Cigna's health services business powers Q2 earnings beat

By Sneha S K

July 31 (Reuters) - Cigna CI.N beat Wall Street estimate for second-quarter profit on Thursday, helped by strength in its pharmacy benefit management business.

The company was among the last major health insurers to report quarterly results, in a period marked by high medical costs in government-backed plans. Cigna, however, was able to shield itself from the broader industry trend as it divested its Medicare business to Health Care Service Corp and relies more on pharmacy benefits and fee-based commercial insurance.

The company has intentionally structured its portfolio to suit current conditions, CEO David Cordani said on a post-earnings call. "We have no exposure to Medicaid or Medicare, instead choosing to serve these customers through our Evernorth services portfolio."

Medicaid plans are for low-income people, while Medicare Advantage is for people aged 65 and older or with disabilities.

Revenue from Cigna's Evernorth healthcare services unit, which includes its pharmacy benefit management business, rose 17% to $57.83 billion during the quarter. Pharmacy benefit managers help negotiate drug prices and coverage with manufacturers on behalf of employers and health plan clients.

But the company also said it expects costs to remain elevated throughout the year and into next year, and has priced 2026 accordingly.

It reported a medical care ratio — the percentage of premiums spent on medical care — of 83.2% during the quarter, higher than the 82.3% a year ago. Cigna attributed the rise to higher stop-loss medical costs, which protect employers from large claims.

Shares of the company dropped 6% in morning trading.

Baird analyst Michael Ha said the stock dip may reflect stop-loss concerns, but called the reaction "overdone".

Cigna forecast 2025 medical care ratio to be between 83.2% and 84.2%, with the third-quarter ratio expected to be toward the upper end of that range.

Its second-quarter adjusted per-share profit of $7.20 topped analysts' estimate of $7.15, according to data compiled by LSEG.

The company maintained its annual adjusted profit forecast of at least $29.60 per share, while analysts expect $29.68 per share.