Cigna, one of the largest US health insurers, raised its full-year profit forecast after reporting third-quarter results that beat expectations. The company credited its Evernorth health-services arm—which includes a pharmacy-benefit manager and specialty pharmacy—for much of the strength, even as it continues to pull back from government-backed insurance plans.
Evernorth does the heavy lifting
Evernorth posted adjusted revenue of $63.77 billion, up 6% from a year earlier, according to the company's earnings release. The unit, which manages prescription drug benefits and provides health services to employers and health plans, has become Cigna's main growth engine. Its specialty pharmacy business, which handles high-cost medications for complex conditions like cancer and autoimmune diseases, was a standout contributor.
Pharmacy-benefit managers (PBMs) negotiate drug prices on behalf of insurers and employers. Evernorth is one of the largest PBMs in the US, alongside rivals like CVS Health's Caremark and UnitedHealth's OptumRx. The segment has been a reliable source of revenue growth for Cigna, even as the broader insurance market faces pressure from rising medical costs.
Pulling back from government plans
While Evernorth thrives, Cigna has been deliberately shrinking its exposure to government-backed insurance programs. The company exited the Medicare Advantage market last year, and it has said it will stop offering Affordable Care Act (ACA) exchange plans at the end of 2026. These markets have been challenging for insurers because medical costs have run higher than expected, squeezing profit margins.
In the third quarter, Cigna's medical loss ratio—the share of premiums spent on medical care—edged up to 85%. That means for every dollar of premiums collected, 85 cents went to paying for healthcare services. A higher ratio typically signals tighter profitability, though Cigna's overall results still came in ahead of Wall Street's expectations.
The company's strategy is to focus on its commercial insurance business, which serves employers and individuals, and to lean on Evernorth for growth. This shift away from government plans is part of a broader industry trend, as several major insurers have struggled with higher-than-expected costs in Medicare Advantage and ACA markets.
What it means for investors
For everyday investors, Cigna's updated guidance is a positive signal that its core businesses are performing well despite a tough environment for health insurers. The company's ability to raise its profit forecast suggests management is confident in the momentum from Evernorth and its commercial insurance operations.
However, the rising medical loss ratio is worth watching. If healthcare costs continue to climb, it could pressure margins in the coming quarters. Investors should also keep an eye on the planned exit from ACA plans, which will remove a source of revenue but also a source of volatility.
Cigna's focus on specialty pharmacy and health services aligns with broader industry trends, as drug spending grows and employers seek more cost-effective ways to manage benefits. The company's results echo the strength seen in other sectors where demand for specialized services is rising. For example, Nippon Steel's recent profit upgrade was driven by strong demand in its core markets, showing how companies with focused strategies can outperform.
Similarly, Bank of Cyprus raised its profit target as lending growth accelerated, another sign that businesses with clear growth drivers are rewarding shareholders.
For Cigna, the key question is whether Evernorth can continue to offset pressures elsewhere. The company's decision to exit government plans is a calculated bet that its commercial and specialty businesses will deliver more stable, higher-quality earnings. So far, that bet is paying off.
Investors should note that Cigna's stock has been volatile in recent years, partly due to concerns about PBM regulation and drug pricing reforms. Any changes to how PBMs operate could affect Evernorth's profitability. Still, the company's latest results suggest it is managing these risks well.
As always, it's important to consider how Cigna fits into a diversified portfolio. Health insurers can offer defensive characteristics, but they also face regulatory and cost pressures. The company's raised guidance is a good sign, but it's not a reason to make any hasty moves.
