Cigna Group (CI) Q4 FY25 earnings call: guidance and Q&A

How will the new PBM model and FTC settlement affect the margin profile of the PBM business, and what are the tax implications of moving the Ascent GPO back to the U.S.?

Management expects the margin profile of the PBM business to remain similar, with the new rebate-free model maintaining the underlying growth algorithm. The move of the Ascent GPO to the U.S. could have an unmitigated maximum impact of 1% on the effective tax rate over time, which is considered manageable within the long-term earnings growth algorithm.

“At the macro level, you can think about an outside impact to the effective tax rate of our organization of up to 1% over time because there's a phase in here, if unmitigated.”

asked by Lisa Gill · answered by David Cordani

Does the new PBM model fully align with regulatory and policy-maker expectations, and what is the expected ramp-up for client adoption of this new model?

Management is confident their new rebate-free model, designed with a customer-first, transparent approach, aligns with regulatory goals of affordability and transparency. The entire Cigna Healthcare fully insured book will adopt the new model in 2027, and at least 50% of the Evernorth business is expected to adopt it by year-end 2028. The core value creators of the PBM business remain the same, with compensation shifting to admin fees and risk-based clinical programs.

“our model is built -- the new innovation is built through a customer-first no rebate, no spread, fully transparent fee-based model where we step into the advocacy role for the consumer at point of consumption of a pharmaceutical each and every time at the counter to dynamically shop and make sure they get the lowest out-of-pocket costs.”

asked by Scott Fidel · answered by David Cordani

Is the timing of the FTC settlement aligned with the new rebate-free model launch, and what is Cigna's responsibility if clients don't adopt the new standard offering, particularly regarding lowest net cost for members?

The launch plan for the new rebate-free model is unchanged by the FTC agreement. Cigna will lead with this new model as its standard offering by 2028, which is congruent with the settlement. The company will continue to offer choice, and there is no liability if adoption rates differ from expectations. The new model includes 'Price Assure Technology' to guarantee the lowest possible price for patients, aligning with the FTC's goals.

“inherent in our new model is what we call our Price Assure Technology, which guarantees patients the lowest possible price on the drug when they get it filled.”

asked by Charles Rhyee · answered by Brian Evanko

Why is the 2026 MLR not expected to show more progress given repricing actions in exchanges and stop-loss, and what is the right long-term MLR to consider for the business?

The 2026 MCR outlook incorporates pricing actions in stop-loss and individual exchange businesses, which reduce the MCR. However, it also accounts for one-time benefits in the 2025 MCR from the individual business and assumes a continued elevated cost trend environment. Mix dynamics also play a role. The company maintains appropriate prudence given the elevated cost environment, and the outlook range of 83.7% to 84.7% is the current expectation.

“our 2026 MCR outlook incorporates the pricing actions we've taken across stop-loss and the individual exchange businesses as well as the assumption that the cost trend environment remains elevated.”

asked by Kevin Fischbeck · answered by Ann Dennison

Will the PBM business transitions be a headwind to 2027 earnings, and will there be changes to PBM revenue recognition with the shift to a fee-based model?

The FTC agreement will not impact the 2027 financial outlook, and the long-term growth algorithm for PBS remains intact, though investment-related costs are expected in 2026 and 2027. No changes are expected in the way revenue is recognized in the PBS segment, even with the transition to a fee-based model.

“at this point in time, we do not expect there to be changes in the way that our revenue is being recognized in the PBS segment, even with the transition to a fee-based model as opposed to a spread or rebate-oriented model that we have today.”

asked by Justin Lake · answered by Brian Evanko

Can you elaborate on the key drivers of strong organic growth in the specialty business, expectations for 2026, and the impact of the biosimilar pipeline?

The specialty business saw 14% top-line growth and 13% growth in prescriptions in 2025, driven by a $400 billion+ addressable market growing at a high single-digit rate. Strong growth was seen in inflammatory, asthma, and allergy categories. The company expects long-term average annual income growth of 8% to 12%. Biosimilars, like HUMIRA and STELARA, are a significant driver, with HUMIRA penetration representing the vast majority of eligible scripts and an expected $100 billion in biosimilar/generic savings by 2030.

“The full year, we had 13% growth in prescriptions, higher rate of growth in our Medicare book of business, but also strong growth in the commercial employer and the Medicaid portfolio.”

asked by Erin Wilson Wright · answered by Brian Evanko

The operating cash flow and CapEx guidance implies less than 80% free cash flow conversion; what are the drivers of this pressure, and how will the new rebate-free model impact working capital?

The expected $9 billion in 2026 operating cash flow, a $600 million decrease from 2025, primarily reflects a lower contribution from the Pharmacy Benefit Services business due to large client renewals and investments. The new rebate-free model will not impact the 2026 cash flow outlook, with further details on 2027 and 2028 impacts to be provided later.

“The $9 billion that we're guiding to next year is roughly $600 million less than what we saw in 2025. That primarily reflects a lower contribution from the PBS business, from our Pharmacy Benefit Services business.”

asked by Andrew Mok · answered by Ann Dennison