Executive Summary / Key Takeaways

• The Cigna Group is undergoing a significant business model transformation in its Pharmacy Benefit Services (PBS) segment, introducing a new rebate-free model by 2028 to enhance transparency, lower costs for consumers, and create a more sustainable economic model for independent pharmacists.
• Despite near-term margin pressure in PBS due to strategic investments and large client renewals in 2026 and 2027, the company anticipates a return to its long-term enterprise adjusted EPS growth algorithm of 10% to 14% by 2027.
• Cigna's diversified portfolio, comprising Evernorth Health Services and Cigna Healthcare, continues to deliver strong performance, particularly in Specialty & Care Services, which is expected to grow at the higher end of its long-term target in 2026.
• Strategic investments in technology, such as AI-powered tools, biosimilar adoption, and specialized GLP-1 programs, are enhancing competitive advantages, driving affordability, and expanding addressable markets, notably in the provider-administered specialty space.
• While facing industry-wide elevated medical costs and regulatory scrutiny, Cigna's proactive repricing of its stop-loss business and disciplined capital management, including share repurchases and debt reduction, underpin a prudent financial outlook and commitment to shareholder returns.

A New Era for Healthcare: Cigna's Bold Transformation and Integrated Strength

The Cigna Group (NYSE:CI), a global health company with a history stretching back to 1792, is embarking on a transformative journey, strategically repositioning itself to address the evolving and often challenging dynamics of the healthcare industry. At its core, Cigna's strategy is to deliver sustained growth by accelerating innovation, enhancing affordability, and improving access to care for its diverse customer base. This commitment is particularly evident in its recent announcement of a groundbreaking rebate-free model for pharmacy benefits, a "step function transformation" designed to reshape the marketplace.

The company operates through two primary growth platforms: Evernorth Health Services and Cigna Healthcare. Evernorth, comprising Pharmacy Benefit Services and Specialty and Care Services, accounts for approximately 60% of enterprise earnings, while Cigna Healthcare contributes around 40%. This balanced portfolio provides Cigna with strategic flexibility and resilience in a dynamic environment marked by eroding health status, affordability challenges, and elevated regulatory activity.

Technological Edge and Innovation Driving Value

Cigna's strategic differentiation is deeply rooted in its technological capabilities and relentless innovation, which are crucial for navigating the complex healthcare landscape. The company is leveraging advanced analytics and digital tools to enhance efficiency, improve patient outcomes, and create new value propositions.

A prime example is Evernorth's new rebate-free pharmacy benefit model, which aims to replace complex post-purchase rebate processes with simple upfront discounts. This model, powered by "Price Assure technology," will ensure customers pay the lowest possible out-of-pocket price at the counter, whether through their benefit or on a cash-pay basis, with payments applying to their deductible. This innovation is projected to reduce the cost for a brand-name drug prescription by an average of 30% for those paying the full cost, directly addressing the significant affordability challenge posed by brand-name drugs, which account for 88% of pharmaceutical spend despite being only 10% of volume. The model also supports independent pharmacists through dynamic dispensing fees, acknowledging their critical role in communities.

Beyond pharmacy, Cigna Healthcare has introduced an AI-powered virtual assistant to streamline customer interactions, improving the experience for checking benefits, estimating costs, and finding care. The company's commitment to innovation extends to biosimilars, a key area for cost reduction. By the end of 2024, nearly 50% of eligible Humira scripts transitioned to biosimilars, with $0 out-of-pocket costs for eligible Accredo patients. Cigna has further expanded this leadership by offering an interchangeable Stelara biosimilar, also at $0 out-of-pocket, starting in 2025. These efforts are critical as an estimated $100 billion of specialty drug spend is expected to face biosimilar and generic competition by 2030.

In the rapidly expanding GLP-1 market, Cigna has launched a comprehensive suite of offerings—EncircleRx, EnReachRx, and InGuide pharmacy—focused on affordability, access, clinical support, and patient safety. The EncircleRx solution alone has enrolled approximately 9 million members. A new benefit option, negotiated directly with manufacturers, caps patient out-of-pocket costs for GLP-1 weight loss prescriptions at no more than $200 per month, potentially saving patients up to $3,600 annually compared to direct-to-consumer programs. These technological and clinical differentiators are not merely operational improvements; they are foundational to Cigna's competitive moat, driving financial performance through lower costs, better margins, and enhanced market positioning.

Competitive Landscape and Strategic Positioning

Cigna operates in a highly competitive healthcare market, vying with diversified health services companies like UnitedHealth Group (UNH), major health insurers such as Elevance Health (ELV) and Humana (HUM), and integrated retail-health players like CVS Health (CVS). Cigna's competitive strategy emphasizes its diversified portfolio and customer-centric solutions, particularly through its integrated Evernorth services.

Compared to UnitedHealth Group, Cigna's Evernorth segment offers competitive pharmacy benefits management and care delivery, though it may trail in the depth of integrated data analytics that UnitedHealth emphasizes via Optum. Cigna's global footprint, with sales capabilities in over 30 countries, provides a broader international presence, differentiating it from UnitedHealth's more U.S.-centric scale. In the pharmacy benefit space, Cigna's new rebate-free model aims to simplify economics and enhance transparency, a proactive move in response to industry scrutiny.

Against Elevance Health, Cigna's behavioral health and international offerings provide a tailored approach, while Elevance's focus on cost control and digital innovation could give it an edge in operational efficiency for domestic plans. Cigna's specialty pharmacy capabilities, including CuraScript SD, a $25 billion business growing at a double-digit rate, serve over 12,000 providers and offer a holistic value proposition that extends beyond traditional distribution, encompassing clinical coordination and inventory management. This contrasts with traditional drug distributors who are more focused on the prescription drug side of the specialty market.

While Humana specializes in Medicare Advantage, a segment Cigna exited in March 2025, Cigna continues to serve Medicare customers through its Evernorth services portfolio. Cigna's broader portfolio and diversification offer a unique value proposition in comprehensive, non-senior-focused care. In the U.S. employer market, Cigna Healthcare maintains a "net share winner" position in its under 500 Select segment, driven by affordability improvements and a consultative engagement model, demonstrating its ability to compete effectively even in a firm pricing environment.

Cigna's strategic investment in Shields Health Solutions, a specialty pharmacy management company, further enhances its ability to serve the provider-administered portion of the specialty market, which represents approximately 40% of the total specialty space. This move strengthens Cigna's competitive standing by expanding its reach into health systems and provider groups, offering a comprehensive suite of specialty services across Accredo, CuraScript SD, and CarePathRx.

Financial Performance and Operational Resilience

The Cigna Group has demonstrated strong financial performance and operational resilience in a dynamic environment. For the nine months ended September 30, 2025, total revenues reached $202.4 billion, an increase of 12% over the prior year. Shareholders' net income for the period was $4.7 billion, a significant 135% increase, primarily due to the absence of a $2.7 billion impairment of VillageMD equity securities recorded in 2024. Adjusted income from operations for the nine months was $5.87 billion.

Evernorth Health Services, a key growth engine, reported adjusted revenues of $171.9 billion for the nine months ended September 30, 2025, up 16% year-over-year, driven by higher prescription drug utilization. Its pre-tax adjusted income from operations grew 4% to $5.03 billion, reflecting strong specialty pharmacy growth and contract affordability improvements. Specialty and Care Services, in particular, saw a robust 14% increase in adjusted revenues and an 8% rise in pre-tax adjusted income from operations for the nine-month period.

Cigna Healthcare's adjusted revenues for the nine months ended September 30, 2025, decreased 9% to $36.0 billion, primarily due to the divestiture of its Medicare Advantage and related businesses in March 2025. Despite this, pre-tax adjusted income from operations decreased by a more modest 8% to $3.42 billion. The Medical Care Ratio (MCR) for Cigna Healthcare increased to 83.3% for the nine-month period, influenced by the Individual and Family Plans business and higher expected stop-loss medical costs. The company's strategic optimization program, initiated in Q1 2025, incurred $566 million in pre-tax costs for the nine months, primarily for employee severance, as it aims to enhance efficiency.

Liquidity remains robust, with cash flow from operations at $3.45 billion for the nine months ended September 30, 2025. The company's debt-to-capitalization ratio stood at 44.9% as of September 30, 2025, reflecting the debt issuance for the Shields Health Solutions investment. Cigna aims to bring this ratio closer to its long-term target of approximately 40% through debt paydown and disciplined capital management.

Share repurchases totaled $2.6 billion for the nine months, with the majority of the HCSC transaction proceeds allocated to this.

Outlook and Strategic Trajectory

The Cigna Group has reaffirmed its 2025 adjusted EPS outlook of at least $29.60, demonstrating confidence in its diversified portfolio and strategic initiatives. The full-year 2025 Cigna Healthcare MCR is expected to be at the high end of the 83.2% to 84.2% guidance range, reflecting a higher expected MCR in the individual business.

Looking ahead to 2026, Cigna anticipates continued EPS growth. While Evernorth's operating income is expected to be "slightly down" due to significant investments in the new rebate-free pharmacy benefit model and modified margin profiles from large client renewals, its Specialty & Care Services business is projected to grow at the higher end of its long-term target. Cigna Healthcare's operating income is also expected to grow towards the higher end of its long-term target in 2026, benefiting from the repricing of its stop-loss business. The investment and transition costs for the new pharmacy model are expected to continue into 2027 but largely dissipate thereafter, positioning the company to return to its enterprise-level long-term adjusted EPS growth algorithm of 10% to 14% by 2027.

Risks and Mitigating Factors

Despite a compelling growth narrative, Cigna faces several risks. The ongoing "significant affordability challenge" of drug pricing and elevated medical costs, particularly in specialty injectables and high-acuity surgical activity, could pressure margins. The new rebate-free pharmacy benefit model, while strategically vital, entails "short-term investment and transition costs" across 2026 and 2027, creating near-term margin pressure in the PBS segment. Regulatory and legislative activity, such as the Arkansas bill, poses a risk of "arbitrarily constrain[ing] access" and "erod[ing] affordability," though Cigna actively engages in public-private partnerships to shape favorable outcomes. The company's stop-loss business experienced higher-than-expected medical costs in 2024, leading to a slightly higher MCR in 2025, but a two-year margin recovery plan is in motion.

Conclusion

The Cigna Group is executing a bold strategic pivot, leveraging its diversified portfolio and technological prowess to transform its core pharmacy benefit services while strengthening its integrated health offerings. The new rebate-free model, coupled with leadership in biosimilars and GLP-1 management, positions Cigna as a proactive force in addressing healthcare affordability and transparency. While near-term investments and evolving market dynamics present challenges, the company's disciplined execution, strong client retention, and commitment to innovation are expected to drive sustained long-term growth. Investors should recognize Cigna's strategic adaptability and its capacity to convert industry disruption into differentiated value, making it a compelling investment in the evolving healthcare landscape.