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Cigna Corp  (NYSE:CI)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by for Cigna's Third Quarter 2018 Results Review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and reveal procedures on how to enter queue to ask questions at that time. (Operator Instructions) As a reminder, ladies and gentlemen, this conference including the question-and-answer session is being recorded.

We'll begin by turning the conference over to Mr. Will McDowell. Please go ahead, Mr. McDowell.

William McDowell -- Vice President of Investor Relations

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. With me this morning are David Cordani, our President and Chief Executive Officer; and Eric Palmer, Cigna's Chief Financial Officer. In our remarks today, David and Eric will cover a number of topics, including Cigna's third quarter 2018 financial results, as well as an update on our financial outlook for 2018.

As noted in our earnings release, when describing our financial results, Cigna uses certain financial measures, which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. Specifically, we use the term labeled adjusted income from operations and earnings per share on the same basis, as our principal measures of financial performance. A reconciliation of these measures to the most directly comparable GAAP measure, shareholders net income, is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com.

In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2018 and future performance. These statements are subject to risks and uncertainties, that could cause the actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC.

Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. Regarding our results, I note that in the third quarter, we recorded special item totaling to a charge of $138 million or $0.56 per share, primarily to reflect the impact of merger-related transaction costs and a litigation matter. As described in today's earnings release, special items are excluded from adjusted income from operations in our discussion of financial results.

Also consistent with past practices, when we make any prospective comments on earnings or EPS outlook, we will do so on a basis that excludes the impact of any future capital deployment or prior year development of medical costs. Finally, our outlook for 2018 does not reflect the impact of Cigna's combination with Express Scripts, which we continue to expect to close by the end of 2018.

With that, I will turn the call over to David.

David Cordani -- President, Chief Executive Officer & Director

Thanks, Will, and good morning, everyone. Thank you for joining our call. Today, I'll begin by highlighting Cigna's outstanding third quarter 2018 financial results, which reflects substantial revenue and earnings growth and strength across each of our business segments. Next, I will discuss how our ongoing effective execution of our strategy continues to drive Cigna's ability to deliver differentiated value for our customers and clients, and how we will strengthen, broaden and accelerate our path forward through our combination with Express Scripts. Regarding our combination, I will also provide a brief update on where we stand relative to the state regulatory approval process and our continued progress on integration planning. Finally, I'll share some initial thoughts regarding our expectations for 2019 before turning the call over to Eric, who will discuss our third quarter results in more detail. Following Q&A, I'll conclude the call with a few closing remarks.

Turning to the third quarter, we once again delivered strong operating results, with substantial revenue and earnings growth, strong retention, expansion and addition of new customer and client relationships and continued industry-leading medical cost trend. In the third quarter, our consolidated revenue grew by 9% to $11.5 billion and our earnings per share increased by 36% to $3.84. We had strong performance across our businesses with Global Health Care delivering sustained strong revenue growth and exceptionally strong earnings growth. Global Supplemental Benefits delivered consistent revenue growth and solid earnings. And Group Disability and Life delivered meaningful earnings expansion relative to third quarter 2017.

Cigna's continued momentum across our portfolio of businesses through the first three quarters of 2018 gives us confidence, we will achieve our increased 2018 outlook.

Looking more broadly at our performance, the marketplace continues to demand greater value, to the right balance of affordability and personalization. At Cigna, we continue to be guided by our Go Deeper, Go Local and Go Beyond strategy to deliver differentiated value and invest in ongoing innovation. The demonstration of our success to-date is captured by our industry-leading medical cost trend, our outstanding customer and client retention, continued strong increases in net promoter score results across our businesses, exceptional employee engagement levels, and our ongoing commitment to community impact, exemplified through our leadership in opioid use reduction and safety as well as overdose prevention.

Further in consistent with our strategy, at Cigna, we continue to innovate and invest for sustained value creation for the benefit of our customers, clients, partners and communities. We view innovation as a set of capabilities that puts the customer first, recognizes and values the crucial role of our partners such as our healthcare professional partners and seeks to apply technologies which when coordinated, can truly change lives. Our Diabetes Prevention Program is just one recent example of this. This program in collaboration with Omada Health delivers an expanded suite of personalized digital health tools to help prevent the onset of diabetes as well as other chronic conditions. Participants in Cigna and in a lot of pilot programs have achieved improved health, quality of life, and affordability in part by reaching the weight management targets. As a result, employers realize both improved affordability and co-worker productivity.

This program is fueled by Cigna Ventures, our corporate venture fund which invests in innovative early stage companies with a potential to bring improved quality, affordability, choice, and simplicity to the market. Key to our sustained success is our number one strategic imperative, which is to be the undisputed partner of choice. The results of our commitment to innovation and investment help us realize this goal. For example, we have focused on building strong collaborative physician partnerships, resulting in the independent research firm Black Book rating Cigna Number One Overall for customer experience in its annual survey of physician networks, medical practices and companies providing value-based solutions for physicians.

In the Medicare Advantage space which we continue to view as a very attractive growth opportunity for us, Cigna-HealthSpring was recently recognized for driving differentiated care quality and customer satisfaction, placing in the top three out of 10 national competitors in the latest JD Power customer satisfaction rankings. And with strong underlying performance in HEDIS clinical quality and CAP's customer satisfaction measures, our overall corporate stars rating rose to 4.5 stars for 2020. In addition, I would remind you that 76% of our Medicare Advantage customers will be in plans with four star or higher in 2020. Each of these examples speaks the Cigna's ongoing innovation and investment to deliver differentiated value and to drive sustained growth. Looking ahead through our combination with Express Scripts, we will accelerate our ability to improve affordability and choice, expand our distribution reach in addressable markets and further strengthen predictability for our customers, clients and partners.

Additionally, given the rapidly changing and dynamic marketplace, we will be well positioned strategically, aided by outstanding financial flexibility. Relative to strategic flexibility, our open architected model which emphasizes capital light partnerships and broad choice for customers and clients, strengthens our delivery system relationships, encourages innovation, and leverages synergies across our commercial, government, health services and international businesses, all in a capital efficient manner. As a result, Cigna will be even better positioned to deliver differentiated value for our customers, our commercial and health plan clients and governmental agencies. We will also leverage the strength of our combined company to deliver a medical cost trend that is in line with the consumer price index by 2021, a level we believe is sustainable for society.

Now, I'd like to provide you with some specific regulatory and integration planning updates regarding our pending combination with Express Scripts. In September, we secured permanent financing for our combination and the US Department of Justice cleared our transaction. At a state level, we continue to make very good progress, achieving 23 approvals with six approvals remaining and we continue to expect to close the transaction by the end of the year. Relative to integration, our planning teams continue to work collaboratively and are making strong progress in actively preparing our combined company to deliver on our promises to the marketplace in 2019. Each of our 11 integration streams are on track and our combined team of approximately 1,000 co-workers continues to collaborate and drive our plans forward, keeping a keen eye on our customer and the value for our customer and clients.

In September, we announced our enterprise leadership team for the combined company. I have tremendous confidence in these highly accomplished leaders, who are poised to advance our strategy and serve as champions for our customers, clients, co-workers and communities. Upon closing, our combined company will operate from a position of considerable strength, as we move forward with four well-positioned growth platforms, comprising our commercial, government, health service and international businesses.

Turning our attention briefly to our initial outlook for 2019, we expect once again to deliver attractive financial performance and are excited by the opportunities that are in front of us. We expect continued organic growth of revenue, earnings and customers over our increased 2018 outlook, driven by our well-positioned commercial, government and international businesses. As we step into 2019, there were headwinds I'd like to call out. First, we have delivered particularly strong performance this year in our US individual business, with margins in excess of our target levels. In 2019, we expect to achieve margins more in line with our long-term expectations for this business. This represents an approximate $100 million after-tax earnings headwind as we step into 2019. And second, while we have recognized significant favorable prior year development in 2018 for planning purposes, and consistent with our past practice, we do not expect this to occur in 2019.

We expect to more than offset these two headwinds with a number of tailwinds, such as continued growth in our customer base, including Medicare Advantage, further expansion of relationships through our specialty products and continued growth in our international and Group Disability and Life business. We also expect to achieve a step function growth in revenue and earnings through our combination with Express Scripts. As a combined company, we expect to continue to drive strong margins and free cash flows, enabling us to rapidly reduce debt levels and continue reinvesting in capabilities, all while having additional capital available for deployment. All in, we are very well positioned for an attractive 2019 from both our revenue and EPS growth standpoint and remain on track to deliver our 2021 EPS commitment of $20 to $21 per share.

Now, to summarize a few key points before I turn the call over to Eric, Cigna once again delivered outstanding results in the third quarter, with substantial customer, revenue and earnings growth and strong execution across our business segments. Taken together, our continued momentum gives us confidence we will achieve our increased 2018 outlook. Looking ahead into 2019 and beyond, we are well positioned to continue to deliver attractive financial performance and this will be further accelerated through our combination with Express Scripts for the benefit of our customers, clients and shareholders.

With that, I'll turn the call over to Eric.

Eric Palmer -- Chief Financial Officer, Executive Vice President

Thanks, David. Good morning. everyone. In my remarks today, I will review key aspects of Cigna's third quarter 2018 results and provide an update to our full year outlook. I will also discuss our capital position and free cash flow generation, which remain very strong and will be meaningfully enhanced through our pending combination with Express Scripts. Key financial highlights in the quarter: our consolidated revenue growth of 9% to $11.5 billion; consolidated earnings growth of 32% to $945 million; quarterly earnings-per-share growth of 36% to $3.84; and continued strong free cash flow and financial flexibility. Our results this quarter and year-to-date reflect effective execution of our focused strategy and underscore strong fundamentals across our businesses.

Regarding our business segments, I'll first comment on Global Health Care. Third quarter operating revenues in Global Health Care grew 12% to $9.1 billion, driven by commercial customer growth and expansion of specialty relationships as well as premium growth, reflecting underlying cost trends. We ended third quarter 2018 with 16.3 million global medical customers, an organic increase of 363,000 lives year-to-date, led by growth in our Select, Middle Market and Individual segments. We continue to win in the marketplace, growing in both risk and ASO funding arrangements as our industry-leading trend results continue to resonate with the market. Third quarter earnings increased 40% to $804 million, reflecting growth in medical and specialty customers, continued effective medical cost management, favorability in our US individual business, and a lower tax rate compared to 2017.

Turning to our medical care ratios, our third quarter 2018 total commercial medical care ratio or MCR of 76.3% reflects ongoing strong performance of our commercial business which delivers highly customized and fully integrated solutions that enable better management of total medical costs, better than expected results in our US individual business and the pricing effect of the resumption of the health insurance tax. Our third quarter 2018 total government MCR of 80.7% reflects strong execution in Medicare Advantage. Third quarter 2018 Global Health Care earnings included favorable prior-year reserve development of $19 million after-tax.

Moving to operating expenses. For the third quarter of 2018, our total Global Health Care operating expense ratio was 23%, which reflects ongoing investments in growth and innovation, continued effective expense management and the impact of the return of the industry tax. Overall, our Global Health Care business delivered very strong results in the third quarter.

Turning to our Global Supplemental Benefits business, operating revenues grew 11% to $1.1 billion. Third quarter 2018 earnings were $93 million, reflecting continued strong margins and ongoing disciplined operating expense management, partially offset by some unfavorable claims experience. For our Group Disability and Life segment, third quarter operating revenues grew to $1.1 billion. Third quarter earnings in our Group business grew 37% to $100 million, reflecting continued solid performance in both Disability and Life and a lower tax rate. Overall, as a result of the continued effective execution of our strategy, our third quarter results reflect strength across each of our business segments as we delivered strong revenue and earnings growth.

Now, I'll turn to our outlook for 2018. For full year 2018, we now expect consolidated revenues to grow approximately 8.5% over 2017, an improvement of 50 basis points versus our prior expectations. Our outlook for full year 2018 consolidated adjusted income from operations is now in the range of approximately $3.49 billion to $3.54 billion or $14.20 to $14.40 per share. This reflects an increase of $0.50 to $0.60 per share over our previous expectations and represents per share growth of 36% to 38% over 2017.

I will now comment on the components of our increased full year 2018 outlook, starting with Global Health Care. We now expect full year Global Health Care earnings in the range of $2.97 billion to $3 billion, reflecting continued strength in both our commercial and government businesses. Key assumptions reflected in our Global Health Care earnings outlook for 2018 include the following. Regarding global medical customers, we continue to expect an increase in the range of 400,000 to 500,000 lives over year-end 2017, reflecting the strong growth we have seen across our commercial market segments.

Turning to medical costs, for our total US Commercial Employer Book of business, we now expect full year medical cost trend to be in the range of 3% to 4%, an improvement of 50 basis points versus our previous expectations. I would remind you this is the second time this year that we have lowered our already industry-leading medical cost trend outlook for 2018.

Now moving to our medical care ratio outlook. For total commercial book of business, we now expect the 2018 MCR to be approximately 77%, an improvement of 50 basis points versus the midpoint of our previous expectations. For our total government book of business, we now expect the 2018 MCR to be approximately 82.5%, an improvement of 100 basis points versus the midpoint of our previous expectations. Regarding operating expenses, we now expect our 2018 Global Health Care operating expense ratio to be approximately 23%, consistent with the midpoint of our previous range of expectations. For our Global Supplemental Benefits business, we continue to expect strong top line growth and now expect earnings in the range of $400 million to $410 million. Regarding the Group Disability and Life business, we now expect full year 2018 earnings in the range of $340 million to $350 million.

And regarding our remaining operations, that is other operations and corporate, we continue to expect a loss of $220 million for 2018. So all in, for full year 2018, we now expect consolidated adjusted income from operations of $3.49 billion to $3.54 billion or $14.20 to $14.40 per share. This represents an increase of $0.50 to $0.60 per share over our previous expectations. This increased outlook reflects consistent ongoing execution of our strategy across our businesses. As David discussed, this is driven by a relentless focus on customer needs and the key levers of affordability and personalization, and by our ongoing innovation and investment for sustained future value creation. I'd also remind you that our outlook continues to exclude the impact of additional prior year reserve development or any future capital deployment.

Now moving to our 2018 capital management position and outlook. Our subsidiaries are mainly well capitalized and are generating significant free cash flow to the parent, with a strong return on capital in each of our business segments. In September, we completed our debt offering to finance the proposed combination with Express Scripts, resulting in $19.9 billion in net proceeds. Excluding those proceeds, we ended the third quarter of 2018 with parent company cash of $1.3 billion. After considering all sources and uses of parent company cash and excluding the debt issuance proceeds, we now expect capital available for deployment to be approximately $3 billion in 2018. As a reminder, in the first quarter of this year, we deployed approximately $130 million of parent company cash to repay current maturities of long term debt and we repurchased 1.3 million shares of stock for approximately $275 million. As previously discussed, we do not expect to conduct additional share repurchases prior to the closing of the Express Scripts' transaction.

Looking ahead, our pending combination with Express Scripts greatly enhances our strategic and financial strength and flexibility, enabling us to accelerate our ongoing investments in market-leading capabilities and to deploy capital to drive additional growth and value creation. Additionally, as David noted, we are making good progress in our planning for the integration with Express Scripts and our work to date has reinforced our confidence in achieving the targets we have set for the combined company. We are excited by the capabilities our combined company will have to enhance affordability and predictability for our customers and clients and to create differentiated value for our shareholders. As communicated previously, following the closing of the combination with Express Scripts, our top capital priority will be to reduce leverage to a debt to capital ratio in the upper 30s percent within 18 to 24 months. Even during that period, we anticipate having meaningful additional capital available for ongoing investment in innovation as well as capacity for strategic M&A and to our returning capital to shareholders.

Now to recap, our third quarter 2018 consolidated results reflect strength and momentum in our diversified portfolio of global businesses and continued effective execution of our strategy. The strong fundamentals of our business continue to drive these results, which reflect strong revenue and earnings contributions from each of our business segments, innovative solutions, and differentiated capabilities that create value for our customers, clients, healthcare partners and communities, industry-leading medical cost trend and high clinical quality and continued strong free cash flow. Based in the strength of these results, we are confident in our ability to achieve our increased full year 2018 earnings outlook and we are well positioned to continue to drive innovation, growth and value in 2019. We look forward to accelerating our growth strategy and expanding our capabilities through the Express Scripts combination and delivering on the very attractive financial commitments we have established for the combined company.

And with that, we'll turn it over to the operator for the Q&A portion of the call.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Steve Tanal with Goldman Sachs. You may ask your question.

Steve Tanal -- Goldman Sachs Group Inc. -- Analyst

Good morning guys, thanks for the question. Just wanted to ask if the (inaudible) probably mostly of the -- if not all the way through kind of the commercial selling season, how do you guys fared, and if that's sort of embedded in the comments around growing enrollment into '19 thinking about both Group ASOs as well as risk on the commercial side, primarily?

David Cordani -- President, Chief Executive Officer & Director

Steve, good morning, it's David. So relative to 2018, generally speaking, correct, more through the '18 selling season, I would note that one of our critical growth segments Select, it's busy season until December 31st. So there's activity throughout the course of the year and additionally, obviously, we're deep and almost complete through the national account selling season for January 1 of 2019. Big picture, we feel great about the results we delivered for 2018. Our results are first driven by outstanding client retention levels, our continued ability to deepen our relationships with our proven specialty services portfolio and then to stay in new business wins and we expect that will continue into 2019 based on what we're seeing more broadly for our portfolio and we've not seen any major change in trend from what we're realizing in 2018 versus early look to 2019.

Steve Tanal -- Goldman Sachs Group Inc. -- Analyst

Great, that's helpful. And just noticing the results kind of -- since the deal was announced, obviously, really strong numbers from you guys, solid numbers from Express as well. So I'm curious if you could give us sort of your latest thoughts on where debt-to-cap ends at the end of the transaction and kind of cash generation that you're now thinking about post close relative to your initial expectations? And maybe just as a follow up to that, how are you all thinking about most recently kind of the use to those proceeds? What I mean by that is the run rate going forward when your cash generation kind of steps up pretty meaningfully. Should we be thinking about buyback over M&A or any sort of latest thoughts on where you might look next to grow the business?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Steve, it's Eric. Just a couple of comments, since it's overall in terms of -- at the closing, we expect the debt-to-cap ratio to be around 50% or a little bit favorable to that, 49% in terms of point of closing and consistent with our prior comments, would expect to use capital to deleverage the organization over the first 18 to 24 months, really no change in terms of approach. As you noted, we're delighted with the strength of the Cigna results and nothing has changed in terms of our thinking as it relates to the Express Scripts results and how we will use the strength of those results in the first couple of years of the transaction.

Let me -- may be I'll ask David to comment on if there is just any other broader comments from a strategic deployment over longer term?

David Cordani -- President, Chief Executive Officer & Director

Steve, our priorities remain the same relative to capital deployment above and beyond. So to remind you what they are, there are three to ensure the business is properly capitalized for both growth in the regulated entities as well as CapEx for ongoing innovation and we have a strong track record of doing so, pursuing strategic and financially attractive M&A and then returning excess capital to shareholders, historically predominately through share repurchase and as Eric noted in his prepared remarks, additionally, I would just highlight the fact that we're well positioned for '19 and '20 during that rapid debt pay down to be able to achieve the debt pay down as well as serve the business needs and have additional capital available for deployment and then to the tone of your question, a significant step up in 2021 to free cash flow, which is just a tremendous shareholder value creation accelerant for us.

Steve Tanal -- Goldman Sachs Group Inc. -- Analyst

Thank you.

Operator

Thank you, Mr. Tanal. Our next question comes from Zach Sopcak with Morgan Stanley. You may ask your question.

Zachary Sopcak -- Morgan Stanley -- Analyst

Good morning, thanks for the call and congrats on the quarter. So I wanted to ask, Express last week put out a new benefit design for one of their coalitions that featured a lot of transparency paid for performance. Sounds like something that aligns well with Cigna customer base, just curious your thoughts on that and how you think about the opportunity of that product is going forward?

David Cordani -- President, Chief Executive Officer & Director

Zach, good morning, it's David. Express has a very good track record of ongoing innovation and I think you should look at that as an indication of evolving capabilities based upon current and projected market needs and indicative of what we'll be doing more together because the notion of transparency, value-based performance, aligned incentives and then further integration of programs that leverage the whole person through the pharmacy, behavioral clinical programs, but I think it's an exciting step forward and indicative of a really powerful set of capabilities that Express has on a stand-alone basis, that will just be further augmented when we're together to drive further transparency, further value-based relationships and targeted integration.

Zachary Sopcak -- Morgan Stanley -- Analyst

Got you, thank you and then just quickly on your stars improvement. What do you think about the main factors that were driving that improvement and I guess, how do you think about the opportunity there continue to improve those ratings going forward?

David Cordani -- President, Chief Executive Officer & Director

Sure, Zach thanks. First we're really pleased, well positioned for '19 with the stars positioning well in excess of 70%, step up further in 20% to 76%, four plus, the corporate rating at 4.5 stars is critical for 2020 as you know, that represents the stars rating that will be used for new market openings and we have a great opportunity from that standpoint. There's not one driver that I would point to as I noted in my prepared remarks, there's really strong balanced performance both in the clinical quality performance as well as the customer satisfaction and service quality. I think if you were to intersect it to our sustained execution, coupled with our deep partnership relationships with healthcare professionals, it's helping to demonstrate just sustained delivery as well as continued improvement and we couldn't be more excited about our '19 and '20 positioning.

Zachary Sopcak -- Morgan Stanley -- Analyst

All right. Thanks for taking the questions.

Operator

Thank you Mr. Sopcak. Our next question comes from A.J. Rice with Credit Suisse. You may ask your question.

A.J. Rice -- Credit Suisse Securities -- Analyst

Thanks, hi, everybody. First question about the reduction in the expectation around cost trend and obviously that has some implications for the MLR guidance as well. You already as you mentioned have one of the -- have the lowest expectation around cost that you're reducing. And again, what did you see in the last quarter so that brings you to a reduction? Is there any particular buckets that are -- you're seeing the outperformance there and is it market or is it your initiatives that you think are driving this?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Hey, it's Eric. Our trend results, I'd say, at a macro level reflect the power of the integrated model and the effectiveness we have of aligning incentives across our clients, our customers and healthcare professionals, and that's been consistent for some time. Would remind you that we've got 85% of our US commercial customers into our funded arrangement, so this cost trend really directly benefits them and ultimately, it's their dollars and that we're able to manage well for them.

Relative to the specific categories, and now each of inpatient, outpatient, professional, pharmacy, each one of those are lining up to be somewhere in the -- I'd say the 2% to 4% range on this year. So each one of those categories in that range, it's not one category, I'd call out as particularly changed or driving the result, but overall, the total package and the total strength of our offerings bring it back to about 3% to 4% trend result that we talked about and just continued strong execution there.

A.J. Rice -- Credit Suisse Securities -- Analyst

Okay, I know in the prepared remarks, I think in terms of talking about tailwinds you said that you expect to see growth in MA next year. CMS has come out and said that they thought the overall market might grow as much as 11.5%. Is there any way to sort of bracket -- do you think you'll grow more in line with the market, whether you think it's 11.5% or not or should we see an acceleration in performance, I guess next year? Can you put any brackets around that? And I guess also part of that is, I'm surprised, when you talk about the tailwinds for next year, the HIF is particularly in MA but may be also in timing, the HIF moratoriums. I would have thought that was a tailwind, do you not think that's a tailwind?

David Cordani -- President, Chief Executive Officer & Director

A.J, good morning, it's David. So two questions, let me take the second question first. A small tailwind is what we look at it relative to the book of business. Order magnitude, about $50 million for the enterprise on an after-tax basis and as you know, our -- the impact in the HIF to our portfolio versus some of our peers based on the mix of our businesses is different. Specific to MA, what we're excited about the outlook for 2019, I would remind you that our strategic goal for MA is to grow that book of business in the high single-digit revenue range. Also remind you is that we compete and deliver significant value in the individual MA marketplace, not in the group MA marketplace. So we're very excited about the growth opportunities we look forward for 2019 and as I noted to a prior question, we're really well positioned for 2020 as well with a further step up in stars from our current point of strength about 72% to 76% and a corporate star rating of 4.5 stars for new market on trade. So very attractive positioning for '19 and '20 and our team is excited about that.

A.J. Rice -- Credit Suisse Securities -- Analyst

Okay, thanks a lot..

Operator

Thank you Mr. Rice. Your next question comes from Kevin Fischbeck with Bank of America Merrill Lynch. You may ask your question.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great, thanks. Just wanted to get a sense from you, how your customers and brokers are thinking about the combination with Express. Did you get any early feedback about whether the value proposition that you guys are articulating to the Street is starting to resonate at all with their customer base?

David Cordani -- President, Chief Executive Officer & Director

Kevin, good morning, it's David. Obviously, the marketplaces will always be in a wait and see mode, but the tone I would give you relative to our clients and our broker relatioships is indeed a positive one. So it's off the base in an environment whereas Eric referenced, we have a sustained track record of delivering market leading medical cost trend, pharmacy is a contributing factor to that as he just referenced in 2018. All of our cost categories are in the 2% to 4% range including pharmacy. The marketplace sees this combination positively because of the ability for us to further strengthen that value proposition for the benefits of, in that case our integrated proposition for our clients and customers is very positive. For example, tapping into Express' market-leading and differentiated specialty capabilities is an outstanding opportunity, high value to our clients and customers and I might add high value to our collaborative accountable care relationships. So we're excited to step into '19 with the expanded capabilities. And our clients are optimistic that they'll see a further step up off the strength that we're already realizing today.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay and I guess may be going back to the capital deployment question. Is there something I guess structurally -- because obviously, this is a huge transaction for you guys where you say you would be out of large M&A for a certain period of time before, before you'd be ready to get in and how long do you think that it takes to integrate Express before you think about doing the next dealer size?

David Cordani -- President, Chief Executive Officer & Director

So, Kevin, it's David. I'm not going to give you a timeframe. I'm not going to give a date so in terms of when we will or will not act or transact. The company has a very clear track record of being quite disciplined in terms of being first, an appropriate capital steward as well as making very deliberate decisions that are on strategy, clear and are financially attractive on a go-forward basis. Over the immediate term as Eric articulated, our capital priorities are quite clear, ensure our business is positioned for continued growth, we're in -- we're very well positioned from that standpoint to aggressively pay down our debt levels in the first 18 to 24 months. Our free cash flows will be well positioned for that. And we have capacity even within that for further deployment as we look beyond that window, we're going to have tremendous capital flexibility and the business will be well positioned to be on our toes, obviously, for many large-scale standpoint as we look forward for further conversations on that matter as we go forward with you.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay, thanks.

Operator

Thank you, Mr. Fischbeck. Our next question comes from Justin Lake with Wolfe Research. You may ask your question.

Justin Lake -- Wolfe Research, LLC -- Analyst

Thanks. Good morning, first question is, I want to circle back David on your 2019 commentary. So you gave us some headwinds on the exchanges in PYD, the tailwind on the HIF kind of outside of norm and then if we exclude all those, is it reasonable to expect that the company will deliver earnings growth in the 7% to 9% long term target range that you kind of highlighted at this time last year?

David Cordani -- President, Chief Executive Officer & Director

Justin, good morning. We're obviously not providing detailed guidance for 2019, look forward to doing so, as you know and what you articulated, that's our strategic goal and our strategic target on average over time and we have a great track record of delivering that. I think the big picture message that actually to take and with the summary points you made is, we're delivering an outstanding 2018 even with the headwinds noted that, you can adjust the baseline for, it's an outstanding 2018, will carry momentum into '19 on the core and will have a tremendously accretive result with the Express combination. So I'd suggest, stay tuned for more, but we feel really good about our positioning for 2019.

Justin Lake -- Wolfe Research, LLC -- Analyst

Okay and then on the individual business, I want to make sure I understand the headwind there. So I was hoping you could share a couple of things. One, first, I've got your premiums about $2 billion. Is that correct? And then, after the reset that you're talking about here, can you tell us what the target range is for 2019 on margins? If I remember correctly. I think you had said, longer term, you expect this to be a mid single-digit pre-tax business? Thanks.

Eric Palmer -- Chief Financial Officer, Executive Vice President

Kevin, it's Eric or Justin, sorry, it's Eric. With respect to the premium level, it's actually a little higher than that, probably close to $2.5 billion in terms of our total expected premium levels for 2018 and you're correct in your recollection with the margin, we've said mid-single digits has been our target for this business over time.

Justin Lake -- Wolfe Research, LLC -- Analyst

Thanks.

Operator

Thank you, Mr. Lake. Our next question comes from David Windley with Jefferies. You may ask your question.

David Stablo -- Jefferies & Company -- Analyst

Good morning, it's Dave Stablo in for Dave Windley, thanks for the question. Want to take a look back at your 2021 EPS target of $20 to $21. I'm curious if you have an updated view on that from here? I guess since announcing Express Scripts, you've raised 2018 guidance by over $1.60, so wondering if you see upside with the $21 or alternatively, where would you propose to invest the $1.60 of outperformance over the next three years?

David Cordani -- President, Chief Executive Officer & Director

Good morning, it's David, I appreciate your question, appreciate the optimism. As I noted in my prepared remarks, we feel confident and strong relative to the $20 to $21 of EPS which when you step back and look at it from a jump off standpoint, represents a growth trajectory that's at or above the high end of our commitment of 10% to 13% compounded over a period of time. I'd say stay tuned for more, we've recognized the fact that the core Cigna business had its tremendous outperformance for this year and we're proud of that. There's not a detailed plan to quote unquote reinvest that number. And as we go forward, we'll look forward to updating our outlook, but for right now the $20 to $21 remains our commitment, our target and we're fully focused on delivering that for 2021.

David Stablo -- Jefferies & Company -- Analyst

Okay, thanks and then a follow up just on the individual book. Can you update us on your 2019 exchange plans? At some point I think during the second quarter, you talked about evaluating some of the regulatory changes that were happening and how that might affect your footprint and strategies? Curious what the updated view is for your expansion plans or not in '19 as well as why mid single-digit margins is sort of the right target, they were seeing some peers deliver above that seemingly on a sustainable basis, so why is mid-single digit versus something like a higher single-digit margin, not the right level to think about?

David Cordani -- President, Chief Executive Officer & Director

So -- it's David. Two questions there. First, relative to '19, we will carry strength out of 2018 as I noted before, we were in six states for 2019. We had evaluated (inaudible) in totality as you noted. We concluded to remain in those six states plus add an additional state that specifically is Arizona. Additionally, our view is that the marketplace for the individual exchange business is more competitive in 2019 than it had been in '17 or '18 as you look at the environment there's more competitors entering this space. Hence, we will be well positioned in those seven states, but we're actually projecting for a little compression in our overall number of lives that we're serving in 2019. And we're projecting that we will deliver toward the higher end of our strategic range which as Eric articulated is mid-single-digit margins.

We think that's a responsible margin, a sustainable margin whereby we're given a great value proposition back to our customers. We're working very closely with our value-based providers in terms of overall clinical quality and having a responsible return from a shareholder perspective. So we think that the mid-single-digit margin is a responsible margin, a capital-friendly margin, but also a sustainable margin and margins above that are not sustainable.

David Stablo -- Jefferies & Company -- Analyst

All right. Thanks, David.

Operator

Thank you, Mr. Windley. Our next question comes from Josh Raskin with Nephron Research. You may ask your question.

Joshua Raskin -- Nephron Research LLC -- Analyst

Hi thanks, good morning. A question on MA growth, for '19, just looking at some of the CMS filings, so it looks like there's relatively modest county expansion and understand that you guys have gone through some sanctions and other changes et cetera. But is that really just a function of the model, the deeply integrated clinic-based model that you guys use for most of your markets in Medicare Advantage? Just being a little bit more difficult to grow very, very quickly, right, it's just you've got to be much more targeted or is it just where we are in time and expect a bigger sort of jumping off point or a bigger expansion in 2020? And then just a follow up on the cash flow, it looked like there were some timing issues. I was wondering maybe Eric you could just lay out any of the puts and takes, understanding that the full year number is still very strong, but the third quarter number was a little bit lower than we were looking for? Thanks.

David Cordani -- President, Chief Executive Officer & Director

Josh, good morning, it's David. To your point, I'll take the first question, I'll ask Eric to take the cash flow question. I think you hit the nail on the head. So I appreciate the way you framed the question. It's more the latter, not the former. Specifically, tremendous focus in that business, you can see the tremendous focus resulting in the outstanding, on stars performance as well as public recognition for the performance of that business in the top three of the JD Power survey among 10 national competitors. So we feel great about that. It was targeted and very disciplined in terms of expansion in terms of some adjacent counties and one new market for 2019 with a view and a positioning that there will be a larger expansion in 2020. So view it as a disciplined, view it as ramping, and view it as we love the strength of what we're carrying into this in terms of sustained execution, stars rating in the existing markets, corporate stars rating, you've got 4.5 stars to be able to carry forward. So building momentum going into 2020.

Eric, on cash flow?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Yeah, on the cash flow, Josh, really is just the timing of the receipt of government reimbursement and that's actually, this quarter played out the same as the third quarter last year in terms of the overall kind of timing of the payment that was recognized in the fourth quarter versus the third quarter. But really nothing else to call out there.

Joshua Raskin -- Nephron Research LLC -- Analyst

So we're reversing the fourth quarter, 4Q will be sort of abnormally high is that the way to think about it?

Eric Palmer -- Chief Financial Officer, Executive Vice President

All else equal, we've not given the specific guidance on the fourth quarter cash flow. There's always ebbs and flows and such there, but all else equal, yes.

Joshua Raskin -- Nephron Research LLC -- Analyst

Okay. Perfect. Thanks.

Operator

Thank you, Mr. Raskin. Our next question comes from Ana Gupte with Leerink Partners. You may ask your question.

Anagha Gupte -- Leerink Partners LLC -- Analyst

Hey, thanks. Good morning. So with the DOJ approval of the two deals and the states looking pretty good as well, with Select ending in December 31st, can you give us a sense of the timing that you might be facing in the administrative savings in '19 and as you're going through the selling season for Select, are you actually positioning this go-to-market with Express, with your pricing and messaging to drive cross-selling right now for '19?

David Cordani -- President, Chief Executive Officer & Director

Ana, good morning, it's David. So first, we expect to be clear, we expect to plan to an interactive close this year. Second, as it relates to the synergy capture for the benefit of the shareholder part of the portion, as Eric has articulated in the past, that $600 million before tax is planned to be realized over a four year period of time, somewhat ratably. So we would assume if '19 is our first year, it's a ratable attribution of that benefit from a shareholder standpoint.

As it relates to our go-to-market proposition, our number one strategic imperative -- guiding our integration planning is to ensure that both companies remain in position and are on their toes relative to delivering on the 2019 promises and well positioned for 2020. So you should take that as -- it's a business as usual, intense focus on execution for the benefit of both existing clients and new clients that are being added by both franchises and as we augment through the year, there'll be enhancements to the value proposition, it will take place on a phased notion. And lastly, I appreciate you asking it through the lens of Select, because per your inference, everyday is busy season there. So as we ramp-in some of the value creation and value capture for the benefit of clients and customers, we'll be able to represent that in part through that segment on a go-forward basis. But January 2019 looks a lot like January 2018 with intense focus on value delivery for clients and customers for both companies.

Anagha Gupte -- Leerink Partners LLC -- Analyst

And just to follow-up on that, what are your competitors doing, either the Nationals or the Blues in terms of their messaging on Integrated Medical and Pharmacies that getting louder. And are they possibly coming in more aggressively with self-insured plus stop loss to compete in Select?

David Cordani -- President, Chief Executive Officer & Director

I think, as it relates to the value proposition, clearly that's a question for you to probe, competitor by competitor and then submarket by submarket. But more broadly, it is very clear in the marketplace through whether you look at government that lead pilots through the Medicare lines, whether you look at it through the successful value-based care relationships that exist or whether you look at it in terms of the evolving demand of employer clients, a more integrated approach which is not a cross-sold or bundled approach, but a more integrated approach that addresses the whole person, understands the need of a whole person and could connect the mind and body, the behavior, the lifestyle, the clinical, and partner up with a healthcare professional, that is a more winning proposition day-in, day-out that yields a better cost outcome. But it's a better cost outcome from a better quality outcome. So I'd say a more consistent mantra relative to that in the marketplace.

As it relates to ASO, there's been a consistent trend for years now, as it relates to the marketplace, embracing more transparency and demanding more transparency through a variety of lenses and ASO is a mechanism to do so. And as you know from prior conversations, one of the reasons why we've been so passionate about ASO is transparency, presents an opportunity for alignment, alignment presents an opportunity for speed of shared execution which is what's necessary here. So those trends are consistent, but just to amplify yet again, integration is different than bundling or cross-selling. It's truly integrating around the whole person, the information flows, the incentives, the benefit designs with the clinicians, and we see that continuing to grow and we're well positioned there.

Anagha Gupte -- Leerink Partners LLC -- Analyst

Thanks, David.

Operator

Thank you, Ms. Gupte. Your next question comes from Ralph Giacobbe with Citigroup. You may ask your question.

Ralph Giacobbe -- Citigroup Inc -- Analyst

Thanks, good morning. May be just an update on penetration of the specialty book. I think you mentioned expansion of that the -- kind of this quarter. So I was hoping you can give some more details there. And then, are there still service lines that you're not in that you could provide additional opportunity or the offerings largely set across specialty?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Ralph, it's Eric. I'll start on the penetration. Overall, I think the headlines here are just consistent execution in terms of us continuing to both innovate additional offerings in terms within our specialty programs, and increase the penetration rate of our specialty programs across all of our segments. And again, each market segment has a little bit different set of needs and so we have to be focused on how we develop those solutions across the market. But again, consistent execution in terms of innovation and then continuing to penetrate the market segments with those, again, I think we've had nice track record of that, and continue to have opportunity to progress in that space.

David, may be he will take the other part of your question.

David Cordani -- President, Chief Executive Officer & Director

Ralph, if I heard you correctly, when you said service lines, you correlated that back to the specialty programs. So appreciate that. The way I'd ask you to think about that is, I would not think about it through the lens of three to five product offerings, that chapter is long since gone in the past. We think about it today in the existing Cigna portfolio of 20 to 25 different programs or service offerings that our client management, our clinical staff could offer for a client based upon their unique needs, health burdens, change objectives et cetera, and we would see that has continued to evolve and expand, and further accelerate candidly with the addition of Express Scripts and Evercore to the Cigna portfolio.

So we see an evolution through sustained innovation. There's not any one item where we'll say we're gap by any stretch of the imagination, but you continue to evolve some programs and services and that's in part, as Eric articulated before, how we're able to deliver industry-leading medical cost trend six years in a row now.

Ralph Giacobbe -- Citigroup Inc -- Analyst

Okay, that's helpful. And just a follow-up, you announced some management changes including the departure of Chris Hocevar and bringing back Matt Manders. So I was hoping you could talk about the change in structure of the organization kind of past the Express deal. And then in your prepared remarks, you mentioned four segments, just hoping you could flush that out in terms of -- is that a reward or how do we think about that on a go forward basis? Thanks.

David Cordani -- President, Chief Executive Officer & Director

So Ralph, on the second question, first on the four segments stay tuned for more. It's not a reorder, it's a positioning of four platforms and the respective capabilities based upon go-to-market, client needs, and diversified focus, the diversified value propositions. So stay tuned for more as we complete the combination, the way we'll bring forward our reporting visibility and dialogue with you will be centered from that standpoint.

As relates to the leadership team, we're delighted to announce the enterprise leadership team as the inevitable close of the transaction drew closer. The positioning of that leadership team has a very focused go-to-market P&L leaders, has a large strategy and solutions organization, services capabilities across all of our operating segments and then as functional leaders, in support of the corporation. We're also delighted to the fact that we're able to not only previously announced that Tim is staying on with the corporation, but Dr. Miller from Express Scripts is the Chief Clinical Officer for the combined corporation and then lastly, I would note is we were able to announce about a week ago, Tim's leadership team for his business portfolio which will have tremendous continuity of proven business leaders for the benefit of that business from Everett Neville to Dave Queller to Brian who runs the specialty business to Glenn who's the Chief Innovation Officer et cetera, et cetera. So we could not be more excited with the leadership in place at the enterprise level and for the key business units on a go forward basis and we're ready to close and get on with execution.

Ralph Giacobbe -- Citigroup Inc -- Analyst

Okay. Thank you.

Operator

Thank you, Mr. Giacobbe. Our next question comes from Gary Taylor with JPMorgan. You may ask your question.

Gary Taylor -- JPMorgan Securities -- Analyst

Hi, good morning. Two part question. The first one is kind of a victim of your own success question and you've covered a little bit of this in terms of the year-to-date outperformance on how that might impact some of the forward guidance you've already given. But the question is as we think about 2018, your guidance now is 12% to 15% better than the beginning of the year and it looks like roughly half of that is a little bit of repurchase, the PYD and then some of this individual market outperformance. So, I'm just wondering is there anything else besides just broad outperformance or general outperformance on utilization management and cost trend that you would attribute the other portion of the year-to-date upside to or something you'd want to call out a little more?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Gary, it's Eric. I think you really hit the headlines there in terms of the things that we'll call out. I would just note we've got really strong performance in each one of our business segments and ahead of expectations in each one of the business segments driven by fundamentally solid execution and better cost management, both in terms of medical cost as well as continued discipline in expense management such, but again, it's just overall really strong execution.

Gary Taylor -- JPMorgan Securities -- Analyst

Okay and if -- thank you. If I just follow-up, we've heard more about at the state level, Medicaid plans carving in behavioral and when we would look at your enrollment, you've got $16 million medical, $27 million in behavioral. I guess I was under the impression most of your behavioral business was with your commercial customers or other commercial players, obviously, you have a small Medicaid book. But so the question is, is this trend toward carving by the Medicaid HMOs, does that have any measurable impact on your outlook for your behavioral specialty enrollment that reside outside of Cigna?

David Cordani -- President, Chief Executive Officer & Director

Gary, good morning, it's David. Simple answer is we believe, yes. The marketplace by the day is seeing that the broader definition of behavioral services in terms of the health and well being, broader definition inclusive of the core in terms of core behavioral health, mental health, substance use issues, the demand for those services continues to grow. The proof points relative to societal and individual value creation continues to grow and then the opportunity to drive targeted integration of clinical programs and outreach programs with individuals along with physicians continues to grow.

So I appreciate you calling out the numbers. We have a significantly larger behavioral book than we do medical book, and both through market forces as well as the combination, we have with a broader health service platform in the corporation we see tremendous growth opportunities here over time.

Gary Taylor -- JPMorgan Securities -- Analyst

Okay, thank you.

Operator

Thank you, Mr. Taylor. (Operator Instructions) Our next question comes from Steven Valiquette with Barclays. You may ask your question.

Steven Valiquette -- Barclays Bank PLC -- Analyst

Thanks, good morning, David and Eric, thanks for taking the question. So I guess over the past few months, it's been fairly obvious that the investor sentiment around the pending Express Scripts merger changed dramatically for the better, once the Express Scripts dollar amount of drug rebate retention was disclosed. So might be, will there -- preliminary to ask this question, I guess I'm just curious if you're at least considering disclosing the overall Cigna Express combined retained drug rebate dollars may be on a more regular basis going forward once the merger is complete? And you just given that transparency and this metrics seem to drive better valuations to just investor sentiment. Thanks.

David Cordani -- President, Chief Executive Officer & Director

Good morning, it's David, I appreciate your comment. Number one, we always challenge ourself to relocate disclosures, transparency, et cetera. And we're pleased and proud with the amount of transparency Cigna delivers as part of our ongoing communication with you, our shareholders. Just one item I would point out specific to the Cigna stand-alone portfolio today, as you know our orientation is a highly integrated orientation. So our clients purchase a package of goods and a package of services and hold us accountable for delivering an integrated outcome that delivers tremendous value to them. And we're able to dynamically manage medical programs, behavioral programs, pharmacy programs, wellness programs, incentive base behavior modification programs on behalf of our clients and customers. So as we continue to challenge yourself over time, we find it a little bit more difficult to parse any one subcomponent out, because we've truly worked to drive that integrated proposition, having said that, we always challenge ourselves in terms of how do we get the optimal level of constructive transparency and as we look at 2019, stay tuned for more.

Steven Valiquette -- Barclays Bank PLC -- Analyst

Okay. Appreciate the color. Thanks.

Operator

Thank you, Mr. Valiquette. Our next question comes from Matthew Borsch with BMO Capital Markets. You may ask your question.

Matthew Borsch -- BMO Capital Markets -- Analyst

Yes, hi, good morning. My question is on your target or pledge to reduce medical trend. I think you said to CPI that, general CPI level. So my question about that how can you fix to that target when much of that is out of your control because the self-insured employer, customers are making the decisions about how to change benefits and may be which medical management programs to apply and how aggressively?

David Cordani -- President, Chief Executive Officer & Director

Matthew, good morning, it's David. First, thanks for bringing the attention back to that strategic goal pledge and objective. Number one, as you've seen, we have been successful relentlessly working to reduce the rate of medical cost growth, while simultaneously managing and helping to coordinate outstanding clinical quality and service quality results. 2017, our medical cost trend was below 3%, as Eric articulated, we're in a 3% to 4% medical cost range right now, and we see further opportunity going forward.

Secondly, as I noted in my prepared remarks, we believe that is a society sustainable level, and we need to work every angle to be able to achieve that with the appropriate clinical quality and service quality. Lastly, to your point, but taking a little different angle with commercial clients working hand and glove on a consultative basis with commercial clients, is how it's achieved, how we've achieved, what we've delivered today is not by delivering a product and hoping for the best. It's working client by client, hand in glove, trying to get the benefit design, the network design, the clinical programs, the incentive design, the engagement programs designed properly for those clients and dynamically managing them in the year, and then augmenting that with the same approach relative to the collaborative value-based physician relationships. And given our progress to-date, we believe that is the right strategic objective to have for ourselves to push us to drive continued innovation, and we think it's the right objective to have societally.

Matthew Borsch -- BMO Capital Markets -- Analyst

Just one follow-up, if I could. There's obviously a lot of validation for your capabilities from your customer base and the response. But we looked at some competitors that may be don't agree with your claim to have the industry-best trend. Is there any independent validation since that's a lot of that in the self-insured bucket that we can point to on that front?

David Cordani -- President, Chief Executive Officer & Director

Matthew, it's David. Appreciate the tone of caution. We recognize that we operate in a competitive environment. I'll give you three items to consider. One, six years in a row of sustained delivery of the lowest medical cost trend; two, it's augmented with outstanding client retention levels. Remember 85% of our clients are ASO. They see their medical cost trend every month, candidly the largest ones will see it weekly in terms of what plays through, and our ability to work arm-in-arm, shoulder-to-shoulder to deliver this result is what demonstrates that, when you step back and think it through from that standpoint.

The sustained results we've been able to deliver in our guaranteed cost business, albeit smaller, whether it's employer or individual base also reinforces that. And then lastly, just tactically coming back to as Eric articulated in his prepared remarks, in the seniors business, we were able to systematically further improve our medical costs, our MLR this year in large part driven by cost discipline, medical cost discipline, but it's augmented with outstanding clinical and service quality. So we like our track record, we like the consistency results and our ESL clients are the direct beneficiaries day-in and day-out of that.

Matthew Borsch -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Thank you, Mr. Borsch. Our next question comes from Sarah James with Piper Jaffray. You may ask your question.

Sarah James -- Piper Jaffray & Co. -- Analyst

Thank you. So I'm going to stick on commercial cost trends here and I appreciate given Cigna's mix, why you're reporting a blended ASO and risk book. I think the challenges of Cigna's only large insurer not to break out commercial risk cost trend alone. So may be can you help us understand what the difference is in cost trends from accounts that you've held for a long time versus the first year or two? And the order of magnitude of difference that you could experience between cost trends on risk versus an ASO book?

Eric Palmer -- Chief Financial Officer, Executive Vice President

Sarah, it's Eric. So as you think about the ASO versus insured book of business, we really tend to manage our medical cost the same across each one of those things and since I wouldn't call out over an extended period of time any difference in terms of the underlying cost trends, in terms of our employers who choose and insured funding arrangements versus our employers who choose a self funding arrangement. Again, overall, across the entire book of business, I wouldn't call it anything that's meaningfully different there. Our programs are effective in both of those funding arrangements, and are attractive and that's why we've been able to grow both of these funding arrangements.

In terms of looking at kind of over time or newer clients versus those types of things, you tend to see, we build our effectiveness as we deepen our relationship, and have additional specialty programs and things along those lines come into place. So as we work through the first couple of years of building relationships with clients, we tend to see our effectiveness pick up. But again that's probably the only other dynamic I'd call out in terms of differences in the kind of trend by different slices of book of business.

Sarah James -- Piper Jaffray & Co. -- Analyst

Maybe, I could look at it another way, you talked earlier about the ASO clients tending to want more transparency and that could lead to benefit design choices and consumers and so may be if you talk about it in that framework of how much potential to lower cost trend there is if your book would behave more like those ASO clients that are enhancing transparency in consumer level?

David Cordani -- President, Chief Executive Officer & Director

Sarah, good morning, it's David. As you think about in our employer guaranteed cost or an employer experience rate the book of business, we tend to take the same approach, not only as Eric articulated very importantly from the way we coordinate clinical care access et cetera, but as well the way we try to seek to influence the benefit design. We're not passive in the risk dialogue and active in the ASO dialogue.

We try to be active in the dialogue across the Board because we want the best-sustained value for the employer clients and I would remind you that historically, we've not competed in the legacy smaller employer book of business from a guarantee cost standpoint, the under 50 or in some states under 100 guaranteed cost, that has not been a backbone for the corporation where you might have more routine product design and rigidity that comes forward, rather even in the guaranteed cost standpoint or the experience rated, the employers are multi-hundred life employers on average and hence we have active engagement from that standpoint. So I'd ask you to take that active dynamic into all the employer engagements, obviously varied employer by employer. Thanks.

Operator

(Operator Instructions) Our next question comes from Peter Costa with Wells Fargo Securities. You may ask your question.

Peter Costa -- Wells Fargo Securities -- Analyst

Good morning, congratulations on the quarter. Just want to hear your views on what you think is smaller accounts, that your Select accounts are going to be doing with the changes from the government regarding association health plans and regarding health reimbursement accounts as we get closer to 2020?

David Cordani -- President, Chief Executive Officer & Director

Peter, good morning, it's David. Generally speaking, the small employers were servicing through our legacy Select segment, our employers that have wanted to and therefore, see the value from their engagement with us to have a more actively engaged, dynamically managed, benefit design clinical program design, engagement programs et cetera. Hence on average, there would be less desirous of going into an association health plan and losing control of their benefit design, their incentive design, their communication strategies and the transparency they have benefited from. So general direction of rule of thumb. HRA expansion, where we call them the savings based programs that may create opportunity over time for further expansion in that market. It's part of the dialogue today and the further enhancements of those programs only slightly will somewhat enhance that value proposition on a go forward basis. But that's a client by client call. So I'd ask you to think about the kind of selection bias that exists within our portfolio of an activated employer embracing transparency, embracing communication, embracing incentive alignment with their employees will lend itself to a more active dynamic management on a go forward basis and less attraction to be in a pool where they lose some of that control, for example, an association health plan. Hope that helps.

Peter Costa -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you, Mr. Costa. Our final question comes from Charles Rhyee with Cowen. You may ask your question.

Charles Rhyee -- Cowen and Company -- Analyst

Dave, thanks for squeezing me in. And maybe I'll just switch gears a little bit. David, in your prepared comments, you talked about this Cigna Ventures and your -- and its pilot with Omada Health, and it's interesting to hear you along with your peers, just talk more about sort of digital capabilities, but I guess my question really is, first with a model like, how many employees are actually piloting this for you and really how much interest are you getting from clients for these type of capabilities and to that extent, are these capabilities really making much of a differentiation in actual RFP activity in bidding and winning new business? Thanks.

David Cordani -- President, Chief Executive Officer & Director

Charles, good morning, it's David. I appreciate you coming back to that. We called out an example in the prepared remarks. So I would ask you to think that there are multiple examples and similar to a prior question I was asked in terms of the specialty services where I said don't think about three or four specialty product categories, think about 20 to 25 service programs that we make available to our clients depending on what could deliver the best value for them in getting the right consolations to those. Specific to your comment here, I don't have the -- in front of mind, if you like the number will, you could follow up, we're willing to give you how many are in the Omada pilot at the current course and speed. I can tell you it's growing and there's significant demand from clients.

Secondly, that's what drives us to expand for example the Cigna Ventures program, because it could accelerate on a targeted basis some of our innovation and since we are a partner of choice organization, we are open to partnering and working with others to create accelerated value. In some cases, it is a differentiator. So some of these types of services are differentiators as it relates to RFPs and demonstration of not theoretical value creation through digitization or innovation, but tangible value through digitization and innovation on a go forward basis. And you should expect just to see a more through a constant drumbeat of sustained innovation, we put the customer front in center, our willingness to partner, smart use of technology and aligned partnership with clinicians on a go forward basis and what we called out today in the prepared remarks is one very powerful example of that. Hope that helps.

Charles Rhyee -- Cowen and Company -- Analyst

Okay, thank you.

Operator

Thank you. At this time, I'll turn the call back over to David Cordani for closing remarks.

David Cordani -- President, Chief Executive Officer & Director

Thank you. So just to wrap up our call today, I just want to reiterate some important points. First, Cigna delivered outstanding third quarter financial results, reflecting strong performance across each of our business segments. We generated substantial revenue and earnings growth, strong retention, expansion, and addition of new customer relationships, and continued industry-leading medical cost trend. Cigna's continued momentum across our portfolio of businesses through the first three quarters of 2018 gives us confidence we will achieve our increased 2018 outlook.

At Cigna, we continue to be guided by our Go Deeper, Go Local and Go Beyond strategy to deliver differentiated value and to invest in ongoing innovation. Looking ahead to our combination with Express Scripts, we will accelerate our ability to further improve affordability and choice, expand our distribution reach in addressable markets, and further strengthen predictability for our customers, clients and partners. Additionally, given the rapidly changing dynamic marketplace, we will be well-positioned strategically aided by outstanding financial flexibility. As a result, we will be even better positioned to deliver differentiated value for our customers. Our commercial and health plan clients and governmental agencies.

Before wrapping up, I want to acknowledge Cigna's more than 45,000 coworkers around the world, who have remained focused and who have continued to deliver outstanding results, as we have pursued our combination with Express Scripts. We also look forward to welcoming our new colleagues from Express Scripts. Once we close our transaction, which again we expect to occur by the end of this year. I thank you for joining our call today, and we look forward to our future discussions.

Operator

Ladies and gentlemen, this concludes Cigna's third quarter 2018 results review. Cigna investor relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days, following this call. You may access the recorded conference by dialing, 866-485-0032 or 203-369-1606. Thank you for participating. We will now disconnect.

Duration: 73 minutes

Call participants:

William McDowell -- Vice President of Investor Relations

David Cordani -- President, Chief Executive Officer & Director

Eric Palmer -- Chief Financial Officer, Executive Vice President

Steve Tanal -- Goldman Sachs Group Inc. -- Analyst

Zachary Sopcak -- Morgan Stanley -- Analyst

A.J. Rice -- Credit Suisse Securities -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Justin Lake -- Wolfe Research, LLC -- Analyst

David Stablo -- Jefferies & Company -- Analyst

Joshua Raskin -- Nephron Research LLC -- Analyst

Anagha Gupte -- Leerink Partners LLC -- Analyst

Ralph Giacobbe -- Citigroup Inc -- Analyst

Gary Taylor -- JPMorgan Securities -- Analyst

Steven Valiquette -- Barclays Bank PLC -- Analyst

Matthew Borsch -- BMO Capital Markets -- Analyst

Sarah James -- Piper Jaffray & Co. -- Analyst

Peter Costa -- Wells Fargo Securities -- Analyst

Charles Rhyee -- Cowen and Company -- Analyst

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