New Amazon venture not a threat, Cigna CEO tells investors

David Cordani speaking
Cigna CEO David Cordani said on Thursday that the old way insurers have done business is "fundamentally not sustainable as employers and customers demand more." (https://www.youtube.com/watch?v=mTxSdxmfQJU)

On Thursday, Cigna joined other major health insurers in reporting solid fourth-quarter earnings and raising its 2018 outlook.

But another announcement from this week loomed large during Cigna’s earnings call with analysts: the new healthcare venture from Amazon, Berkshire Hathaway and JPMorgan Chase.

Cigna, which is a major player in the employer-based insurance market, was among the insurers that saw their stock plummet on Tuesday when Amazon and its partners made the announcement. It’s not yet clear what exactly the three firms are planning, but Cigna CEO David Cordani made clear on Thursday that he doesn’t see it as a threat to the company's business.

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“It reinforces something we’ve been talking about for quite some time, which is, it’s a pretty dynamic industry—and the older orientation around focusing only on insurance or a fee-for-service healthcare delivery model is just fundamentally not sustainable as employers and customers demand more,” Cordani said.

He pointed to the fact that Cigna’s medical cost trend ended the year at less than 3%, which is already well below the industry average of 5% to 6%. “And we believe we need to do even better,” he added.

Cordani said that while the new Amazon-Berkshire-JPMorgan venture is unique, coalitions have cropped up before that seek to lower healthcare costs for employers—for example, through organizations like the National Business Group on Health.

“Over time, each of them have presented opportunities for additional growth for us, for both our medical and specialty offerings, because we’re oriented around transparent, aligned funding relationships,” he said.

On the financial side, Cigna reported a fourth-quarter net income of $266 million ($1.07 per share), down from $382 million ($1.47 per share) a year earlier. However, its adjusted income from operations of $1.94 per share beat the Wall Street consensus estimate of $1.89.

Shareholders’ net income for 2017 was $2.2 billion ($8.77 per share) compared with $1.9 billion, or $7.19 per share, for 2016. As for its 2018 outlook, Cigna now expects an adjusted income of $12.40 to $12.90 per share, beating analysts' estimate of $12.23.

Cigna shares tax reform benefits with employees

Like its other for-profit peers, Cigna’s strong quarterly results were due in part to the effects of the lower corporate tax rate. And like Humana, the company intends to return some of that windfall to its employees.

Cigna announced on Wednesday that it is establishing a minimum wage of $16 per hour across its entire U.S. employee base, as well as offering salary increases above that level for frontline employees. Those increased wages will total more than $15 million.

The company also said it will add $30 million to its 401(k) program, matching employee contributions an additional 1% for 2018.

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