What I'm Reading: Cigna's 2022 earnings; ProPublica's prior authorization series
If you don’t read another thing, please read the first installment in a series of investigative pieces into the murky and profitable world of prior authorizations by a team of reporters at ProPublica.
As you read it, I want you to put yourself in the shoes of the young college student at the center of the story who was in constant, debilitating pain and needed a combination of drugs to lead a normal life.
If he hadn’t had a couple of ballsy parents who went so far as to sue UnitedHealth Group for refusing to cover his medications, Christopher McNaughton, who had been a guard on his college’s basketball team, likely would be dead by now, becoming just the latest victim of an industry-wide practice that enables insurers to avoid paying for medically necessary care.
Thanks to the lawsuit and the documents UnitedHealth had to turn over, ProPublica was able to see–and report in vivid detail–the games UnitedHealth employees played–and the lies they told–to keep from covering McNaughton’s medications.
The reporters reached out to me several months ago as they were beginning work on this project, and I helped connect them with other former insiders as well as with patients. This is a series of reports you must read. If nothing else inspires you to fight back if and when you get a denial from your insurer, surely this will. But sadly, as the reporters note, only a tiny percentage of patients have the strength—or allies like Mcnaughton’s parents–to fight Big Insurance. And that enables insurers to pad their bottom lines by billions of dollars every year.
Speaking of padded bottom lines:
Once again, Big Insurance is proving to Wall Street that there’s far more money to be made as a drug supply middleman than a middleman selling and managing health insurance benefits.
Cigna’s profits, which the company announced this morning, have grown spectacularly over the past 10 years, increasing to $7.28 billion in 2022 from $1.73 billion in 2012, a leap of more than 420%. It wouldn’t have come close to those numbers if not for its bold acquisition of the pharmacy benefit manager (PBM) Express Scripts in 2018.
Cigna’s bet that it could make more money as a middleman in the pharmaceutical supply chain than selling health insurance has clearly paid off. Since the company bought Express Scripts in 2018, both Cigna’s revenues and profits have been off the charts.
When I worked at Cigna, most of its money came from managing health benefits for big American employers. No more.
Of the $180.5 billion in total revenues the company reported taking in during 2022, 74% ($133 billion) came from the division it calls Evernorth, which encompasses the PBM. The division that manages employers’ health benefits and sells individual policies brought in only $44.9 billion.
Of the company’s total profits last year, 61% came from Evernorth.
Express Scripts is one of the country’s three giant PBMs. Along with Optum Rx, owned by UnitedHealth Group, and Caremark, owned by CVS/Aetna, the three companies control 80% of the PBM market in the United States.
At CVS, Caremark contributes more to the company’s revenues than either its Aetna health plans or its nearly 10,000 retail stores. And UnitedHealth’s Optum Rx is growing much faster than its health plan operations.
(Note to federal and state lawmakers and regulators: While your focus on the rising prices of drugs charged by pharmaceutical manufacturers is important, you need to broaden that focus big time to include PBMs, which are grabbing ever-growing percentages of what Americans spend on medications. AND they determine which drugs you have access to and how much you have to shell out of your own pockets before your insurance coverage kicks in.)
Paying fewer claims also boosts profits
One way Cigna was able to report such impressive profits in 2022: On its health plan side, it paid out far less for enrollees’ medical claims than in 2021. Its medical loss ratio (MLR)–a percentage of what it paid out compared to what it took in from customers–dropped from 84% in 2021 to 81.7% last year.
When I handled financial communications for Cigna, we knew that Wall Street financial analysts and investors would pay especially close attention to the MLR. They applaud when insurers spend less paying claims than during previous periods and often run for the exits when the MLR ticks up by a few “basis points” (bps). Cigna’s MLR dropped an astonishing 230 bps during 2022. The company said that was largely due to fewer pandemic-related claims than in 2021.
On the Uncle Sam front, Cigna actually lost Medicare Advantage enrollees to competitors during 2022. Its Medicare Advantage enrollment dropped from 567,000 in 2021 to 529,000 in 2022. But it’s up significantly from the 426,000 it reported for 2012.
Its enrollment in its employer-sponsored and individual health plan businesses increased to 14,852,000 lives up from 13,854,000 in 2021 and 12,346,000 in 2012. While those are relatively modest increases, Cigna still makes a lot of money on its health plans. Insurers used to say their profit margins were comparatively low, but Cigna reported that its adjusted profit margin on its health plans was 9% for 2022, up from 8.1% in 2021.
Buying back stock instead of lowering premiums and out-of-pocket requirements
So what is Cigna doing with all that (our) money? Well, in 2022, the company spent $7.6 billion (more than their total profits) buying back its own shares of stock, a gimmick that benefits shareholders by boosting the price per share. And its still buying back shares this year–$510 million since January 1. In 2012, it didn’t spend anywhere close to half that on share repurchases during the entire year ($210 million).