Cigna has announced it will withdraw from the Affordable Care Act exchanges and is also considering selling its claims adjudication subsidiary, EviCore. This move seems aimed at streamlining its operations to focus more on pharmacy services and employer-sponsored insurance plans.
The insurance giant, based in Connecticut, plans to phase out its ACA plans by the end of the year. This decision leaves around 369,000 individuals across 11 states seeking new coverage, particularly as ACA plans have become less affordable. This shift follows the expiration of enhanced subsidies authorized by a Republican-led Congress last year.
In addition, Cigna is looking into alternative strategies for EviCore, which often finds itself in the spotlight due to its medical review practices amid growing public scrutiny over delays and denials in patient care.
Covering approximately 18 million people mainly through employer-sponsored plans, Cigna offers a variety of pharmacy and clinical services. The company has a history of exiting markets that don’t show promise for profitability or sustainability. This trend continues even when the company is performing well; Cigna reported a first-quarter profit of $1.7 billion, which is a 25% increase from the previous year during an investor call.
The decision to withdraw from the ACA and assess EviCore’s future came amid a broader review of the company’s portfolio, coinciding with leadership changes, including the upcoming departure of CEO David Cordani after nearly two decades. Chief Operating Officer Brian Evancho, who will take over the role, mentioned that these actions reflect a considered strategy to sharpen the company’s focus on its core offerings.
Goodbye, ACA
The reasons behind Cigna’s exit from the ACA exchanges mirror those that drove its withdrawal from Medicare last year. Both programs are struggling with rising healthcare usage that outpaces insurers’ capabilities, squeezing profits and sometimes leading to losses.
Many insurance companies saw improvements in their ACA margins recently, primarily by raising premiums to counteract elevated usage rates, anticipating that many individuals would leave the exchanges after subsidy expiration. This, unfortunately, would leave remaining participants who are often sicker and costlier to insure.
Consultants and insurance analysts have noted that the ACA market is indeed shrinking, with many consumers opting for lower-cost bronze plans, which typically come with higher out-of-pocket expenses. The ongoing instability within the ACA exchanges has prompted some significant insurers to pull out completely. CVS Health’s Aetna, for instance, is planning to exit by 2025, and now Cigna aims to follow suit by 2026.
Cigna has already observed a drop in individual plan enrollment, from 446,000 a year ago to just 369,000 now, a figure that constitutes about 2% of its total membership. This aligns with similar trends across other large insurers like Centene and United Healthcare.
Evancho clarified during the investor call that there isn’t a clear route for growing the ACA business to a scale that would make sense, considering the internal resources required. While divesting from this segment could create some capital for Cigna, it wasn’t the main motivation behind the decision, he added.
“This is a minor business for us right now and has been declining in recent years,” he noted, emphasizing the desire to concentrate on pivotal growth areas such as specialty services, long-term care, and employer-focused plans.
Potential Sale of EviCore
In a similar vein, the relatively large size of EviCore compared to the rest of Cigna’s business portfolio makes it challenging to manage effectively. Evancho indicated that the division has taken more management resources than its worth.
A sale of EviCore could alleviate pressure from an area already facing criticism for prioritizing profit over care, particularly concerning how claims are processed. The public’s increasing discontent with the insurance industry’s claim review practices has prompted healthcare companies to reassess their methods.
During the investor call, Cigna’s leadership stated their support for prior authorization as a necessary tool but also acknowledged the need for reform. Notably, ongoing discussions around pre-check processes might make EviCore an attractive prospect for potential buyers.
Increased Insurance Profitability
The decision to exit the ACA comes on the heels of exceeding Wall Street’s forecasts for first-quarter profits. Cigna reported net income of $1.7 billion and revenue of $68.5 billion—a 5% rise from the same quarter last year.
In light of these strong results, the company has raised its earnings outlook for 2026, expecting adjusted earnings per share to reach at least $30.35, a slight increase from previous estimates.
Management attributes this positive outlook to improved margins particularly within Cigna Healthcare, where both employer and ACA business segments showed enhancement during the quarter. The medical loss ratio (MLR) reported stood at 79.8%, which is lower than anticipated and down from 82.2% a year earlier.
Insurers strive to keep MLR, calculated by dividing medical expenses by total premium income, as low as possible while remaining compliant with regulations. Cigna’s prior sale of its Medicare business helped them enhance their MLR.
The privatized Medicare Advantage plan faced notable mismatches between reimbursements and expenditures, leading to squeezed profits and Cigna’s exit from that federal program.
According to CFO Anne Dennison, Cigna also benefited from fewer flu cases and patients postponing treatments due to inclement weather during the quarter. Enhanced MLR suggests that premium hikes for ACA offerings were effective enough to cover expenses, according to industry analysts.
Dennison pointed out that there is a greater proportion of ACA members enrolled in bronze plans compared to 2025, which negatively impacted the MLR in the first quarter. However, the financial outlook for the ACA segment remains steady as increased spending from these bronze members is anticipated in the latter half of the year.
Express Scripts Revenue Decline Amid Transition
Cigna’s revenue growth in this quarter was largely fueled by its pharmacy benefits manager, Evernorth, which includes Express Scripts. However, while operating income from Evernorth exceeded expectations, profitability from the PBM segment took a hit due to the ongoing transition to a new business model.
The adjusted operating income for Pharmacy Benefits Services fell by 28% year-over-year. According to Cigna, this decline relates to decreasing contributions from large clients as Express Scripts moves away from a compensation system based on negotiated savings with pharmaceutical firms.
Starting in 2027, Cigna’s fully insured plans will adopt this new model, transitioning at least half of Evernorth’s medical services clients by the end of 2028. Although Cigna was already trending towards eliminating rebates, this shift entails significant regulatory considerations. Earlier this year, the company reached a settlement with the Federal Trade Commission, involving reforms to practices at Express Scripts.
