Cigna sees bigger hit to 2021 earnings from pandemic

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(Reuters) -Shares of Cigna Corp (NYSE:CI) tumbled 13% after the health insurer warned of a bigger hit to its full-year earnings due to the impact of the pandemic and said it also expects non-COVID costs to trend near normal levels in the second half of the year.

The company said both COVID-19 and non-COVID costs were above expectations for the second quarter.

COVID-19 costs were higher in April than in May and June, and for the balance of the year these costs are expected to run at a lower level than they did in the first half of the year, Chief Financial Officer Brian Evanko said.

Health insurers have largely benefited from a decline in patient use of discretionary healthcare services due to the pandemic, but demand for these services is recovering as more Americans get vaccinated.

Meanwhile, rivals Anthem Inc and Centene (NYSE:CNC) Corp recently warned of a potential rise in coronavirus-related costs in the second half of 2021 due to the impact of the fast-spreading Delta variant.

Shares of UnitedHealth Group Inc (NYSE:UNH), Anthem and Centene were down between 2% and 5%.

Cigna’s medical care ratio (MCR), the amount spent on medical claims versus income from premiums, worsened to 85.4% in the second quarter, from 70.5% a year earlier, compared with an estimate of 81.04%, according to analysts polled by Refinitiv.

The company now expects 2021 MCR to be between 83.0% and 84.0%, up from its prior forecast of 81.0% to 82.0%.

A lower medical expense ratio is better for health insurers.

While the spike in Cigna’s MCR is disappointing, the issue is mostly transitory and manageable, Cantor Fitzgerald analyst Steven Halper said in a client note.

Cigna expects full-year earnings to take a hit of about $2.50 per share, compared with its previous forecast of about $1.25 per share.