Cigna’s Q4 2024 Earnings: Strong Growth in Evernorth and Express Scripts

Unexpected increase in Medical Care Ratio spooks despite top line growth

The Cigna Group was the third of the “Big Six Payors” to report earnings before the market opened on Thursday, and the results were a bit surprising. They reported a miss on EPS, driven by a higher-than-expected number of customers utilizing stop-loss coverage claims. Wall Street reacted emotionally, initially sending the stock down 10% to $273 per share before it rebounded, closing only 3% lower for the week. Despite the initial reaction, Cigna had a strong year, growing revenue 27% year-over-year to over $247 billion and increasing EPS by 9%. 

Much of this revenue growth came from their Pharmacy Services business, which expanded by 46% year-over-year (Centene addition). Evernorth continues to be the dominant force within The Cigna Group, contributing over $202 billion in revenue and serving as the company’s primary growth engine. After reviewing the earnings report and financial statements, my key takeaways for Cigna heading into 2025 are as follows:

Cigna’s Insurance Business

Cigna’s core insurance business grew revenue 3% year-over-year to $52 billion but faced significant pressure from the stop-loss policies they sell to employers to cap risk on high-cost beneficiaries. Their Medical Care Ratio (MCR) for the year was 83.2%, missing annual guidance, but the real shock came in Q4, where MCR spiked to 87.9%. This unexpected surge caught investors off guard, triggering the initial sell-off. 

Cigna attributed the Q4 MCR increase to an unusually high number of acute surgeries and the use of high-cost specialty drugs. They project ending 2025 with 18.1 million members, factoring in the sale of 600,000 Medicare Advantage members to HCSC, a contraction in their ACA/Marketplace business, and a strategic focus on growing their commercial employer book.

Medical Care Ratio & Stop-Loss

Cigna expects utilization and stop-loss claims to remain elevated in 2025 but anticipates recapturing 100 basis points in 2026-2027 as they reprice their stop-loss products. Their projected MCR for 2025 is 83.2%-84.2%. 

The spike in stop-loss claims became a key concern in the earnings Q&A, contributing to selling pressure on the stock. While Cigna acknowledged they priced stop-loss policies before this trend became evident, they emphasized that stop-loss rates are just one component of their overall employer relationships. They noted that over 50% of their stop-loss clients have been with Cigna for more than five years, allowing them to recover margins elsewhere over time.

Medicare Advantage Sale to HCSC

Cigna remains on track to complete the sale of its 600,000-member Medicare Advantage business to HCSC this quarter. The transaction will remove approximately $12 billion in revenue from Cigna’s books in 2025, though it is likely they will retain healthcare services revenue through Evernorth for a transitional period.

Cigna successfully executed during AEP, handing HCSC a solid starting point for membership growth in 2025. Management reiterated their expectation to finalize the sale in late February or early March with a smooth transition.

EVERNORTH

Express Scripts: The Growth Engine

Express Scripts was the standout performer in 2024, growing revenue by 46%—from $76 billion in 2023 to over $111 billion in 2024—driven by the conversion of the Centene book of business. 

Cigna remains mindful of the regulatory landscape, noting that 80% of their current customers pay less than $100 per year for prescriptions while acknowledging the need to focus on the remaining 20% who exceed that threshold. Last week, they announced new transparency initiatives designed to provide patients with clearer insights into their annual drug costs, including details on out-of-pocket spending, plan sponsor contributions, and rebate amounts. 

During the earnings call, leadership reiterated their commitment to passing through rebates to customers and creating clinical value while navigating an evolving regulatory environment.

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