Cigna (CI) faces a unique combination of business risks as well as industry-specific risks.
International market risk
Compared to its peers, Cigna has a greater presence in international markets, especially in Asian countries such as South Korea, India, and China. These operations are exposed to geopolitical tensions, foreign currency fluctuations, and relative labor conditions. Such risks can lead to unexpected losses for Cigna.
Business mix risk
Compared to its peers—UnitedHealth Group (UNH), Anthem (ANTM), Humana (HUM), and Aetna—Cigna’s health insurance business model is less diversified. About 96.4% of its total enrollments are attributed to the commercial segment. About 81.8% of Cigna’s commercial enrollments are self-insured. That is, the employer assumes responsibility for future claims while Cigna provides only administrative support. The remaining enrollments belong to the fully insured category under which the health insurance company assumes all the financial risk for claims.
Employer-sponsored coverage, on the whole, has been on a downward trajectory. Only 54% of the population had this type of coverage in 2013, down from 61% of the population in 1987. The possibility that the tax benefits of employer-sponsored health benefits could be eliminated could further reduce opportunities in this business.
Self-insured enrollments, on the other hand, are on an upward trend. This has reduced the overall number of fully insured enrollments in the private health insurance industry (IYH).
Employers opt for self-insurance when they’re aware that their employee group has low claims experience. This removes the low-risk employees from the fully insured segment. It leaves the fully insured category with high-risk members. Either of these scenarios could harm Cigna’s earnings in future years.
Increasing costs of labor and specialty medications, especially drugs for hepatitis C, have put pressure on Cigna’s profitability.