Cigna's Q3 2025 Earnings Call: Contradictions Emerge in Rebate-Free Model, PBM Investments, and Employer Engagement

Date of Call: October 30, 2025

Financials Results

• Revenue: $69.7 billion (Q3 2025); Evernorth revenues $60.4B (segment growth), Specialty revenues +10% YOY to $26.3B
• EPS: $7.83 adjusted earnings per share (Q3 2025); quarter included a $0.23 per share net after-tax special item benefit; full-year 2025 adjusted EPS outlook reaffirmed at at least $29.60

Guidance:

• Reaffirmed full-year 2025 adjusted EPS of at least $29.60.
• Cigna Healthcare full-year medical care ratio expected at the high end of 83.2%–84.2% (≈84.2%).
• Expect EPS growth in 2026; Cigna Healthcare and Specialty & Care to grow toward the higher end of long-term targets; Evernorth operating income modestly down in 2026.
• Pharmacy Benefit Services operating income expected to decline in 2026 due to large-client renewals and transitional investments; investment spend to continue into 2027.
• Rebate-free, fee-based delinked PBS model to be standard: Cigna Healthcare fully insured lives on model in 2027; group rollout starting Jan 2028; target ≥50% of book transitioned by end of 2028.
• Cash flow expected back-half weighted; targeting long-term debt-to-capital ≈40% while balancing repurchases and deleveraging.

Business Commentary:

* Pharmacy Benefit Services Transformation: - Evernorth's Pharmacy Benefit Services business is expected to experience a decline in adjusted operating income in 2026 due to significant investments in a new rebate-free model and favorable contract renewals with large clients. - The introduction of a new, transparent fee-based model aims to provide simplified and predictable pricing for consumers at the counter, addressing market needs and regulatory priorities.

• Cigna Healthcare Performance:
• Cigna Healthcare reported $69.7 billion in revenue for Q3, with strong performance in the U.S. employer business and International Health.

• The segment's medical care ratio was at 84.8%, reflecting strategic investments and targeted customer growth initiatives, such as an 8% increase in the under 500 Select segment.

• Specialty & Care Services Growth:

• Specialty & Care Services delivered 11% adjusted earnings growth in Q3, with strong volume growth in prescriptions and a shift towards biosimilars, particularly for HUMIRA and STELARA.

• This growth was driven by increased utilization of drugs for inflammatory conditions and rare diseases, supported by strategic investments, such as the acquisition of Shields Health Solutions.

• Capital Management and Financial Outlook:

• The company expects adjusted earnings per share to grow in 2026, supported by strong performance in Cigna Healthcare and Specialty & Care Services.
• Despite pharmacy benefit services facing challenges, overall EPS growth is anticipated due to the strategic positioning of the company and investments aimed at future-proofing the business.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q3 as delivering "strong results" with "revenue of $69.7 billion and adjusted earnings of $7.83 per share," reaffirmed full-year EPS of at least $29.60, said "we expect EPS to grow in 2026," and emphasized confidence in long-term positioning while acknowledging near-term PBS investments and renewals.

Q&A:

• Question from Lisa Gill (JPMorgan Chase & Co, Research Division): We've heard competitor commentary around rebate guarantees and I'm unclear if Express Scripts ever had specific guarantees; regarding renewal pricing going into next year as you shift to the new rebate-free model, is there an incremental element to renewal pricing and how should we think about the economics longer term—and does this change your Evernorth long-term 5%–8% EBIT growth algorithm for '26 and beyond?
  Response: Core takeaway: The new rebate-free fee-based, delinked model replaces rebates and is aligned to consumer lowest price at the counter; Specialty & Care stays on its long-term growth algorithm, but Evernorth overall will be off that algorithm in 2026 due to proactive large-client renewals and transition/investment costs, with the long-term algorithm preserved thereafter.

• Question from Justin Lake (Wolfe Research, LLC): Can you give a sense of the magnitude of the 2026 decline in PBM—low single digits, mid-single digits? How much of the decline is from renewals vs. investment/transitional spend, and how should we think about the investment bucket into '27?
  Response: Core takeaway: They gave directional, not specific numeric guidance—aggregate Evernorth income expected to be slightly down in 2026; the PBS decline is driven >50% by the large client renewals/extensions and <50% by transitional/investment spend, with investment levels carrying into 2027 but largely dissipating thereafter.

• Question from Albert Rice (UBS Investment Bank, Research Division): Your scenario implies Evernorth slightly negative while CHC and Specialty are at the high end, which might yield mid-single-digit EPS growth—is that generally the right framing, and what assumptions on capital deployment/share repurchase are you embedding; also, given employers have had pass-through rebate options, do you have early indications on employer adoption of this rebate-free model?
  Response: Core takeaway: Management did not give 2026 EPS guidance, noted capital deployment will be back‑end loaded for 2026 with a balance between repurchases and deleveraging, and said the rebate-free model will be offered as standard (CHC fully insured in 2027, broad Evernorth offering in 2028) while allowing employers multiyear/transitional options—they expect market movement toward the new model.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): Some of those large contracts were modestly profitable—could some be operating at a loss near term, and how should we think about profitability progression over multiple years?
  Response: Core takeaway: Management won't disclose individual contract profitability, but said they do not write business at a sustained loss; very large relationships typically run at lower margin profiles but are strategically important and can deepen over time.

• Question from Charles Rhyee (TD Cowen, Research Division): You're effectively going it alone with this model—what's the dialogue like in Washington with peers and regulators and do you see room for broader consensus or resolution that could ease regulatory overhang?
  Response: Core takeaway: Management emphasized active public‑private partnership, ongoing collaboration with the administration on prior authorization, fertility and other initiatives, and positive, nonpartisan engagement in Washington to drive broader, industry‑level reforms aligned with their model.

• Question from Scott Fidel (Goldman Sachs Group, Inc., Research Division): For Cigna Healthcare's expected growth toward the higher end of the long-term algorithm, what are the key building blocks (stop-loss, exchange business, pricing/enrollment assumptions)?
  Response: Core takeaway: Cigna Healthcare is expected to grow toward the higher end of its income algorithm driven partly by stop‑loss repricing (on track for margin recovery) and Select segment growth; individual exchange had a higher MCR this quarter but overall results and operating efficiencies support the outlook.

• Question from Kevin Fischbeck (BofA Securities, Research Division): Will the investment spending drag in PBM continue into 2027 at a similar year-over-year level, or will 2027 be stable before margin recovery in 2028?
  Response: Core takeaway: Investment/transitional spending will continue into 2027 and is expected to be broadly consistent across 2026–2027 (not a bigger incremental drag in '27), with the expectation of returning to enterprise‑level algorithm by 2027 as new run rates stabilize.

• Question from Jason Cassorla (Guggenheim Securities, LLC, Research Division): Is Cigna Healthcare AOI growth at the high end measured off the current full-year guide (excluding nonrecurring items), and what membership trends do you expect (pockets of growth or decline) for 2026?
  Response: Core takeaway: Yes—CHC income growth expected at the higher end off the current full‑year guide (~$4.125B); membership-wise, national accounts flat to slightly down, Select segment growing, and individual exchange membership expected to decline roughly in line with industry trends.

• Question from Erin Wilson Wright (Morgan Stanley, Research Division): Previously you indicated a ~4% durable PBM margin—is that still the right long-term benchmark given the rebate-free transition (excluding 2026–27 nuances)?
  Response: Core takeaway: Management reaffirmed a ~4% long‑term benchmark for PBM margins as reasonable and said the rebate‑free delinked model should deliver client‑level earnings comparable to existing solutions, with portfolio mix driving aggregate variation.

Contradiction Point 1

Rebate-Free Model and Earnings Contributions

It involves the impact of the new rebate-free model on earnings contributions, which is crucial for understanding the financial outlook of the company.

How does the rebate-free model affect the long-term margin profile for PBM? - Erin Wright (Morgan Stanley)

2025Q3: Long-term, the new model's earnings contributions are expected to be comparable to existing solutions. - Brian Evanko(COO)

How is Cigna leveraging its PBM and pharmacy services business insights to position itself in the commercial market, particularly in ASO insurance, and how does this advantage translate into market outcomes? - Albert J. William Rice (UBS Investment Bank, Research Division)

2025Q2: We expect our pharmacy benefit service income to be in the high single-digit range as we continue to leverage our integrated capabilities to manage out total cost of care. - Brian Evanko(COO)

Contradiction Point 2

PBM Investment Spending

It involves the extent and duration of investment spending in the PBM business, which affects financial projections and strategic planning.

How should PBM business investment spending be interpreted over the next two years? - Kevin Fischbeck (BofA Securities)

2025Q3: Investment spending will stabilize in 2027, not a year-over-year drag from 2026. - Brian Evanko(COO)

How is Cigna leveraging its PBM and pharmacy services business insights to position itself in the commercial market, especially regarding ASO insurance, and how does this advantage manifest in the market? - Albert J. William Rice (UBS Investment Bank, Research Division)

2025Q2: We will see this year in 2025, some of the investments, but really most in 2026 and then we will see that transitioned into 2027. - Brian Evanko(COO)

Contradiction Point 3

PBM Revenue and Growth Expectations

It involves changes in financial forecasts and strategic directions, particularly regarding the Pharmacy Benefit Services segment, which has significant implications for investor expectations and company performance.

What is the magnitude of the 2026 Pharmacy Benefit Services decline, and how does investment spending affect 2027? - Justin Lake (Wolfe Research, LLC)

2025Q3: About a 2% decline in Evernorth segment income due to large client extensions and investment spending. The spending will continue into 2027, but it won't be a year-over-year drag. The long-term earnings profile remains comparable to current levels. - Brian Evanko(COO)

How is Cigna leveraging opportunities to negotiate prices with large GLP-1 players, and what is the coverage from an employer and ASO perspective? What are your thoughts on the Arkansas legislation? - Lisa Gill (JPMorgan)

2025Q1: Our Evernorth segment delivered strong results, with revenue up 4.2%. This growth was driven by continued momentum in the PBM business. - Brian Evanko(COO)

Contradiction Point 4

Employer Engagement and Model Transition

It reflects differing perspectives on the engagement and transition with employers regarding the new rebate-free model, which could impact the company's ability to successfully implement its strategic changes.

Did Express Scripts have rebate guarantees? How will the rebate-free model affect renewal pricing and Evernorth's long-term growth rate? - Lisa Gill (JPMorgan Chase & Co)

2025Q3: Employers may transition over time, but the new model aligns with market trends and regulatory priorities, which could drive broader adoption. - David Cordani(CEO)

How are clients addressing benefit design and affordability this selling season, and is there an impact on select market growth? - A.J. Rice (UBS)

2025Q1: Discussions are active, with affordability and precision in solutions high on the agenda. Employers seek control over unit costs. - Brian Evanko(COO)