Health insurer Cigna says second-quarter medical costs stay low; profit beats

Thu Jul 30, 2015 11:44am EDT
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By Caroline Humer

(Reuters) - Health insurer Cigna Corp, which agreed last week to be bought by Anthem Inc for $47 billion, said on Thursday that medical services use was low in the second quarter, helping to keep costs in check and beat Wall Street profit estimates.

Cigna's report of a continued low utilization trend backs up a growing industry view of this closely watched component of insurer profitability. Anthem made similar comments on Wednesday, when it reported better-than-expected quarterly earnings.

Health insurers have benefited from low medical services use during the past five years as the weak economy has kept down doctor visits and hospitalizations and membership growth has helped increase revenues.

But the rate of overall health spending has begun to increase and medical use is expected to rise more as the economy improves. The national healthcare reform law, also known as Obamacare, has contributed to the increase as millions of people gained health insurance coverage in the past two years.

That is driving insurers to consolidate to build scale to help keep costs down and negotiate better deals with doctors and hospitals.

"The reason why there is so much consolidation is because utilization and the cost trend overall will go up, which will pressure the profitability for these companies long term," Morningstar Research analyst Vishnu Lekraj said.

Aetna Inc agreed to buy smaller rival Humana Inc in early July, just weeks before Anthem and Cigna reached a deal.

The mergers are expected to face antitrust scrutiny as regulators consider their effect on insurance premium rates. The concerns have kept Cigna shares far from Anthem's offer price of more than $183.   Continued...

Cigna CEO David Cordani is interviewed at the Reuters Health Summit 2014 in Washington April 1, 2014.   REUTERS/Gary Cameron