Cigna Corporation 2021 Form 10-K Summary
Business context and reporting period
Cigna Corporation is a global health services organization operating primarily through Evernorth and Cigna Healthcare. Evernorth provides pharmacy benefit management, specialty pharmacy, care delivery, care management and analytics services. Cigna Healthcare provides U.S. Commercial, U.S. Government and retained International Health products.
This Form 10-K covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The filing was dated February 24, 2022. Segment results for prior years were restated to reflect the 2021 reporting structure.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | $174.1 billion | $160.4 billion | Up 9% |
| Shareholders’ net income | $5.4 billion | $8.5 billion | Down 37% |
| Adjusted income from operations | $7.0 billion | $6.8 billion | Up 3% |
| Diluted shareholders’ EPS | $15.73 | $22.96 | Down 31% |
| Adjusted diluted EPS | $20.47 | $18.45 | Up 11% |
| Net cash from operating activities | $7.2 billion | $10.4 billion | Down $3.2 billion |
| Total debt | $33.7 billion | $32.9 billion | Higher year over year |
| Shareholders’ equity | $47.1 billion | $50.3 billion | Down $3.2 billion |
Revenue growth was led by pharmacy revenues, which increased 13% to $121.4 billion, and fees and other revenues, which increased 14% to $10.0 billion. Premiums declined 3% to $41.2 billion, primarily reflecting the sale of the U.S. Group Disability and Life business at the end of 2020.
Income from operations was $7.9 billion, compared with $8.2 billion in 2020. Total benefits and expenses increased 9% to $166.1 billion. The consolidated effective tax rate declined to 20.2% from 21.9%.
Segment performance and margins
| Segment | 2021 adjusted revenue | 2021 pre-tax adjusted income | 2021 margin | Change in income |
|---|---|---|---|---|
| Evernorth | $131.9 billion | $5.8 billion | 4.4% | Up 8% |
| Cigna Healthcare | $44.7 billion | $3.6 billion | 8.1% | Down 10% |
| Other Operations | $4.0 billion | $889 million | 22.3% | Down 8% |
| Corporate and eliminations | $(6.5) billion | $(1.3) billion | Not meaningful | Loss improved 14% |
Evernorth’s results benefited from business growth, higher claim volume and continued contract affordability improvements. Total adjusted pharmacy scripts increased 10% to 1.64 billion, while the overall generic fill rate declined to 85.5% from 87.2%.
Cigna Healthcare revenue increased 9%, but profitability declined as the medical care ratio rose to 84.0% from 78.3%. The increase reflected higher health care utilization and direct COVID-19 testing, treatment and vaccine costs, partly offset by the absence of 2020 premium relief programs, higher investment income and expense efficiencies.
Cash flow, liquidity and capital structure
- Operating cash flow was $7.2 billion, down from $10.4 billion, primarily due to higher accounts receivable, timing of pharmacy payables, delayed CMS Part D settlement and higher tax payments.
- Investing activities used $3.6 billion, including $1.8 billion for acquisitions, $1.2 billion of capital expenditures and $1.2 billion of net investment purchases, partly offset by other proceeds.
- Financing activities used $8.2 billion, including $7.7 billion of share repurchases and $1.3 billion of dividends, partly offset by net debt issuance.
- Cash and cash equivalents were $5.1 billion at year-end; cash and short-term investments totaled approximately $5.5 billion.
- Cigna had $5.0 billion of undrawn revolving credit capacity and $3.0 billion of remaining commercial paper capacity at December 31, 2021.
- The debt-to-capitalization ratio was 41.7%, compared with 39.5% at December 31, 2020.
- Cigna repurchased 35.2 million shares for approximately $7.7 billion during 2021, including $2.0 billion under accelerated share repurchase agreements.
- The company initiated a $1.00 quarterly dividend in 2021 and increased the quarterly dividend to $1.12 in February 2022.
Material changes and unusual items
- Cigna agreed to sell its international life, accident and supplemental benefits businesses in seven countries to Chubb for $5.75 billion in cash. Closing was expected in the second quarter of 2022, subject to approvals and customary conditions. Cigna estimated approximately $5.4 billion of net after-tax proceeds, primarily intended for share repurchases.
- Cigna completed its $2.0 billion acquisition of MDLIVE in April 2021. MDLIVE’s consolidated financial impact was not material for 2021.
- The 2020 comparison benefited from a $4.2 billion pre-tax gain on the sale of the U.S. Group Disability and Life business. The absence of that gain was the principal reason for the decline in GAAP net income and EPS in 2021.
- In the fourth quarter of 2021, Cigna recorded a $168 million pre-tax, $119 million after-tax organizational efficiency charge, including severance and property-related costs. Management expects annualized after-tax savings of approximately $180 million, with most savings expected in 2022. Additional charges were expected in the second quarter of 2022.
- Cigna incurred $141 million of pre-tax debt extinguishment costs and $169 million of pre-tax integration and transaction-related costs in 2021.
- Goodwill and other intangible assets totaled approximately $79.9 billion, or 52% of consolidated assets. The annual impairment review found substantial excess fair value over carrying value, but future impairment remains sensitive to operating results, discount rates and market conditions.
Outlook, risks and contingencies
Management did not provide a full-year 2022 earnings outlook in the supplied filing text. It stated that the 2022 and 2023 Medicare Advantage rate changes were not expected to have a material impact on consolidated results, while noting that final regulatory actions could differ.
- COVID-19 remained a material uncertainty, including potential effects from variants, testing and vaccine costs, deferred care, medical utilization, risk-adjustment revenue, workforce availability and supply-chain disruption.
- Medical claims reserves are estimate-sensitive. A 100-basis-point increase in medical cost trend would increase the Cigna Healthcare unpaid claims liability by approximately $60 million and reduce after-tax net income by approximately $50 million. A 50-basis-point decrease in completion factors would increase the liability by approximately $125 million and reduce after-tax net income by approximately $100 million.
- Cigna faces substantial regulation involving Medicare, Medicaid, the ACA, pharmacy benefit management, drug pricing, privacy, cybersecurity, utilization management and government contracts.
- The DOJ was conducting industry-wide investigations of Medicare Advantage risk-adjustment practices, and Cigna was responding to a civil investigative demand. A related qui tam action was pending, with the DOJ seeking partial intervention.
- Anthem litigation alleges up to $13 billion in additional pricing concessions, $1.8 billion of post-termination concessions and $150 million of service-related damages. The company denied the allegations; the filing states that the ultimate loss could not be estimated.
- Uncertain tax positions totaled $1.2 billion, with potential future tax payments estimated at approximately $900 million if positions are not sustained; timing could not be reasonably estimated.
- Long-term debt scheduled payments, including interest and maturities, totaled $48.2 billion, with approximately $1.7 billion expected within the next twelve months.
Important facts for investors to verify
- Completion, regulatory approval and proceeds from the Chubb transaction, including the timing and use of expected repurchase proceeds.
- Whether Cigna achieves the projected $180 million of annualized after-tax efficiency savings and the amount of additional restructuring charges.
- Medical care ratio trends, COVID-19 utilization, risk-adjustment revenue and Medicare Advantage Star Ratings.
- Evernorth contract renewals, Prime Therapeutics volumes, pharmacy pricing, rebates, generic utilization and specialty-drug economics.
- Cash conversion, debt reduction, share repurchase pace and the effect of capital returns on leverage and shareholders’ equity.
- Developments in DOJ and Medicare Advantage risk-adjustment investigations, the Anthem litigation and other regulatory matters.
- Potential impairment of the substantial goodwill and intangible asset balances under changing discount rates or business forecasts.