February 1, 2018 / 11:34 AM / 3 months ago

UPDATE 3-Cigna says corporate medical costs still rising too much

(Adds comments from conference call)

Feb 1 (Reuters) - U.S. health insurer Cigna Corp on Thursday weighed in on the debate on soaring U.S. healthcare prices, saying it had cut the medical cost growth rate for its corporate customers in 2017 to half that of rivals, but the pace was still unsustainable.

The comments came during mounting concern about medical costs, whose growth typically runs several percentage points higher than inflation and which now account for 18 percent of the U.S. economy.

Cigna, which also reported a higher-than-expected quarterly profit and gave an upbeat 2018 outlook, said it kept corporate costs down by making sure patients were receiving appropriate care and follow-up and by paying doctors and hospitals based on their success in managing patient health.

Shares of Cigna fell 2.2 percent to $203.75, building on losses earlier this week as investors questioned whether corporate pushback against the inefficiencies in the U.S. healthcare system threatens the company’s long-term growth.

On Tuesday, Amazon.com Inc, JPMorgan Chase & Co and Berkshire Hathaway Inc said they would create a company to cut healthcare costs for employees, knocking down shares of Cigna and rival insurers on fears of lower profit margins.

“The announcement was not lost on us,” Cigna Chief Executive Officer David Cordani said during a conference call with analysts. Medical costs for the company’s corporate customers rose more slowly than anticipated - less than 3 percent in 2017 - but are still “unsustainable,” he said.

Amazon’s announcement raised the prospect of changes to the traditional U.S. healthcare system in which companies like Cigna manage benefits for employers. Cordani said Cigna and others could do more to meet corporate demands, particularly around transparency of healthcare costs.

“We should not view that an industry with stable medical cost trend at 5 percent, 6 percent, 7 percent is sustainable,” he said.

The company focuses on large and medium-sized corporate companies while also selling international insurance and government-backed Medicare plans.

EARNINGS TO RISE ON TAXES

Cigna forecast 2018 earnings at $12.40 to $12.90 per share, excluding special items, ahead of analysts’ expectations of $12.20, according to Thomson Reuters I/B/E/S.

Changes to U.S. tax laws under Republican President Donald Trump will increase profitability, the company said.

Cigna expects revenue to grow 7 percent to 8 percent this year.

Net income fell to $266 million, or $1.07 per share, in the fourth quarter from $382 million, or $1.47 per share, a year earlier.

Excluding items, Cigna earned $1.94 per share, beating the analysts’ estimate of $1.89. (Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Martina D’Couto and Lisa Von Ahn)

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