The Health Insurer That Realized Selling Pills Beats Paying Claims
Traditional health insurance operates on underwriting risk: collect premiums, pay medical claims, hope premiums exceed costs. It's a binary game—get medical cost trends wrong and you lose billions (see 2024 when Cigna Healthcare faced higher stop-loss costs). David Cordani recognized a better model: position Cigna as the middleman in pharmaceutical transactions. Evernorth, Cigna's pharmacy benefit manager (PBM), doesn't bear medical risk. Instead, it negotiates drug prices with manufacturers, processes prescriptions for employers and health plans, and captures margins on specialty pharmaceuticals (cancer drugs, biologics) where costs run $100,000+ annually per patient.
The financial results validate Cordani's strategy. In 2024, Evernorth grew revenue 27% through large client wins and specialty drug volume explosion. For 2025, Evernorth projects $7.2 billion in pre-tax income versus $4.1 billion from Cigna Healthcare insurance—the PBM now generates 75% more profit than insurance. Q1 2025 total revenue hit $65.5 billion, up 14%, with Evernorth driving growth. In March 2025, Cordani restructured leadership, naming Brian Evanko (previously CFO and Cigna Healthcare head) as COO managing both divisions. The message: Cigna's future is integrated healthcare services where insurance provides customer access but pharmacy benefits/specialty services generate profits. For investors, CI offers a toll-booth on America's $600+ billion annual prescription drug spending, with margins less volatile than insurance underwriting. The question is whether regulatory scrutiny of PBM practices threatens the model's economics.
Business Model & Competitive Moat
The Cigna Group operates two primary segments: Cigna Healthcare (medical insurance for ~18 million customers) and Evernorth Health Services (pharmacy benefit management, specialty pharmacy, care management). Cigna Healthcare sells employer group health plans, Medicare Advantage, and individual coverage, earning premiums and bearing medical cost risk. Evernorth manages pharmacy benefits for Cigna's own insurance customers plus external clients, processing prescriptions, negotiating drug rebates, and operating specialty pharmacies dispensing high-cost medications.
The competitive moat comes from scale and vertical integration. Evernorth is the third-largest PBM (behind CVS Caremark and UnitedHealth's OptumRx), processing billions of prescriptions annually with negotiating leverage pharmaceutical manufacturers can't ignore. Cigna's specialty pharmacies handle complex medications (oncology, rheumatology, rare diseases) requiring clinical oversight that creates stickiness—patients don't switch specialty pharmacies mid-treatment. Vertical integration allows Cigna to cross-sell: win an employer's medical insurance (Cigna Healthcare), then attach pharmacy benefits (Evernorth), then layer specialty pharmacy and care coordination services. This creates switching costs—moving all three components to competitors requires massive operational disruption. However, the moat faces regulatory assault: Congress and the FTC increasingly scrutinize PBM practices (rebate structures, drug pricing opacity, steering to affiliated pharmacies), threatening the profitability model if transparency requirements or fee caps emerge.
Financial Performance
Cigna's 2025 performance showcases the shift toward pharmacy-driven growth:
- •Q1 2025 Revenue: $65.5B total revenue, up 14% YoY; H1 2025 revenue reached $132.6B annualizing toward $265B+ for full year
- •Evernorth Growth: 2024 revenue increased 27% driven by large client wins and specialty drug volume; 2025 pre-tax income projection of $7.2B+ dominates total profitability
- •Cigna Healthcare Challenges: 2024 impacted by higher stop-loss medical costs (unexpected claims in self-funded employer plans); 2025 pre-tax income projection $4.1B
- •2025 EPS Outlook: Raised guidance to $29.60+ adjusted income from operations per share, reflecting Evernorth's outsized profit contribution
- •Leadership Integration: March 2025 restructuring naming Brian Evanko COO of both divisions signals strategic alignment toward integrated healthcare services
Growth Catalysts
- •Specialty Drug Explosion: Oncology, gene therapies, and biologic medications growing 10-15% annually create massive revenue opportunity for Evernorth's specialty pharmacies
- •Biosimilar Push: Evernorth focusing on biosimilars (cheaper versions of biologic drugs) positions company to capture savings and share with employers, driving client wins
- •Medicare Advantage Expansion: Aging population drives MA enrollment; Cigna's integrated insurance + pharmacy model creates competitive advantage in senior market
- •Employer Self-Funding Trend: More employers self-fund health benefits (bear medical risk themselves), hiring Cigna for administrative services and Evernorth for pharmacy—higher margin than traditional insurance
- •Care Coordination Services: Expanding beyond PBM into care management, chronic disease programs, and predictive analytics creates additional revenue streams
Risks & Challenges
- •PBM Regulatory Threat: FTC and Congress investigating PBM practices; proposed transparency rules or fee caps could dramatically reduce Evernorth profitability
- •Drug Pricing Backlash: Political pressure to reduce pharmaceutical costs may squeeze PBM margins if rebate structures change or government negotiates prices directly
- •Amazon Disruption: Amazon Pharmacy and other direct-to-consumer models threaten to disintermediate PBMs by offering transparent pricing to consumers
- •Medical Cost Volatility: Cigna Healthcare's 2024 stop-loss issues prove insurance underwriting remains risky; unexpected medical cost spikes can offset Evernorth profits
- •Client Concentration: Large employer clients represent significant revenue; losing major accounts to UnitedHealth or CVS creates revenue volatility
Competitive Landscape
The Cigna Group competes across two distinct markets. In health insurance, competitors include UnitedHealth Group ($400+ billion market cap, 52 million medical members), Humana (Medicare Advantage leader, 5+ million MA members), and Elevance Health (formerly Anthem, 47 million members). Cigna ranks fourth in commercial insurance with ~18 million medical customers, smaller than United and Elevance but larger than Aetna (now part of CVS).
In pharmacy benefit management, Evernorth competes against the "Big Three" PBMs: CVS Caremark (#1, $350+ billion in prescription volume), UnitedHealth's OptumRx (#2), and Cigna's Evernorth (#3). The PBM market is highly concentrated—these three control 80%+ of U.S. prescription processing. David Cordani's strategic advantage is vertical integration: Cigna can bundle insurance, PBM, and specialty pharmacy in ways pure-play PBMs (like independent Prime Therapeutics) cannot. The March 2025 leadership restructuring placing both divisions under Brian Evanko aims to exploit this integration more aggressively. The key competitive threat is UnitedHealth, which operates the same integrated model (insurance + OptumRx PBM + OptumHealth services) at larger scale. Cigna's response is focusing on specialty pharmacy and biosimilars where clinical expertise creates differentiation beyond pure price competition. If regulatory pressure fragments PBM vertical integration, Cigna loses strategic advantage; if specialty drug costs continue exploding, Cigna's positioning in that segment drives outperformance.
Who Is This Stock Suitable For?
Perfect For
- ✓Healthcare investors seeking diversified exposure to insurance, PBM, and specialty pharmacy
- ✓Income investors wanting defensive healthcare sector positioning with growing dividend
- ✓Growth investors betting on specialty drug/biosimilar tailwinds driving Evernorth expansion
- ✓Value investors believing PBM regulatory concerns are overblown and CI trades at attractive multiple
Less Suitable For
- ✗ESG investors concerned about PBM practices and drug pricing opacity
- ✗Risk-averse investors uncomfortable with regulatory uncertainty around PBM business model
- ✗Short-term traders (healthcare policy changes create volatility but play out over years)
- ✗Growth-at-any-price investors (Cigna is mature, stable growth not explosive expansion)
Investment Thesis
The Cigna Group offers a differentiated healthcare investment: exposure to unavoidable pharmaceutical cost trends through a toll-booth PBM model (Evernorth) that generates more profit ($7.2 billion projected 2025 pre-tax income) than traditional insurance ($4.1 billion). David Cordani's 16-year transformation from pure-play insurer to integrated health services giant positions Cigna to benefit from specialty drug explosion (oncology, biologics, gene therapies) without bearing full medical underwriting risk. The March 2025 leadership restructuring naming Brian Evanko COO of both divisions signals strategic commitment to integration.
The bull case hinges on three dynamics: First, specialty drug costs continue growing 10-15% annually, expanding Evernorth's addressable market and margins. Second, regulatory scrutiny of PBMs results in modest transparency improvements but doesn't fundamentally break the business model. Third, Cigna's biosimilar strategy drives client wins as employers desperately seek pharmaceutical cost management. The bear case is that Congress or FTC imposes fee caps, rebate bans, or structural separation requirements that cripple PBM economics. Amazon Pharmacy and direct-to-consumer models could also disintermediate PBMs if consumers bypass employer-sponsored plans. For patient investors, Cigna offers defensive healthcare exposure with better growth (14% revenue, 27% Evernorth) than pure insurers but less regulatory risk than pure-play PBMs. The stock trades at reasonable valuation with growing dividend. Suitable for core healthcare holdings; too regulatory-dependent for aggressive growth portfolios.