Decline in medical costs drives Cigna's strong Q2

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Cigna raised its full-year outlook to between $9.75 and $10.05 per share, up from it previous estimate of $9.35 to $9.85. (Getty/BeeBright)

Thanks in part to a drop in medical costs, Cigna beat analysts’ earnings estimates in the second quarter and raised its full-year outlook.

The insurer reported (PDF) that its net income for the quarter was $813 million, or $3.15 per share, up from $150 million, or $1.97 per share, for the same period in 2016. Its adjusted income from operations was $750 million, or $2.91 per share—higher than the consensus estimate of $2.48. 

Cigna raised its full-year outlook to between $9.75 and $10.05 per share, up from it previous estimate of $9.35 to $9.85. 

Cigna’s 78.7% medical loss ratio for its commercial business also beat Wall Street projections, according to Leerink Partners analyst Ana Gupte. One of the factors driving that result was better-than-expected medical cost trends in the company’s U.S. individual business, CFO Eric Palmer said on a call with investors.

The insurer still expects to report a loss in its individual market business for 2017, Palmer noted, though at a lower level than previous expectations.

As for next year, Cigna has yet to make final decision about its plans for offering policies on the Affordable Care Act exchanges, CEO David Cordani told CNBC’s “Squawk on the Street.” For Cigna, which currently offers plans on seven states’ exchanges and gets just 4% of its total revenue from that line of business, its continued participation largely depends on whether cost-sharing reduction (CSR) payments are funded, Cordani said.

The Trump administration has refused to commit to funding the CSR payments—which help insurers reduce ACA exchange enrollees’ out-of-pocket costs—beyond the resolution of a lawsuit that challenges their legality. The uncertainty has led many insurers to request steep rate hikes or decide to exit some markets altogether next year,

In its Medicare Advantage business, meanwhile, Cigna is back to business as usual after the Centers for Medicare & Medicaid Services lifted sanctions that it had placed on the insurer due to various compliance issues. Cigna is “well prepared for a very successful open enrollment cycle this fall,” Cordani said on the call with investors, and expects to grow its MA portfolio in 2018.