CI
#Good morning, everyone, and thank you for joining our call today
In today's call, I'll briefly review highlights from our 2016 financial results as we close the year with solid momentum
I'll then address how we are strategically positioning for the long-term success as we drive innovation and further strengthen our capabilities to deliver value for our customers, clients, partners and ultimately you, our shareholders, all while a variety of dynamic forces continue to evolve our markets
I'll also offer some thoughts on our expectations for 2017, which include strong momentum across our businesses, attractive ongoing free cash flow generation, and an exceptionally strong capital position, all of which provide opportunity for considerable value creation in 2017 as well as over the long-term
<UNK> will then address our fourth quarter and full year 2016 financial performance results in more detail as well as provide the specifics for our outlook for 2017 before we take your questions
After Q&A, I'll wrap up our call with a few closing remarks
Let's dive into some highlights for the full year
For 2016, consolidated revenues increased 5% to $39.7 billion, as we continue to focus on our mission to improve the health, well being and sense-of-security of the people we serve
We reported adjusted income from operations for 2016 of $2.1 billion, or $8.10 per share, reflecting strong performance in our Commercial employer and Global Supplemental Benefits businesses
As you know, we also focused on addressing challenges that emerged in the first half of the year in our historically well performing Group Disability and Life and Seniors businesses, where we drove notable progress in the second half of 2016. Specifically, within the second half, we gained traction in Group Disability and experienced a more stable claims environment in our Life book of business
Within our Seniors business, we made progress with our remediation efforts and are in the latter stages of the audit response work relative to the Medicare Advantage offerings
We are highly focused on emerging with an even stronger Seniors business and portfolio of solutions that is well-positioned for sustained growth
Overall, we delivered on our revised expectations for the full year of 2016 financial results and concluded the year with positive momentum as we enter 2017. Turning now to how we are effectively positioning our business for the future
In the United States, once again, we have a new administration advocating for health care reform and we expect the U.S
regulatory and legislative environment to be dynamic
That said, the core issues that have pressured health care markets more broadly and have recently challenged the U.S
Individual exchange marketplace in particular arise from the same market forces and pressures that pressure the status quo health care systems both in the United States as well as across the globe
More specifically, aging populations, eroding health status and the rise of chronic conditions all pose challenges for health care consumers individually as well as society at large
These forces in turn contribute to increasing demand for greater access to health care services and sense of security offerings that are both affordable and of high quality
Additionally, we see acceleration and demand for programs that offer more personalized solutions and are designed for local marketplaces
Our proven differentiated strategy of Go Deep, Go Global and Go Individual is directly responsive to these forces, and enables us to anticipate and address these needs
Our proven strategy is delivering value as we help the people we serve maintain and improve their health as well as access high-quality affordable care when needed
We enable this through a combination of solutions and partnerships to better connect individuals and health care professionals resulting in improved health and well-being and better value for our customers
For example, on the demand side, we're incentivizing, engaging and supporting the individuals we serve to drive healthy actions and behavior
On the supply side, we're deepening collaboration with health care professionals and supply chain partners with leading-edge strategic alliances, incentive programs and value-based arrangements as well as effective information sharing and targeted point-of-care resources
Importantly, these efforts are resulting in greater rewards for higher-performing health care providers and better value for our customers
With an eye toward delivering sustained value, we've also continued to invest in innovative tools and capabilities over the past few years in order to better anticipate and meet the emerging needs of customers, clients and health care partners
Now I'd like to briefly highlight a few examples of new innovative solutions we're delivering in the marketplace
We recently launched a set of powerful solutions that exemplify our approach in bringing personalized, affordable and integrated solutions to the local markets
On the demand side, starting with the needs of our customers, this year more than 1 million Cigna customers have access to One Guide, a multi-modal service experience powered by analytics that proactively engage consumers to stay healthy, eliminate surprises and save money
One Guide combines the convenience of a smart integrated digital app with the expertise and empathy of human touch
This differentiated solution provides access to guided consultation via the phone, web, mobile app or chat
We are driving stronger customer engagement in health outcomes by harnessing predictive analytics, the customer insights to deliver real-time notifications to our customers and our customer service representatives in an omni-channel environment
This highly personalized and specific data empowers the individual at the right moment as it is tailored to their health status and engagement preferences
Together, these capabilities help our customers make informed decisions, reduce health expenses and further strengthen their connection with their doctors
We're also driving enhancements in affordability and quality on the supply side with continued investments in value-based care
Today, we have nearly 250 collaborative arrangements across large physician and specialty practices spanning 31 states
We also partner in incentive payment models with a growing number of hospital systems and are forming partnerships in the form of delivery system alliances
These value-based arrangements, including the one we most recently announced in California last month, will enable greater emphasis on preventative care and improved quality and value by closely aligning clinical teams including nurse care coordinators, case managers and health coaches, and further integrating them in the health care delivery system to create a more seamless experience for our customers and a more coordinated health care system
A final example, which brings the demand and supply side together and demonstrates how we are innovating for our customers, clients and provider partners, is the recent launch of Cigna's SureFit solution
This innovative new solution heightens collaboration between local physician networks and hospital groups to help drive efficiency and create a more personalized experience for our customers
This program empowers customers to create an optimized network configuration and benefit design to best meet their own personalized needs
Our clients receive substantial savings, thanks to the lower total cost of care as well as embedded behavioral, pharmacy and population health solutions that are fully integrated into our offerings
All this is coupled with a higher level of personalization and customer support that is enabling an easier, more efficient administrative experience for our customers
Each of these solutions demonstrates the best value comes from engaging, incentivizing and supporting individuals, incenting and enabling healthcare professionals with shared resources and value-based rewards, all delivered through highly localized, integrated solutions
Now as we step into 2017, we expect to deliver continued value for our customers and clients and, as a result, our shareholders
Within our Global Health Care segment, we expect to grow in the range of 300,000 to 500,000 total medical customers for the year
This will be driven by strong retention and customer growth in each of our employer segments; more specifically, national accounts, middle-market, select and international, as well as an increase of 100,000 customers in our U.S
Individual customer base
This will be offset somewhat by an expected reduction in the number of senior segment customers by 50,000 in 2017. Overall, we see an attractive year ahead
Our outlook implies an 11% to 17% EPS growth rate which does not include the impact of any capital deployment
<UNK> will provide more specifics on our guidance in a few moments
Our outlook for an attractive 2017 is further strengthened by our current capital position
As you know, we view capital management as an important priority and responsibility for our shareholders
In total, depending on the mix of share repurchase, dividends and M&A, we would expect to have between $7 billion to $14 billion of deployable capital in 2017. It's important to emphasize here that we have a disciplined approach and a strong track record of deploying capital and avoid having surplus capital sit idle for any length of time
Looking broadly ahead, it is also important to remind you that we remain committed to achieving our long-term EPS growth rate of 10% to 13% on average through a combination of strong organic earnings growth and capital deployment opportunities
Before I turn the call over to <UNK>, I'd like to emphasize a few important points from my comments
We concluded 2016 with momentum, driven by strong results in our Commercial Healthcare business and Global Supplemental Benefits business, as well as improving results in our Group Disability and Life segment
Our well-positioned, diverse growing portfolio of businesses is delivering innovative solutions that meet the needs of markets around the world
Our talented global team is excited to step into 2017, poised for attractive growth and the opportunity for significant value creation for our customers, clients and you, our shareholders
And with that, I'd like to turn the call over to <UNK>
Relative to your first question just briefly, obviously, we await the court's decision
And from a governance standpoint, we thought we took the appropriate step by issuing the K, and the language of the K is quite clear
Relative to your second question, what we thought was most important is to make sure that our investors understand the breadth of capital available for deployment
And our intention would be to create additional clarity in terms of the use of that to the extent there is a Plan B scenario that would be executed versus a consummation of the deal
So transparency relative to the tremendous capital that is, <UNK> and I both noted range between $7 billion and $14 billion
Stay tuned for more pending the insights relative to the court's decision
<UNK>, it's <UNK>
First, let me give you a little bit of color relative to the positioning we took for 2017 and then try to provide you some color in terms of the enrollment
As you know from prior conversations, we viewed that the marketplace 2014, 2015 and 2016 specifically we call version 1.0. We viewed that it would be a relatively choppy ride in the implementation of all the new attributes of the program; that the marketplace in total would be smaller than projected and unprofitable overall
We chose to participate in that marketplace on a very focused basis, initially in five states, not expecting to make money but expecting to learn
And broadly speaking, those goals were achieved
Relative to 2017, as we were operating in 2016, our expectation was that we would move from – specifically from seven states in 2016 to 10 states in 2017. We assessed the markets and based on the formula we thought we needed to have to work in terms of benefit flexibility, but very importantly, network configuration with collaborative accountable care relationships that were acceptable to the state that we were going to operate in, we actually exited three states and entered three states resulting in seven states that we are in for 2017. The net result is we expect to grow as I noted by about 100,000 lives, those 100,000 lives will be highly biased toward our preferred offerings which are heavily oriented around the Collaborative Accountable Care relationships and the aligned models
Relative to initial measures and metrics, obviously we need to get through the quarter and see how the lives mature
As you get through the quarter, those lives will atrophy off a little bit in terms of the final manifestation of the lives we have
But they're generally in line with our initial expectations as we start the year
<UNK>, important point
Again, we assess the market year-in, year-out, and as I noted, we made some very different moves in 2017 than we initially anticipated with those three exits versus just three entrances
We'll have a lot of decisions to make as we get through the spring of the year, and we'll assess our participation in the marketplace in totality with a fresh set of eyes based upon the rules, regulations and design for that marketplace that, as we sit here right now, is fragile at best
So we will fully assess whether we will participate, where, and how as we get through the spring cycle
Josh, on your first point, again, we believe the language is quite clear and appropriate from a governance standpoint, and I would direct you back both to that language and if you so choose, the contract, which is filed and public
Specifically from the capital deployment standpoint, as <UNK> noted, we have excellent flexibility, and I think that's the right way of attributing it
To the extent we do not have a transaction to finalize here, we will aggressively evaluate and conclude upon all options that are available to us from a capital deployment standpoint
But there are no impediments that we see relative to capital deployment, and all alternatives are available to us
And we would intend to create high visibility if we're in that environment as promptly as possible
Josh, important you picked up the 5 correctly, but it's 50,000. So stepping back, the growth was – is projected to be 300,000 to 500,000, so that's where you're ramping against the 500,000 number in terms of cumulative growth of lives
That growth is driven by very strong performance in all of our employer segments; national, middle, select, international, driven by strong retention, good expansion of relationships as well as targeting new business adds where our engagement in incentive-based programs, our collaboratives, our alternative funding and our sustained strong track record of low medical cost trend is indeed paying off
Specific to your question on Seniors, again, we project for 2017 for the year to have a net reduction of 50,000 lives or about 10% of the starting point as a result of not being in the active open enrollment period
Let me start
Just big-picture, we're very pleased and proud to have multiple years of posting very low medical cost trend relative to industry norms
And as you noted, we ended the full year 2016 a bit below our outlook of 4% to 5%
I'd remind you we started 2016 with an outlook of 4.5% to 5.5%, but in 2016, we lowered that by about 50 basis points
So the way we think about it is for 2017, we're planning at the same level that we planned at for 2016. We planned at 2016 at 4.5% to 5.5%
We're planning 2017 at 4.5% to 5.5%
Admittedly, it's a tick up from where we ended 2016, a modest uptick
We're viewing in terms of in our projection some uptick in utilization, some uptick in pharmacy, but no macro driver to call out that is changing the inflection point
Sure
I apologize if I wasn't clear before
So our learnings to-date, if we step back, we've participated in this market since its inception keeping our revenue in the 2%, 3%, maybe 4% range
We've expected each of the years that we would lose money
We keep that in a manageable corridor and we sought to try to learn in terms of what are the successful recipes here to deliver the right value for customers and create a sustainable solution to be able to do so with health care partners as well as for our shareholders
Our conclusion is within the current rule set, the only viable way to make this work is to have a well-coordinated, highly aligned, value-based care arrangement with the health care professionals that is the underbelly or foundation of the offering
Additionally, we've been able to successfully expand relationships with our Collaborative Accountable Care partners or delivery system alliances being physician groups or hospitals across multiple lines of business; Commercial, Medicare Advantage, Commercial Individual, et cetera
So in these three markets that you identified, we both had market conditions in terms of benefit alignment as well as delivery system partners that we were able to put together and believe in our chosen geographies – very importantly, not state-wide – in our chosen targeted geographies around those delivery system alternatives, we have a good value proposition that we are proud to bring to market with our health care partners
That's what drove us into those specific markets
And you may think about those, <UNK>, as sub-markets within North Carolina, sub-markets within Illinois, et cetera, built around those collaborative relationships
<UNK>, it's <UNK>
Obviously as you referenced, came out last night
Our team is going through it rather thoroughly
I'd say a couple big-picture comments
The first, excluding the Stars implication, our view is that our rate implication is similar to that of the industry
Secondly, including the proposed reduction to our Stars in 2018, our revenue impact would be a bit lower than that of the industry or less positive than that of the industry
Third, as you know, we do not agree with or accept that Stars conclusion because we're of the view that our clinical outcomes, our service outcomes and our overall program outcomes are far superior than the conclusion that's being drawn
And in the current state, we're working with CMS literally as we speak to try to gain a shared understanding of the results we're delivering and arrive at a different outcome for 2018. But big picture overall, revenue impact to us, in line with the industry
Say for the proposed adjustment to our Stars, including that the revenue impact for us would be less
We're working with CMS directly on that
And to the extent we're not successful, we have a variety of other levers to be able to manage for 2018 that we would deal with down the road in terms of talking about our benefit positioning
Let me just give you some color and then try to give you direction going forward
First, your basic rule of thumb I think should be that the higher the average case size historically for the industry, the lower the penetration rate
The lower the average case size, the higher the penetration rate
Second rule of thumb is, as you're dealing with consumer-directed offerings, you'll have a higher average penetration rate versus non-consumer-directed offerings, the case size being similar because the individual is the aggregator and you're trying to get an overall aggregated proposition
For us, we've continued to make very good progress relative to both penetrating, using I think your orientation, our multiple blocks of business whether it's in our existing relationships or new business relationships
We see tremendous ability to further grow our specialty profile, both in the existing portfolio as well as in our new business portfolio
And the final comment I would make is, our view is that the industry historically looked at this as an opportunity to cross sell, then moved in an environment of beginning to bundle and now is just exploring the way to truly integrate
And a lot of what we've been successful at is truly integrating the programs, be they clinical, service and outcome programs
So larger versus smaller, penetration rates move, consumer directed versus non-consumer directed, penetration rates move
For us, we have opportunity both in our captive book as well as in new business going forward and we're excited about that
The M&A posture looking forward, first, relative to the marketplace, we view that over time that the Medicaid marketplace will continue to need to adopt more innovative solutions, whether they're active management, sub-program design, et cetera, care coordination program acceleration, and we think that that will over time create more opportunities both for the marketplace to grow and to bring innovative solutions as well as for ourselves
So I wouldn't limit it to duals
I would orient around programs where there is more active management, care coordination, value-based alignment, incentive-based programs, whether they be broad or narrowly focused
We see opportunities that we can bring value creation to the table, and over time, we think this marketplace will continue to evolve more in that direction
Well, <UNK>, it's <UNK>
We haven't given you the exact numbers
The way we've described it is, and we've been consistent here, 2014, 2015, 2016, we expected not to make money, be it on an allocated or fully allocated basis, et cetera
At the end of the day, it is not a profitable block of business
It has been manageable
For 2017, we would expect to improve our profile somewhat, but it would still not be profitable
I think your big picture assumption, one way or the other, this book improves
It either improves fundamentally or it improves because it's no longer a sustainable offering for us and we choose not to participate in that marketplace
On a final note, for us, we've been really clear
This is not our number-one or number-two driver of our inflection point with the great outlook we have of earnings growth next year
It'll be a modest improvement off of its current baseline loss results
Good morning, <UNK>
First of all, to capital deployment, as <UNK> noted, our priorities remain ensuring that we support our existing business needs
Second, we look at strategic M&A
And third, we look at opportunities to return excess capital to the shareholders
As we sit here today, our M&A priorities remain, and they've been consistent in terms of expanding our global footprint, expanding our U.S
seniors capabilities, expanding our retail base capabilities, opportunities for tuck-ins and opportunities to continue to expand our services for evolving state-based risk programs
I would not read into anything in terms of – you never say never in terms of large versus small
All deals stand on their own, and we would expect to be quite disciplined in terms of our approach going forward in terms of looking for on-strategy M&A opportunities and ensuring that they are value creative for shareholders as well as that we can create value for customers
And then with the tremendous capital balances we have in front of us, we recognize the significant responsibility that it is
And as I noted in my prepared remarks, we have a track record of not letting that capital lie idle for any elongated length of time
<UNK>, it's <UNK>
Real important question
A couple points
First, big-picture, I'm extraordinarily proud of our team
40,000 plus colleagues around the world who wake up every day to do everything humanly possible to support our customers, our clients and work with our partners
And while we've had some challenges, which I will step up to in a moment, broadly speaking our customers, clients and partners have been buffered from that
So the value proposition we are delivering remains strong
And a way to evidence that is as you look at our 2017 growth trajectory, the ability to have outstanding retention once again with strong new business adds and expansion of relationships and delivering a tremendous, for example, medical cost trend once again, I think reinforces the value we're delivering
No doubt, when you have an environment where you'll have a disruptive overhang that now lapses 18 months, where we talk in our organization around keeping our eye focused on the marketplace, you always have a – kind of a small tension that builds over time
And while our team, I think, has done an outstanding job trying to keep that overhang distraction out of the way, indisputably that's going to creep into the organization, no matter how we communicate, align and try to stay focused
But again, our customers and clients have been well supported
Two different storylines relative to Seniors and the group business, neither of which we have time to get into in detail; regulatory and self-inflicted wounds that we own, and we are rapidly remediating them
And I think the bright spot here is that we delivered strong results for our clients and customers, and we're going to step in to 2018 and deliver an outstanding result for our clients and customers as well as our shareholders
<UNK>, we do not see it as a change
We see the market evolving, so let me be clear
If you go back to when we rolled out our Go Deep, Go Global, Go Individual strategy and laid out our M&A priorities all the way back some seven years ago, we put as a lower priority traditional Medicaid relative to the alternatives
We, all the way back then, had a view that the marketplace would evolve over time to more active management
And we thought the duals marketplace would be the first marketplace that evolved
So I would ask you not to read into my comments either way; rather, our organization is open-minded relative to targeted opportunities where we could create value
And where we see the opportunity to create value is by working collaboratively with health care professionals, with incentives, information, and care resources to provide better quality outcomes for individuals
And as states grapple with their budget challenges with a growing Medicaid population and growing health burden, we think programs will evolve and change and that will create opportunities
Those will be localized opportunities
We do not see it as the nation's profile will change overnight
There'll be localized opportunities that we want to be open-minded to and to be in a position to explore from a growth opportunity and value creation opportunity
Two sides, but let's go to the first dimension
Indisputably as a country, we have an aging population, eroding health status and continued growth in chronic disease
Continuing to finance the access to care through traditional programs that simply attempt to, for example, push rates lower as a means of balancing budgets is running out of steam, period
Secondly, there are bright spots around the country of more innovative programs that state officials are driving to try to get more engagement of individuals and better value creation with health care professionals
That is resulting in changes in the delivery system, and there's a lot of bright spots around the country where delivery systems, be they physician groups, multispecialty groups, integrated hospital systems are aggressively exploring how they could do more value-based care
All those forces are changing
I wouldn't limit it to any one
All those forces are changing
But at the cornerstone is an increasing demand and need for care to be delivered and coordinated and the need to explore new solutions
Yeah, Dave, first by way of just framing, right, we know the stats
Seniors continue to age into Medicare
Seniors who are looking at alternatives view Medicare Advantage quite favorably
It's not Cigna-specific at all; just Medicare Advantage
Medicare Advantage on average serves seniors with lower average income than fee-for-service, so they're high-value buyers
Medicare Advantage as an industry generates superior clinical outcomes through care coordination, and very importantly, the more innovative health care professionals appreciate the Medicare Advantage program as an opportunity to better coordinate care
Specific to Cigna, given that we have 85% of all of our Medicare Advantage lives in value-based programs, that creates both an opportunity in the future and it was a challenge going through the audit
And at the end of the day, the complexity is all those partnered relationships and the information flows, et cetera, that were needed to get through the audit process were challenging
We've built, to your term, a chassis now; a series of enhancements, that will put us in a much better position going forward not only to continue to serve the population where we're delivering very strong service and clinical outcomes today, but coordinate the information necessary in the evolving regulatory environment and continue to grow that chassis
So we believe it will be a very effective growth chassis for years to come for individual MA purchasers who want to be in aligned incentive-based programs with value-based care providers
So we're excited about the growth chassis over the long-term
<UNK>, I tip my hat to you
I think you got about seven or eight questions in there
Let me attempt to be responsive to a bunch of quite important points
First, specific to our results, for 2017, the growth of 300,000 to 500,000 customers represents growth in national accounts, middle-market, select and international driven by very strong retention in all of those segments; good expansion of relationships and good targeted new business adds where our clinical capabilities, our incentive-based programs are hunting quite well
Specific to repeal and replace, and I appreciate you using that language, because I think repeal and replace is being used as language that is relatively broad sweeping, so as you very well know, the ACA had an impact, based on the way you asked your question, on the employer market, on the MA market, on the Medicaid market, as well as on the Individual market
And what we see happening today versus eight years ago is that there's a need for a change unequivocally, but there's also a lot of bright spots that have evolved over the last eight years
For example, in the employer market, there's way more adoption today of incentives, engagement and value-based care programs
MA has further evolved even more broadly adopting value-based care programs
As I noted in a prior comment, there are states that are changing Medicaid programs and evolving them to be more incentive or engagement based as we go forward
As it relates to the individual program, as noted by several people's questions, the marketplace is still unsustainable
And there's a lot of pressure to put a series of transparent changes in place for 2018 in the near future because organizations will have to make determinations in the spring of this year
As it relates to our growth priorities, they remain
We will grow our employer block of business in the United States and we see attractive growth opportunities in our targeted geographies, in our targeted segments with our capabilities
We see seniors continuing to be a growth chassis for us
We see broadening our specialty portfolio continuing to be a growth chassis
We have a sustained track record of growing our productivity management solutions out of our group portfolio
And then our international chassis continues to provide an exciting growth opportunity
So we're fortunate not to be dependent upon any one submarket
We're rather well-positioned from that standpoint
<UNK>, it's <UNK>
I'd put that in the too soon to tell
I understand the headline that you're referencing
I can't go into the kind of details of the subcomponents there, but I understand the point you're referencing
Our team is combing through that quite thoroughly literally as we speak and I would say stay tuned for more
Obviously a lot of moving parts in there and you identify actually one of the moving parts, which I think is trying to resequence some of the disconnects we've seen in some of the program designs
Longer-term outlook, obviously, if you look at our outlook for 2017, we've got, let's say, a 5% headwind in there for currency potential impacts
So it's a little less than that in the 2017 outlook, but over the longer-term that's a trajectory we'd expect to deliver
Michael, it's <UNK>
I'll ask <UNK> to reiterate the risk corridor receivable in a moment
We've not quantified the Individual submarket's losses
We've continued to say that 2014, 2015, 2016 have been loss profiles for that smaller book of business
I'll remind you that we've run it in 2%, 3% of our aggregate revenue over time and I think our view is that as we look to the industry level margins, we're in the ballpark, or lack thereof margins, we're in the ballpark of that result, but we haven't given you the details on it
<UNK>, would you remind them of the write-off?
Thank you
To conclude our call, I'd like to just underscore some key points from our discussion
We concluded the year with positive operating momentum as we enter 2017 with an expected attractive outlook to our growth profile
We reported strong revenue and earnings performance in our Global Health Care and Global Supplemental Benefits businesses, and noted improvements in the latter half of the year with the challenges we confronted earlier in the year in our Group Disability and Life business
We remain committed to achieving our average annual EPS growth rate of 10% to 13% over the long-term
We are confident in our ability to deliver on our attractive 2017 outlook of 12% to 18% earnings growth, further strengthened by our meaningful capital position and exceptional flexibility
I'd once again like to thank my colleagues around the world who embody our mission and execute our strategy every day for the benefit of our customers, our clients and our partners
And I also want to thank you, our shareholders, for joining our call today and for your continued interest in Cigna
