Even though Cigna (CI) announced its third-quarter financial results on Halloween, this is one insurer that isn't scared about what could lie ahead with the Affordable Care Act, commonly known as Obamacare. In fact, Cigna just might be the most "Obamacare-proof" major health insurer of all. Here's how the company performed last quarter, and how it plans to thrive in the changing health-care landscape.
Looking back
Cigna is the fourth large insurer to report third-quarter numbers in the past two weeks. UnitedHealth Group (UNH 0.23%) reported its earnings on Oct. 17 -- and shares dropped 5%. WellPoint (ELV 0.15%) reported quarterly results on Oct. 23 -- and the stock fell nearly 3%. Shares of Aetna (AET) initially fell around 2% after the company reported its third-quarter figures. The fourth time must be the charm: Cigna's stock received a 3% bump after financial results were announced for last quarter.
The reasons behind Cigna's earnings afterglow aren't hard to find. Revenue climbed 10% year over year to $8.1 billion. Adjusted net income came in at $536 million, almost 10% higher than the third quarter of 2012. This figure translates to adjusted earnings per share of $1.89 -- a year-over-year increase of nearly 12%, thanks partially to share buybacks.
Were Cigna's numbers much better than its peers? Not on the top line. UnitedHealth, for example, reported 12% higher revenue. WellPoint's sales were up 17%. Aetna reported a whopping 46% increase in revenue, but most of that gain came from its acquisition of Coventry.
The bottom line was a different story, though. Cigna's nice jump contrasts with the meager earnings increases for UnitedHealth and WellPoint. Aetna's earnings grew 4%, well under Cigna's performance.
How did Cigna do it? For one thing, the company held the line on medical costs. Cigna also was helped by strong growth in its supplemental benefits and group disability and life business units.
Looking ahead
Cigna now expects 2013 to wind up better than initially expected. The company raised its full-year adjusted earnings guidance to a range of $1.9 billion-$1.96 billion, or $6.70-$6.90 per share. That's up from its earlier guidance of $1.8 billion-$1.9 billion, or $6.25-$6.65 per share.
What about next year? Cigna expects challenges but still sees bright days ahead. While some big insurers are worried about how Obamacare will fare after the disastrous launch of the federally operated exchanges, Cigna isn't too concerned.
The company is participating in only five state exchanges -- fewer than any of the insurers mentioned. Cigna historically hasn't been as heavily into the individual insurance business as some of the major insurers. Management said that it doesn't consider the start-up of Obamacare as a "watershed moment" for the company, although there could be long-term opportunities.
Obamacare's expansion of Medicaid could help Cigna to some degree, but not as much as others in the industry. Medicaid and Medicare combined only account for 3.4% of the company's total medical membership. The flip side of this, though, is that Cigna is also less affected by states that choose to forgo expanding Medicaid.
One focus of Obamacare where Cigna could see benefits is in accountable care organizations, or ACOs. Cigna added nine new accountable care relationships in the third quarter, bringing the total number in which it is participating to 75.
Overall, Cigna's business mix makes the company much less susceptible to uncertainty surrounding the implementation of health-care reform. That's good news for investors jittery about how 2014 will unfold.
