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Cigna Corp  (NYSE:CI)
Q4 2018 Earnings Conference Call
Feb. 01, 2019, 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 Fourth 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. (Operator Instructions) As a reminder, ladies and gentlemen, this conference including the Q&A 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 Erik Palmer Cigna's Chief Financial Officer. In our remarks today David and Erik will cover a number of topics including Cigna's full year 2018 financial results as well as our financial outlook for 2019.

As noted in our earnings release, when describing our financial results, Cigna uses certain financial measures, adjusted income from operations and adjusted revenues which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders' net income and total revenues respectively is contained in today's earnings release which is posted in the Investor Relations section of cigna.com.

We use the term labeled, adjusted income from operations and earnings per share on this same basis as our principal measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2019 and future performance. These statements are subject to risks and uncertainties that could cause 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. First I remind you that we recently announced changes in our segment reporting. These changes were made to align with the company's organizational structure following the completion of the combination with Express Scripts on December 20th, 2018. In connection with this change, Cigna's results are now reported through the following five segments; Integrated Medical, Health Services, International Markets, Group Disability and Other and finally Corporate.

As previously disclosed Cigna has also updated our financial reporting practices as follows. First, we exclude contributions from transitioning clients from adjusted income from operations and adjusted revenue. Transitioning clients reflect contributions from Anthem and Coventry and their clients. Second, at the segment level, adjusted income from operations is now reported on a pre-tax basis to better align with corporate and segment management team responsibilities.

Third, when Eric discusses our expense ratio, he is referring to our consolidated selling general and administrative expense ratio which is calculated by dividing Cigna's total selling, general and administrative expenses, excluding special items and expenses from transitioning clients by Cigna's consolidated adjusted revenues.

And fourth, the Company's financial statements are now reported on the basis of Article 5 of Regulation S-X which is the general standard for service companies and the basis used by our largest managed care competitors. Previously Cigna's financial statements were reported under Article 7 generally used by insurance companies.

The reporting updates I have just described enables Cigna to continue to provide high quality transparent financial reporting to the investment community. In Cigna's earnings release and financial supplement issued this morning, these changes have been applied retrospectively to facilitate comparisons to prior periods, and I want to stress that as a result of these segment changes and reclassifications, there is no change to our historically reported, consolidated shareholders net income, consolidated adjusted income from operations, earnings per share, shareholder's equity or cash flows.

Moving to results in the quarter, in the fourth quarter we recorded special items totaling to a charge of $389 million or $1.48 per share, primarily to reflect the impact of merger related transaction costs. I described in today's earnings release, special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results.

Please note that when we make prospective comments regarding financial performance including our full year 2019 outlook, we will do so on a basis that reflects our new basis of segment reporting and the additional financial reporting updates I have described this morning and excludes the impact of any future share repurchases or prior year development of medical costs. Finally, I remind you that Cigna will be hosting our upcoming Investor Day on May 31 in New York City.

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

David Cordani -- President and Chief Executive Officer

Thanks, Will. Good morning everyone and thank you for joining our call today. I begin my comments with highlights from our exceptional 2018 financial results, with Cigna delivering substantial revenue and earnings growth across our businesses. I'll also review how our combination with Express Scripts further strengthens the affordability of our programs, expands choice for those we serve. Then I'll offer initial insights into our exceptional -- expectations for 2019, before Eric addresses our full year 2018 financial results and 2019 outlook in more detail.

Eric and I will take your questions, after which I'll wrap up our call with a few closing comments. Let's dive into review some of our performance highlights from last year, where we delivered strong revenue and earnings growth. Our full year consolidated adjusted revenue increased by 15% to $48 billion, and we reported full year adjusted income from operations of $3.6 billion or $14.22 per share, representing a per share increase of 36%. These results were driven by substantial growth in contributions across each of our businesses, including strong retention levels, the continued expansion and deepening of our customer and client relationships and solid new growth across our portfolio.

Cigna also delivered industry leading medical cost trends for the sixth consecutive year. Our sustained market leading performance will further be strengthened as we integrate and leverage the core capabilities of Express Scripts. Express Scripts concluded 2018 with continued strong performance and delivered its lowest commercial pharmacy trend on record of 0.4%, details of which will be provided next week in our annual Drug Trend report.

Express Scripts also achieve better than 98% client retention for 2019, all while continuing to invest in innovations that benefit customers, patients, clients as well as healthcare providers. Overall, Cigna delivered very strong results in 2018 with growth across our portfolio of businesses. Our continued growth reflect Cigna's proven approach to service integration and how it delivers real value for the benefit of our customers, patients, clients and healthcare provider partners.

A recent report on the value of integration which was externally validated, show the clients with Cigna medical, pharmacy and behavioral benefits, reduced annual medical costs by an average of $645 for each person with an identified health improvement opportunity. Savings can increase to nearly $10,000 for individuals with certain chronic conditions.

As we look forward, Cigna is evolving our definition and approach to integration, driven by the insights we gain from a deeper understanding of our customers as well as the broader capabilities from our Express Scripts combination. Our approach to integration focuses on the coordination of services around the individual and their whole person health needs, both body and mind. This approach also further expands choice, so access is available anytime, anywhere based on our customer and patients needs and preferences. To do this we must remove friction and help our customers and patients connect to the services which are best aligned to their health status.

In an environment where some are restricting access in order to narrowly drive affordability, at Cigna we see an opportunity to further expand customer choice, and to make it easier for people to access the health services they need how and when they need them. This includes accessing care in a doctor's office, an urgent care center, a retail setting or an employer clinic or for more acute needs at a facility based settings such as the hospital or outpatient service center.

Increasingly at home, in a coordinated fashion and through digital platforms that are linked with their healthcare professionals. This choice based delivery model also allows us to guide our customers and patients toward solutions that help the healthy, stay healthy, better predict and address risk factors for the healthy at risk and ensure we deliver affordable high quality healthcare choices for the chronically ill as well as those facing acute conditions.

Making it easier for our customers and patients is important, but it is also critical for a healthcare provider partners. At Cigna we see our role is being the connective tissue that links customers and patients with their healthcare providers, in order to help them improve their health and well-being. We continue to partner, align with and enable healthcare providers rather than seeking to own, compete with or just intermediate them.

Our combination with Express Scripts strengthens and accelerates our focus on coordinating services around our individual customers and patient needs. One of the steps that is essential for Cigna to unlock additional value for our stakeholders is the effective integration and leveraging of Express Scripts capabilities. Our immediate priority is to ensure we deliver on our commitments to customers, patients and clients in 2019, and our position to do so in 2020. This includes the strong service delivery we were able to create in January 2009, an important implementation period.

I couldn't be more proud and appreciative of our team's focus, passion and delivery as we stepped into 2019. As a health service company we see our 74,000 co-workers around the world as the greatest asset we have in carrying out our mission and delivering exceptional value for those we serve. As we move through 2019 and beyond with a focus on improving affordability, expanding choice and broadening our reach we have three key areas of focus.

First, to optimize the significant medical and pharmacy cost synergy opportunities which will directly benefit our customers, patients and clients and help to improve affordability. Second to harness the breadth and depth of our combined data to better predict and identify conditions or behaviors and improve connectivity between our customers, patients and healthcare providers. And third, to leverage new growth opportunities and expand reach across our businesses as we enter new geographies and broaden our solution portfolio.

Let me use Accredo as an example of how we'll create real value in improving affordability and leveraging data, the first two items I referenced. For Accredo, Express Scripts specialty pharmacy business brings a comprehensive patient center care model to improving -- prescribing, adherence and clinical program co-ordination. Accredo has more than 500 specialty pharmacist, and a field force of 550 nurses providing in-home care across the United States.

In fact, an Accredo at home nurse is within just one hour of a home visit for 85% of Americans today. Cigna plans to begin leveraging specialty pharma service -- services from Accredo in 2019, to deliver affordability improvements and better health outcomes for our customers and clients. Considering this specialty pharmacy is the fastest growing cost category in healthcare today, this will create clear and meaningful affordability benefits.

Second, when looking at leveraging data, today Accredo and Express Scripts apply advanced informatics to identify patients who are likely to be non-adherent or have demonstrable gaps in care. For example Bluetooth enabled health monitoring devices tied to blood glucose monitors or rescue inhalers, track patients health in real time basis and trigger targeted outreach and support.

Moving forward, we will further strengthen and deepen the actual insights from this type of pharmacy data by connecting it with our medical and behavioral data. Additionally we will share resulting insights with our collaborative accountable care physician partners to further improve their patients health outcomes. Connecting our physician partners with these actionable insights is especially important when supporting people who suffer from chronic conditions. For example those with chronic conditions are seven times more likely to suffer from depression. And as many as 6 in 10 Americans live with at least one chronic condition. All of which further demonstrates the importance of effectively leveraging medical pharmacy and behavioral data to drive better health.

Building on the consultative of selling success, Cigna and Express Scripts teams, our teams are already on a targeted basis, identifying, pursuing new enterprise growth opportunities. An example includes, expanding PBM services for some health plans that we currently serve through Cigna's payer business. Additionally we have already engaged in targeted expansion opportunities for Cigna's health management capabilities to be offered to Express Scripts health plan clients.

Taken as a whole, our integration and value creation initiatives are off to a very strong start, and we look forward to discussing this in more depth with you at our Investor Day on May 31st.

Before I close, let me briefly comment on our 2019 outlook. Our growth (inaudible) has a proven track record of delivery and provides multiple path for sustained growth in 2019 and beyond. For 2019, we expect revenue growth, attractive EPS growth and strong free cash flows, all positioning us to deliver a 15% average annual EPS growth over the next three years and enabling us to achieve our $20 million to $21 million EPS target in 2021.

To conclude, our team strategic framework along with capital position and significant free cash flow position us to lead an environment of continuous change, improve affordability, expand choice and enhance predictability for our customers, patients and clients, all while focusing on treating the whole person both body and mind. We are positioned to continue delivering attractive sustainable growth. We have high -- we have significant strategic flexibility and financial flexibility and high visibility toward achieving our 2021 EPS target of $20 to $21 per share.

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

Eric Palmer -- Executive Vice President and Chief Financial Officer

Thanks David. Good morning everyone. My remarks today, I will review Cigna's 2018 results and provide our outlook for 2019. Key consolidated financial highlights for 2018 include; adjusted revenue growth of 15% to $48 billion, earnings growth of 33% to $3.6 billion after tax, earnings-per-share growth of 36% to $14.22 and continued strong operating cash flow. These results reflect the underlying strength of our business and provide us with considerable momentum, as we drive growth and advance our integration priorities in 2019.

Regarding our segments, I'll first comment on Integrated Medical. 2018 revenues grew 13% to $33 billion, driven by commercial customer growth and expansion of specialty relationships, as well as premium growth reflecting underlying cost trends. We ended 2018 with 17 million global medical customers, driven by an organic increase of 584,000 lives led by growth in our Select, Middle Market and Government segments.

As we completed our eighth consecutive year of organic medical customer growth, we continue to grow in both risk and ASO funding arrangements, with a highly consultative approach that aligns affordable solutions with the needs of our customers and clients. Full year earnings grew 20% to $3.5 billion on a pre-tax basis, reflecting growth in medical customers and specialty relationships, continued effective medical cost management and favorability in our US Individual business.

Turning to medical costs, for our total US commercial book of business, full year medical cost trend for 2018 was 3.6%. We are pleased to have delivered industry leading medical cost trend results for a sixth consecutive year, and we are focused on further expanding our capabilities to improve health outcomes and medical cost performance, which drives increased value for customers and clients as they continue to confront challenges with the affordability of healthcare.

Our combination with Express Scripts accelerate our ability to create that value, enabling us to drive further personalization of services and deeper engagement and collaboration with customers, patients, clients and our healthcare professional partners.

Our total Medical Care Ratio or MCR of 78.9% for full year 2018 reflects the continued effectiveness of our medical cost management capabilities, in both our Commercial and Government businesses. Favorability in our US Individual business and the pricing effect of the resumption of the health insurance tax. Full year 2018 Integrated Medical earnings benefited from $97 million pre-tax of favorable net prior year reserve development, including $8 million of favorable prior year development in the fourth quarter.

I would note the Days Claims Payable or DCP was 40.7% at December 31st for the Integrated Medical segment, reflecting an increase of 0.7 days over the prior year and a decline of 2.9 days sequentially due to the normal fourth quarter claim payment seasonality and our stop loss business and consistent with prior years. These claims payable is generally lower for the Integrated Medical segment than for our previous global healthcare segment, as a result of the reclassification of international healthcare products, which had higher than average Days Claims Payable due to longer claim payment cycles that business transition to the international market segment.

Overall, Cigna's Integrated Medical segment delivered very strong financial results in 2018.

Turning to our health services business, full year 2018 revenues were $6.6 billion and pre-tax earnings were $380 (ph) million. Results for 2018 reflect solid performance for Cigna's mail order pharmacy operations, in support of our integrated value proposition and contributions from the Express Scripts business, following the close of the combination on December 20th.

Turning to our international markets business, our full year 2018 results reflect continued attractive growth and profitability, as revenues grew to $5.4 billion, an increase of 9% and full year 2018 pre-tax earnings grew 12% to $735 million, reflecting solid business growth, continued administrative efficiency and strategic investments for long-term growth. For our Group Disability and Other Operations segments, full year 2018 revenues were $5.1 billion. Full year pre-tax earnings for this segment increased to $529 million with strong performance from our Life business offset by unfavorable disability claims. Overall, segment delivered strong growth and profitability in 2018 across each of our growth platforms.

As I turn to a discussion of our outlook for 2019, and specifically our expectations for continued attractive growth relative to our 2018 performance, I will start by highlighting the headwinds and tailwinds that we have quantified previously. Specifically, the 2018 earnings per share performance should be adjusted for the following three items; a reduction of $0.40 per share of US Individual business outperformance, a reduction of $0.30 per share, a favorable prior year reserve development. And finally, an increase of $0.20 per share associated with the industry tax, which was in place for 2018, but is suspended for 2019. When adjusting for these impacts Cigna's 2018 earnings per share was $13.72.

As we continue to drive strong value for our customers and clients, we step into 2019 with momentum in each of our businesses. We remain intently focused on delivering on our promises to the marketplace of outstanding service delivery and clinical quality, continued innovation and deepened customer and client relationships, all while we continue to advance our integration priorities.

I would remind you that our outlook for 2019, adjusted revenues and adjusted income from operations excludes contributions from transitioning clients. For full year 2019, we expect consolidated adjusted revenues in the range of $131.5 billion to $133.5 billion. We expect full year 2019 consolidated adjusted income from operations to be $6.2 billion to $6.4 billion or $16 to $16.50 per share. This represents very attractive growth in the range of 17% to 20% over our 2018 baseline.

We would expect the cadence of earnings per share in 2019 to be approximately 45% in the first half and 55% in the second half of the year. Taking into consideration, seasonality patterns within our businesses, with our health services segment in particular driving a greater proportion of its earnings in the second half of 2019, as well as continued progress on realization of administrative expense synergies throughout the year.

For 2019, we also project an expense ratio in the range of 10% to 10.5%, which reflects ongoing efficiencies and administrative expense synergies in line with our previous estimate of $112 million pre-tax. We'd also note that our outlook includes approximately $200 million pre-tax of temporarily stranded operating costs associated with Anthem's early termination of pharmacy services.

For 2019, we projected consolidated adjusted tax rate in the range of 23.5% to 24.5%. Additionally, our outlook excludes any contribution from future share repurchases, as well as prior year reserve developments.

I will now discuss our 2019 outlook for the Integrated Medical and Health Services segments. We expect full year Integrated Medical pre-tax earnings in the range of $3.65 billion to $3.80 billion. This outlook reflects strength and growth in our businesses driven by continued benefits from organic customer growth, deepening of customer relationships and effective medical cost management. This outlook also contemplates a return to more normalized margins in our US Individual business.

Key assumptions reflected in our Integrated Medical earnings outlook for 2019 include the following. Regarding global medical customers, we expect 2019 growth in the range of 300,000 to 400,000 customers, driven by continued strong customer and client retention and new growth in our commercial business, as well as mid-single digit percentage growth in Medicare Advantage enrollment. And our outlook for medical customer growth also contemplates an expected enrollment decline in our US Individual business of approximately 70,000 customers.

Turning to medical costs, for our US Commercial Employer book of business, we expect full year 2019 medical cost trend to be in the range of 3.5% to 4.5%, with the expected increase over 2018 full year trend, due to expected higher utilization of services, as well as continued benefits from our initiatives to improve affordability, including those we are further enabling through the combination with Express Scripts.

We expect the 2019 medical care ratio to be in the range of 80.5% to 81.5%, reflecting continued strong performance of our commercial and government businesses, the impact of the health insurance tax suspension in 2019, as well as changes in business mix. For our health services business, we expect full year 2019 pre-tax earnings in the range of $5.05 billion to $5.2 billion.

For 2019, we expect adjusted pharmacy claims in the range of $1.17 billion to $1.99 billion claims. I would note that this range includes all claim volumes associated with Cigna's mail order and specialty pharmacy operation, in addition to claims associated with the acquired Express Scripts business. Our 2019 guidance range is consistent with Express Scripts previous expectation of 2% to 3% growth in core adjusted pharmacy claims.

Our guidance does not include Cigna pharmacy claim volumes, we expect to transition from OptumRx, and consistent with all of our key performance metrics, this guidance range does not include pharmacy claim volumes associated with transition in clients. We also expect strong growth in contributions from our international markets, Group Disability and Other businesses. They continue to deliver more personalized and affordable solutions for the benefit of those we serve.

Regarding interest expense, we expect total costs of approximately $1.7 billion pre-tax in 2019, inclusive of approximately $900 million of incremental interest associated with the financing of the combination with Express Scripts in the corporate segment. All in, for full year 2019, we expect consolidated adjusted income from operations of $6.2 billion to $6.4 billion or $16 to $16.50 per share. This represents 17% to 20% growth over our 2018 baseline. But also to remind you that our outlook continues to exclude the impact of future share repurchases and prior year reserve development.

Overall, these expected results, represent a very attractive outlook aided by strong performance of our diverse and differentiated portfolio of businesses and the highly accretive combination with Express Scripts. These expected results are also consistent with our multi-year growth outlook and position us well to achieve our 2021 earnings per share target of $20 to $21 per share.

Now moving to our 2019 capital management position and outlook. Our subsidiaries remain well capitalized and we expect them to continue to drive exceptional free cash flow, with strong returns and capital, even as we continue reinvesting to support long-term growth and innovation. In 2018, we deployed $130 million of parent company cash to repay current maturities of long term debt. We completed our debt offering to finance the combination with Express Scripts, and we repurchased 1.6 million shares of stock for $329 million, with the resumption of share repurchase following the close of the combination.

We ended 2018 with a debt to capitalization ratio of 50.9%. As previously discussed, our top capital deployment priority is accelerated debt repayment, with the objective of returning our debt to capitalization ratio to the upper 30s and debt to EBITDA ratio in the mid 2s within the next 18 to 24 months.

For 2019, we project capital available for deployment of approximately $6.2 billion. In 2019, we expect to deploy approximately $4.2 billion to debt repayment and approximately $0.8 billion to capital expenditures. As we have communicated previously, while we reduce leverage over the next two years, we expect to also have capacity for additional capital deployment, which can be allocated toward reinvestment back into our businesses to drive further innovation and growth. Strategic M&A on a targeted basis and/or returning capital to shareholders, primarily through share repurchase.

In January of 2019, we repurchased 1.1 million shares for $209 million. Our balance sheet and free cash flow outlook remain strong, benefiting from our highly efficient service based orientation that drives strategic flexibility, strong margins and returns on capital.

Now to recap, our full year 2018 consolidated results reflect considerable strength and momentum across our diversified portfolio of global businesses and continued effective execution of our focused strategy. The fundamentals of our business are strong, we've entered 2019 intently focused on delivering on our commitments to the marketplace, while we advance our integration priorities. And are well-positioned to achieve the attractive financial targets we've established for 2019 through 2021.

We are confident in our ability to achieve our full year 2019 earnings outlook and have strong visibility into our $20 to $21 earnings per share target for 2021, which represent a 15% average annual growth rate over the next three years.

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) The first question comes from Ralph Giacobbe with Citi. You may ask your question.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks. Good morning. Just hoping you could help with the bridge or the underlying assumptions a bit more within the guidance. I know you mentioned the jumping off point being closer to $13.72. I think in the past you've talked about sort of high-single digit growth in the legacy Cigna business. Even if we use 7%, that's kind of $14.65, and I think at the time of the deal, you said core Express would be mid-teens accretive, which I think is at least $2 sort of an incremental and would sort of suggest above the high end of the guidance. So just hoping you can maybe help with where that's offered? If something has changed from your initial view and just the assumptions in underlying core performance between the segments.Thanks.

David Cordani -- President and Chief Executive Officer

It's David, good morning. Let me frame and offer for Eric to add onto my framing. First, big picture for 2019, our outlook is in line with our planned expectations, broadly speaking and puts us on the trajectory to deliver on our 2021 commitment of $20 to $21 of EPS. To appreciate you're walking through the bridge, you take the core portfolio, the core legacy Cigna portfolio is performing well, then we'll continue to perform well. We step into 2019 with strong performance within Express Scripts from that standpoint. Not to quibble with you on the math, but you're about right, it's about $2 going back to the announcement.

I would just point you to one additional data point, Eric emphasized and highlighted the fact that, within our assumption for 2019, right now, is approximately $200 million before tax of temporarily stranded overhead, tied to the early termination, that's temporary, we will eradicate that through three mechanisms; one, execution of EBI which remains on track, but there'll be some temporary dislocation to additional leverage from organic growth in three, the significant capacity leverage that we'll be created as we utilize Express Scripts for the Cigna volumes over the near-term future. So, when you pull all that together we are on track both delivering an outstanding result in 2019 of 17% to 20% of EPS growth, even including that stranded overhead. Eric, anything I missed?

Eric Palmer -- Executive Vice President and Chief Financial Officer

I think those are the major headlines, David.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks.

Operator

Thank you Mr. Giacobbe. The next question comes from A.J. Rice with Credit Suisse. Your line is open.

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

Thanks. And thanks for all the comments around guidance. I guess you guys are the first guys to have a conference call since the HHS release last night. So I'm proud to ask you about that, since that's a top, the main topic for a lot of us. Can you, there is a lot of aspects to that, I guess, I would just ask you broadly, do you see any particular challenges there, opportunities or what would the key open questions from that proposal be?

And then always the question, I know HHS is saying, they don't have the regulatory authority to implement anything in the commercial market. But if this goes forward, do you think we'll maintain a two tier system where the Medicare Part D will have its one set, and in the commercial market we'll stay pretty much as it is. Any thoughts on those, sounds would be helpful.

David Cordani -- President and Chief Executive Officer

A.J, good morning, it's David. So just appreciate the questions. Stepping back, we are 100% committed to providing affordable, high quality, health and well-being services to our customers, patients and clients in the US and across the globe. A key driving force behind our strategic combination with Express Scripts is to further improve on affordability and we build-off of strength with another year of outstanding medical cost trend in the Cigna business portfolio of 3.6%, six years in a row, and just a phenomenal result in the Express Scripts portfolio at 0.4% pharmacy trend.

The headline number one is, the proposed rebate rule will not have a meaningful impact on our growth or earnings trajectory. Specifically, as you noted, the proposed rule, will be evaluated over the next 60 days, applies to Medicare Advantage and PDP. The mechanism that exists in terms of the way rates are built up for Medicare Advantage as well as PDP largely by design, flow and respect the rebates and path through the way the rates are billed. So we don't see a major amplification to that business portfolio. And then inferred in your comment, it does not apply to the commercial marketplace. We do see some opportunities in the proposed rule, as articulated. For example, I provide the mechanism to even further accelerate value based care programs with the pharmaceutical manufacturers.

You'll recall from the day we announced our proposed combination on March 8th, we talked about that as an important initiative, that we passionately believe in. This will provide some further accelerant to that, as well as potentially open up some additional chassis to work with pharmaceutical manufacturers to get better alignment. But big picture, we do not see it having a material effect on the business portfolio as configured, and we're on track to deliver the 17% to 20% EPS growth in 2019.

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

Okay, great. Thanks a lot.

Operator

Thank you Mr. Rice. The next question comes from Josh Raskin with Nephron Research. Your line is open.

Joshua Raskin -- Nephron Research -- Analyst

Hi, thanks, good morning. I just want, the first one is just a clarification. Are you guys saying that Express is indeed $2 accretive in 2019, as part of the guidance. And then the rest is legacy core with the $200 million of stranded. And then my real question is to -- the combined company and sort of when do you come to market with that pitch? And I know you guys have been laying the foundation for that integrated approach. But when is sort of that broker consultants education began? When did the large employer group starting to hear that? And when do you think that actually starts to resonate? And how do we start thinking about changes in direction around membership growth, especially on the on the US Commercial side?

Eric Palmer -- Executive Vice President and Chief Financial Officer

Josh, it's Eric. I'll take the first part of the question. I think to the nearest dollar, $2 is part of the right number, that's actually a little bit less than that. So think of it in the $1.50 to $2 range in terms of the accretion from the Express Scripts acquisition for next year. David, you take the other portion of the question.

David Cordani -- President and Chief Executive Officer

Josh, first specific to the go-to-market proposition, it's important to note that each portfolio and each platform is performing well and growing well. We're delighted that we're able to step into 2019 with very strong growth within the ESI portfolio and another year of strong organic growth within the Cigna portfolio. Additionally, important to highlight as it relates to growth as we look (inaudible) into 2020, within our organization growth starts with outstanding retention, deepening of relationships in addition of new business relationships.

Within the Express Scripts portfolio there'll be a lower percentage of their business, that's out to bid for 2020, than was for 2019. And you recall a phenomenal retention result for 2019. Think about that is about 30% less business, and out today for 2020 versus 2019. The early look in that, has the health plan part of the portfolio which is the earlier part of the portfolio, that is up for renewal in terms of decision making process. And we're pretty well through that process with all known clients thus far making decisions, renewing and no loan losses from that standpoint. So, strong platform.

We will step forward through 2019 and 2020 with evolve value propositions to answer the core of your question. Interactions are starting to take place with the broker and consulting community and that will happen in a phased mechanism. There will not be a singular new product offering that is pushed on the market rather additional capabilities that will offer more choice, both through the legacy of the Cigna distribution model as well as through the Express Script distribution model. So, strong foundation.

An early look at outstanding retention stepping into 2020 within the Express portfolio already today, and then emerging momentum around expanding choice. As we sit here in 2019, we're building momentum to 2020.

Joshua Raskin -- Nephron Research -- Analyst

Thanks.

Operator

Thank you Mr. Raskin. The next question comes from Gary Taylor with J.P. Morgan. You may ask your question.

Gary Taylor -- J.P. Morgan -- Analyst

Hi, good morning. I just had a question around the new healthcare services segment. The guidance of $5.05 billion to $5.2 billion. Can you tell us what growth that would represent year-over-year or what legacy Cigna, PBM plus Express would represent essentially? Because it might sort of back the envelope looks like that would be flat, is down slightly, but there is obviously some disclosure we don't quite have.

Eric Palmer -- Executive Vice President and Chief Financial Officer

It's Eric. Number of the moving pieces in there. So probably not constructive to walk through all of the different kind of in's and out's and dynamics there. Fundamentally, we've got growth reflected in terms of the operations that make up the health services segment, as well as the Integrated Medical segments, there is good growth in both, but really not able to kind of pull the pieces apart in the call today.

David Cordani -- President and Chief Executive Officer

And Gary, it's David. Just one add on, and maybe we'll ask Will and team to follow up with you afterward. As the new business segments are configured, you may recall and I know it's all net new, is a portion of the Cigna pharmacy business for example is moved into the health service business the mail order aspect et cetera. However, the integrated aspects of the pharmacy business remain in the integrated health portfolio. So we could take that offline with you and follow up to put -- walk through the pieces. But at the end of the day, there is solid organic growth in both of those portfolios, driven by our retention and expansion relationships in the net new business adds.

Gary Taylor -- J.P. Morgan -- Analyst

Thank you.

Operator

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

Justin Lake -- Wolfe Research LLC -- Analyst

Thanks. Good morning. I just want to clean up the $200 million commentary, then I had a question. So to be perfectly clear, you're saying that '19 is carrying this overhead reduction of this $200 million. Is that the total number of lost overhead contribution from Anthem? Or is that, is there going to be more in 2020?

Eric Palmer -- Executive Vice President and Chief Financial Officer

Justin, it's Eric. I think of the $200 million as the amount stranded in 2019, associated with the transitional time at about $0.40 earnings per share. Ultimately as that business transition we'll get those costs out of the system or on track for our $20 to $21 in 2021. That, the final exact timing will play out in terms of cost coming out this year versus next year as Anthem takes -- it works through their transition plan and such. But again, think of that as the amount we've estimated for this year that we will absorb and that will need to come out of the system as we go into 2021.

Justin Lake -- Wolfe Research LLC -- Analyst

Okay. And to be clear that's a drag on the -- on the services business. So even though it might look like there is not much growth there, that would be $200 million that you didn't expect to have this year. And is that also a drag versus the accretion number? Given, if I didn't expect to have that as well, because of the timing. So we should track that for -- those dollars of the accretion, their $2 of accretion?

Eric Palmer -- Executive Vice President and Chief Financial Officer

That's correct on all fronts. So think about that is, is almost entirely or entirely within the health services segment. And I think about that as in the short-term a drag on the cost, it's temporary. And we're still are on track for our long term expectations there.

Justin Lake -- Wolfe Research LLC -- Analyst

Okay. Then if I could just sneak in my question on rebates. Express historically put out a number of $400 million. I know you don't think it all goes away with commercial and --. Can you give us an update there? Worst case scenario if rebates go away, where do you think that would be? Then any comment CVS put out some discussion around rebate guarantees being affected by inflation. Anything there that you see as a headwind for 2019? Those two -- those two things would be helpful. Thanks.

David Cordani -- President and Chief Executive Officer

Justin, it's David, good morning. You've effectively put in about four questions. Let me try to wrap a couple of them together. First, specific to the commercial side of the equation, as noted previously the rebate rule is articulated and proposed does not affect the commercial market. As you go back, you're correct, let's go back and use the numbers that we put out.

First, for Express Scripts, about 95% of all rebates discounts et cetera pass back. Second, per prior conversation, about 50% of all clients with an Express Scripts opt for today, will pass through rebate models. That covers importantly about two-thirds of the volume. So there is a little disproportionality of that. The net of that is we have multiple funding mechanisms already in hand, today, and a line payment models that work for clients across the commercial health plan and government agency sector, that work for them and work for us to get levels of alignment, and we'll continue to evolve those over time.

Specific to the rebate guarantees, you'll note that we did not call that out as a headwind, stepping back our industry broadly speaking has guarantees as a part of it, whether that's in the formal nature of a guarantee cost offering, a discount guarantee, a rebate guarantee, a trend guarantee or otherwise. And both legacy organizations have a great track record of effectively gaining alignment and managing those on a go forward basis.

Lastly, I would just add that Express Scripts had some visibility into the decelerating trend environment, and as such took appropriate actions with their services contracts. So, again, we have not called that out as a headwind.

Justin Lake -- Wolfe Research LLC -- Analyst

Thanks.

Operator

Thank you Mr. Lake. The 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. Wanted to go to the cash flow guidance which you guys are providing here. The numbers that you've been giving generally speaking have kind of excluded Anthem as a client. So does that $6.2 billion number include any cash flow that you'd be earning from Anthem and transitioning clients this year? Or is that excluding that? And then, just trying to think about this number it's kind of a base to think about next year. Is there anything onetime in this number? Or just a good number to think about for '20? Plenty of cash flow available to the parent, if we just add earnings growth per say to that.

Eric Palmer -- Executive Vice President and Chief Financial Officer

Kevin, it's Eric. So, overall think about the $6.2 billion figure that I referenced as all in. So it is comprehensive for the enterprise, in terms of capital generated. There will be -- the rate and pace of us achieving our synergies, the rate and pace of capital investment, and the rate and pace of our debt repayment will be the main things that will go into -- that come to mind in terms of the kind of the top tier impacts. But we would expect to have in excess of $6 billion for each of the next couple of years available in this framework.

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

Okay. So even though Anthem goes away, earnings growth kind of makes up for that $6 billion as starting point before all the other uses of cash?

Eric Palmer -- Executive Vice President and Chief Financial Officer

Right Kevin.

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

Alright. Great. Thanks.

Operator

Thank you, Mr. Fischbeck. The next question comes from Steven Valiquette with Barclays. You may ask your question.

Steven Valiquette -- Barclays Capital -- Analyst

Great. Thanks guys. Good morning, Dave and Eric. So I guess for me just another quick question here on the early Anthem-PBM transition. I guess other than the stranded costs that you alluded to, I just want to hear your view, hopefully confirmatory that they really should not be any other unexpected consequences in 2019, for the remaining PBM business, that Cigna-Express related to things like either let's say less purchasing power or lower rebate collections or something like that, because of their early Anthem transition. Thanks.

David Cordani -- President and Chief Executive Officer

Steve, good morning, it's David. No, there will not be any impact. We -- from the day of the announcement, we excluded transitioning clients from all aspects of how we looked at the combination, the business, the outlook et cetera. But there are no other impacts that you need to be concerned about.

Steven Valiquette -- Barclays Capital -- Analyst

Okay. And just a quick MLR question here on the gains 80.5% to 81.5%, could you just remind us again how that compares year-over-year, on an apples-to-apples basis when adjusting for the half (ph) to the 78.9% you just posted in 2018. Is that essentially flat when you do the adjustment? Or it's a little higher or little lower, just wanted a little more color there as well. Thanks.

Eric Palmer -- Executive Vice President and Chief Financial Officer

Yeah, Steve, its Eric. So in terms of the moving pieces with the MLR, I think the industry fee suspension is the single biggest piece. The other changes I would call out would be more auto factors, we've already talked about. So, industry fee suspension is the single biggest fees. We've talked about the normalization of our individual plans, margin. I mean, in the absence of prior year development in our outlook. Those would be fees that would account for the movement from this year, into our guidance for next year.

Steven Valiquette -- Barclays Capital -- Analyst

Got it. Okay. Great. Thanks.

Operator

Thank you Mr. Valiquette. The next question comes from Steve Tanal with Goldman Sachs. You may ask your question.

Stephen Tanal -- Goldman Sachs -- Analyst

Good morning guys. Thanks for the question. Just that two sort of topics I wanted to touch. One is just thinking about the long-term earnings growth algorithm or target, the 10% to 13%, you guys used to put out there. How are you thinking about that now? And then secondly just to round out kind of the discussion on the earlier transition of Anthem. I guess could you kind of just give us what the new level of year one accretion assumed in the low and high end of the guidance provided as now?

And how comfortable are you that those costs are truly temporary? And I guess, just separately, like why was an earlier transition of Anthem's business not sort of contemplated to the initial accretion targets provided given the change in control provision of the contract?

David Cordani -- President and Chief Executive Officer

Steve, it's David. First relative to your broader or big picture question. First, by way of background we've delivered approximately 15% EPS CAGR since 2009. So take 2009, the initiation of our strategy in 2018, we've been above the high end of the articulated 10% to 13% range. Over the next three years, the next chapter of our strategic horizon, we are on track again to deliver 15% EPS accretion, on average over the next three years, and we look forward to refreshing our long-term outlook as we go forward. So we'll have an excess of a decade of 15% EPS growth outperforming our long term targets.

As it relates to the latter part of your question, all along we understood that we are transitioning clients and we excluded transitioning clients from our EPS outlook, our accretion outlook et cetera. No one could predict the rate pace and timing of termination. The termination is an early termination, it may create a temporary dislocation as Eric articulated, of approximately $0.40 of EPS or $200 million before tax. Even with that, we're able to deliver 17% to 20% EPS CAGR year-over-year off of a tremendous base in 2018. And we did anticipate it, hence the EVI initiatives are under way, but we're taking those in a paced fashion and we will deliver on the EVI initiatives, as well as tremendous organic growth. So those costs will be eradicated, there is just a temporary dislocation, that takes place in 2019. And even with that we're able to deliver the 17% to 20% EPS growth.

Stephen Tanal -- Goldman Sachs -- Analyst

Thanks. So just with that, I guess it sounds like maybe you're still guiding to double digit accretion, X the $0.40? Or at the midpoint of guidance or any color on that part?

Eric Palmer -- Executive Vice President and Chief Financial Officer

The way I would think about it Steve and as we've discussed before, the core accretion fundamentals of the combination remain intact. Hence we're on target for our $20 to $21 and the core fundamentals of the Cigna business portfolio remain intact. As Eric referenced in the prior question that was asked, if you take the accretion that would've been inferred on date of announcement of mid-teens about a $1.90, you back-off about $0.40 for the temporary dislocation of overhead and you want to back into a buildup, you're about right there in 2019. And even with that, we're delivering the 17% to 20% EPS growth rate. Thanks.

Stephen Tanal -- Goldman Sachs -- Analyst

Perfect. Thank you.

Operator

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

Zach Sopcak -- Morgan Stanley -- Analyst

Hey, thanks for the question. So I want to ask about the other transition with your members shifting from OptumRx. Two questions, one, is there -- how straightforward of a transition is that and is there anything in that process -- you're concerned about in terms of the member experience?

And two like I understand that's not going to impact 2019 earnings, but is it at all a significant contributor to that 15% of CAGR to get to your 2021 target range? Thank you.

David Cordani -- President and Chief Executive Officer

Zach, good morning, it's David. So stepping back, remind you, today we own and operate our own PBM, and it's successfully done so for many years. We also implemented the successful strategy five, six years ago to break it into modules and to partner with others to perform some of those modules for us. Initially Catamaran that transitioned to Optum and it's worked quite well, and successfully with Optum as a good constructive partner.

Earlier this year, we announced, on a line plan in time frame with Optum in terms of our shared view in terms of an orderly transition, that will take place, that positions us in a way to have a very disciplined, orderly transition of those services and relationships and there is a good track record of transitioning services to them, and transitioning services back to us within the respective modules. And that'll take place over the next approximate two year horizon. It'll create some significant volume uptake for Express Scripts which is a positive. One way you can think about that is, the Cigna volumes on today's basis, when internalized within Express Scripts make up order magnitude of 75%, maybe a little higher, 75% of the lost volumes from Anthem. So it's quite significant but it will take place on a rateable basis over the next couple of years. And again we have a successful track record of -- in a very disciplined basis of transitioning services to and from other providers. Hope that helps.

Operator

Thank you Mr. Sopcak. The next question comes from Peter Costa with Wells Fargo Securities. You may ask your question.

Peter Costa -- Wells Fargo Securitiesq -- Analyst

So along that line. David, can you explain, have you accelerated the Optum timing of bringing that business in-house relative to Anthem, choosing to go early, away from you. And when did Anthem notify you of their decision to go early?

David Cordani -- President and Chief Executive Officer

Good morning. Answer to your questions is no. We had a very orderly indiscipline process laid out. We have a very successful and growing captive PBM. We have a very successful strategy approach that we've been executing within the captive PBM, and a very strong partnership relationship with Optum around shared value delivery. We laid out a very orderly timeline that allows for a disciplined two year transition, putting our customers front and center and the coordination services with our physician partners. So that timeline and the strategy around that is commensurate what we believed was appropriate and highly aligned with our service provider partner.

Peter Costa -- Wells Fargo Securitiesq -- Analyst

And then, when did Anthem notify you of their decision and should I assume that 75% of the $0.40 of stranded overhead goes away with just from Optum coming in-house?

Eric Palmer -- Executive Vice President and Chief Financial Officer

Not going to get into the dates and timing. I think Peter to the second part of your statement, a way to think about the overhead that we articulated before, there are three mechanisms to dispatch of that, and it will be removed. First and foremost a very disciplined EVI plan that was laid out and is being executed in an orderly basis. Two, good organic growth, and then we started 2019 with good organic growth in the Express Scripts portfolio.

And third, the very disciplined leverage of the Cigna volumes within the portfolio. All of that will contribute to and the EVI program was put in place to actually take out the cost structure. So we see some additive opportunities as we look to the future from the sustained organic growth in the leverage of the Cigna capabilities.

Operator

Thank you Mr. Costa. The next question comes from David MacDonald with SunTrust. You may ask your question.

David MacDonald -- SunTrust -- Analyst

Yeah. Good morning. David, just one quick question. You now have a meaningfully scaled mail order business. I was wondering, if there is an opportunity to potentially sell additional products or services through that channel over time? And now that you've deepen the combination of pharmacy and medical, is there also an opportunity to expand and further leverage some of the incremental clinical horsepower Express brings, things like Evercore Therapeutic Resource Centers et cetera.

David Cordani -- President and Chief Executive Officer

David, good morning. So to your first question, I appreciate it tremendously and Express Scripts is built and has a proven track record of having a pretty phenomenal mail order fulfillment, capability, so it's a service capability that's aided by quite innovative technologies, patents et cetera. And we will -- on a disciplined fashion continue to look at, how that core capability that you come back to, potentially could be used and leverage for other services that benefit customers, patients or clients on a go forward basis. And I appreciate the call out. Specific to the clinical integration and clinical leverage, absolutely, absolutely a core part of our both organizations got excited about from early conversations, was the shared leverage. I articulated in their prepared remarks a little bit, between leverage around the Accredo capabilities relative to the deep clinical excellence they have, coupled with the home health coordination services that exist and bringing some of that together.

Secondly from a data set standpoint, the ability to enrich insights for practicing clinicians to more comprehensively understand the life or health needs of patients. And as you articulate within the core Evercore capabilities there are tremendous opportunities where we are on a focused basis already working through additional step function improvements in the clinical capabilities of the combined corporation which gone back to benefiting our customers and clients and further improving affordability and clinical quality. So yes to both points, and we couldn't be more excited on the early traction on the second point already.

Operator

Thank you Mr. McDonald. The next question comes from Scott Fidel with Stephens. You may ask your question.

Scott Fidel -- Stephens Inc -- Analyst

Hi, thanks, good morning. I had a question just on -- I know you are not giving specific earnings guidance anymore for our international and group insurance. So just interested if you could give us maybe some more qualitative or directional commentary and how you're thinking about earnings trends for those two segments in 2019?

Eric Palmer -- Executive Vice President and Chief Financial Officer

Scott, it's Eric. Thanks for that. A couple of headlines that come to mind for me on there. So first of all -- I'll continue to have good growth momentum in both businesses, we would expect that we will continue to grow in both. And the differentiated return to work platform we've got in the Disability business continues to serve as well and again continues to be a growth chassis for us. Then the international markets business, again continue to grow that platform as well. Closed on November 30th on our acquisition of OnePath Life in New Zealand, just as an example of the continued expansion of the international markets platform in chassis -- still continue to move that forward as well. But overall really no changes to the underlying growth story and the momentum that we've gotten into those businesses.

Operator

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

Matthew Borsch -- BMO Capital Markets -- Analyst

Maybe, just if I can ask a question this way on the rebates relative to the draft rule, understanding that the commercial payers are not immediately into or not impacted by this rule. But if -- so if rebates were to disappear entirely in theory, what would be the earnings impact at this point? For Commercial...

Eric Palmer -- Executive Vice President and Chief Financial Officer

Good morning, David. We don't have a theoretical EPS answer to the theoretical action you articulate. Stepping back an attempt to be helpful. Again about 95% of all discounts and rebates within the Express Scripts portfolio pass through and are shared. About 50% of our clients opt for today for pass through rebate relationships and that equates to, because of the scale of those clients, equates about two-thirds of the volumes. And previously indicated, Express Scripts retains about $400 million, that's a before tax number. I would add the reason why, I think your question to be -- is unanswerable, as the model continues to evolve. So the evolution of value based contracts and our shared direction in terms of continuing to move toward and more comprehensively toward total cost, total value relationships with our clients, whether they are commercial clients, health plan clients or governmental agencies is the direction that Express Scripts was on, is the direction of the Cigna has been on and it's the direction that the combined corporation goes forward on. So those tools and leverage continue to evolve and you'll see us continue to move away from trying to perceive maximize a single lever, as opposed to maximize the overall value which is total cost and total quality as we go forward.

Operator

Thank you Mr. Borsch. The next question from comes from Charles Rhyee with Cowen. You may ask your question.

Charles Rhyee -- Cowen and Company -- Analyst

Hey, thanks for taking the question. Wanted to ask, you obviously reaffirmed the year 2021 target of $20 to $21 a share. I just wanted to put that into context with, you previously kind of guided synergy target about $600 million. And if we think about now with the transitioning of Anthem a little bit early, when we think about that number $20, $21 in relation to the guidance. And then you obviously outlined some -- your growth, excited about growth opportunities and optimizing the medical and pharmacy side of it.

What pieces contribute that trajectory toward the 2021? And I guess what I'm really asking is, can you start to kind of quantify for us a little bit, sort of sizing what you think these other opportunities are in relation to the $600 million, because if I recall correctly that $600 million was largely an overhead kind of a synergy target. Thanks.

Eric Palmer -- Executive Vice President and Chief Financial Officer

Charles, it's Eric. I'll start with a couple of other pieces and maybe ask David to give some more overall color and commentary. So at a macro level, we continue to be on track with the synergies as assumed and as we discussed back in 2018, and as we disclosed in this for last year. The synergies that we've put out and that were quantified there, primarily reflect lower administrative costs and we would expect that those would occur over multiple years, over the first four years of the transaction.

We're generating $112 million of pre-tax administrative synergies for 2019 and that builds to $600 million in 2022. You're correct, that we expect to generate meaningful additional improvements in the pharmacy and medical costs through the combination, both through the clinical combinations and some of the other items that David discussed today. Those benefits will primarily in order to the benefit of our customers and clients. As it is again, in terms of the synergy pieces those are the pieces you should think about, and we're on track and consistent with how we teed up the transaction initially. Dave, will give some additional color here.

David Cordani -- President and Chief Executive Officer

And so just a bridge, when you think about today to 2021, we try to articulate, there is three major building blocks to get to the $20 to $21 per share. The underlying base performance of both assets, the synergies that Eric just made reference to and you articulated the $600 million of before tax synergies. And the impact to the P&L of the deleveraging which we're already on-board for the deleveraging path. That's the basic crosswalk between 2018 and 2021. Additional opportunities above and beyond that which we said are not built into the accretion model.

Our further leverage and enhancements of the growth chassis of the portfolio, as we go forward and identify additional opportunities for growth whether it's net new growth or further deepening of relationships. Anything beyond what the core businesses are performing is excluded from that today, as well as potential additional value at a shareholder level versus passing back to the customer and clients from the leverage of Express Scripts for the transition of the Cigna portfolio into the Express Scripts portfolio. So the basic crosswalk is base performance, synergies and deleveraging to get us from 2018 to 2021.

Operator

Thank you, Mr. Rhyee. The next question comes from Ana Gupte with SVB Leerink. You may ask your question.

Ana Gupte -- SVB Leerink -- Analyst

Hey thanks. Good morning. Can I follow up on the -- this question just now. On the Express synergies more on a near-term basis, both administrative and medical. Can you talk about on the administrative side, is there anything you can do to accelerate the schedule you provided in the S4 or in today's guidance. And how much of it is potentially even going to retain your business in the July renewal season 11-2020 (ph) season, given Anthem is now talking about $3 billion in savings, much sooner Optum is 250 or 300 and PMPY savings just from Rx. And then to follow up on David, your commentary around the power of Express and Cigna together, when will we see proof of concept on that combined business as far as medical cost trend or medical loss ratio impact or you know accelerated share gains and growth?

David Cordani -- President and Chief Executive Officer

Ana, good morning, it's David. Let me try on the points to be responsive here. Specifically, as Eric has articulated a couple of times there is a $112 million of synergies, shareholder synergies we signed up for in 2019. So a step toward the $600 million, you'll note we're being very disciplined. We're making sure that the expense has come out in an orderly basis. We may outpace that. But the business plan and the guidance we've articulated doesn't assume that. And with that, and with the transitioning client impact et cetera, we're delivering 17% to 20% of EPS growth.

Specifically, as it relates to the medical and pharmacy cost synergies and value creation that will unfold throughout 2019 and 2020 and benefit our clients and customers on a client or customer basis depending on the products program and the services they have. And I would note that, we have very good growth and outstanding retention in all of our business portfolios stepping into 2019 and we can have another good growth year. And I articulated an early glimpse to Express Scripts renewals for 2020, which we're tracking very, very favorably right now.

As it relate to proof-of-concept, you should not think about Cigna coming back to you with a net new proof of concept of something de novo we are seeking to build that doesn't exist today, as a concept to roll out in the marketplace. Rather we are systematically further enhancing the value propositions for our commercial clients, for our health plan clients, for our government agency clients and offering more choice which will unfold in 2019 and 2020, with expanded capabilities and further clinical integration and effective use of data.

At our Investor Day, we will seek to bring some of those to Life, with both words, examples, and challenge ourselves to give some tangibility even in terms of some of the supporting technologies and workflows. But it is not a net new concept, the capabilities unfold pretty rapidly throughout 2019 and we'll expand additional choice for the benefit of clients and customers as we step into 2020.

Operator

Thank you, Ms. Gupte. The next question comes from Frank Morgan with RBC Capital Markets. You may ask your question.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. Thanks for the color on the Anthem Optum swap of business, 75% of that volume could be recovered. But when I think about it from a profitability standpoint, how should you be thinking about the profitability on the Anthem book loss versus the savings you'll realize by bringing that back in-house, that's number one. And then number two, was just, one of the headwinds you're calling out for the year was the outperformance you saw last year in the integrated medical segment, I think mainly the individual segment. Is there anything specifically that you would like to call out as to why that should revert or is it just simply conservatism? Thank you.

David Cordani -- President and Chief Executive Officer

Good morning, it's David. On your first question, I would ask you not to think about the profitability of those two components. Step away from it, we've excluded the transitioning clients from all aspects of our conversation, from the day we announced the proposed combination and the earnings impact of that from an EPS standpoint have been excluded. We have in 2019, this temporary dislocation of overhead, that from a whole transparency basis we walked through, laid out, $200 million before tax and that'll be removed from the system in a pretty expeditious fashion. And we have multiple levers to address that, but I would ask you not to think about profitability of the Cigna portfolio versus the Anthem portfolio because they're not comparables from that standpoint.

As it relates to the individual market, you are correct. We articulated in our third quarter call, the fact that we're quite pleased with the performance of the individual portfolio of businesses. We expect it to be profitable in 2018, it is. It's outpaced -- the high end of our strategic margin threshold. And for 2019 planning purposes we believe it's prudent when you look at that program and the design of that program to plan for margins that are more in line with our strategic margin trajectory which is somewhere between 4% and 6% before tax. And for 2019 we've planned for it to be at the higher end of the range which we think is a more sustainable indication of what that portfolio programs. There is nothing systematic beyond, in terms of dislocation in that marketplace. We just believe it was appropriate to plan for in view that marketplace runs in a 4% to 6% before tax margin, versus the significant margin that was delivered above and beyond that in 2018.

Operator

Thank you Mr. Morgan. The final question comes from Dave Windley with Jefferies. You may ask your question.

David Windley -- Jefferies & Company -- Analyst

Hi. Thank you. Good morning. Thanks for squeezing me in. David, the Disability business has been on a journey to kind of evolve process and bring margins back up to normal levels. And then this quarter calls out some unfavorable claims. Are those things at all related, do any actions needed to be taken relative to the unfavorable disability claims?

And then one last clarification on the $200 million, if you were as you have said excluding Anthem from all the results, were those $200 million allocated to that exclusion? And now they become real or another way to think about it, weren't those $200 million stranded from the very beginning because of the assumption that Anthem would be excluded.

Eric Palmer -- Executive Vice President and Chief Financial Officer

David, it's Eric. So maybe I'll take the second one first, on that. I really just think about the $200 million is kind of a timing matter, right. So the cost that would have been allocated to the contract, they would have been gone away for all the reasons David described earlier. It is in the Q&A session here. I'm thinking about the timing, just because of the earlier transition now, that those costs won't be able to be allocated to the volumes that would be going away through there, but think about it that way.

On the group life and disability, you know we've talked a number of different calls over time about the variability that can happen on any one line quarter-by-quarter, things along those lines. I wouldn't call it anything particularly systemic or anything along those lines, but just that we had favorable life insurance experience and a little bit unfavorable disability experience in the quarter here.

Operator

Thank you Mr. Windley. And now I'll turn the call back to David Cordani for closing remarks.

David Cordani -- President and Chief Executive Officer

Thank you. To wrap up our call, I'd just like to highlight some key points from our discussion. Cigna delivered substantial earnings and revenue growth across our businesses in 2018. We're committed to broadening our approach to integration which focuses on coordination of services around the individual and their whole person health needs both body and mind. This approach also further expands choice, so access is available anytime anywhere, based on the customers and patients needs and preferences. We have a well positioned portfolio of businesses with multiple paths for sustained growth in 2019 and beyond.

For 2019, we expect revenue growth, attractive EPS growth and strong free cash flows which position us to deliver 15% average annual EPS growth over the next three years, and put us on target to deliver our $20 to $21 EPS target, 2021. We thank you for joining our call today. We look forward to our future conversations.

Operator

Ladies and gentlemen this concludes Cigna's fourth 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 toll free 866-453-2340 or toll 203-369-1229, no passcode is required. Thank you for participating. We will now disconnect.

Duration: 73 minutes

Call participants:

William McDowell -- Vice President of Investor Relations

David Cordani -- President and Chief Executive Officer

Eric Palmer -- Executive Vice President and Chief Financial Officer

Ralph Giacobbe -- Citigroup -- Analyst

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

Joshua Raskin -- Nephron Research -- Analyst

Gary Taylor -- J.P. Morgan -- Analyst

Justin Lake -- Wolfe Research LLC -- Analyst

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

Steven Valiquette -- Barclays Capital -- Analyst

Stephen Tanal -- Goldman Sachs -- Analyst

Zach Sopcak -- Morgan Stanley -- Analyst

Peter Costa -- Wells Fargo Securitiesq -- Analyst

David MacDonald -- SunTrust -- Analyst

Scott Fidel -- Stephens Inc -- Analyst

Matthew Borsch -- BMO Capital Markets -- Analyst

Charles Rhyee -- Cowen and Company -- Analyst

Ana Gupte -- SVB Leerink -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

David Windley -- Jefferies & Company -- Analyst

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