UPDATE 3-Cigna forecasts higher medical costs in 2021 after profit miss

(Adds CFO comments, updates shares)

Feb 4 (Reuters) - Health insurer Cigna Corp on Thursday reported lower-than-expected quarterly profit and said it expects higher medical costs in 2021 from COVID-19 treatment as well as normalizing demand for discretionary healthcare services.

Cigna’s shares were down about 2%, after the company forecast a negative impact of about $1.25 per share mainly due to COVID-19 costs in 2021.

Also contributing to the hit will be a decline in customer volumes in its unit that sells employer-sponsored and government health plans, due to the economic impact of the pandemic, Chief Financial Officer Brian Evanko said.

While health insurers largely benefited from a slump in patient use of discretionary healthcare services last year, costs related to their programs to support customers with COVID-19 testing and treatment have largely offset the gains.

Cigna said it expects the trend to continue in the first quarter.

For the fourth quarter, Cigna’s medical care ratio - the amount spent on medical claims versus the income from premiums - worsened to 85.8% from 82.3%, owing to COVID-19 testing and treatment costs.

The company said it expects the ratio to be in the range of 81% to 82% in 2021.

Larger rival UnitedHealth last month said it expected COVID-19-related cost trends in 2021 to remain similar to 2020, despite the ongoing vaccination efforts.

Cigna said it sees full-year consolidated adjusted income from operations of at least $6.95 billion, or $20 per share.

The projection is below the company’s previous target of $20-$21 per share, Bernstein analyst Lance Wilkes said in a client note.

“This increases the importance of Cigna presenting a next phase strategy to add growth segments to its PBM (pharmacy benefits management) and employer centric business.”

Excluding items, Cigna posted a profit of $3.51 per share for the fourth quarter, below Refinitiv IBES estimate of $3.68. (Reporting by Manojna Maddipatla in Bengaluru; Editing by Shinjini Ganguli)