Cigna, Centene Talk Stop-Loss, Medicaid Changes at Barclays Conference

Centene Corp. and The Cigna Group both reiterated their adjusted earnings per share (EPS) guidance for the year during Barclays 27th Annual Global Healthcare Conference on March 12. While both companies remain optimistic about their 2025 guidance, they face different pressures related to stop-loss insurance, Medicaid and more. “We’re only two months into the year, but we continue to feel good about the earnings power of the enterprise this year and also continue to feel good about our ability to unlock the embedded earnings power that we laid out at our December Investor Day over the next few years,” said Centene CEO Sarah London while affirming the company’s EPS guidance of greater than $7.25. Cigna’s Brian Evanko — who will assume the role of president and chief operating officer on March 31 — noted that the insurer is on track to generate more than $10 billion in cash flow for the year. He also stated that the first quarter is “tracking in line with expectations” and reaffirmed the enterprise EPS. “We’ve taken the corrective actions that we need to take to get the business on to the right track,” Evanko said, referring to Cigna missing its EPS and medical loss ratio (MLR) targets in its fourth-quarter 2024 earnings report. “And we put forth a 2025 outlook that reflects the best set of information that we had at the time of our fourth quarter earnings release.” Centene Execs Discuss Medicaid in D.C. London attended the conference via video from Washington, D.C., where she met with lawmakers to discuss issues such as proposed Medicaid program changes and the enhanced premium tax credits for the individual exchange market, which expire after 2025. “We’re really just trying to be kind of a thought partner as they work through the design of some of those elements and think about where there may be savings that don't ultimately really disrupt core benefits,” she explained. In Medicaid realm, London noted that lawmakers are moving away from discussions of per capita funding caps, which limit federal Medicaid spending per enrollee. Another concept gaining steam is a “policy-based benchmark budget framework,” she said. In this framework, the enhanced premium tax credits, current Medicaid spending and tax cuts are in the baseline. Then, lawmakers can identify areas where federal spending does not directly drive the benefits. “But it allows a discussion to focus more on where you can create deficit savings from those reforms rather than trying to do sort of a strict pay-for on the tax cuts,” London said, giving the example of cutting fraud, waste and abuse in federal programs. And Medicaid work requirements are “still very much in the conversation,” London shared. The reality of such requirements, she said, is that a “significant portion” of the Medicaid expansion population already works. “And so, it's really about making sure that you're defining the program correctly, and then you're supporting members to meet the eligibility criteria to then get their benefits,” she explained. Centene is also preparing for the looming subsidy cliff by “assuming the law of the land” that the enhanced premium tax credits will expire on Dec. 31, said Andrew Asher, executive vice president and chief financial officer. The insurer is working with departments of insurance in all states in which it operates on creating two sets of rates: one reflecting the enhanced subsidies’ expiration and another in case they are renewed “so that they can sort of pivot to that alternative sets of rates,” Asher said. The expiration of the enhanced tax credits could result in mid- to high-single-digit premium increases on top of any normal trend increase, Asher explained. “We want the industry to be on the same page in terms of the process,” he added. “That’s why we're working with the departments of insurance. And then we’ll see what visibility we get, hopefully, by August.” Flu Season Hits Centene’s Medicaid Business An active flu season has hit Centene’s Medicaid business in the first quarter, with costs running $130 million more than expected, Asher said. Despite the downward pressure from these incremental costs, Asher still expects Medicaid MLR to improve in the second half of the year. “That’s all excess cost in Medicaid,” he said. “The other two lines of business weren’t anywhere near that in terms of relativity to forecast. But we still think we’re going to improve throughout the year.” The flu complications have not hit the insurer’s Medicare business, which is now split evenly between Medicare Advantage and Medicare Part D. This even split will help contain the company’s Part D MLR line slope, which is inverted from 2024, meaning a lower MLR early in the year that will move up throughout 2025, Asher explained. Cigna Predicts Stop-Loss Improvement In late January, Cigna’s stock took an 11% hit when it announced it missed its fourth-quarter 2024 adjusted EPS and MLR targets due to unexpected pressures from its stop-loss insurance business. Stop-loss insurance is available to self-insured employers and works by transferring risk to Cigna when a company’s costs reach a certain threshold due to catastrophic or unexpected medical claims. These costs soared in late 2024 due to claimants undergoing high-acuity surgeries and using high-cost specialty medications such as Keytruda (pembrolizumab) for cancer. When asked during the conference why Centene is seeing cost pressure from drugs that have been on the market for several years, Evanko observed that the current specialty drug wave is “in its infancy actually in terms of where we see the next decade going” and is already valued at around $400 billion. More specialty drugs are gaining FDA approval, plus existing drugs are being used for additional indications. “So, all those forces are leading to this wave of specialty drug innovation that's transpiring across the health care system,” he explained. Overall, Evanko expects Cigna’s late 2025 pricing — which he believes is “prudent and appropriate” — will alleviate some of the pressures from the stop-loss business. “And then 2026 pricing will more fully capture the updated assumptions that we’ve made going forward,” Evanko said. “So again, our view here is there has been a structural shift for these higher cost claimants, partly driven by specialty drugs, and we think the '25 outlook properly reflects that.”