the year and said it will double revenues in the next seven to eight years on growth driven in part by the shift away...




 

CIGNA Corporation (NYSE:CI) is a health insurance company - sort of. For one, three-quarters of Cigna's health insurance business isn't really insurance - Cigna manages health plans for companies who self-insure, agreeing to pay employee's health care costs. Employees get Cigna cards and access to Cigna's negotiated rates with doctors, and Cigna handles billing, but the employer bears the risk of paying for care when employees get sick. This arrangement means less risk for Cigna, but also smaller premiums. The majority of CIGNA's revenues come from these so called self-funded administrative-only plans.

Cigna also differs from its competitors in that the majority of the company's pretax operating income comes from investment income- 50% higher than its next most-invested competitor, Aetna, and almost four times that of other large national health account providers.[1] [2] This reliance on investment income makes the company much more vulnerable to market conditions than most other health insurance companies.

The company’s Medicare membership comprises only 0.3% of its total coverage, shielding CIGNA from legislation like the 2006 Deficit Reduction Act, which aims to cut Medicare funding by over $4.8 billion before 2011 and threatens competitors’ profit margins.

Company Overview

Business Financials

CIGNA earned total revenues of $18.4 billion in 2009, a slight decrease from its 2008 total revenues of $19.1 billion.[3] Despite this decrease in revenues, CIGNA was able to substantially increase its net income from $288 million in 2008 to $1.3 billion in 2009.[3] This was largely the result of CIGNA realizing a run off reinsurance gain of $185 million in 2009 as opposed to a $674 million loss the previous year.

Business Segments

CIGNA breaks its operations into five major business segments: i) Health Care, ii) Disability and Life, iii) International, iv) Run-off Reinsurance, and v) Other Operations.

The Health Care Segment (61.8% of 2009 revenue)[4]

The health care segment provides health insurance through a variety of forms such as health maintenance organizations (HMOs), point of service (POS) plans, preferred provider (PPO) plans, and more limited voluntary plans primarily to national, regional, and small-business employers. They also offer specialty plans such as dental insurance and prescription drug plans. The division offers three pricing schemes: a guaranteed cost scheme, where CIGNA takes on all medical cost risk in exchange for a monthly premium; a retrospectively experience-rated scheme, where the premium includes a margin that can be adjusted based on each individual or employers medical history; and a self-funded administrative services only (ASO) scheme, in which the customer pays a smaller fee in exchange for CIGNA taking on all administrative costs, but the customer incurs their own medical costs up to a "stop-loss" amount. In 2009, this segment earned $13.1 billion in total revenues.[4]

The Disability and Life Segment (16.2% of 2009 revenue)[5]

This segment provides group life insurance, long and short-term disability insurance, workers’ compensation, and accident insurance to national and regional employers and employees through its subsidiaries. For disability insurance, CIGNA acts for both the employer and employee, providing a fixed level of income to the employee, assisting the employee in his/her return to work, and assisting the employer in managing the cost of employee disability. All services in this division are contracted under a guaranteed cost scheme. In 2009, this segment earned $2.99 billion in total revenues.[5]

The International Segment (10.7% of 2009 revenue)[6]

This segment includes revenues from life, accident, and health insurance services offered by CIGNA’s foreign subsidiaries. These services are offered to foreign employers, as well as multinational companies. In 2009, this segment posted total revenues of $1.97 billion.[6]

Run Off Reinsurance

Prior to 2000, this segment offered to reinsure part or all of the risks written off by other insurance companies under life, accident, or health insurance policies. In 2000, CIGNA sold these subsidiaries, but still generates revenue from previously invested income and incurs contractual payments as a “run-off” to these policies. In 2009, the segment had a negative revenue of $141 million.[7]

Other Operations (3.2% of 2009 revenue)[8]

This segment includes the sale of corporate-owned life insurance (COLI) plans, or employers’ life insurance on certain employees; deferred revenue from the 1998 and 2004 sales of their life insurance, annuity, and retirement benefits businesses; and their settlement annuity business, or liability settlements for non-guaranteed payments. In 2009, this segment posted total sales of $583 million.[8]

Trends and Forces

Decline in proportional Medicare membership allows CIGNA to maintain margins in wake of funding cuts

Under Medicare and Medicaid plans, a health insurance company takes on medical cost risk for a customer in exchange for monthly premiums paid by the government. The 2006 Deficit Reduction Act, however, included a plan to cut Medicaid funding by $4.8 billion before 2011.[9] This bill, along with any additional legislation of this form, would lead to decreased profit margin for any customer under a Medicaid or Medicare plan. As this funding is cut, CIGNA increasingly low exposure to government payments offers it a competitive advantage over competitors providing a large proportion of Medicare plans. Medicare customers represented only 0.3% of CIGNA’s coverage, helping keep CIGNA insulated from this development.

Heavy reliance on self-funded accounts mediates risks, but dampens revenue growth potential

Under self-funded accounts, customers pay a smaller premium in exchange for administrative services, but incur their own medical costs up to a given "stop-loss" amount. While this prevalence of self-funded accounts eliminates some inherent risks of medical costs, it dampens revenue growth by generating smaller premiums per member. For example, Medical Membership in CIGNA's Health Care Segment grew by over 8% in 2007, but the total premiums generated by this segment grew only 7% in this same time period.[10]

Competition

CIGNA’s Health Care services face a highly competitive industry that competes on the prices and comprehensiveness of benefits, location and choice of health care providers, quality of customer service, and reputation of financial strength. Its greatest competition comes from other national account companies such as Aetna (AET), UnitedHealth Group (UNH), and WellPoint Health Networks (WLP).


References

  1. | CI 2007 10-K, Item 8: Financial Statements and Supplementary Data, pg 67
  2. Stiffel Nicolaus Report, CVH, 8/16/2007
  3. 3.0 3.1 CI 10-K 2009 Item 6 Pg. 47
  4. 4.0 4.1 CI 10-K 2009 Item 7 Pg. 62
  5. 5.0 5.1 CI 10-K 2009 Item 7 Pg. 69
  6. 6.0 6.1 CI 10-K 2009 Item 7 Pg. 71
  7. CI 10-K 2009 Item 7 Pg. 73
  8. 8.0 8.1 CI 10-K 2009 Item 7 Pg. 77
  9. CVH 2007 10-K, Risk Factors, pg 20
  10. | CI 2007 10-K, Membership, pg 49-51
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