CIGNA Incurs Higher Advocacy Costs - Analyst Blog

In an effort to reshape regulation, health insurer CIGNA Inc. (CI) is reported to have spent $300,000 in the third quarter of 2010, up 15% from $260,000 in the prior-year quarter. The spending was, however, down 25% from $400,000 in the previous quarter.

Philadelphia-based managed care company CIGNA lobbied on issues related to the Patient Protection and Affordable Care Act (PPACA) Medicare Advantage and Part D prescription drug programs.

The PPACA was signed into law by President Obama on March 23, 2010. It includes provisions relating to subsidizing insurance premiums, providing incentives for businesses to provide healthcare benefits, prohibiting denial of coverage/claims based on pre-existing conditions, establishing health insurance exchanges, support for medical research, compliance with minimum loss ratio and expanding Medicaid eligibility. Details of a number policy of features are being worked upon by the Congressional Committee.

CIGNA is fighting against many of these provisions which, once implemented, will lead to higher overhead costs, a larger pool of members who possess pre-existing conditions and poor health, and regulatory pressure on premium increases that will directly affect its bottom line and keep margins under pressure. 

The company had also advocated the Open Access to Courts Act of 2009 and the taxation of employer-provided benefits.

CIGNA has spent more than $4.4 million over the past four years to influence decisions in its favor. During the first nine months of 2010, the company spent $1.3 million after spending $1.8 million in 2009, when the Congress was strongly debating the healthcare reform.

Though the actual impact of the Act on the health insurance companies will be mixed, its details will become clearer as the law unfolds. However, CIGNA has avoided significant exposure to government programs that have been hurt the most by the reform. It main earnings are derived from the large-group commercial market, which has not suffered major reform implications. Also, its International and Disability/Life segments are cushioned from reformatory efforts.

During the most recent quarter, CIGNA reported earnings of $1.10, ahead of the Zacks Consensus Estimate of $1.06. Earnings were benefited primarily by lower medical utilization, which also had a positive effect on results of its peers such as Aetna Inc., (AET) and UnitedHealth Group (UNH).

 
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