The Cigna Group 2022 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. The Cigna Group operated through two primary growth platforms: Evernorth Health Services, providing pharmacy, care and benefits solutions, and Cigna Healthcare, providing commercial, government and international health benefits. The company changed its name from Cigna Corporation and renamed the Evernorth segment on February 13, 2023.
On July 1, 2022, the company sold its international life, accident and supplemental benefits businesses in six countries to Chubb for approximately $5.4 billion in cash. It also divested its Türkiye joint-venture interest in December 2022.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $180.5 billion | $174.1 billion | 4% |
| Shareholders’ net income | $6.7 billion | $5.4 billion | 24% |
| Diluted EPS | $21.30 | $15.73 | 35% |
| Adjusted income from operations | $7.3 billion | $7.0 billion | 4% |
| Adjusted diluted EPS | $23.27 | $20.47 | 14% |
| Net cash from operating activities | $8.7 billion | $7.2 billion | 20% |
| Capital expenditures | $1.3 billion | $1.2 billion | Increase |
| Total debt | $31.1 billion | $33.7 billion | Decrease |
| Cash and cash equivalents | $5.9 billion | $5.1 billion | Increase |
GAAP net margin was approximately 3.7%; adjusted operating income represented approximately 4.0% of adjusted revenues. The effective tax rate declined to 19.2% from 20.2%.
Segment performance
- Evernorth Health Services: Adjusted revenues were $140.3 billion, up 6%, and pre-tax adjusted income from operations was $6.1 billion, up 5%. The pre-tax adjusted margin was 4.4%, unchanged from 2021. Home delivery and specialty revenues rose 13%, fees and other revenues rose 19%, and total adjusted scripts declined 4% to 1.575 billion.
- Cigna Healthcare: Adjusted revenues were $45.0 billion, up 1%, and pre-tax adjusted income from operations was $4.1 billion, up 13%. The pre-tax adjusted margin improved to 9.0% from 8.1%, while the medical care ratio improved to 81.7% from 84.0%. Medical customers increased 5% to 18.0 million, primarily from fee-based commercial products and International Health, partly offset by lower U.S. Government membership.
- Other Operations: Adjusted revenues declined 43% to $2.3 billion and pre-tax adjusted income declined 44% to $500 million, primarily because the divested international businesses contributed for only part of 2022.
Material changes versus the prior comparable period
- GAAP earnings benefited from a $1.7 billion pre-tax gain on the Chubb transaction and the absence of 2021 debt extinguishment costs.
- Adjusted earnings improved due to lower medical care ratios, specialty growth, contract affordability improvements and growth in Evernorth’s accelerated businesses.
- Net realized investment results deteriorated from a $196 million gain in 2021 to a $495 million loss in 2022, primarily due to mark-to-market losses on equity investments.
- Net investment income decreased 25% to $1.2 billion, reflecting lower returns on partnership investments and the effect of the divestiture.
- Medical costs and other benefit expenses decreased 4%, partly because of lower direct COVID-19 testing, treatment and vaccine costs and the divestiture of Medicaid-related business.
- The company repurchased 27.4 million shares for approximately $7.6 billion, compared with 35.2 million shares for approximately $7.7 billion in 2021. Quarterly dividends increased to $1.12 per share from $1.00.
Liquidity, debt and capital allocation
- Operating cash flow was $8.7 billion. Investing activities provided $3.1 billion, including $4.8 billion of net divestiture proceeds. Financing activities used $11.2 billion, primarily for share repurchases, debt repayments and dividends.
- Debt consisted of $3.0 billion of short-term debt and $28.1 billion of long-term debt. The debt-to-capitalization ratio was 40.9%, compared with 41.7% in 2021. The company was in compliance with debt covenants.
- As of December 31, 2022, the company reported $5.0 billion of undrawn revolving credit capacity, $5.0 billion of remaining commercial-paper capacity and $6.1 billion of cash and short-term investments.
- The company expected approximately $1.4 billion of 2023 capital expenditures. In January 2023, it invested $2.5 billion toward a commitment to invest up to $2.7 billion in VillageMD preferred equity.
Guidance, outlook, management commentary and risks
- The company expected the Inflation Reduction Act to have no material effect on its 2023 financial statements but continued to assess longer-term effects, including Medicare drug pricing, Part D redesign and share-repurchase excise taxes.
- A multi-year Centene pharmacy-benefit agreement is scheduled to begin in January 2024 and covers approximately 20 million Centene customers. The company expected approximately $200 million of 2023 implementation spending.
- Medicare Advantage Star Ratings are a significant outlook factor. Approximately 89% of Medicare Advantage customers were in plans eligible for 2022 bonus payments; management estimated 84% for 2023 and 67% based on announced ratings for 2024.
- The company is subject to CMS and Department of Justice scrutiny regarding Medicare Advantage risk-adjustment practices, including a DOJ-intervened qui tam action and civil investigative demands. Potential losses were not estimable and existing accruals were not material.
- Key risks include medical-cost and utilization trends, pharmacy pricing and rebate regulation, loss or repricing of major contracts, pharmaceutical and retail pharmacy concentration, cybersecurity and privacy incidents, regulatory changes, Medicare funding and Star Ratings, litigation, investment-market volatility, interest rates, significant indebtedness and reliance on reinsurers.
- The company reported approximately $78 billion of goodwill and other intangible assets, equal to 54% of consolidated assets. Management found sufficient excess fair value in its 2022 impairment testing, but adverse changes in projections, regulation, competition or the cost of capital could result in future impairment charges.
Most important facts for an investor to verify
- Whether adjusted earnings growth is sustainable after excluding the Chubb gain, investment-market effects and other special items.
- The effect of declining Medicare Advantage Star Ratings and future CMS rates on membership, revenue and margins.
- The potential financial and operational impact of DOJ, CMS and RADV audits and related Medicare Advantage litigation.
- Execution of the Centene implementation and the scale, returns and integration risks associated with the VillageMD investment.
- Medical-cost trends, pharmacy rebate economics, specialty-drug utilization and contract-renewal pricing.
- Debt maturities, interest-rate exposure, capital deployment, share repurchases and the availability of unrestricted liquidity at the parent company.
- Exposure to unrealized investment losses, goodwill impairment and reinsurer credit risk.