Cigna Faces Rising Stop-Loss Insurance Costs Due to Drug Prices

Understanding the Rising Costs

Cigna has reported a significant rise in stop-loss insurance expenses during the fourth quarter. This increase is poised to impact employers renewing their coverage. In a conference call with securities analysts, Cigna executives elaborated on the reasons for this change.

Factors Influencing the Surge

Brian Evanko, Cigna's Chief Financial Officer, pinpointed high spending on expensive injectable drugs, like Keytruda for cancer, as a key factor. Moreover, increased costs for inpatient surgeries related to severe conditions such as cancer and heart problems contributed to the rise. Claims also exceeded projections, further elevating expenses.

Implications for Premiums and Claims

The hike in stop-loss costs first caught Cigna's attention in the fall. However, with many clients renewing at the beginning of the year, there was inadequate time to revise rates. This resulted in a claims-to-premium ratio of 90% to 95%, exceeding expectations by 4 to 7 percentage points.

The Role and Future of Stop-Loss Insurance

Stop-loss insurance offers protection to employers with self-insured plans against catastrophic losses. The Segal Group predicts medical stop-loss premiums will increase by 11.5% in 2024, with larger hikes expected in 2025.

Cigna’s Strategy for Managing Costs

Although stop-loss insurance accounts for only 15% of Cigna’s health coverage operations, the company plans to manage these rising costs through balanced pricing, affordability initiatives, efficient operations, and strategic investments over the next two years, as stated by Evanko.

Insights from Recent Earnings

For the fourth quarter, Cigna reported a net income of $1.4 billion on $66 billion in revenue, marking growth from the previous year. Cigna now covers 19.1 million individuals, a slight drop from 19.8 million.

Commitment to Transparency in Pharmacy Benefits

As the parent company of Express Scripts under Evernorth, Cigna is devoted to greater transparency in pharmacy benefit management. Soon, Express Scripts will offer patients more affordable options, bypass full list prices, and share negotiated savings, along with expanded benefits summaries and disclosures.