C I G N A A N N U A L R E P O R T | 2 0 2 0
A M E S S A G E F R O M O U R
P R E S I D E N T A N D C E O
David
Cordani
By all accounts, 2020 was an extraordinary year. The
health crisis, social unrest and political tensions that
unfolded could have each defined a year in their own
right; together they converged to create one of the
most unsettling periods in modern history. Families
and communities were rocked by fear, uncertainty,
pain, loss and sorrow. It was a year that many of us
hope to never see repeated. However, as I reflect back,
I cannot help but also see the bright spots that were
part of the picture: the valuable lessons many of us
learned about compassion and empathy; the medical
advances that led to the development of vaccines at
a pace never before seen in human history; the joining
together of countless voices worldwide to demand a
more equitable and equal society; and the remarkable
resilience shown by so many in the midst of the year’s
relentless challenges.
As a global health leader, Cigna navigated 2020 by
staying focused on meeting and balancing the needs of
those we serve and on keeping our promises. This meant:
• Keeping our purpose – to improve people’s lives
by delivering health, well-being and peace of mind
– front and center and taking meaningful steps
throughout the year to fulfill this promise;
• Taking decisive action to support our clients,
customers, patients, partners and communities
in the wake of the global pandemic; 1
• Speaking out against racism and reaffirming our
commitment to diversity, inclusion, equity and
equality, including by launching our Building Equity
and Equality Program;2 and
• Delivering on our financial commitments to our
shareholders by growing our adjusted revenue
by 14%, to $160 billion, and delivering adjusted
earnings per share of $18.45 – consistent with our
overall expectations.3, 4
You can see the complete summary of our 2020
accomplishments on the following pages.
I couldn’t be more proud of the way our more than
70,000 colleagues around the globe showed up
every day to ask what more they could do to be a
force for positive change, both inside and outside
our company. The results they achieved, for the
benefit of our stakeholders, are a testament to their
dedication and flexibility. It is a privilege to lead such
an extraordinary and caring team.
MAKING HEALTH CARE MORE AFFORDABLE
IS A TOP PRIORITY AROUND THE GLOBE
Health care costs continue to rise as populations age
and become sicker. In addition, in the United States,
pharmacological interventions are exploding at a
rate and pace that far exceeds the growth of surgical
and medical device interventions – with spending
on pharmaceuticals increasing 26% per capita from
2014 to 2018.5 That growth continues today with
many of the preventive, curative and treatment
innovations coming from the pharmacy space. One
day, hopefully soon, we could see new drugs come
to market to treat conditions such as Alzheimer’s
S H A R E H O L D E R L E T T E R
1
disease, heart disease and cancer. But with these
advances come elevated costs – as many researchers
have calculated that expenditures for prescription
drugs and other pharmacy services will continue
to rise in the next 5–10 years. This underscores the
need to bring innovative thinking to the challenge of
affordability by, for example, leveraging value-based
care to drive access and care coordination, align
incentives, and lower costs; dramatically evolving
programs for chronic care by eliminating cost barriers
to treatment to incentivize 100% drug adherence; and
transforming business models to drive predictability
and affordability for high-cost drugs.
At Cigna, affordability will continue to be our number
one focus in 2021 – as we recognize that individuals
and companies alike need affordable solutions that
enable them to achieve optimal health. Finding
innovative ways to help them do that is the central
underpinning of our overall strategy.
TAKING THE STIGMA OUT OF MENTAL HEALTH
We all know that 2020 has taken a toll on the mental
well-being of many across the country. Many people are
feeling more isolated and lonely, and parents are feeling
the stress of managing kids’ virtual homeschooling
while trying to put in a day’s work. Studies have
shown surging rates of anxiety and depression amid
the pandemic.6 At the same time, Americans are less
equipped than ever to recover from these difficulties.
Cigna’s 2020 Resilience Index found that resilience is
at risk for more than 60% of Americans – and the most
affected group is young adults age 18–23, the same
group that self-classified as the loneliest generation in
earlier studies we conducted.7
Today, there is greater recognition of the link between
mental and physical health – with the World Health
Organization stating that “there is no health without
mental health.”8 This proclamation is backed by
science showing that perceived stress is a risk factor
for illnesses such as type 2 diabetes and heart disease
– and that someone with a chronic medical condition
is seven times more likely to have an underlying
mental health or substance-related illness.9
At the same time, the stigma associated with mental
health persists, and those who most need help may
be reluctant to seek treatment. At Cigna, our goal is
to ensure that our customers and patients receive the
behavioral health services they need. With the largest
virtual behavioral health network in the United States,
we were well positioned to respond when demand
for behavioral health services rose dramatically in
2020. Still, we continued to grow our virtual network
throughout the year, increasing it by 150% to include
more than 52,000 providers.10
USING TECHNOLOGY AND DATA TO ENHANCE
ACCESS TO AND PERSONALIZATION OF HEALTH
Virtual care was widely embraced in 2020, but it’s
just the tip of the iceberg in terms of what’s possible.
Technology is enabling people to become more
involved in their health than ever before, and it is a key
driver of the expansion of home-based care, thanks
to innovations such as “smart glucometers,” which
remotely monitor the blood sugar levels of patients
with diabetes. Studies have long demonstrated that
innovations like these can reduce the need for hospital
care – and thus the costs – for patients managing
a chronic illness.11 This type of rapid innovation will
enable the delivery of more personalized care to
address what people want and need, delivered where
and how they want to receive it.
We believe that this type of care will also play an
important role in rooting out health disparities from
our health care system by expanding access to
affordable care and treatment that breaks through
cultural, social or geographic barriers. That’s why
we’re so excited about our recent agreement to
acquire MDLIVE. This transaction will give us the
opportunity to build a new model of care delivery,
one that provides a connected experience with
greater affordability, predictability and simplicity.
With the opportunity to serve millions more people,
and with more personalized ways to deliver care, we
can have an even greater impact on our customers,
clients and partners – including those in historically
underserved communities.12 These are just some of
the ways that Cigna is thinking about – and forming
– the future, to make it better. We recognize that
achieving our goals for an affordable, predictable
and simple health care system will not be easy, but
2
S H A R E H O L D E R L E T T E R
S H A R E H O L D E R L E T T E R
3
4
S E C T I O N N A M E
“ Affordability will continue to be
our number one focus in 2021.”
we are fully committed. The stakes are too high not to
be. We are well positioned to deliver on our purpose
– to make a difference in the lives of those we serve.
When you put it all together, our purpose and our
growth are inextricably linked: Our purpose fuels our
growth, and our growth enables us to broaden our
reach and impact. This translates into more lives to
change for the better and more resources to invest,
all of which further accelerate meaningful value
creation for you, our shareholders.
A BETTER TOMORROW
Today, as the number of COVID-19 vaccinations
steadily increases, communities around the globe are
starting to envision life beyond the pandemic. One
thing is clear: The environment will continue to be
dynamic for the foreseeable future. We still face many
challenges – from reinvigorating our global economy
to achieving the “herd immunity” that will enable life
to return to some semblance of normal. But 2020
has shown us that we can tackle anything when we
challenge old ways of thinking and innovate together.
RESHAPING THE FUTURE OF HEALTH CARE
Even as we continue to address the challenges of
today, we must prepare for tomorrow. The pandemic
has spotlighted gaps in our health care system that
must be addressed, and it has accelerated trends
that are reshaping the landscape. At Cigna, we are
not content to simply watch from the sidelines –
our purpose calls for us to be part of the solution.
As such, there are a number of areas that we will
continue to lean into in the year ahead that we
believe will make a difference for those we serve
and for our company.
For example, our community program launched
in Houston, Memphis and South Florida to elevate
support and services for some of those areas’ most
disadvantaged residents.13
In addition, our International Markets team launched
an outreach program to encourage people and
organizations to check in on and support one another
– as a way to strengthen emotional health and well-
being amid the stress of the pandemic.14
I’ll say it again: I’m proud of how Cigna delivered on
our mission and lived our values during one of the
toughest years for health care in modern history. I’m
equally energized by the opportunities that lie ahead.
We have the team and orientation to create
positive action.
We have the assets and capabilities within our three
growth platforms – Evernorth, U.S. Medical and
International Markets – to make a difference for today
and tomorrow.
And we have a growth framework that guides us,
each and every day, to extend our reach and impact.
It is from this strong foundation that we are able
to meet the needs of those we serve and keep
our promises, including achieving our financial
outlook for 2021.
My colleagues and I very much look forward to
another successful year.
D A V I D M . C O R D A N I
President and Chief Executive Officer
S H A R E H O L D E R L E T T E R
5
delivering
delivering
growth
growth
with
with
purpose
purpose
leading
leading
the way
the way
Taking robust action since the start of the
Taking robust action since the
start of the COVID-19 pandemic.
COVID-19 pandemic.
• Removed cost as a barrier15
• Removed cost as a barrier15
• Protected customers from surprise bills and
• Protected customers from surprise bills and
lowered prescription costs for the uninsured16
lowered prescription costs for the uninsured16
• Expanded virtual care three times and increased
• Expanded virtual care three times and increased
on-demand mental health support partnerships17
on-demand mental health support partnerships17
• Helped employers keep their workforce safe
• Helped employers keep their workforce safe
and supported18
and supported18
• Launched the Brave of Heart Fund in partnership
• Launched the Brave of Heart Fund in partnership
with New York Life Foundation to support
with New York Life Foundation to support
families of frontline health care workers19
families of frontline health care workers19
6
6
2 0 2 0 A T A G L A N C E
2 0 2 0 A T A G L A N C E
delivering on
delivering on
our mission
our mission
accelerating
accelerating
our journey
our journey
Championing affordable, predictable
Championing affordable, predictable
and simple health care.
and simple health care.
Building on our foundation for positive growth.
Building on our foundation for positive growth.
• Launched Evernorth, our new brand
• Launched Evernorth, our new brand
for our growing, high-performing health
for our growing, high-performing health
services portfolio24
services portfolio25
• Completed $6.3B sale of Cigna’s group life,
• Completed $6.2B sale of Cigna’s group life,
accident, and disability insurance business
accident, and disability insurance business
to New York Life25
to New York Life26
• Completed the integration of our combination
• Completed the integration of our combination
with Express Scripts and delivered on our
with Express Scripts and delivered on our
integration priorities26
integration priorities27
Delivering value
Delivering value
• Saved patients and plans nearly $45B20
• Saved patients and plans nearly $45B20
• 10% improved pharmacy spend for clients20
• 10% improved pharmacy spend for clients20
• 4% improved medical spend for our
• 4% improved medical spend for our
integrated clients21
integrated clients21
Partnership + Innovation
Partnership + Innovation
• Expanded virtual care and behavioral networks,
• Expanded virtual care and behavioral networks,
and created new solutions and more value22
and created new solutions and more value22
Expansion
Expansion
• 18% membership growth in Medicare Advantage22
• 18% membership growth in Medicare Advantage22
• 50% geographic footprint increase in individual
• 50% geographic footprint increase in individual
exchange market23
exchange market23
• 18% growth in pretax adjusted income from
operations for International Markets24
2 0 2 0 A T A G L A N C E
2 0 2 0 A T A G L A N C E
7
7
taking
taking
a stand
a stand
Expanding and accelerating our
Expanding and accelerating our
efforts to support diversity,
efforts to support diversity,
inclusion, equity and equality.
inclusion, equity and equality.
$60M
$60M
charitable giving through
charitable giving through
Cigna and Cigna Foundation28
Cigna and Cigna Foundation27
50,000
50,000
employee volunteer hours29
employee volunteer hours28
Building Equity
Building Equity
& Equality
& Equality
Program launch30
Program launch29
#1
#1
on Dow Jones Sustainability Index
on Dow Jones Sustainability Index
for health services industry31
for health services industry30
Top 50
Top 50
DiversityInc’s most diverse companies32
DiversityInc’s most diverse companies31
“Best places to work
“Best places to work
for LGBTQ equality”
for LGBTQ equality”
Human Rights Campaign
Human Rights Campaign
Foundation award33
Foundation award32
8
8
2 0 2 0 A T A G L A N C E
2 0 2 0 A T A G L A N C E
$160B
$160B
in adjusted revenues,
in adjusted revenues,
representing growth
representing growth
of 14%33, 34
of 14%34, 35
$6.8B
$6.8B
adjusted income
adjusted income
from operations33, 34
from operations34, 35
$18.45
$18.45
adjusted earnings
adjusted earnings
per share
per share
$10.4B
$10.4B
cash flow from operations33
cash flow from operations34
1.6M
1.6M
relationships with
relationships with
health care providers,
health care providers,
clinics and facilities33
clinics and facilities34
200,000
200,000
mental and behavioral
mental and behavioral
health care providers
health care providers
OVER 175M
OVER 175M
customer relationships
customer relationships
70K+
70K+
employees committed
employees committed
to changing people’s
to changing people’s
lives for the better
lives for the better
30+
30+
jurisdictions
jurisdictions
countries and
countries and
The information provided is as of December 31, 2020, except where otherwise noted. All information subject to change.
The information provided is as of December 31, 2020, except where otherwise noted. All information subject to change.
2 0 2 0 A T A G L A N C E
2 0 2 0 A T A G L A N C E
9
9
Corporate & Board of Directors
John M. Partridge
Former President
Visa Inc., a consumer credit company
William L. Roper, MD, MPH
Former Interim President
The University of North Carolina
System, a public higher education system
Kimberly Ross
Former Chief Financial Officer
Baker Hughes, an energy
technology company
Eric C. Wiseman
Former Executive Chairman,
President and Chief Executive Officer
VF Corporation, an apparel and
footwear company
Donna F. Zarcone
Former President and Chief Executive Officer
The Economic Club of Chicago, a civic
and business leadership organization
Executive Committee
Isaiah Harris, Jr., Chair
David M. Cordani
John M. Partridge
William L. Roper, MD, MPH
Kimberly Ross
Eric C. Wiseman
Donna F. Zarcone
Audit Committee
Kimberly Ross, Chair
William J. DeLaney
John M. Partridge
Board of Directors
Isaiah Harris, Jr.
Independent Chairman of the Board
Former President and Chief Executive Officer
AT&T Advertising and Publishing – East,
a communications services company
David M. Cordani
President and Chief Executive Officer
Cigna Corporation
William J. DeLaney
Former Chief Executive Officer
Sysco Corporation, a food marketing
and distribution company
Eric J. Foss
Former Chairman, President
and Chief Executive Officer
ARAMARK Corporation, a provider
of food services, facilities management
and uniform services
Elder Granger, MD, MG, USA (Retired)
Chief Executive Officer
The 5Ps LLC, a health care, education and
leadership consulting firm
George Kurian
Chief Executive Officer
NetApp, Inc.
a cloud-led, data-centric
software company
Kathleen M. Mazzarella
Chairman, President and Chief Executive Officer
Graybar Electric Company, Inc., a distributor of
electrical, communications and data networking
products and provider of related supply chain
management and logistics services
Mark B. McClellan, MD, PhD
Director
Duke-Robert J. Margolis, MD,
Center for Health Policy
10
C O R P O R A T E & B O A R D O F D I R E C T O R S
Compliance Committee
William L. Roper, MD, MPH, Chair
Eric J. Foss
Elder Granger, MD, MG, USA
Donna F. Zarcone
Corporate Governance Committee
Donna F. Zarcone, Chair
William J. DeLaney
Eric J. Foss
Elder Granger, MD, MG, USA
Mark B. McClellan, MD, PhD
Finance Committee
John M. Partridge, Chair
Kathleen M. Mazzarella
William L. Roper, MD, MPH
Kimberly Ross
Eric C. Wiseman
People Resources Committee
Eric C. Wiseman, Chair
Kathleen M. Mazzarella
Mark B. McClellan, MD, PhD
Executive Officers
David M. Cordani
President and Chief Executive Officer
Noelle Eder
Executive Vice President
and Chief Information Officer
Brian Evanko
Executive Vice President
and Chief Financial Officer
Nicole S. Jones
Executive Vice President
and General Counsel
Kristen Lauria
Executive Vice President
and Chief Marketing Officer
Matt Manders
President,
Government and Solutions
Steven B. Miller, MD
Executive Vice President
and Chief Clinical Officer
John M. Murabito
Executive Vice President,
Human Resources and Services
Everett Neville
Executive Vice President,
Strategy and Business Development
Eric Palmer
President and Chief Operating Officer,
Evernorth
Jason D. Sadler
President, International Markets
Michael Triplett
President, U.S. Commercial
Timothy C. Wentworth
Chief Executive Officer, Evernorth
Other Officers
Julia Brncic
Senior Vice President,
Chief Counsel and Corporate Secretary
Timothy D. Buckley
Senior Vice President and Treasurer
Mary T. Agoglia Hoeltzel
Senior Vice President,
Tax and Chief Accounting Officer
C O R P O R A T E & B O A R D O F D I R E C T O R S
11
2021 Annual Meeting
Shareholder Account Access
The Annual Meeting of Shareholders will be held
virtually on Wednesday, April 28, 2021, at 8:00 a.m.
ET. Information regarding how to attend will be
included in the proxy materials for the Annual Meeting.
Proxies and proxy statements have been made available
to shareholders of record as of the close of business
on March 8, 2021. On December 31, 2020, there were
33,418 common shareholders of record.
Financial Information
Cigna’s Form 10-K, quarterly earnings releases and
SEC filings are available online at Investors.Cigna.com.
Offices
900 Cottage Grove Road
Bloomfield, CT 06002
860.226.6000
One Express Way
St. Louis, MO 63121
314.996.0900
Two Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192-1550
215.761.1000
Direct Stock Purchase Plan
Shareholders can automatically reinvest their annual
dividends and make optional cash purchases of
common shares.
For information on these services, please contact:
Computershare
PO Box 505000
Louisville, KY 40233-5000
Toll-free: 800.760.8864
Outside the United States, U.S. territories
and Canada:
201.680.6578
TDD: 800.952.9245
Website: www.computershare.com/investor
12
C O R P O R A T E & B O A R D O F D I R E C T O R S
You can access your Cigna shareholder account
online through the Computershare website,
www.computershare.com/investor, or by calling
800.760.8864.
Direct Deposit of Dividends
Direct deposit of dividends provides a prompt, efficient
way to have your dividends electronically deposited
into your checking or savings account. It avoids the
possibility of lost or delayed dividend checks. The
deposit is made electronically on the payment date.
For more information and an enrollment authorization
form, contact Computershare at 800.760.8864 or, if
outside the United States, U.S. territories and Canada,
at 201.680.6578. You can access your account online
through the Computershare website,
www.computershare.com/investor.
Stock Listing
Cigna’s common shares are listed on the New York
Stock Exchange. The ticker symbol is CI.
Transfer Agency
By regular mail:
Computershare
PO Box 505000
Louisville, KY 40233-5000
By overnight delivery:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
Toll-free: 800.760.8864
Outside the United States, U.S. territories and Canada:
201.680.6578
TDD: 800.952.9245
Website: www.computershare.com/investor
Cigna Online
To access online information about Cigna, our
products and our services, visit Cigna.com.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 001-38769
Cigna Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
900 Cottage Grove Road, Bloomfield, Connecticut
(Address of principal executive offices)
82-4991898
(I.R.S. Employer Identification No.)
06002
(Zip Code)
(860) 226-6000
Registrant’s telephone number, including area code
Title of each class
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
Common Stock, Par Value $0.01
CI
Name of each exchange on which
registered
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark
•
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
•
• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days
• whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files)
Yes
☒
☐
☒
☒
No
☐
☒
☐
☐
• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
Smaller reporting
company
☐
☐
Non-accelerated filer
Emerging growth company
•
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
• whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
☐
☒
☐
☐
☐
☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2020 was approximately $68.9 billion.
As of January 31, 2021, 351,845,606 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference information from the registrant’s definitive proxy statement related to the 2021 annual meeting
of shareholders.
TABLE OF CONTENTS
FREQUENTLY REQUESTED 10-K INFORMATION
Risk Factors
Executive Overview
Industry Developments and Other Matters
Liquidity and Capital Resources
Critical Accounting Estimates
Segment Information
Revenues by Product Type
Cautionary Statement
PART I
Item 1.
Business...............................................................................................................................
Overview......................................................................................................................
Evernorth......................................................................................................................
U.S. Medical................................................................................................................
International Markets...................................................................................................
Group Disability and Other..........................................................................................
Data, Analytics and Technology..................................................................................
Investment Management..............................................................................................
Human Capital Management.......................................................................................
Miscellaneous...............................................................................................................
Regulation....................................................................................................................
Risk Factors.........................................................................................................................
Item 1A.
Unresolved Staff Comments...............................................................................................
Item 1B.
Properties.............................................................................................................................
Item 2.
Legal Proceedings...............................................................................................................
Item 3.
Item 4.
Mine Safety Disclosures......................................................................................................
Information about our Executive Officers.....................................................................................................
Page
34
53
58
60
65
138
142
Page
1
1
3
10
15
17
19
20
21
22
22
34
48
48
48
48
49
PART II
Item 5.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”)..............................................................................................................................
Quantitative and Qualitative Disclosures about Market Risk.................................................
Financial Statements and Supplementary Data.......................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures..........................................................................................................
Other Information....................................................................................................................
Directors, Executive Officers and Corporate Governance......................................................
A. Directors of the Registrant...............................................................................................
B. Executive Officers of the Registrant................................................................................
C. Code of Ethics and Other Corporate Governance Disclosures........................................
D. Delinquent Section 16(a) Reports....................................................................................
Executive Compensation.........................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters................................................................................................................
Certain Relationships and Related Transactions, and Director Independence........................
Principal Accountant Fees and Services..................................................................................
50
52
76
77
143
143
143
144
144
145
145
145
PART IV
Exhibits and Financial Statement Schedules...........................................................................
Item 15.
Item 16.
Form 10-K Summary...............................................................................................................
Signatures...........................................................................................................................................................
Index to Financial Statement Schedules............................................................................................................
Exhibits..............................................................................................................................................................
146
155
156
FS-1
E-1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are based on Cigna’s current expectations and projections about future trends, events
and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements
concerning future financial or operating performance, including our ability to deliver affordable, personalized and innovative solutions
for our customers and clients, including in light of the challenges presented by the COVID-19 pandemic; future growth, business
strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace
and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects
for growth in the coming years; strategic transactions; and other statements regarding Cigna’s future beliefs, expectations, plans,
intentions, liquidity, cash flows, financial condition or performance. You may identify forward-looking statements by the use of words
such as “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words
or expressions of similar meaning, although not all forward-looking statements contain such terms.
Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ
materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to:
our ability to achieve our strategic and operational initiatives; our ability to adapt to changes in an evolving and rapidly changing
industry; the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash
flows or financial condition, our ability to compete effectively, differentiate our products and services from those of our competitors
and maintain or increase market share; price competition and other pressures that could compress our margins or result in premiums
that are insufficient to cover the cost of services delivered to our customers; the potential for actual claims to exceed our estimates
related to expected medical claims; our ability to develop and maintain satisfactory relationships with physicians, hospitals, other
health service providers and with producers and consultants; our ability to maintain relationships with one or more key pharmaceutical
manufacturers or if payments made or discounts provided decline; changes in the pharmacy provider marketplace or pharmacy
networks; changes in drug pricing or industry pricing benchmarks; political, legal, operational, regulatory, economic and other risks
that could affect our multinational operations; risks related to strategic transactions and realization of the expected benefits of such
transactions, as well as integration difficulties or underperformance relative to expectations; dependence on success of relationships
with third parties; risk of significant disruption within our operations or among key suppliers or third parties; our ability to invest in
and properly maintain our information technology and other business systems; our ability to prevent or contain effects of a potential
cyberattack or other privacy or data security incident; potential liability in connection with managing medical practices and operating
pharmacies, onsite clinics and other types of medical facilities; the substantial level of government regulation over our business and
the potential effects of new laws or regulations or changes in existing laws or regulations; uncertainties surrounding participation in
government-sponsored programs such as Medicare; the outcome of litigation, regulatory audits, investigations; compliance with
applicable privacy, security and data laws, regulations and standards; potential failure of our prevention, detection and control
systems; unfavorable economic and market conditions, stock market or interest rate declines, risks related to a downgrade in financial
strength ratings of our insurance subsidiaries; the impact of our significant indebtedness and the potential for further indebtedness in
the future; unfavorable industry, economic or political conditions; credit risk related to our reinsurers; as well as more specific risks
and uncertainties discussed in Part I, Item 1A – Risk Factors and Part II, Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations of this Form 10-K and as described from time to time in our future reports filed with the
Securities and Exchange Commission (the “SEC”).
You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees
of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna
undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or
otherwise, except as may be required by law.
Item 1. BUSINESS
OVERVIEW
PART I
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health service organization.
Our Purpose and Mission
To improve the health, well-being and peace of mind of those we serve
Our Strategy
Champions for affordable, predictable, and simple health care
Making it affordable: We build on our leading, differentiated position to lower the total cost of
care.
Making it predictable: We take the surprise out of the system and help people make informed
health care choices.
Making it simple: We make it easier for the people we serve to get the care they need.
Cigna is a global health services company uniquely capable of driving affordable, predictable, and simple health care, with expansive
and deep capabilities that accelerate our strategy to achieve our mission of improving health, well-being and peace of mind. Cigna’s
employees are champions for the people we serve and over the past decade, our focus has shifted to helping individuals and families
thrive by offering solutions to prevent and better manage health challenges. When sickness or disability do occur, we support our
customers by offering broad choices to help them best access high quality, affordable, whole person care. We see three primary ways
to help individuals maintain, improve or recover their physical or mental health: 1) behavioral and lifestyle changes – with more than
1,000 health coaches helping individuals set and meet health goals; 2) affordable, effective medication options – with access to our
leading pharmacy services improving health and driving affordability; and 3) targeted medical and surgical interventions – with a clear
and proven strategy around partnerships and value-based care quality programs, powered by data and analytics and aligned incentives.
We maximize use of evidence-based care, while delivering best-in-class service for our customers with acute and chronic conditions
through enhanced real-time insights across an expanded platform with industry-leading solutions to support care decisions.
Our portfolio of offerings solves diverse challenges across the health care system. We offer a differentiated set of pharmacy, medical,
behavioral, dental and supplemental products and services, primarily through two brands: Cigna and Evernorth. Our capabilities
include: 1) a broad portfolio of solutions and services, some of which can be offered on a stand-alone basis; 2) integrated behavioral,
medical and pharmacy management solutions; 3) leading specialty pharmacy, clinical and care management expertise; and 4)
advanced analytics that help us engage more meaningfully with individuals, plan sponsors we serve and our provider partners.
We put medicine within reach for patients, and help providers improve access to prescription drugs, by making them more affordable.
We work with key stakeholders across the health care system to improve health outcomes and patient satisfaction, increase efficiency
in drug distribution and manage costs of the pharmacy benefit.
In 2020 Cigna launched Evernorth, a new health services platform, and renamed the Health Services segment as Evernorth,
accordingly. Evernorth brings together our array of health services capabilities, as well as those from partners across the health care
system in pharmacy solutions, benefits management solutions, care solutions and intelligence solutions. Innovative products include:
Healthy Ways to WorkSM, a broad suite of solutions to help health plans and employers move forward by addressing unique challenges
resulting from the COVID-19 pandemic; FamilyPathSM, a comprehensive fertility solution to reduce avoidable costs, provide holistic
care coordination and deliver more flexible options for individuals; and inMyndSM, a solution that helps clients and customers better
recognize, treat and support mental health conditions.
1
We present the financial results of our businesses in the following segments (see "Executive Overview" section of the MD&A located
in Part II, Item 7 of this Form 10-K for a Financial Summary):
Evernorth includes a broad range of coordinated and point solution health services, including pharmacy solutions, benefits
management solutions, care solutions and intelligence solutions, which are provided to health plans, employers, government
organizations and health care providers.
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and
coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health,
dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government
solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual
health insurance plans both on and off the public exchanges.
International Markets includes supplemental health, life and accident insurance products and health care coverage in our international
markets as well as health care benefits to globally mobile employees of multinational organizations.
Group Disability and Other contains the remainder of our business operations, consisting of the following:
•
•
•
Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty
insurance products and related services. The sale of this business to New York Life was completed on December 31, 2020.
The transaction with New York Life included the sale of our businesses offering group long-term and short-term disability,
group life, accident, and specialty insurance products and related services. Our business that offers group voluntary products
and services was not sold to New York Life and results of this business will be reported in the U.S. Medical segment
beginning in the first quarter of 2021. See Note 5 to the Consolidated Financial Statements and Liquidity section of the
MD&A for additional information on the impacts of this sale on our results of operations, liquidity and financial position.
Corporate-Owned Life Insurance (“COLI”) offers permanent insurance contracts sold to corporations to provide coverage
on the lives of certain employees for financing employer-paid future benefit obligations.
Run-off businesses:
•
•
•
Reinsurance: predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed minimum
income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance
Company of Nebraska (“Berkshire”) in 2013.
Settlement Annuity business in run-off.
Individual Life Insurance and Annuity and Retirement Benefits Businesses: comprised of deferred gains from the
sales of these businesses.
In 2020, our business was impacted by the emergence and unprecedented global spread of the novel strain of coronavirus
("COVID-19"). COVID-19 was declared a pandemic by the World Health Organization in March 2020 because the virus had surfaced
in nearly all regions around the world. The COVID-19 pandemic has pervasively impacted the economy, financial markets and the
global health care delivery systems. Cigna’s COVID-19 response actions focused on customer care, employee care and safety, as well
as support for the medical community and execution of business continuity plans over our operations. COVID-19 continues to spread
and we are actively managing our response and assessing impacts to our financial position and operating results, as well as adverse
developments in our business. While it is difficult to predict the impact of the COVID-19 pandemic on our results beyond 2020, we
believe that such results may be impacted by, among other things, higher medical costs to treat those affected by the virus, lower
customer volumes due to rising unemployment, lower future risk adjustment revenue due to disrupted care impeding appropriate
documentation of customer risk profiles in our Medicare Advantage business, the return of costs for those who had previously
deferred care, vaccine costs, continued cost share waivers, the potential for continued deferral of care, or lower investment returns.
Additionally, in response to the pandemic, U.S. federal and state governments have enacted new regulatory requirements as discussed
in the "Business - Regulation" section of this Form 10-K.
Other Information
The financial information included in this Form 10-K for the fiscal year ended December 31, 2020 is in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) unless otherwise indicated. In the segment discussions that
follow, we use the terms “adjusted revenues” and “pre-tax adjusted income from operations” to describe segment results. See the
introduction to the Management Discussion and Analysis section of this Form 10-K for definitions of those terms. Industry rankings
and percentages set forth herein are for the year ended December 31, 2020 unless otherwise indicated. In addition, statements set forth
in this document concerning our rank or position in an industry or particular line of business have been developed internally based on
publicly available information unless otherwise noted.
2
Cigna Holding Company (formerly Cigna Corporation) was incorporated in Delaware in 1981. Halfmoon Parent, Inc. was
incorporated in Delaware in March 2018. Halfmoon Parent, Inc. was renamed Cigna Corporation and Cigna Holding Company
became its subsidiary concurrent with the consummation of the combination with Express Scripts on December 20, 2018.
You can access our website at http://www.cigna.com to learn more about our company. We make annual, quarterly and current reports
and proxy statements and amendments to those reports available, free of charge through our website (http://www.cigna.com, under the
“Investors—Quarterly Reports and SEC Filings” captions) as soon as reasonably practicable after we electronically file these materials
with, or furnish them to, the Securities and Exchange Commission (“SEC”). We also use our website as a means of disclosing material
information and for complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). Important
information, including news releases, analyst presentations and financial information regarding Cigna is routinely posted on and
accessible at http://www.cigna.com. Accordingly, investors should monitor the Investor Relations portion of our website, in addition
to following our press releases, SEC filings and public conference calls and webcasts. The information contained on, or that may be
accessed through, our website is neither incorporated by reference into nor a part of this report. See also “Code of Ethics and Other
Corporate Governance Disclosures” in Part III, Item 10 of this Form 10-K for additional information regarding the availability of our
Codes of Ethics on our website.
EVERNORTH
Evernorth brings together coordinated and point solution health services including pharmacy solutions, benefits management
solutions, care solutions and intelligence solutions, and specialized expertise – from inside and outside the company – to deliver
custom and flexible solutions that meet the needs of our clients and customers. In 2020, Evernorth reported adjusted revenues of
$116.1 billion and pre-tax adjusted income from operations of $5.4 billion.
HOW WE WIN
Evernorth accelerates delivery of innovative and flexible solutions to create value and meet the diverse needs of health plans,
employers, health care providers and government organizations by:
·Partnering in unconventional ways to solve complex problems across a fragmented health care ecosystem, fueled by connected
data and expertise that drives purposeful innovation
·Creating flexible and focused solutions tailored to client needs, using Evernorth's combined strengths and capabilities, as well as
strategic partnerships, to deliver: better, more efficient care for patients; better experiences for clients, providers and customers;
and enhanced choices for clients and customers through our open architecture model
·Evaluating medicines, digital therapeutics and other health solutions for efficacy, adherence, value and price to assist clients in
selecting a cost-effective formulary
·Offering home delivery and specialty customer-centric solutions that meet the needs of our clients and customers in ways that
unlock greater value and better health services while providing better and specialized clinical care
·Aggregating purchasing volume to deliver discounts and drive risk-sharing and value-based care across the pharmaceutical
supply chain
·Promoting the use of generics and lowest-cost, clinically effective brands of medications
3
The following chart depicts a high-level summary of our principal products and services in this segment with definitions on
subsequent pages.
Principal Products & Services
Brands/
Subsidiaries
Key Relationships
Primary Competitors
Pharmacy Solutions
Express Scripts Pharmacy, Accredo®,
Freedom Fertility Pharmacy®,,
Therapeutic Resource Center®
Clients, Customers, Health
Care Providers
Pharmacy and
Medical Benefits
Management
eviCore Healthcare®, Express Scripts
PBM, myMatrixx®, Care
Continuum®, Evernorth Embarc
Benefit ProtectionSM, Evernorth
FamilyPathSM
Clients, Customers, Health
Care Providers, Consultants,
Health Plans, Commercial and
Government Payors
Independent Pharmacy Benefit
Managers (“PBMs”), Managed
Care PBMs, Retail Pharmacies,
Specialty Pharmacies
Health Plans, Independent
PBMs, Managed Care PBMs,
Third-Party Benefit
Administrators, Group
Purchasing Organizations,
Clinical Solutions and Health
Care Data Analytics Companies
Benefits
Management
Solutions
Supply Chain
Administration
and Network
Management
Care Solutions
Evernorth Intelligence Solutions
Value Based Programs (Express
Scripts SafeGuardRx®, Patient
AssuranceSM), National Preferred
Formulary, SaveOnSP, Express
Scripts MedRx ManagementSM,
Express Scripts Parachute RxSM,
Ascent Health Services, Econdisc,
Inside Rx®
Evernorth Healthy Ways to WorkSM,
inMyndSM, Health Connect 360SM,
Evernorth Digital Health
FormularySM, Advanced Utilization
Management, Enhanced Fraud, Waste
& Abuse, Advanced Opioid
Management®, ScreenRx®,
Behavioral Health
Express Scripts Lab, RationalMed®,
MediCUBE®, Express Scripts
ScriptVisionSM
Clients, Self-paying customers
(InsideRx only), Pharmacy
Providers
Health Plans, Independent
PBMs, Managed Care PBMs,
Third Party Benefit
Administrators, Group
Purchasing Organizations
Clients, Customers
Independent PBMs, Managed
Care PBMs, Third-Party Benefit
Administrators
Health Care Providers, Clients
Health Care Data Analytics
Companies
Provider Services
CuraScript SD®
Health Care Providers,
Clinics, Hospitals
Specialty Drug Distributors
Principal Products & Services
•
Pharmacy Solutions: The pharmacy operations consist of ten order processing pharmacies, five patient contact centers, 26
specialty branch pharmacies and 11 high-volume automated home delivery and specialty dispensing pharmacies located
throughout the United States. Dispensing pharmacies are located in Arizona, Delaware, Florida, Indiana, Massachusetts, Missouri,
New Jersey, Pennsylvania and Tennessee.
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Express Scripts Pharmacy: Express Scripts Pharmacy dispenses approximately 1.5 billion adjusted prescriptions(1) annually to
members of pharmacy plans managed by our Express Scripts PBM. The service offers free standard shipping of maintenance
medications nationwide, usually in a 90-day supply, directly to the customer's home. The service allows for automatic refills
on eligible medications and unrestricted telephone access to specially trained pharmacists who can help answer customer
questions. The front-end of our pharmacy is organized in Therapeutic Resource Centers, where specialized pharmacists focus
their practice of pharmacy by condition, which offers customers a more personalized experience, while providing enhanced
clinical care. Our differentiated practice of pharmacy, coupled with our advanced automated dispensing technology, results in
safer and more accurate pharmacy operations when compared to retail pharmacies, convenient access to maintenance
medications and better management of our clients' drug costs through operating efficiencies and generic substitutions. Our
research shows that Express Scripts Pharmacy achieves a higher level of therapeutic interventions, better adherence and cost
savings than is achieved through retail pharmacy networks.
Specialty Pharmacy Services: Specialty medications are primarily characterized as high-cost medications for the treatment of
complex and rare diseases. These medications broadly include those with frequent dosing adjustments, intensive clinical
monitoring, the need for customer training, specialized product administration requirements or medications limited to certain
◦
(1) Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted
as one script.
4
•
•
specialty pharmacy networks by manufacturers. Through a combination of assets and capabilities, we provide an enhanced
level of predictable care and therapy management for customers taking specialty medications, increased visibility and
improved outcomes for payors, and custom programs for biopharmaceutical manufacturers. Accredo is focused on dispensing
injectable, infused, oral and inhaled drugs that require a higher level of clinical service and support than traditional
pharmacies typically offer. Accredo supports successful outcomes for customers and reduces waste for clients through
specialty trained clinicians, a nationwide footprint and a network of in-home nursing services, reimbursement and customer
assistance programs and biopharmaceutical services. Drug manufacturers occasionally select Accredo for exclusive
dispensing of a highly specialized therapy. Freedom Fertility Pharmacy is dedicated exclusively to supporting patients
undergoing fertility treatment. Accredo and Freedom Fertility Pharmacy serve customers within a pharmacy benefit plan
administered by Express Scripts PBM, as well as customers in a plan administered by other PBMs and health plans.
Benefits Management Solutions: We drive high-quality, cost-effective care through prescription drug utilization and cost
management services. We support our clients' plan design selections to deliver balanced affordability, choice, simplicity and
convenience. We focus our solutions to align with our clients' service, care and cost management needs. As a result, we believe
we deliver better outcomes, higher customer satisfaction and a more affordable prescription drug benefit. We process drug claims
via Express Scripts Pharmacy, Accredo and our retail networks by integrating retail network pharmacy administration, benefit
design consultation, drug utilization review, drug formulary management and pharmacy fulfillment services. We administer
payments to retail networks and bill benefits costs to our clients through our end-to-end adjudication services.
◦
Drug Utilization Review program: When pharmacies submit claims for prescription drugs to us, we review them
electronically in real time for health and safety. We then alert the dispensing pharmacy of any detected issues. Clients may
also choose to enroll in programs that result in communications about potential therapy concerns being sent to prescribers
after the initial claim submission.
Benefits Design Consultation: We consult with our clients on how best to structure and leverage the pharmacy benefit to meet
plan objectives for affordable access to the prescription medications customers need to stay healthy, and ensure the safe and
effective use of those medications.
myMatrixx: myMatrixx is a unique PBM with an exclusive focus on workers' compensation. We combine high touch
customer service with clinical expertise and state-of-the-art business intelligence systems to deliver simplified solutions and
positive outcomes. myMatrixx leverages Express Scripts' robust pharmacy network and provides a smooth and personalized
experience for clients and injured workers.
eviCore Medical Benefits Management: eviCore healthcare is a leading provider of integrated health benefit management
solutions that focus on driving adherence to evidence-based clinical guidelines, improving the quality of patient outcomes
and reducing the cost of care. eviCore provides technology-enabled managed solutions in clinical diagnostic areas such as
advanced imaging, cardiology and gastroenterology, as well as in whole person (longitudinal) areas such as musculoskeletal,
oncology, fertility and post-acute care. eviCore contracts with health plans and other commercial and government payors to
promote the appropriate use of health care services by the customers they serve. In certain instances, this occurs through
capitated risk arrangements, when we assume the financial obligation for the cost of health care services provided to eligible
customers covered by eviCore health care management programs.
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◦ Medical Drug Management: We offer a comprehensive range of services and guaranteed savings for managing medically
billed specialty drugs. Our solutions apply utilization management, site of care management and claims prepayment review to
effectively reduce wasteful spend, while providing services tailored to customers ensuring safety and healthier outcomes. We
also offer MedRx(SM), a suite of solutions and consultative services for medical rebates contracting, and medically-billed drug
preferencing and value-based contracting.
Supply Chain Administration and Network Management:
◦
Retail Network Pharmacy Administration: We contract with retail pharmacies to provide prescription drugs to customers of
the pharmacy benefit plans we manage. We negotiate with pharmacies throughout the United States to discount drug prices
provided to customers and manage national and regional networks responsive to client preferences related to cost
containment, convenience of access for customers and network performance. We also manage networks of pharmacies
customized for or under direct contract with specific clients and have contracted with pharmacy provider networks to comply
with the Center for Medicare and Medicaid Services (“CMS”) access requirements for the federal Medicare Part D
prescription drug program (“Medicare Part D”). All retail pharmacies in our network communicate with us online and in real-
time to process prescription drug claims. When a plan customer presents their identification card at a network pharmacy, the
pharmacy sends specific customer, prescriber and prescription information in an industry-standard format through our
systems, which process the claim and respond to the pharmacy with relevant information to process the prescription.
Drug Formulary Management: Formularies are lists of drugs with designations that may be used to determine drug coverage,
customer out-of-pocket costs and communicate plan preferences in competitive drug categories. Our formulary
management services support clients in establishing formularies that assist customers and physicians in choosing clinically-
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appropriate, cost-effective drugs and prioritize access, safety and affordability. We administer specific formularies on behalf
of our clients, including standard formularies developed and offered by Express Scripts and custom formularies in which we
play a more limited role. Most of our clients select standard formularies, governed by our National Pharmacy & Therapeutics
Committee, which is comprised of a panel of independent physicians and pharmacists in active clinical practice representing
a variety of specialties and practice settings, typically with major academic affiliations. In making formulary
recommendations, this committee considers only the drug’s safety and efficacy and not the cost of the drug, including any
negotiated manufacturer discount or rebate arrangement. This process is designed to ensure the clinical recommendation is
not affected by our financial arrangements. We fully comply with this committee’s clinical recommendations regarding drugs
that must be included or excluded from the formulary based on their assessment of safety and efficacy.
Administration of Group Purchasing Organizations: Express Scripts operates various group purchasing organizations that
negotiate pricing for the purchase of pharmaceuticals, fees and formulary rebates with pharmaceutical manufacturers on
behalf of their participants. They also provide various administrative services to their participants including management and
reporting.
Copay Solutions: Our first-to-market innovative copay solutions helps patients afford their medications, protect plan design
preferences and achieve lower trend. In partnership with SaveOnSP on the first non-essential health benefits copay assistance
solution, we've driven significant savings by targeting high-cost, high-volume drugs. SaveOnSP recommends plan-design and
coverage changes for certain drugs, enabling maximum savings and reducing plan and client costs. As manufacturer
programs and regulations change, this aggressive solution adapts, delivering lower specialty plan cost and enhanced customer
support.
Inside Rx: Inside Rx is a prescription medication savings program that offers eligible customers with discounts on many
brand and generic medications for self-paying customers. This program is not insurance but offers savings at more than
60,000 participating retail pharmacies (including all major chains) in the United States and Puerto Rico. The program also
offers discounts on prescription medications for pets. Inside Rx earns a small fee from our supply chain partners every time a
customer fills a prescription via the program. This lets us provide access to our savings card at no cost to the customer.
Express Scripts Parachute Rx: Express Scripts Parachute Rx is a prescription discount program administered by Inside Rx to
assist Americans who are newly uninsured as a result of the COVID-19 pandemic by providing access to affordable and
predictable prices on select generic and brand-name medications. The program is not insurance but offers discounts on certain
prescription medications for uninsured customers. Express Scripts created this limited-time program through its close
partnerships with manufacturers and retail pharmacies across the country.
Value-Based Programs:
▪
▪
Express Scripts SafeGuardRx: We offer a solution platform aimed at therapy classes that pose budgetary threats and
clinical challenges to customers. Our solutions are designed to keep our clients ahead of the drug cost curve while
providing customers the personalized care and access they need. These solutions are offered throughout our
pharmacy benefit management services and include, but are not limited to care for: cardiovascular, diabetes,
hepatitis, inflammatory conditions, neurological, multiple sclerosis, oncology, pulmonary and rare conditions.
Innovative programs, such as SafeGuardRx, combine utilization management, formulary management, specialized
care from our Therapeutic Resource Centers and financial savings, to help us to change the market in key categories.
These services optimize the safe and appropriate dispensing of therapeutic agents, minimize waste and improve
clinical and financial outcomes. Through these services, specialist pharmacists provide the expert, personalized care
that customers increasingly demand.
Patient Assurance Program: This program addresses the need for greater affordability and access to medications by
providing a fixed out-of-pocket cost to customers in non-government funded benefit plans.
•
Care Solutions: We offer clinical programs to help our clients drive better whole-person health outcomes at a lower cost by
identifying and addressing potentially unsafe or wasteful prescribing, dispensing and use of prescription drugs and
communicating with, or supporting communications with, physicians, pharmacies and customers.
◦
Through our Healthy Ways to Work initiative, we're helping our partners and their employees navigate COVID-19 with a
suite of agile solutions focused on helping people return to a healthy, safe and productive workplace, including digital and
onsite support, population health and clinical care and resiliency development to help people cope with change.
Our inMynd mental health solution provides access to expert guidance and support for anxiety, depression and insomnia,
including access to individualized support and resources, condition-specific care through our Neuroscience Therapeutic
Resource Centers and a new digital Cognitive Behavioral Therapy program.
Health Connect 360 is a transformational, outcomes based, clinical management model that bridges pharmacy, medical, lab
and customer engagement data to develop insights and deliver personalized health care clinical support. Clinical outcomes
and quality metrics are tailored to meet client needs.
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Through the Evernorth Digital Health Formulary, we evaluate, procure, implement and manage digital health solutions on
behalf of clients, alleviating administrative burden and ensuring clinical effectiveness, data security, user-friendly experiences
and financial value.
Advanced Utilization Management programs are the number-one tool for decreasing client spend on pharmacy. These include
prior authorization, drug quantity management and step therapy.
Enhanced Fraud, Waste & Abuse helps plan sponsors identify potential problem customers and prescribers with unusual or
excessive utilization patterns. The program is designed to help identify outliers and situations of abnormal use or prescribing
patterns by analyzing types of prescriptions, refill patterns and pharmacy utilization.
Embarc Benefit Protection shields members from the high costs of life-saving gene therapies, so that customers who need
treatment can get it, through financial protection for high-cost therapies, access to quality, cost-effective in-network providers
and support from a dedicated gene therapy case management team.
FamilyPath is raising the bar for fertility health by providing more comprehensive, more flexible coverage and proactive care
for growing families, including expanded medical and pharmacy benefit management; access to vetted provider and lab
networks; and dedicated Fertility Advisors to proactively support and guide patients.
◦
Evernorth Intelligence Solutions: By bringing together world-class talent, multi-disciplinary expertise and advanced data and
analytics, we unlock actionable insights to help drive greater predictability, affordability and simplicity. We work together with
our clients and partners to create dynamic solutions, services and platforms that guide better decisions and improved performance
(see "Business - Data, Analytics, and Technology" section of this Form 10-K for further information).
◦
Evernorth Labs: We accelerate innovation through increased collaboration with clients, customers and partners to develop
solutions for launch in their businesses. With our Labs, which are state-of-the-art research facilities and shared spaces for
collaboration, ideation and innovation, we gather with our clients and industry leaders to solve the toughest challenges in the
health care system, including: better managing the most complex and expensive disease states, such as oncology; improving
care access and delivery, such as worksite, home and virtual care; and planning for emerging trends, such as artificial
intelligence, and industry disruptors, such as COVID-19.
Data, advanced analytics and platforms: We use advanced predictive modeling to shape solutions that help decrease
healthcare fragmentation, drive optimized care coordination, reduce key cost drivers and improve health outcomes. In-depth
trend analysis helps us to identify and effectively address challenges like opioid abuse, COVID-19 and other emerging health
crises. We use market surveillance and forecasting to pinpoint and proactively address cost drivers. Our platform strategy as a
service gives clients the tools to build successful businesses in a flexible, customizable way: Trend Central® provides access
to key performance indicators to help plan sponsors reduce costs and work towards healthier outcomes; HealthPredictSM
produces high patient-level risk scores, to show the highest value opportunities for proactive intervention; MediCUBE gives
our academic detailing pharmacists the analytical power to identify ways to save plans from significant unnecessary spend
and improve quality metrics; RationalMed improves patient health and safety by integrating medical, pharmacy and
laboratory claims data to initiate changes and correct errors in care, lowering both medical and prescription drug costs; and
ScriptVision provides a suite of real-time, data-driven capabilities that empower physicians to make the best prescribing
choices, including ePrescribing (including controlled substances), real-time prescription benefit information, electronic prior
authorizations, clinical care messages such as drug interactions and high-risk medication alerts and data on and patient
adherence rates.
Provider Services: CuraScript SD is a specialty distributor of pharmaceuticals and medical supplies (including injectable and
infusible pharmaceuticals and medications to treat specialty and rare or orphan diseases) directly to health care providers, clinics
and hospitals in the United States for office or clinic administration. Through this business, we provide distribution services
primarily to office and clinic-based physicians who treat customers with chronic diseases and regularly order costly specialty
pharmaceuticals. This business provides competitive pricing on pharmaceuticals and medical supplies, operates three distribution
centers and ships most products overnight within the United States; it also provides distribution capabilities to Puerto Rico and
Guam. It is a contracted supplier with most major group purchasing organizations and leverages our distribution platform to
operate as a third-party logistics provider for several pharmaceutical companies.
•
•
Customers
Our customers in the Evernorth segment include clients and patients, as described below, along with a description of our current and
former significant clients:
•
Clients: We provide services to managed care organizations, health insurers, third-party administrators, employers, union-
sponsored benefit plans, workers’ compensation plans, government health programs, providers, clinics, hospitals and others. We
provide services to a majority of customers in our U.S. Medical segment.
7
•
Patients: Prescription drugs are dispensed to patients connected to the service offerings we provide to clients. Prescription drugs
are dispensed primarily through networks of retail pharmacies under non-exclusive contracts with us and via home delivery from
Express Scripts Pharmacy and specialty drug fulfillment pharmacies.
The Department of Defense TRICARE® Pharmacy Program is the military health care program serving active-duty service customers,
National Guard and Reserve customers and retirees, as well as their dependents. Under this contract, we provide online claims
adjudication, home delivery services, specialty pharmacy clinical services, claims processing and contact center support and other
services critical to managing pharmacy trend. In 2020 and 2019, revenues from this contract were significant to the segment.
In 2019, Express Scripts and Prime Therapeutics LLC (“Prime”) entered into an agreement effective on April 1, 2020 which is
delivering improved choice and affordability for Prime’s clients and their patients by enhancing retail pharmacy networks and
pharmaceutical manufacturer value. In 2021, the relationship with Prime was expanded to include the option for Prime’s plans to
access the Accredo specialty pharmacy and Express Scripts home delivery in-network pharmacies.
On January 30, 2019, Anthem, Inc. (“Anthem”), a former customer, exercised its right to early termination of its pharmacy benefit
management services agreement, effective March 1, 2019. As of December 31, 2019, the transition of customers was substantially
complete. For further discussion of our Anthem relationship, see the “Executive Summary – Key Transactions and Business
Developments” section of our MD&A located in Part II, Item 7 of this Form 10-K.
Competition
The health care industry has undergone periods of substantial consolidation and may continue to consolidate in the future. We believe
the primary competitive factors in the industry include the ability to: negotiate with retail pharmacies to ensure our retail pharmacy
networks meet the needs of our clients and customers; provide home delivery and specialty pharmacy services; negotiate discounts and
rebates on prescription drugs with drug manufacturers; navigate the complexities of government-reimbursed business including
Medicare, Medicaid and the public exchanges; manage cost and quality of specialty drugs; use the information we obtain about drug
utilization patterns and consumer behavior to reduce costs for our clients and customers and the level of service we provide.
•
•
• Managed Care PBMs: CVS Caremark (owned by CVS Health Corporation), Humana, IngenioRx (owned by Anthem), OptumRx
(owned by UnitedHealth Group Inc.) and Prime Therapeutics (owned by a collection of Blue Cross / Blue Shield Plans) compete
with us on a variety of products and in various regions throughout the United States.
Independent PBMs: MedImpact, Navitus Health Solutions, Elixir (owned by Rite Aid Corporation) and many other regional
PBMs compete with us on a variety of products across the United States.
Pharmacies: CVS, Walgreens Boots Alliance, Inc., WalMart, Inc., Rite Aid, Kroger and other independent pharmacies compete
with us for the delivery of prescription drug needs to our customers. In addition, many PBMs own and operate home delivery and
specialty pharmacies including CVS, OptumRx, Walgreens, Humana and Elixir. New entrants continue to emerge including
Amazon Pharmacy, Capsule and Hims.
Third-Party Benefits Administrators: Third parties that specialize in claim adjudication and benefit administration, such as SS&C
Health, are direct competitors. With the emergence of alternative benefit models through Private Exchanges, the competitive
landscape also includes brokers, health plans and consultants. Some of these competitors may deploy greater financial, marketing
and technological resources than we do and new market entrants, including strategic alliances aimed at modifying the current
health care delivery models or entering the prescription drug sector from another sector of the health care industry, may increase
competition as barriers to entry are relatively low. For example, GoodRx is a new entrant focused on serving the uninsured and
underinsured in the cash pay pharmacy administration space.
Clinical Solutions and Health Care Data Analytics Companies: Optum (owned by UnitedHealth Group Inc.), Anthem, Magellan
Health, HealthHelp, Cotiviti and Inovalon are among the companies that compete with us in this market.
•
•
Operations
•
•
Sales and Account Management: Our sales and account management teams market and sell pharmacy benefit management
solutions and are supported by client service representatives, clinical pharmacy managers and benefit analysis consultants. These
teams work with clients to develop innovative strategies that put medicine within reach of customers while helping health benefit
providers improve access to and affordability of prescription drugs.
Supply Chain: Our supply chain contracting and strategy teams negotiate and manage pharmacy retail network contracts,
pharmaceutical and wholesaler purchasing contracts and manufacturer rebate contracts. As our clients continue to experience
increased cost trends, our supply chain teams develop innovative solutions such as our SafeGuardRx platform and preferred
pharmacy networks to combat these cost increases. In addition, our Formulary Consulting team, consisting of pharmacists and
8
financial analysts, provides services to our clients to support formulary decisions, benefit design consultation and utilization
management programs.
Clinical Support: Our staff of highly trained health care professionals provides clinical support for our medical, behavioral and
pharmacy customers. Our services include:
•
◦
◦
◦
Case management support for our customers through the continuum of health care – from inpatient hospitalization to at
home care – as well as health coaching and on-site coaching
Condition-specific specialized customer care through our Therapeutic Resource Center facilities staffed with specialist
pharmacists, nurses and other clinicians
Clinical development and operational support for our pharmacy benefit management services by our clinical solutions
staff of pharmacists and physicians who conduct a wide range of activities including: identifying emerging medication-
related safety issues and alerting physicians, clients and customers (as appropriate); providing drug information
services; managing formulary; and developing utilization management, safety (drug utilization review) and other clinical
interventions
Suppliers
We maintain an inventory of brand-name and generic pharmaceuticals in our home delivery and specialty pharmacies. Our specialty
pharmacies also carry biopharmaceutical products to meet the needs of our customers, including pharmaceuticals for the treatment of
rare or chronic diseases; if a drug is not in our inventory, we can generally obtain it from a supplier within a reasonable amount of
time.
We purchase pharmaceuticals either directly from manufacturers or through authorized wholesalers. Evernorth uses one wholesaler
more than others in the industry, but holds contracts with other wholesalers if needs for an alternate source arise. Generic
pharmaceuticals are generally purchased directly from manufacturers.
Industry Developments
See the “Industry Developments” section of the MD&A located in Part II, Item 7 of this Form 10-K for discussion of key industry
developments impacting this segment.
Intellectual Property Rights
The trademarks and service marks covering products, services and businesses provided under the Evernorth segment include, but are
not limited to, the following: EXPRESS SCRIPTS®, EVERNORTHSM, EVERNORTH HEALTHSM, MEDCO®, ACCREDO®,
CURASCRIPTSD®, MYMATRIXX®, EVICORE HEALTHCARE®, FREEDOM FERTILITY PHARMACY®, CARE
CONTINUUM®, RATIONALMED®, SCREENRX®, EXPRESSALLIANCE®, EVERNORTH DIGITAL HEALTH
FORMULARYSM, THERAPEUTIC RESOURCE CENTER®, ADVANCED OPIOID MANAGEMENT®, SAFEGUARDRX®, HIV
CARE VALUESM, RARE CONDITIONS CARE VALUE®, NEUROLOGICAL CARE VALUESM, CARDIOVASCULAR CARE
VALUESM, HEPATITIS CURE VALUE®, MARKET EVENTS PROTECTIONSM, ONCOLOGY CARE VALUESM, DIABETES
CARE VALUESM, INFLAMMATORY CONDITIONS CARE VALUESM, INFLATION PROTECTIONSM, PULMONARY CARE
VALUE®, MULTIPLE SCLEROSIS CARE VALUESM, MIGRAINE CARE VALUESM, CHOLESTEROL CARE VALUESM,
HEALTH CONNECT 360SM, EMBARC BENEFIT PROTECTIONSM, INMYNDSM, EXPRESS SCRIPTS PATIENT
ASSURANCESM, MEDICUBE®, EXPRESS SCRIPTS PHARMACY®, FAMILYPATHSM, SCRIPTVISIONSM, HEALTHY WAYS
TO WORKSM and INSIDE RX®. We, or our affiliated companies, own trademarks and trademark registrations for these and other
company marks.
We also hold a portfolio of patents and pending patent applications. We are not substantially dependent on any single patent or group
of related patents.
9
U.S. MEDICAL
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and
coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health,
dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government
solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual
health insurance plans both on and off the public exchanges. In 2020, U.S. Medical reported adjusted revenues of $38.5 billion and
pre-tax adjusted income from operations of $3.8 billion.
HOW WE WIN
·Broad and deep portfolio of solutions across U.S. Commercial and U.S. Government segments
·Commitment to highest-quality health outcomes and customer experiences
·Collaborative physician engagement models emphasizing value over volume of services
·Integrated and coordinated benefit solutions that deliver value for our customers, clients and partners
·Technology and data analytics powering actionable insights and affordable, predictable solutions
·Talented and caring people embracing change and putting customers at the center of all we do
We differentiate ourselves by providing innovative, personalized and affordable health care benefit solutions based on the unique
needs of the individuals and clients we serve. We increase value through our integrated approach and use of technology and data
analytics to enhance patient engagement and health care outcomes, underscoring our strategic focus on delivering an industry-leading
customer experience. We continue to strengthen our collaborative relationships with providers as we accelerate our transition to a
value-based reimbursement system.
We offer a mix of core health insurance products and services to employers, other groups and individuals along with specialty
products and services designed to improve the quality of care, lower cost and help customers achieve better health outcomes. Many of
these products are available on a standalone basis, but we believe they create additional value when integrated with a Cigna-
administered health plan. Our products are available through several distribution channels including brokers, direct sales and public
and private exchanges. Our three funding solutions (i.e., administrative services only (“ASO”), insured – guaranteed cost (“GC”) and
insured – experience-rated (“ER”) arrangements) enable us to customize the amount of risk taken by, and lower costs for, our clients.
10
The following chart depicts a high-level summary of our principal products and services in this segment, with definitions on
subsequent pages.
Principal Products &
Services
Major
Brand(s)
Geography
Funding
Solution(s)
Market
Segment(s)
Primary
Distribution
Channel(s)
Primary Competitors
U.S. Commercial Medical
Managed Care
Cigna
HealthCare
Nationwide
National Insurers, Local
Healthplans, Third-Party
Administrators (“TPAs”)
Preferred Provider
Organization
(“PPO”)
Cigna
Nationwide
GC, ER, ASO
U.S.
Commercial
Brokers, Private
Exchanges, Direct
National Insurers, TPAs
Consumer-Driven
Cigna
Nationwide
National Insurers, Local
Health Maintenance
Organizations
(“HMOs”)
U.S. Government Medical
Individual and
Family Plans
Medicare
Advantage
Cigna
11 states(1)
Cigna
18 states(2) &
District of
Columbia
GC
GC
Medicare Stand –
Alone Prescription
Drug Plans
Cigna, Express
Scripts
Nationwide
GC, ASO
Medicare
Supplement
Cigna
48 states(3) &
District of
Columbia
Medicaid
Cigna
Texas
GC
GC
Individual
Public Exchanges,
Brokers, Direct
Local Healthplans, Start-
ups, National Insurers
U.S.
Government
U.S.
Government
Direct, Brokers
National Insurers, Local
Healthplans
Direct, Brokers
National Insurers
U.S.
Government
Brokers, Direct,
Private Exchanges
National Insurers
U.S.
Government
Direct, Brokers
National Insurers
Specialty Products and Services
Stop-Loss
Cost Containment
Consumer Health
Engagement
Pharmacy
Management
Cigna
Cigna
Nationwide
GC
Nationwide
GC, ER, ASO
Cigna
Nationwide
GC, ER, ASO
Cigna
Nationwide
GC, ER, ASO
Behavioral Health
Cigna
Behavioral
Health
Nationwide
GC, ER, ASO
Dental & Vision
Cigna Dental
HealthCare
Nationwide
GC, ER, ASO
(1) AZ, CO, FL, IL, KS, MO, NC, TN, TX, UT, VA
(2) AL, AZ, AR, CO, DE, FL, GA, IL, KS, MD, MS, MO, NC, NJ, PA, SC, TN, TX
(3) All states except MA and NY
U.S.
Commercial
U.S.
Commercial
U.S.
Commercial,
U.S.
Government
U.S.
Commercial,
U.S.
Government
U.S.
Commercial
U.S.
Commercial,
U.S.
Government
Brokers, Direct
Direct
National Insurers,
Specialty Companies
National Insurers,
Specialty Companies
Brokers, Direct
National Insurers,
Specialty Companies
Brokers, Direct
National PBMs
Brokers, Direct
National Insurers,
Specialty Companies
Brokers, Direct
Dental Insurers, National
Insurers
11
Principal Products & Services
U.S. Commercial Medical
• Managed Care Plans are offered through our insurance companies, HMOs and TPA companies. HMO, Surefit, LocalPlus®,
Network and Open Access Plus plans use meaningful cost-sharing incentives to encourage the use of “in-network” versus
“out-of-network” health care providers. The national provider network for Managed Care Plans is somewhat smaller than the
national network used with the PPO plan product line.
PPO Plans feature a network with broader provider access than the Managed Care Plans.
Consumer-Driven Products are typically paired with a high-deductible medical plan and offer customers a tax-advantaged
way to pay for eligible health care expenses. These products, consisting of health savings accounts, health reimbursement
accounts and flexible spending accounts, encourage customers to play an active role in managing their health and health care
costs.
•
•
U.S. Government Medical
•
Individual and Family Plans are primarily Patient Protection and Affordable Care Act (“ACA”) compliant exclusive provider
organization ("EPO") or HMO plans marketed to individuals under age 65 who do not have access to health care coverage
through an employer or government program such as Medicare or Medicaid. Customers receive comprehensive health care
benefits and have access to a local network of health care providers who have been selected with cost and quality in mind.
• Medicare Advantage Plans allow Medicare-eligible beneficiaries to receive health care benefits, including prescription drugs,
through a managed care health plan such as our coordinated care plans. Our Medicare Advantage Plans include HMO and
PPO plans marketed to individuals. A significant portion of our Medicare Advantage customers receive medical care from
our value-based models that focus on developing highly engaged physician networks, aligning payment incentives to
improved health outcomes and using timely and transparent data sharing.
• Medicare Stand-Alone Prescription Drug Products provide a number of prescription drug plan options, as well as service and
information support, to Medicare eligible and dually eligible Medicaid customers, either directly to individuals or through a
qualified employer group. Our stand-alone plans offer the coverage of Medicare combined with the flexibility to select a
product that provides enhanced benefits and a formulary that meets an individual’s specific needs. Eligible beneficiaries
benefit from broad network access and enhanced service intended to promote adherence, wellness and affordability for our
eligible beneficiaries.
• Medicare Supplement Plans provide Medicare-eligible beneficiaries with federally standardized Medigap-style plans.
Beneficiaries may select among the various plans with specific plan options to meet their unique needs and may visit, without
the need for a referral, any health care provider or facility that accepts Medicare throughout the United States.
• Medicaid Managed Care provides both acute care and Long-Term Services and Supports ("LTSS") by integrating primary
care, behavioral health care, pharmacy services and LTSS for individuals who are age 65 or older or adults who have a
disability. LTSS includes services such as attendant care and day activity and health services. Members have access to a
service coordinator who is responsible for coordinating acute care and LTSS for members.
Specialty Products and Services
•
•
•
•
Pharmacy Management services and benefits can be combined with our medical offerings. The comprehensive suite of
pharmacy management services available to clients and customers, utilizing Evernorth's capabilities, includes benefits
management, specialty pharmacy services, clinical solutions, home delivery and certain health management services.
Behavioral Health services consist of a broad national network of behavioral health providers which includes one of the
largest virtual networks in the United States, behavioral health specialty case and utilization management, a crisis
intervention line accessible anytime, employee assistance programs and work/life programs. We focus on integrating our
programs and services with medical, pharmacy and disability programs to facilitate customized, holistic care as well as to
provide resources that increase resiliency and address non-medical factors that affect overall well-being.
Cost Containment Programs are designed to contain the cost of covered health care services and supplies. These programs
reduce out-of-network utilization and costs, protect customers from balance billing and educate customers regarding the
availability of lower cost in-network services. In addition, under these programs we negotiate discounts with out-of-network
providers, review provider bills and recover overpayments. We charge fees for providing or arranging for these services.
These programs may be administered by third-party vendors that have contracted with Cigna.
Stop-Loss insurance coverage is offered to self-insured clients whose group health plans are administered by Cigna. Stop-loss
insurance provides reimbursement for claims in excess of a predetermined amount for individuals, the entire group, or both.
12
•
•
Consumer Health Engagement services are offered to customers covered under plans administered by Cigna or by third-party
administrators. These services consist of an array of health management, disease management and wellness services. Our
Medical Management programs include case, specialty and utilization management and a 24/7 Health Information line which
ensures around the clock access to a medical professional. Our Health Advocacy program services include early intervention
in the treatment of chronic conditions and an array of health and wellness coaching. We administer incentives programs
designed to encourage customers to engage in health improvement activities.
Dental & Vision solutions include dental HMO plans, dental PPO plans, exclusive dental provider organization plans,
traditional dental indemnity plans and a dental discount program. Employers and other groups can purchase our products on
either an insured or self-insured basis as standalone products or in conjunction with medical products. Additionally,
individual customers can purchase insured dental PPO plans as standalone products or in conjunction with individual medical
policies.
Revenues: Fees and Premiums
•
•
ASO. Plan sponsors (i.e., employers, unions and other groups) self-fund all claims, but may purchase stop-loss insurance to
limit exposure. We collect fees from plan sponsors for providing access to our participating provider network and for other
services and programs including: claims administration; behavioral health services; disease management; utilization
management; cost containment; dental and pharmacy benefit management. Approximately 84% of our U.S. Commercial
medical customers are in ASO arrangements.
Insured. In most states, individual and group insurance premium rates must be approved by the applicable state regulatory
agency (typically department of insurance) and state or federal laws may restrict or limit the use of rating methods. Premium
rates for groups and individuals are subject to state review to determine whether they are adequate, not excessive and not
unfairly discriminatory. In addition, the ACA subjects individual and small group policy rate increases above an identified
threshold to review by the United States Department of Health and Human Services (“HHS”) and requires payment of
premium refunds on individual and group medical insurance products if minimum medical loss ratio (“MLR”) requirements
are not met. The MLR represents the percentage of premiums used to pay claims and expenses for activities that improve the
quality of care. In our individual business, premiums may also be adjusted as a result of the government risk adjustment
program that accounts for the relative health status of our customers.
◦
◦
Guaranteed Cost Insurance. Premium rates are established at the beginning of a policy period and, depending on
group size, may be based in whole or in part on prior experience of the policyholder or on a pool of similar
policyholders. We generally cannot subsequently adjust premiums to reflect actual claim experience until the next
annual renewal. The policyholder does not participate, or share in, actual claim experience. We keep any experience
surplus or margin if costs are less than the premium charged (subject to minimum medical loss ratio rebate
requirements discussed above) and bear the risk for actual costs in excess of the premium charged. Approximately
10% of U.S. Commercial medical customers are in guaranteed cost arrangements.
Experience-rated Insurance. Premium rates are established at the beginning of a policy period and are typically
based on prior claim experience of the policyholder. When claims and expenses are less than the premium charged
(an “experience surplus” or “margin”), the policyholder may be credited for a portion of this experience surplus or
margin. If claims and expenses exceed the premium charged (an “experience deficit”), we bear these costs. In certain
cases, experience deficits incurred while the policy is in effect are accumulated and may be recovered through future
policy year experience surpluses or margins. Approximately 5% of U.S. Commercial medical customers are in
experience-rated arrangements.
◦ Medicare Advantage. Premium rates are established at the beginning of a policy period based upon prior claim
experience. We cannot subsequently adjust premiums to reflect actual claim experience until the next policy period.
We receive fixed monthly payments from CMS for each plan customer based on customer demographic data and
actual customer health risk factors compared to the broader Medicare population. We also may earn additional
revenue from CMS related to quality performance measures (known as ‘‘Star Ratings’’). See the ‘‘Executive
Overview’’ section of our MD&A of this Form 10-K for additional discussion of our Star Ratings. Premiums may
be received from customers when our plan premium exceeds the revenue received from CMS. The ACA requires
Medicare Advantage plans to meet a minimum MLR of 85%. If the MLR for a CMS contract is less than 85%, we
are required to pay a rebate to CMS and could be required to make additional payments if the MLR continues to be
less than 85% for successive years.
See the “Business - Regulation” section of this Form 10-K for additional information about premiums, commercial MLR
requirements and risk mitigation programs of the ACA.
13
Market Segments
•
•
U.S. Commercial comprises employers from the following market segments:
◦
National. Multistate employers with 5,000 or more U.S.-based, full-time employees. We offer primarily ASO funding
solutions in this market segment.
◦ Middle Market. Employers generally with 500 to 4,999 U.S.-based, full-time employees. This segment also includes
single-site employers with more than 5,000 employees and Taft-Hartley plans and other groups. We offer ASO,
experience-rated and guaranteed cost insured funding solutions in this market segment.
Select. Employers generally with 51-499 eligible employees. We usually offer ASO with stop-loss insurance coverage
and guaranteed cost insured funding solutions in this market segment.
Small Group. Employers generally with 2-50 eligible employees. We offer guaranteed cost insured funding solutions in
select geographies with a strategic partner, Oscar Health, in this market segment.
◦
◦
U.S. Government comprises the following market segments:
◦
Individual. Includes individuals under age 65 who do not have access to health care coverage through an employer or
government program such as Medicare or Medicaid. We offer guaranteed cost, medical ACA-compliant and dental plans
in this segment.
◦ Medicare. Includes individuals who are Medicare-eligible beneficiaries, as well as employer group sponsored pre- and
post-65 retirees. We also have dual-eligible customers who receive both Medicare and Medicaid benefits. We receive
revenue from CMS based on customer demographic data and health risk factors. In 2020, revenues from CMS were
significant to the segment.
Primary Distribution Channels
•
•
•
•
Brokers. Sales representatives distribute our products and services to a broad group of insurance brokers and consultants
across the United States.
Direct. Cigna sales representatives distribute our products and services directly to employers, unions and other groups or
individuals across the United States. Various products may also be sold directly to insurance companies, HMOs and third-
party administrators. This may take the form of in-person contact, telephone or group selling venues. Cigna also offers an
online direct to consumer enrollment platform for our individual market segment.
Private Exchanges. We partner with select companies that have created private exchanges where individuals and
organizations can acquire health insurance. We actively evaluate private exchange participation opportunities as they emerge
in the market and target our participation to those models that best align with our mission and value proposition.
Public Exchanges. Cigna offers individual ACA-compliant policies through public health insurance exchanges in select
geographies.
Competition
The primary competitive factors affecting our business are quality and cost effectiveness of service and provider networks;
effectiveness of medical care management; products that meet the needs of employers and their employees; total cost management;
technology; and effectiveness of marketing and sales. Financial strength, as indicated by ratings issued by nationally recognized rating
agencies, is also a competitive factor. Our health advocacy capabilities, holistic approach to consumer engagement, breadth of product
offerings, clinical care and health management capabilities and array of product funding options are competitive advantages. We
believe our focus on improving the health, well-being and peace of mind of those we serve, and how we deliver better affordability,
predictability, and simplicity in health care will allow us to further differentiate ourselves.
•
•
•
•
•
•
National Insurers. United HealthGroup Inc., Aetna Inc. (owned by CVS Health Corporation), Anthem, Humana and Blue
Cross Blue Shield plans compete with us in a variety of products and regions throughout the United States.
Local Healthplans. Blue Cross Blue Shield plans, local affiliates of major insurance companies and hospitals and regional
stand-alone managed care and specialty companies compete with us in the states in which we offer managed care products.
Additionally, plan sponsors may contract directly with providers.
TPAs. Third-party administrators compete with us for ASO business.
Start-ups. Emerging participants including alternative health service models, consortiums and other health plans seeking to
disrupt, often through competitive technology.
Dental Insurers. Various companies offering primarily dental insurance compete with us on these products.
Specialty Companies. Specialty insurance or service companies that offer niche products and services compete with us.
14
Partnering to Deliver on the Promise of More Affordable, Predictable, Simple Health Care
Cigna’s strategy engages customers in their health, collaborates with providers to help them improve their performance and connects
customers and providers through aligned health goals, incentives and actionable information to enable better decisions and outcomes.
Our delivery strategy is designed to ensure our customers have access to the right care, in the preferred and appropriate setting at the
right time. Fueled by advanced insights and predictive analytics, Cigna is committed to developing innovative solutions that span the
health care delivery system and can be applied to different types of providers. Currently we have numerous collaborative arrangements
with our participating health care providers that reach over 2.9 million customers and are actively developing new arrangements to
support our strategy.
•
•
•
•
•
•
Accountable Care Program. We have approximately 240 collaborative care arrangements with primary care groups built on
the patient-centered medical home and accountable care organization (“ACO”) models. Our arrangements span 34 states and
reach over 2.9 million customers. We have made adjustments to the program to deepen our partnerships in responding to the
challenges and needs arising from the COVID-19 pandemic.
Hospital Quality Program. We have contracts with 175 hospital systems, involving over 540 hospitals, with reimbursements
tied to quality metrics.
Specialist Programs. We have over 300 arrangements with specialist groups in value-based reimbursement arrangements.
These arrangements include specialties in orthopedics, obstetrics and gynecology, cardiology, gastroenterology, oncology,
nephrology and neurology. Arrangements include incentives for enhanced care coordination and episodes of care
reimbursements for meeting cost and quality goals. We are expanding these programs to include bundled payment
arrangements beginning with orthopedics.
Independent Practice Associations. We have value-based physician engagement models in our Medicare Advantage business
that allow physician groups to share financial outcomes with us. This clinical model also includes outreach to new and at-risk
patients to ensure they are accessing their primary care physician.
Participating Provider Network. We provide our customers with an extensive network of participating health care providers,
hospitals and other facilities, pharmacies and providers of health care services and supplies. In most instances, we contract
with them directly; however, in some instances, we contract with third parties for access to their provider networks and care
management services. In addition, we have entered into strategic alliances with several regional managed care organizations
to gain access to their provider networks and discounts.
Virtual Care. We encourage access for customers through telehealth services as a way to support the patient/doctor
relationship. Our telehealth coverage provides the flexibility for the customer to access their own medical and behavioral
providers, as well as a network of telehealth providers for urgent care needs.
Industry Developments
See the “Industry Developments” section of the MD&A in this Form 10-K for discussion of key industry developments impacting this
segment.
INTERNATIONAL MARKETS
Cigna’s International Markets segment has operations in over 30 countries or jurisdictions providing a full range of comprehensive
medical and supplemental health, life and accident benefits to individuals and employers. Products and services include
comprehensive health coverage, hospitalization, dental, critical illness, personal accident, term life, medical cost containment and
variable universal life. In 2020, International Markets reported adjusted revenues of $5.9 billion and pre-tax adjusted income from
operations of $900 million.
South Korea represents our single largest geographic market for International Markets. For information on this concentration of risk
for the International Markets segment's business in South Korea, see "Other Items Affecting Results of International Markets" in the
International Markets section of the MD&A located in Part II, Item 7 of this Form 10-K.
15
HOW WE WIN
·Offering a broad range of health and protection-related solutions to meet the needs of the growing
middle class and globally mobile
·Leveraging deep consumer insights to drive product and service innovation
·Maintaining leading innovative, direct-to-consumer distribution capabilities
·Providing access to quality, affordable care through one of the largest global provider networks
·Implementing locally-licensed and compliant solutions managed by strong, locally-developed talent
Demand for our products and services is driven by the growing global middle class, aging populations, increasing prevalence of
chronic conditions and rising global health care costs. Our focus on product and service innovation means we continue to deliver
solutions that meet the evolving needs of individual and group customers. Our products, distribution channels and funding sources
range by customer and geography.
International Markets is well positioned to address the growing demand for access to quality, affordable care and supplemental health
and life protection that fill gaps in public and private care. We distinguish ourselves through differentiated direct-to-consumer
distribution, customer insights, product innovation, a leading provider network and compliant solutions. We identify and pursue
attractive market opportunities to bring health and protection solutions and tailor those solutions to the market and customer needs.
Over the past several years, we have extended our product offerings and geographic reach. The chart below provides a high-level
summary of our principal products and services in this segment with definitions on subsequent pages.
Principal
Products &
Services
Major Brand(s)
Geography
Funding
Solution(s)
Key Relationships
Global Health
Care
Cigna Global
Health Benefits,
Cigna Global
Individual Health
Worldwide (except
as limited by
applicable law)
ER, GC, ASO
Multinational
Companies, Inter-
governmental and
Non-governmental
Organizations
Globally mobile
individuals
Primary
Distribution
Channel(s)
Primary
Competitors
Brokers, Agents,
Direct-to-
Consumer
Global insurers
Local Health
Care
Cigna,
ManipalCigna,
CignaCMB
United Kingdom,
Spain, Hong Kong,
India, China,
Singapore, Middle
East, Thailand
ER, GC, ASO
Employer Groups
Individuals
Brokers, Agents,
Direct-to-
Consumer
Global insurers
and local non-U.S.
insurers
Supplemental
Health, Life, &
Accident
Cigna
LINA Korea,
CignaCMB,
ManipalCigna,
CignaFinans
Principal Products & Services
Asia Pacific, India,
Turkey
GC
Individuals
Affinity,
Bancassurance,
Brokers, Agents,
Direct-to-
Consumer
Global insurers
and local non-U.S.
insurers
Global Health Care products and services include insurance and administrative services for medical, dental, pharmacy, vision and life,
accidental death and dismemberment and disability risks. We are leading providers of products and services that meet the needs of
multinational employers, intergovernmental and nongovernmental organizations and globally mobile individuals with a focus on
keeping employees healthy and productive. The employer benefits products and services are offered through guaranteed cost,
experience-rated and administrative services only funding solutions, while individuals purchase guaranteed cost coverage. For
definitions of funding solutions, see “Revenues: Fees and Premiums” section in the “Business - U.S. Medical” section of this Form 10-
K.
Local Health Care products and services include medical, dental, pharmacy and vision as well as life coverage. The customers of local
health care businesses are employers and individuals located in specific countries where the products and services are purchased.
These employer services can similarly be funded through a range of options; individuals purchase on a guaranteed cost basis.
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Supplemental Health, Life and Accident Insurance products and services generally provide simple, affordable coverage of risks for the
health and financial security of individuals. Supplemental health products provide stated benefit payments for certain specified health
risks and include personal accident, accidental death, critical illness, hospitalization, travel, dental, dementia, cancer and other
specified condition coverages. We also offer customers term and variable universal life insurance and certain savings products in
select markets.
Competition
We anticipate that the competitive environment will continue to intensify as insurance and financial services providers more
aggressively pursue expansion opportunities across geographies, particularly Asia. We believe competitive factors will include speed-
to-market, customer insights, branding, product, distribution and service innovation, underwriting and pricing, efficient management
of marketing and operating processes, commission levels paid to distribution partners, the quality of compliance functions, claims,
network coverage and medical cost management and talent acquisition and retention. Additionally, in most overseas markets,
perception of commitment to the market and financial strength will likely be an important competitive factor.
Pricing and Reinsurance
Premium rates and fees for our global and local health care products reflect assumptions about future claims, expenses, customer
demographics, investment returns and profit margins. For products using networks of contracted health care providers and facilities,
premiums reflect assumptions about the impact of these contracts and utilization management on future claims. Most contracts permit
rate changes at least annually.
The profitability of health care products is dependent upon the accuracy of projections for health care inflation (unit cost, location of
delivery of care, currency of incurral and utilization), customer demographics, the adequacy of fees charged for administration and
effective medical cost management.
Premium rates for our supplemental benefits products are based on assumptions about mortality, morbidity, customer acquisition and
retention, customer demographics, expenses and capital requirements, as well as interest rates. Variable universal life insurance
products fees consist of mortality, administrative, asset management and surrender charges assessed against the contractholder’s fund
balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience. Most
contracts permit premium rate changes at least annually.
A global approach to underwriting risk management allows each local business to underwrite and accept risk within specified limits.
Retentions are centrally managed through cost-effective use of external reinsurance to limit our liability on a per event (catastrophe)
basis.
Industry Developments and Other Items Affecting International Markets
Pressure on social health care systems, a rapidly aging population and increased wealth and education in developing insurance markets
are leading to higher demand for health insurance and financial security products. In the supplemental health, life and accident
business, direct marketing channels continue to grow and attract new competitors with industry consolidation among financial
institutions and other affinity partners.
Data privacy regulation has tightened in all markets in the wake of high-profile data privacy incidents, impacting affinity partner and
customer attitudes toward direct marketing of insurance and other financial services. It has also placed an added emphasis on the
importance of operational compliance. In addition to data privacy, consumer protection, specifically market conduct and culture,
continues to be a focus for regulators in many markets.
Capital requirement standards continue to evolve with several markets implementing new capital regimes over the next few years.
GROUP DISABILITY AND OTHER
Group Disability and Other includes Cigna’s Group Disability and Life business which offers group long-term and short-term
disability, and group life, accident, voluntary and specialty insurance products and services. Additionally, this segment includes COLI
and the Company’s run-off operations. In 2020, Group Disability and Other reported adjusted revenues of $5.3 billion and pre-tax
adjusted income from operations of $290 million.
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On December 31, 2020, Cigna completed the sale of the Group Disability and Life business to New York Life Insurance Company for
$6.2 billion. In connection with the sale, the substantial majority of our Group Disability and Life operating segment was sold to New
York Life Insurance Company, and our continuing operations in voluntary products and services will be reported in the U.S. Medical
segment following the sale.
Group Disability and Life
In 2020, our Group Disability and Life operating segment included our commercial long- and short-term disability products and our
term life group insurance products. We also offered personal accident insurance and will continue to offer voluntary products and
services.
Principal Products & Services
•
•
•
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•
Group Long-term and Short-term Disability insurance products generally provide a fixed level of income to replace a portion
of wages lost due to disability. As part of our group disability insurance products, we also assisted employees in returning to
work and employers with resources to manage the cost of employee disability.
Leave Administration solutions help customers effectively manage workforce absence and provide coverage for paid leave.
Group Term Life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a
combination thereof.
Personal Accident Insurance coverage consists primarily of accidental death and dismemberment and travel accident
insurance to employers.
Voluntary Products and Services include plans that provide employers with administrative solutions designed to provide a
complete and simple way to manage their benefits program. These voluntary offerings include accidental injury insurance,
critical illness coverage and hospital care coverage, and provide additional dollar payouts to employees for unexpected
accidents, hospitalization or more serious illnesses. Group voluntary products and services are not included in the sale of the
Group Disability and Life business to New York Life and results of these products and services will be reported in the U.S.
Medical segment starting with the first quarter of 2021.
Premiums charged for disability and term life insurance products are usually established in advance of the policy period and are
generally guaranteed for one to three years, but selectively guaranteed for up to five years. Policies are generally subject to termination
by the policyholder or by the insurance company annually. Premium rates reflect assumptions about future claims, expenses, credit
risk, investment returns and profit margins. These assumptions may be based in whole or in part on prior experience of the account or
on a pool of accounts, depending on the group size and the statistical credibility of the experience that varies by product.
These products and services are distributed through brokers and direct sales and are available in guaranteed cost, experience-rated and
ASO arrangements.
Other Operations
Other Operations includes the following:
Corporate-Owned Life Insurance
The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of
certain employees for financing employer-paid future benefit obligations. Permanent life insurance provides coverage that, when
adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies. Fees for
universal life insurance products consist primarily of mortality and administrative charges assessed against the policyholder’s fund
balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted
prospectively to reflect expected interest and mortality experience. To reduce our exposure to large individual losses, we purchase
reinsurance from unaffiliated reinsurers.
Run-off Settlement Annuity Business
Our settlement annuity business is a closed, run-off block of single premium annuity contracts. These contracts are primarily liability
settlements with approximately 20% of the liabilities associated with guaranteed payments not contingent on survivorship. Non-
guaranteed payments are contingent on the survival of one or more parties involved in the settlement.
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Run-off Reinsurance
Our reinsurance operations are an inactive business in run-off.
In February 2013, we effectively exited the GMDB and GMIB business by reinsuring 100% of our future exposures, net of
retrocessional arrangements in place at that time, up to a specified limit. For additional information regarding this reinsurance
transaction and the arrangements that secure our reinsurance recoverables, see Note 10 to the Consolidated Financial Statements.
Individual Life Insurance and Annuity and Retirement Benefits Businesses
This business includes deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004
sale of the retirement benefits business. For more information regarding the arrangements that secure our reinsurance recoverables for
the retirement benefits business, see Note 10 to the Consolidated Financial Statements.
DATA, ANALYTICS AND TECHNOLOGY
Cigna’s investments in data, analytics and technology remain outcome-driven with a focus on driving affordability, simplicity,
predictability and growth across all of our business platforms. We deliver value for our clients, customers and stakeholders by creating
better health outcomes, improving customer experience and lowering total cost of care.
Data and Analytics. We conduct timely, rigorous and objective research and analysis that informs evidence-based medical and
pharmacy benefit management and evaluates the clinical, economic and individual impact of enhanced benefit designs and programs.
The combination of our predictive analytics, machine and deep learning capabilities create augmented intelligence that inform
decision-making of our health care professionals. We anticipate needs and meet customers where they are, from predicting chronic
diseases, to using data to reduce payment and claims fraud, optimizing whole person health and optimizing networks to improve
provider access and assist members with care navigation.
We are uniquely positioned to create actionable intelligence by leveraging our rich, integrated data sets and providing differentiating
outcomes. During 2020, we were able to leverage both internal and external data related to COVID-19 in order to enhance our ability
to predict infections and hospitalizations, inform our operational preparedness and optimize care management to improve health
outcomes for our customers, across each of our businesses.
Innovation remains at the forefront of our data, analytic and technology solutions. The advancement of our internal capabilities and
strategic partnerships continues to produce new and more effective ways to close gaps in care, optimize treatment and improve
outcomes. During 2020, significant continued technology integration delivered cost synergies and drove differentiated innovation in
areas such as pharmacy supply chain, specialty pharmacy and retail networks. In the future, we expect continued value realization with
focus on customer-facing systems and opportunities for enhanced value in specialty, claims and retail. (See Evernorth Intelligence
Solutions section of the "Business - Evernorth" discussion of this Form 10-K for additional information on our intelligent solutions
and capabilities).
Our data and analytics talent powers these differentiated capabilities through deep expertise in data management, business analytics,
intelligence and data science, with ongoing investments in talent development, analytic and big data technologies enabled by Cigna
Technology Services (see below), as well as innovative third party partnerships while ensuring controls are designed to protect
sensitive client and customer information.
Technology. Cigna Technology Services enables the strategy by focusing on strong foundational technology services, delivery of a
business-aligned technology project portfolio and creating technology solutions to differentiate us in the market. Our innovation
continues to support three strategic areas: customer benefit administration and health journey; digital health; and care delivery and
management. Our technology drives improved customer experience, increases engagement and advances population health through
provider collaboration tools and enables delivery of advanced analytics and predictive intelligence to provide key areas of competitive
advantage.
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We continue to bring new technology-enabled products and services to the market, including biometric stress prediction and focused
insights in spaces such as women’s health and opioid addiction. Our digital health focus has shown value across the enterprise by
creating engaging experiences that give customers the right information at the right time. This includes an enhanced MyCigna.com
experience with new features, including refill and payment options, without leaving the mobile application. Cybersecurity protections,
such as multi-factor authentication, have been launched across Cigna’s digital offerings providing better peace of mind and a stronger
sense of security.
Our technology team, powered by approximately 7,000 employees and several thousand external resources working with our partners,
supports the various information systems essential to our operations including the health benefit claims processing systems and
specialty and home delivery pharmacy systems. Uninterrupted point-of-sale electronic retail pharmacy claims processing is a
significant operational requirement for our business. We believe we have substantial capacity for growth in our United States
pharmacy claims processing facilities. Our pharmacy technology platform allows us to safely, rapidly and accurately adjudicate over
one billion adjusted prescriptions annually. Our technology helps retail pharmacies focus on patient care and our real-time safety
checks help avoid hundreds of thousands of medication errors annually. The Cigna companies hold over 230 United States patents.
We use these patents to protect our proprietary technological advances and to differentiate ourselves in the market.
INVESTMENT MANAGEMENT
Our investment operations provide investment management and related services for our various businesses, including the insurance-
related invested assets in our General Account (“General Account Invested Assets”). We acquire or originate, directly or through
intermediaries, a broad range of investments including private placement and public securities, commercial mortgage loans, real estate,
mezzanine, private equity partnerships and short-term investments. Invested assets also include policy loans that are fully
collateralized by insurance policy cash values. We also enter into derivative financial instruments, primarily to minimize the risk of
changes in foreign currency exchange rates on our investments. Invested assets are managed primarily by our subsidiaries and, to a
lesser extent, external managers with whom our subsidiaries contract. Net investment income is included as a component of adjusted
income from operations for each of our segments and Corporate. Realized investment gains (losses) are reported by segment but
excluded from adjusted income from operations. For additional information about invested assets, see the “Investment Assets” section
of the MD&A and Notes 11 and 12 to the Consolidated Financial Statements.
We manage our investment portfolios to reflect the underlying characteristics of related insurance and contractholder liabilities and
capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. Insurance
and contractholder liabilities range from short duration health care products to longer-term obligations associated with life insurance
products and the run-off settlement annuity business. Assets supporting these liabilities are managed in segregated investment
portfolios to facilitate matching of asset durations and cash flows to those of corresponding liabilities. Investment results are affected
by the amount and timing of cash available for investment, economic and market conditions and asset allocation decisions. We
routinely monitor and evaluate the status of our investments, obtaining and analyzing relevant investment-specific information and
assessing current economic conditions, trends in capital markets and other factors such as industry sector, geographic and property-
specific information.
Separate Accounts
Our subsidiaries or external advisors manage invested assets of Separate Accounts on behalf of contractholders, including the Cigna
Pension Plan, variable universal life products sold through our corporate-owned life insurance business and other life insurance
products. These assets are legally segregated from our other businesses and are not included in General Account Invested Assets.
Income, gains and losses generally accrue directly to the contractholders.
Investing in Innovation
In addition to the portfolio investments in our general and separate accounts discussed above that support our insurance operations, we
do targeted investing within the health care industry specifically. In 2018, Cigna committed $250 million to Cigna Ventures, our
strategic corporate venture fund to invest in promising startups and growth-stage companies who, like us, are unlocking new growth
possibilities in health care. Specifically, we invest in companies making groundbreaking progress in three strategic areas: insights /
analytics, digital health / experience, care delivery / enablement. To date, Cigna Ventures has six venture capital partners and 14 direct
investments. Through these deep partnerships we collaborate, innovate and develop new solutions that address critical market
challenges of affordability, predictability and simplicity impacting the people we serve.
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HUMAN CAPITAL MANAGEMENT
Cigna’s mission is to improve the health, well-being and peace of mind of those we serve by enabling affordable, predictable and
simple health care. A global healthy and diverse workforce is essential to achieving our mission and our business growth strategies.
We are continually investing in our global workforce to support our employees’ health and well-being, further drive diversity and
inclusion, provide fair and market-competitive pay and foster their growth and development. As of the end of the 2020 fiscal year, we
had approximately 73,700 employees, with 89% of our employees based in the United States. Almost all of our employees are full-
time, with less than 2% of employees regularly working fewer than 30 hours per week.
Health, Well-Being and Other Benefits
Tending to our employees’ health, well-being and peace of mind is more than just our mission – it is a critical business imperative for
our company. At Cigna, we believe that the provision of health and well-being benefits for our employees is our responsibility as an
employer, and should not be outsourced to the government or other third parties. Ensuring that our employees have comprehensive
health and well-being benefits is not only the right thing to do from a societal perspective – it is also one of the most important
investments in our enterprise that we make each year. That is because we strongly believe that a healthy workforce is more productive,
has fewer absences and is a critical enabler for us to drive our business and our strategy forward, thereby creating significant
shareholder value. In 2020, Cigna invested approximately 17% of total payroll in health, well-being and other benefits, including life
and disability programs, 401(k) contributions and retirement-related benefits for its employees in the United States.
In addition to traditional medical and pharmacy benefits, we provide mental health support to employees, including: employee
assistance program (EAP) benefits that are free to all employees and to any member of their household, digital tools that provide
access to education and therapy to help individuals build greater resilience and cope with stress, anxiety and depression.
Diversity, Equity & Inclusion
At Cigna, we take an expansive view of diversity including race, ethnicity, nationality, gender, veteran status, ability, sexual
orientation and gender identity. As of the end of the 2020 fiscal year, 70% of our employees were women, and 37% of our employees
in the United States were from underrepresented groups (which includes Black/African American, Hispanic or Latinx, Asian, Pacific
Islander, American Indian/Alaskan and employees who identified as two races or more).
We are committed to fairness in pay and opportunity for all of our employees. Our compensation practices, which include
benchmarking compensation by role, eliminating inquiries regarding applicants’ compensation history from the hiring process and
monitoring for potential disparities, promote equity in pay. Our most recent pay equity analysis, conducted in 2020, showed that in the
United States female employees at Cigna earn 99.9 cents for every dollar earned by similarly-situated male employees, and employees
from underrepresented groups earn 99.7 cents for every dollar earned by similarly-situated white employees.
We are committed to attracting and recruiting key diverse talent across various leadership development programs and other entry level
positions with the business. This success is rooted in strategic relationships with diverse student groups at our partner colleges and
universities as well as our commitment to multiple national, regional and local organizations, which provide us focused recruiting
opportunities with women, the LGBTQA+ community, military veterans and underrepresented minority groups.
Talent Acquisition, Development and Retention
Our talent acquisition and rewards strategies are designed to ensure we attract and retain skilled employees who are engaged in our
mission. Our compensation program is rooted in market competitive base salaries and incentives that reward contributions that
advance the Company’s strategy and mission. Our online learning platform and career development tools and events offer a broad
range of training, education and development resources to all employees. In 2020, U.S. employees on average engaged in 53 hours of
learning through these resources. Enterprise leadership development programs include New Leader Experience, Leading with
Excellence, Transformative Leadership, Inclusive Leadership and Leaders in Transition. Cigna also offers an education reimbursement
program for both full and part-time employees who meet the continuing education criteria. We believe these strategies and programs
contribute to employee engagement and retention. In 2020, the voluntary turnover rate was 3.9% for exempt employees in the United
States.
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MISCELLANEOUS
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Revenues from U.S. Federal Government agencies, under a number of contracts, represent 15% of our consolidated revenues in
2020.
The Company is not dependent on business from one or a few brokers or agents. In addition, our insurance businesses are
generally not committed to accept a fixed portion of the business submitted by independent brokers and agents and generally all
such business is subject to approval and acceptance.
REGULATION
The laws and regulations governing our business continue to increase each year and are subject to frequent change. We are regulated
by federal, state and international legislative bodies and agencies, which generally have discretion to issue regulations and interpret
and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing
laws and rules also may change periodically. Domestic and international governments continue to enact and consider various
legislative and regulatory proposals, which could materially impact the health care system. We expect continued legislative and
regulatory debate of issues related to our businesses. As has become increasingly common with public policy reforms in the health
services industry, executive, judicial or legislative intervention could alter, slow or eliminate the impact of any proposal following the
related regulation’s promulgation, including, for example, the executive order issued in January 2021 regarding a regulatory freeze
pending review which may delay or ultimately result in revision or repeal of various regulatory actions taken in 2020.
Many aspects of our business are directly regulated by federal and state laws and administrative agencies, such as the Department of
Health and Human Services (“HHS”), Centers for Medicare and Medicaid Services (“CMS”), the Internal Revenue Service (“IRS”),
the U.S. Departments of Labor (“DOL”), Treasury and Justice (“DOJ”), the Office of Personnel Management (“OPM”), the Federal
Trade Commission (“FTC”), the U.S. Securities and Exchange Commission (“SEC”), the Office of the National Coordinator for
Health Information Technology (“ONC”), state departments of insurance and state boards of pharmacy. Our business practices may
also be shaped by judicial decisions.
In addition, aspects of our business are subject to indirect regulation. The self-funded benefit plans sponsored by our U.S. employer
clients are regulated under federal law. These self-funded clients expect us to ensure that our administration of their plans complies
with the regulatory requirements applicable to them.
Our business operations and the books and records of our regulated businesses are routinely subject to examination and audit at regular
intervals by state insurance and HMO regulatory agencies, state boards of pharmacy, CMS, DOL, IRS, OPM and comparable
international regulators to assess compliance with applicable laws and regulations. Our operations are also subject to nonroutine
examinations, audits and investigations by various state and federal regulatory agencies, generally as the result of a complaint. In
addition, we may be implicated in investigations of our clients whose group benefit plans we administer on their behalf. As a result,
we routinely receive subpoenas and other demands or requests for information from various state insurance and HMO regulatory
agencies, state attorneys general, the HHS Office of Inspector General (“HHS-OIG”), the DOJ, the DOL and other state, federal and
international authorities. We may also be called upon by members of the U.S. Congress to provide information, including testifying
before Congressional committees and subcommittees, regarding certain of our business practices. If Cigna is determined to have failed
to comply with applicable laws or regulations, these examinations, audits, investigations, reviews, subpoenas and demands may:
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result in fines, penalties, injunctions, consent orders or loss of licensure;
suspend or exclude from participation in government programs or limit our ability to sell or market our products;
require changes in business practices;
damage relationships with the agencies that regulate us and affect our ability to secure regulatory approvals necessary for the
operation of our business; or
damage our brand and reputation.
Our international subsidiaries are subject to regulations in international jurisdictions, including in certain cases many regulations
similar to the federal and state regulations described below, which are complex and where foreign insurers may face more rigorous
regulations than their domestic competitors and may also be affected by geopolitical developments or tensions.
The laws and regulations governing our business, as well as the related interpretations, are subject to frequent change and can be
inconsistent or in conflict with each other. Changes in our business environment are likely to continue as elected and appointed
officials at the national and state levels continue to propose and enact significant modifications to existing laws and regulations. Even
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where we believe that we are in compliance with the various laws and regulations, any enforcement actions by federal, state or
international government officials alleging non-compliance with these rules and regulations could subject us to penalties or
restructuring or reorganization of our business. For a discussion of the risks related to our compliance with these laws and regulations
see the Risk Factors section located in Part I, Item 1A of this Form 10-K. Management continues to be actively engaged with
regulators and policymakers with respect to legislation and rulemaking.
COVID-19-related Regulatory Actions
In response to COVID-19 which was declared a pandemic by the World Health Organization in early 2020, U.S. federal and state
governments have increasingly enacted new legislative and regulatory requirements, as well as provided flexibility to industry
participants within existing legal requirements. These regulatory actions primarily provide for:
client and customer premium relief to avoid the cancellation or non-renewal of policies;
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• mandating or requesting waiver of customer cost-sharing and other related costs such as COVID-19 testing or treatment, as
well as establishing provider reimbursement and vaccine immunizations coverage requirements;
extending claims filing deadlines for providers, customers and facilities;
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• mandating or encouraging waiver of customer cost-share related to telemedicine services, as well as requiring certain
•
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reimbursement levels for telemedicine providers to encourage its utilization;
increasing the Medicare fee-for-service reimbursement for certain items and services;
enacting coverage and reimbursement requirements at in-network levels for certain services received from out-of-network
providers;
clarification regarding permissible sharing of information and coordination among health care providers;
revising or suspending the use of certain medical management procedures; and
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• mandating prescription drug benefit administration requirements primarily related to formulary exceptions and restrictions,
and prior authorization and prescription drug refill limits.
These actions are in effect for various durations, but generally track the different states of emergency that have been declared at the
state and federal level. Of particular significance is the Public Health Emergency declared by the Secretary of HHS on January 31,
2020, which sets the effective period for certain of the requirements established through federal COVID-19 legislation, such as
covering testing without cost sharing.
Patient Protection and the Affordable Care Act
The Patient Protection and Affordable Care Act (“ACA”) mandated broad changes to the U.S. health care system, including insured
and self-insured health benefit plans and pharmacy benefit managers. Our business model is impacted by the ACA, including our
relationships with current and future producers and health care providers, products, service providers and technologies. The provisions
of the ACA imposed, among other things, certain assessments on health insurers, created health insurance exchanges for individuals
and small group employers to purchase insurance coverage and implemented minimum medical loss ratios (“MLRs”) for our Medicare
and commercial businesses. Certain states have adopted MLR requirements applicable to our commercial businesses that are more
stringent than those established by the ACA. Other provisions of the ACA in effect include reduced Medicare Advantage payment
rates, the requirement to cover preventive services with no enrollee cost-sharing, banning the use of lifetime and annual limits on the
dollar amount of essential health benefits, increasing restrictions on rescinding coverage, extending coverage of dependents up to age
26, restrictions on differential pricing, enforcement mechanisms and rules related to health care fraud and abuse enforcement activities
and certain pharmacy benefit transparency requirements. The employer mandate requires employers with 50 or more full-time
employees to offer affordable health insurance that provides minimum value (each as defined under the ACA) to full-time employees
and their dependents, including children up to age 26, or be subject to penalties based on employer size. The ACA also changed
certain tax laws to effectively limit tax deductions for certain employee compensation paid by health insurers. In December 2019, the
federal government repealed the non-deductible health insurance industry fee effective for 2021, as well as repealing the enacted but
never implemented 40% excise tax on certain employer-sponsored coverage (known as the “Cadillac Tax”) and the medical device
tax.
In 2018, the DOL issued final rules that revised the definition of “employer” under the Employee Retirement Income Security Act of
1974, as amended (“ERISA”) to make it easier for employers, including self-employed individuals, to form bona fide employer
groups, all of whose employees would be counted in determining whether they were small or large groups for purposes of the ACA.
While the regulation of these groupings by state insurance departments is not affected by the DOL’s final association health plan rules,
the final rules have resulted in an increase in interest among employers, associations, producers and benefit consultants in forming
new groupings for purposes of offering insured or self-funded group health plans.
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Since its adoption, there have been several attempts to repeal or limit the utility of the ACA. Certain insurers, including Cigna, have
sued the federal government for failure to pay cost-sharing subsidies (“CSR”) under the ACA. In the first set of consolidated appeals,
the Court of Appeals for the Federal Circuit issued a decision on August 14, 2020, finding that (i) the CSR reimbursement provision of
the ACA imposes an obligation on the government to pay, but (ii) the insurers’ damages must be reduced by the amount of additional
premium tax credit payments that each insurer received as a result of the government’s termination of CSR payments. Our premium
rates for the 2018, 2019 and 2020 plan years reflected a lack of government funding for cost-sharing reduction subsidies. The insurers
filed petitions for rehearing en banc in the Federal Circuit and the court denied those petitions. On February 19, 2021, two insurers
filed a petition seeking U.S. Supreme Court review. The matter remains unresolved and our case is stayed pending final resolution of
the consolidated appeals, including the petition for writ of certiorari in the U. S. Supreme Court. In December 2017, U.S. tax reform
legislation was signed into law that, among other things, reduced the “individual mandate” penalty for individuals without health
insurance to zero dollars, effective January 1, 2019. As a result of this change, a federal district court has ruled that the “individual
mandate” is unconstitutional and that the entire law must be struck down. On appeal, the Court of Appeals for the Fifth Circuit agreed
that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA
can remain in effect. The California-led states and the U.S. House of Representatives filed petitions seeking to appeal the Fifth
Circuit's ruling to the U.S. Supreme Court. The U.S. Supreme Court heard oral arguments on the appeals on November 10, 2020 and a
decision is expected by the end of June 2021.
See Note 3 to the Consolidated Financial Statements for more information regarding accounting policies around the risk mitigation
programs under the ACA.
Medicare and Medicaid Regulations
Through our subsidiaries, we offer individual and group Medicare Advantage, Medicare Prescription Drug (“Part D”) and Medicare
Supplement products. We also provide Medicare Part D-related products and services to other Medicare Part D sponsors, Medicare
Advantage Prescription Drug Plans and employers and clients offering Medicare Part D benefits to Medicare Part D eligible
beneficiaries. As part of our Medicare Advantage and Medicare Part D business, we contract with CMS to provide services to
Medicare beneficiaries. As a result, our ability to obtain payment (and the determination of the amount of such payments), market to,
enroll and retain customers and expand into new service areas is subject to compliance with CMS’ numerous and complex regulations
and requirements that are frequently modified and subject to administrative discretion, review and enforcement. We offer Medicaid
and dual-eligible products and participate in state Medicaid programs directly or indirectly through our clients who are Medicaid
managed care contractors. We also perform certain Medicaid subrogation services and certain delegated services, including utilization
management, for clients, which are regulated by federal and state laws. Our Medicaid and dual-eligible products are regulated by CMS
and state Medicaid agencies audit our performance to determine compliance with contracts and regulations.
CMS evaluates Medicare Advantage plans and Part D plans under its “Star Rating” system. The Star Rating system considers various
measures adopted by CMS, including, for example, quality of care, preventive services, chronic illness management, coverage
determinations and appeals and customer satisfaction. A plan’s Star Rating affects its image in the market and plans that perform very
well are able to offer enhanced benefits and market more effectively and for longer periods of time than other plans. Medicare
Advantage plans’ quality-bonus payments are determined by the Star Rating, with plans receiving a rating of four or more stars
eligible for such payments. The Star Rating system is subject to change annually by CMS, which may make it more difficult to
achieve and maintain four stars or greater. For example, beginning with Star Ratings for payment year 2024, CMS will place more
emphasis on patient experience survey-based measures which could reduce Star Ratings predictability year over year. Additionally, as
a result of the COVID-19 pandemic’s impact on 2020 care patterns and utilization, CMS finalized rules applying relief to Medicare
Advantage and Part D Plan Star Ratings for payment year 2023 by utilizing the higher of the payment year 2023 or 2022 measure
level Star Ratings.
CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage plans according to customers’ health status.
The risk-adjustment model generally pays more where a plan's membership is expected to have increased costs because of the health
status of its members. Under this model, rates paid to Medicare Advantage plans are based on actuarially determined bids, which
include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits
to an enrollee with a “national average risk profile.” That baseline payment amount is adjusted to reflect the health status of our
enrolled membership. Under the risk-adjustment methodology, Medicare Advantage plans must collect and submit the necessary
diagnosis code information from hospital inpatient, hospital outpatient and physician providers to CMS within prescribed deadlines.
We generally rely on providers, including certain providers who are employees, to appropriately document their claims and other
submissions with appropriate diagnoses from which we extract hierarchical condition codes to submit to CMS as the basis for our
payments received under the actuarial risk-adjustment model. The CMS risk-adjustment model uses the diagnosis data to calculate the
risk-adjusted premium payment to the plans, which CMS adjusts for coding pattern differences between the health plans and the
government fee-for-service program. In 2012, CMS released a payment methodology that provided for sample audit error rates to be
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extrapolated to the entire Medicare Advantage contract after comparing audit results with a similar audit of Medicare Fee for Service
(the “FFS Adjuster”) and applying an FFS Adjuster to establish actuarial equivalency in payment rates as required by the Medicare
statute. However, a methodology to calculate the FFS Adjuster was not finalized and CMS has, to date, not completed any Risk
Adjustment Data Validation (“RADV”) audits using extrapolation.
On November 1, 2018, CMS released a proposed rule titled “Proposed Rule on Changes to MA and Part D Programs for CY 2020 and
2021” that would revise its RADV methodology for RADV audits of contract year 2011 and all subsequent years by, among other
things, extrapolating the error rate related to RADV audit findings without applying the FFS Adjuster. If the proposed rule is adopted
in its current form, it could result in some combination of degraded plan benefits, higher monthly premiums and reduced choice for the
population served by all MA insurers. The Company, along with other Medicare Advantage organizations and additional interested
parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment
period concluded on August 28, 2019 and CMS is expected to act by November 2021. RADV audits for our contract years 2011
through 2015 are currently in process. It is uncertain whether CMS will finalize the rule as proposed. See below under “Federal and
State Oversight of Government-Sponsored Health Care Programs” for a discussion of RADV audits.
Coverage of prescription drugs under Medicare Part D is also regulated by CMS and our contracts with CMS contain provisions for
risk sharing and certain payments for prescription drug costs for which we are not at risk. These provisions affect our ultimate
payments from CMS. For example, premiums from CMS are subject to risk corridor payments which compare costs targeted in our
annual bids with actual prescription costs, limited to actual costs that would have been incurred under the standard coverage as defined
by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS
a portion of the payments we received (known as a risk corridor).
We expect CMS, HHS-OIG, DOJ and other federal agencies to continue to closely scrutinize each component of the Medicare
Advantage program and modify the terms and requirements of the program. Noncompliance with these laws and regulations may
result in significant consequences, including fines and penalties, enrollment sanctions, exclusion from the Medicare and Medicaid
programs, limitations on expansion and criminal penalties.
False Claims Act and Anti-Kickback Laws
Our products and services are also subject to the federal False Claims Act (the “False Claims Act”) and federal and state anti-kickback
laws. Additionally, the federal government has made investigating and prosecuting health care fraud, waste and abuse a priority.
Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks in return for customer referrals, billing
for unnecessary medical services, upcoding and improper marketing. The regulations and contractual requirements in this area are
complex, frequently modified and subject to administrative discretion and judicial interpretation.
False Claims Act and Related Criminal Provisions. The False Claims Act imposes civil penalties on any person who makes or causes
to be made claims or records or statements that he or she knows or should know are false with respect to governmental programs, such
as Medicare and Medicaid, to obtain reimbursement or for failure to return overpayments. Private individuals may bring qui tam or
“whistleblower” suits against providers under the False Claims Act, which authorizes the payment of a portion of any recovery to the
individual bringing suit. The ACA amended the federal anti-kickback laws to state any claim submitted to a federal or state health care
program that violates the anti-kickback laws is also a false claim under the False Claims Act. The False Claims Act generally provides
for the imposition of civil penalties and for treble damages, creating the possibility of substantial financial liabilities. Criminal statutes
similar to the False Claims Act provide that if a corporation is convicted of presenting a claim or making a statement it knows to be
false, fictitious or fraudulent to any federal agency, the corporation may be fined. Conviction under these statutes may also result in
exclusion from participation in federal and state health care programs. Many states have also enacted laws similar to the False Claims
Act, some of which may include criminal penalties, substantial fines and treble damages.
Anti-Kickback and Referral Laws. Subject to certain exceptions and “safe harbors,” the federal anti-kickback statute generally
prohibits, among other things, knowingly and willfully paying, receiving or offering any payment or other remuneration to induce a
person to purchase, lease, order or arrange for items (including prescription drugs) or services reimbursable in whole or in part under
Medicare, Medicaid or another federal health care program. Many states have similar laws, some of which are not limited to items or
services paid for with government funds. Sanctions for violating these federal and state anti-kickback laws may include criminal and
civil fines and exclusion from participation in federal and state health care programs.
Anti-kickback laws have been cited as a partial basis, along with state consumer protection laws described below, for investigations
and multistate settlements relating to financial incentives provided by drug manufacturers to pharmacies or payors in connection with
“product conversion” or promotion programs. Other anti-kickback and referral laws may also be applicable including criminal and
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civil laws restricting illegal kickbacks and conflicts of interest in connection with an ERISA plan, the federal “Stark Law,” and various
state anti-kickback restrictions.
In November 2020, HHS and HHS-OIG released a final rule which eliminates an anti-kickback regulatory safe harbor protection for
price concessions, including rebates, that are offered by pharmaceutical manufacturers to plan sponsors or pharmacy benefit managers
under the Medicare Part D program. The final rule creates two new safe harbors: (i) for price reductions by manufacturers to plan
sponsors under Medicare Part D and Medicaid managed care organizations that are reflected at the time of dispense and (ii) for fixed-
fee service arrangements between manufacturers and pharmacy benefit managers. HHS-OIG has temporarily postponed the effective
date of the new safe harbors to March 22, 2021. Additionally, HHS recently agreed to postpone the elimination of the aforementioned
regulatory safe harbor to January 1, 2023.
Federal Civil Monetary Penalties Law. The federal civil monetary penalty statute provides for civil monetary penalties against any
person who gives something of value to a Medicare or Medicaid program beneficiary that the person knows or should know is likely
to influence the beneficiary’s selection of a particular provider for Medicare or Medicaid items or services. Under this law, our
wholly-owned home delivery pharmacies, specialty pharmacies and home health providers are restricted from offering certain items of
value to influence a Medicare or Medicaid patient’s use of services. The ACA also includes several civil monetary provisions, such as
penalties for the failure to report and return a known overpayment and failure to grant timely access to the HHS-OIG under certain
circumstances.
Federal and State Oversight of Government-Sponsored Health Care Programs
Participation in government-sponsored health care programs subjects us to a variety of federal and state laws and regulations and risks
associated with audits conducted under these programs. These audits may occur years after the provision of services. Risks include
potential fines and penalties, restrictions on our ability to participate or expand our presence in certain programs and restrictions on
marketing our plans. For example, with respect to our Medicare Advantage business, CMS and the HHS-OIG perform audits to
determine a health plan’s compliance with federal regulations and contractual obligations, including program audits and Risk
Adjustment Data Validation Audits, which focus on compliance with proper coding practices. Certain of our contracts are currently
subject to RADV audits by CMS and the HHS-OIG. CMS has announced that its goal is to subject all Medicare Advantage contracts
to either a comprehensive or a targeted RADV audit for each contract year. The DOJ is also currently conducting an industry-wide
investigation of the risk adjustment data submission practices and business processes, including medical chart reviews and health
exams, of Cigna and a number of other Medicare Advantage organizations under Medicare Parts C and D. See Note 21 to the
Consolidated Financial Statements for more information.
For our Medicare Part D business, compliance with certain contractual provisions and regulatory requirements is subject to review by
Recovery Audit Contractor audits in which third-party contractors conduct post-payment reviews on a contingency fee basis to detect
and correct improper payments.
Government Procurement Regulations
We have a contract with the U.S. Department of Defense (“DoD”), which subjects us to applicable Federal Acquisition Regulations
(“FAR”) and the DoD FAR Supplement, which govern federal government contracts. Further, there are other federal and state laws
applicable to our DoD arrangement and our arrangements with other clients that may be subject to government procurement
regulations. In addition, certain of our clients participate as contracting carriers in the Federal Employees Health Benefits Program
administered by the OPM, which includes various pharmacy benefit management standards.
Employee Retirement Income Security Act
Our domestic subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by ERISA.
ERISA is a complex set of federal laws and regulations enforced by the IRS and the DOL, as well as the courts. ERISA regulates
certain aspects of the relationship between us, the employers that maintain employee welfare benefit plans subject to ERISA and
participants in such plans. Certain of our domestic subsidiaries are also subject to requirements imposed by ERISA affecting claim
payment and appeals procedures for individual health insurance and insured and self-insured group health plans and for the insured
dental, disability, life and accident plans we administer. Certain of our domestic subsidiaries also may contractually agree to comply
with these requirements on behalf of the self-insured dental, disability, life and accident plans they administer. We believe the conduct
of our pharmacy benefit management business is not generally subject to the fiduciary obligations of ERISA. However, there can be
no assurances that the DOL may not assert that pharmacy benefit managers are fiduciaries. From time to time, states have considered
legislation to declare a pharmacy benefit manager or health benefit manager a fiduciary with respect to its clients.
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Plans subject to ERISA can also be subject to state laws and the legal question of whether and to what extent ERISA preempts a state
law will continue to be subject to court interpretation, including by the U.S. Supreme Court.
Privacy, Security and Data Standards Regulations
Many of our activities involve the receipt or use of confidential health and other personal information. In addition, we use aggregated
and de-identified data for our own research and analysis purposes and, in some cases, provide access to such de-identified data, or
analytics created from such data, to pharmaceutical manufacturers and third-party data aggregators. We may also use such information
to create analytic models designed to predict, and potentially improve, outcomes and patient care. There are also industry standards for
handling credit card data known as the Payment Card Industry Data Security Standard, which are a set of requirements designed to
help ensure that entities that process, store or transmit credit card information maintain a secure environment. Certain states have
incorporated these requirements into state laws or enacted other requirements for using and disclosing personal information.
The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) impose
minimum standards on health insurers, pharmacy benefit managers, HMOs, health plans, health care providers and clearinghouses for
the privacy and security of protected health information. HIPAA regulations may also hold us liable for violations by our business
associates (e.g., entities that provide services to health plans and providers). HIPAA also established rules that standardize the format
and content of certain electronic transactions, including, but not limited to, eligibility and claims. To the extent insurers offer plans
through a public exchange, participants and their downstream entities such as pharmacy benefit managers must adhere to privacy and
security standards for personally identifiable information and to impose standards that are at least as protective as those the exchange
has implemented for itself. These standards may differ from, and be more stringent than, HIPAA.
The Health Information Technology for Economic and Clinical Health Act (“HITECH”) imposes additional contracting requirements
for covered entities, the extension of privacy and security provisions to business associates, the requirement to provide notification to
various parties in the event of a data breach of protected health information and enhanced financial penalties for HIPAA violations,
including potential criminal penalties for individuals. In the conduct of our business, depending on the circumstances, we may act as
either a covered entity or a business associate.
The federal Gramm-Leach-Bliley Act and its implementing regulations generally place restrictions on the disclosure of nonpublic
information to nonaffiliated third parties, and requires financial institutions, including insurers, to provide customers with notice
regarding how their nonpublic personal information is used, including an opportunity to “opt out” of certain disclosures. State
departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.
State and local authorities are increasingly focused on protecting individuals from identity theft and a number of states have adopted
comprehensive data security laws and regulations requiring, among other things, certain minimum data security standards and security
breach notifications that may apply to us in certain circumstances, as well as certain limitations on access to and use of personal
information. Neither HIPAA nor the Gramm-Leach-Bliley privacy regulations preempt more stringent state laws and regulations
which may differ in approach and enforcement. The California Consumer Privacy Act, which went into effect in January 2020,
provides additional privacy rights for California residents although it generally does not apply to certain regulated data such as
information covered by HIPAA. In November 2020, California further expanded privacy rights for California residents by enacting the
California Privacy Rights Act which includes additional protections on sensitive personal information, creates new individual rights
for residents and imposes additional requirements for those entities collecting personal information of California residents and their
service providers beginning in 2023. We anticipate federal and state regulators to continue to enact legislation related to privacy and
cybersecurity.
The Cybersecurity Information Sharing Act of 2015 (“CISA”) encourages organizations to share cyber threat indicators with the
federal government and, among other things, directs HHS to develop a set of voluntary cybersecurity best practices for organizations
in the health care industry. States have also begun to issue regulations specifically related to cybersecurity, which may differ or
conflict from state to state. In October 2017, the National Association of Insurance Commissioners (“NAIC”), an organization of state
insurance regulators, adopted the Insurance Data Security Model Law that creates rules for insurers and other covered entities
addressing data security, investigation and notification of breaches. This includes maintaining an information security program based
on ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a
cybersecurity event. As the model law is intended to serve as model legislation only, states will need to enact legislation for the model
law to become mandatory and enforceable. We will continue to monitor states’ activity regarding cybersecurity regulation.
HHS, including the ONC, the Office for Civil Rights and CMS, has enacted regulations, and proposed additional regulations, to
support the seamless and secure access, exchange and use of electronic health information by or between patients, enrollees and
entities such as payers and health care providers. These regulations include, among others, proposed changes to HIPAA designed to
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promote greater patient access and control over health information maintained by health plans and health care providers and improve
information sharing for case management and care coordination. Other interoperability regulations prohibit information blocking by
certain entities and require certain regulated plans to make specified patient, clinical and plan-related data available to enrollees via
interoperable technology and applications. These regulations apply to a variety of entities, including health plans like Medicare plans
and qualified health plans, as well as health care providers, certified health information technology developers and health information
networks and exchanges and generally require significant enhancements to information technology and data governance practices. The
regulations and proposals demonstrate an increased interest in information sharing and will impact how industry participants,
including us, comply with disclosure requirements and share information with individuals and other healthcare organizations. We
continue to monitor developments and to submit comments on proposed regulations where appropriate.
In addition, international laws, rules and regulations governing the use and disclosure of personal information can be more stringent
than in the United States, and they vary from jurisdiction to jurisdiction. The European Union’s General Data Protection Regulation
(“GDPR”), which became effective May 2018, enhanced or created obligations regarding the handling of personal data relating to
European residents, such as regarding notices, data protection impact assessments and individual rights, and provides for greater
penalties for noncompliance than the previous European Directive or laws. In addition, many countries outside of Europe where we
conduct business have implemented or may implement data protection laws and regulations, some of which include requirements
modeled after those in the GDPR. Some non-U.S. jurisdictions are also instituting data residency regulations requiring that data be
maintained within the respective jurisdiction or otherwise restricting transfer of personal data across borders unless specified
regulatory requirements are met.
See Part I. Item 1A, “Risk Factors” for a discussion of the risks related to compliance with privacy and security regulations.
Consumer Protection Laws
We engage in direct-to-consumer activities and are increasingly offering mobile and web-based solutions to our customers. We are
therefore subject to federal and state regulations applicable to electronic communications and other consumer protection laws and
regulations, such as the Telephone Consumer Protection Act and the CAN-SPAM Act. The FTC is also increasingly exercising its
enforcement authority in the areas of consumer privacy and data security, with a focus on web-based, mobile data and “big data.”
Federal consumer protection laws may also apply in some instances to privacy and security practices related to personally identifiable
information.
State and federal policymakers have taken actions intended to increase transparency and predictability of health care costs for
consumers. For example, in October 2020, the HHS, the DOL and the Department of the Treasury issued a final rule that requires most
group health plans and health insurance issuers in the individual and group markets to disclose price and cost-sharing information for
all items and services to participants and enrollees. The cost-sharing information requirements under the rule take effect in a phased
approach beginning January 1, 2023. In addition to providing personalized cost-sharing information, beginning January 1, 2022, health
plans and health insurers must also publicly disclose (i) in-network provider negotiated rates, (ii) historical out-of-network allowed
amounts and billed charges and (iii) in-network negotiated rates and historical net prices for all covered prescription drugs. Beginning
in 2021, insurers will be able to receive credit in their MLR calculations for certain savings they share with enrollees. Separately, in
December 2020, Congress passed the No Surprises Act which prohibits health care providers, in certain situations, from balance
billing the patient and requires that they work directly with insurers to agree on out-of-network reimbursement, including utilizing an
independent dispute resolution process outlined in the Act. The Act is effective January 1, 2022 and we expect regulations
implementing the Act to be issued starting in 2021. Many states already have addressed balance billing, or surprise medical bills.
These laws and regulations vary in their approach, resulting in different impacts on the health care system as a whole.
Additionally, most states have consumer protection laws that have been the basis for investigations and multistate settlements relating
to financial incentives provided by drug manufacturers to retail pharmacies in connection with product conversion programs. Such
statutes have also been cited as the basis for claims or investigations by state attorneys general relative to privacy and data security.
Office of Foreign Assets Control Sanctions and Anti-Money Laundering
We are also subject to regulation by the Office of Foreign Assets Control of the U.S. Department of the Treasury that administers and
enforces economic and trade sanctions against targeted foreign countries and regimes based on U.S. foreign policy and national
security goals. Certain of our products are subject to the Department of the Treasury anti-money laundering regulations under the
Bank Secrecy Act. In addition, we are subject to similar regulations in non-U.S. jurisdictions in which we operate.
Corporate Practice of Medicine and Other Laws
Many states in which our subsidiaries operate limit the practice of medicine to licensed individuals or professional organizations
comprised of licensed individuals, and business corporations generally may not exercise control over the medical decisions of
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physicians. Statutes and regulations relating to the practice of medicine, fee-splitting between physicians and referral sources and
similar issues vary widely from state to state. Under management agreements between certain of our subsidiaries and physician-owned
professional groups, these groups retain sole responsibility for all medical decisions, as well as for hiring and managing physicians and
other licensed health care providers, developing operating policies and procedures, implementing professional standards and controls
and maintaining malpractice insurance. We believe that our health services operations comply with applicable state statutes regarding
corporate practice of medicine, fee-splitting and similar issues. However, any enforcement actions by governmental officials alleging
noncompliance with these statutes could subject us to penalties or restructuring or reorganization of our business.
Laws and Legislation Affecting Plan Design and Pharmacy Network Access
Some states have enacted laws that prohibit managed care plan sponsors from implementing certain restrictive benefit plan design
features, and many states have laws or have introduced legislation to regulate various aspects of managed care plans, including
provisions relating to the pharmacy benefit. For example, some states, under so-called “freedom of choice” legislation, provide
customers of the plan may not be required to use network providers, but must instead be provided with benefits even if they choose to
use non-network providers. Some states have also enacted legislation that can negatively impact the use of cost-saving network
configurations for plan sponsors. Other states have enacted legislation purporting to prohibit health plans from offering customers
financial incentives for use of home delivery pharmacies. Medicare and some states have issued guidance and regulations that limit
our ability to fill or refill prescriptions electronically submitted by a physician to our home delivery pharmacy without first obtaining
consent from the patient. Such restrictions generate additional costs and limit our ability to maximize efficiencies, which could
otherwise be gained through the electronic prescription and automatic refill processes. Legislation has been introduced in some states
to prohibit or restrict therapeutic intervention, or to require coverage of all Food and Drug Administration approved drugs. Other states
mandate coverage of certain benefits or conditions, and require health plan coverage of specific drugs if deemed medically necessary
by the prescribing physician. States are also standardizing the process for, and restricting the use of, utilization management rules and
shortening the time frames within which prescription drug prior authorization determinations must be made. Even where states do not
regulate pharmacy benefit or utilization management companies directly, these laws will apply to many of our clients, including
managed care organizations and health insurers.
Additionally, Medicare Part D and a majority of states now have laws, regulations or some form of legislation affecting our ability, or
our clients’ ability, to limit access to a pharmacy provider network or remove a provider from a network. Such laws, regulations or
legislation may require us or our clients to admit any retail pharmacy or provider willing to meet the plan’s terms and conditions for
network participation (“any willing provider”) or may direct that a provider may not be removed from a network except in compliance
with certain procedures (“due process”).
Certain states have laws prohibiting certain pharmacy benefit management clients from imposing additional co-payments, deductibles,
limitations on benefits, or other conditions on covered individuals utilizing a retail pharmacy when the same conditions are not
otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the laws require the retail pharmacy to agree
to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the
number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home
delivery.
Pharmacy Benefit Management and Drug Pricing Regulation
Our pharmacy benefit management services are subject to numerous laws and regulations. These laws and regulations govern, and
proposed legislation and regulations may govern, critical practices, including disclosure, receipt and retention of rebates and other
payments received from pharmaceutical manufacturers; certain pharmacy contracting practices including disclosure of cost
information to customers; the receipt and retention of transmission fees from contracted pharmacies; use of, administration of, or
changes to drug formularies, the use and disclosure of maximum allowable cost ("MAC") pricing, or clinical programs; “most favored
nation” pricing, which provides that a pharmacy participating in a specific government program must give the program the best price
the pharmacy makes available to any third-party plan; disclosure of data to third parties; drug utilization management practices; the
level of duty a pharmacy benefit manager owes its clients or customers; configuration of pharmacy networks; the operations of our
subsidiary pharmacies; disclosure of negotiated provider reimbursement rates; disclosure of negotiated drug rebates, calculation of
certain customer cost-share for prescription drug claims; pricing that includes differential or spread (i.e., a difference between the drug
price charged to the plan sponsor by a pharmacy benefit manager and the price paid by the manager to the dispensing provider);
disclosure of fees associated with administrative service agreements and patient care programs that are attributable to customers’ drug
utilization; and registration or licensing of pharmacy benefit managers.
We expect federal and state governments to continue to prioritize means of addressing out-of-pocket costs for consumers, particularly
related to prescription drug costs. Policy proposals, issued via regulation or legislation, vary broadly in their approaches to achieve that
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goal. At the federal level, several executive orders were issued in 2020. Although the orders did not contain any policy changes that
take effect immediately, they directed agencies to pursue regulations intended to expand access to affordable prescription drug
medication through various methods. Resulting regulations from HHS and its agencies: outlined paths for certain prescription drugs to
be imported from Canada under the Federal Food, Drug and Cosmetic Act, effective November 30, 2020; amended the anti-kickback
safe harbors to eliminate the regulatory safe harbor protection for price concessions, including rebates, that are offered by
pharmaceutical manufacturers to plan sponsors or pharmacy benefit managers under the Medicare Part D program effective January
2023 and created new safe harbors related to point-of-sale price reductions and fixed-fee service arrangements, as described above
under the heading “Anti-Kickback and Referral Laws;” issued rules intended to implement a program to make insulin and epinephrine
available at participating federally qualified health centers at pricing under the Public Health Service Act Section 340B program
effective March 22, 2021; and established a demonstration of the most favored nation international pricing model, an approach to
international reference pricing, for Medicare Part B drugs which was subsequently halted by court intervention. As noted earlier, the
executive order issued in January 2021 regarding a regulatory freeze pending review may delay or ultimately result in revision or
repeal of various actions taken in response to the 2020 executive orders.
Additionally, proposals at the federal and state levels consider increased regulation of pharmacy benefit managers and health plans as
a means to limit consumer out of pocket costs, including proposing to limit the use of various pharmacy benefit management tools;
mandating the treatment of fees, discounts or financing mechanisms that otherwise are set in private contractual terms; increasing
supply chain transparency; expanding regulatory requirements or definitions of fiduciaries; or mandating plan benefit designs that cap
consumer out-of-pocket expense.
Some states have enacted statutes regulating the use of MAC pricing. These statutes, referred to as “MAC Transparency Laws,”
generally require pharmacy benefit managers to disclose specific information related to MAC pricing to pharmacies and provide
certain appeal rights for pharmacies. MAC Transparency Laws also restrict the application of MAC and may require operational
changes to maintain compliance with the law. Some states have also enacted laws regulating pharmacy pricing and protecting the
profitability of pharmacies for dispensing certain MAC-priced drugs. Some states have enacted laws requiring that the customer cost-
share for a prescription drug claim not exceed certain price points, such as the pharmacy’s usual and customary charge or its
contracted reimbursement for the drug. In a recent Supreme Court decision, the Court found that certain MAC Transparency Laws
may be applied by states to ERISA plans in addition to health plans regulated by the applicable state. We continue to assess the impact
of the decision on other state laws seeking to regulate pharmacy benefit management services.
In March 2018, the NAIC adopted changes to the Health Carrier Prescription Drug Benefit Management Model Act. The changes
address issues relating to (i) transparency, accuracy and disclosure regarding prescription drug formularies and formulary changes
during a policy year; (ii) accessibility of prescription drug benefits using a variety of pharmacy options; and (iii) tiered prescription
drug formularies and discriminatory benefit design. While the actions of the NAIC do not have the force of law, they are used as a
template to influence states to adopt laws based on the model legislation. An enhanced NAIC model act on pharmacy benefit manager
licensure and regulation was adopted by a subgroup of the NAIC subject to a thirty day comment period with further consideration
expected to occur in 2021.
The federal Medicaid Drug Rebate Program requires participating drug manufacturers to provide rebates on all drugs reimbursed
through state Medicaid programs, including through Medicaid managed care organizations. Manufacturers of brand-name products
must provide a rebate equivalent to the greater of (a) 23.1% of the average manufacturer price (“AMP”) paid by retail community
pharmacies or by wholesalers for certain drugs distributed to retail community pharmacies, or (b) the difference between AMP and the
“best price” available to essentially any customer other than the Medicaid program and certain other government programs, with
certain exceptions. We negotiate rebates with drug manufacturers and, in certain circumstances, sell services to drug manufacturers.
Investigations are being and have been conducted by certain government entities which call into question whether a drug’s “best
price” was properly calculated and reported with respect to rebates paid by the manufacturers to the Medicaid programs. We are not
responsible for such calculations, reports or payments.
Pharmacy Regulation
Our home delivery and specialty pharmacies also subject us to extensive federal, state and local regulation. The practice of pharmacy
is generally regulated at the state level by state boards of pharmacy. We are licensed to do business as a pharmacy in the states in
which our pharmacies are located. Most of the states into which we deliver pharmaceuticals have laws that require out-of-state home
delivery pharmacies to register with, or be licensed by, the board of pharmacy or a similar regulatory body in the state. These states
generally permit the pharmacy to follow the laws of the state where the pharmacy is located, although some states require compliance
with certain laws in that state as it impacts or relates to drugs distributed or dispensed into that state.
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Our various pharmacy facilities also provide services under certain Medicare and state Medicaid programs. Participation in these
programs requires our pharmacies to comply with the applicable Medicare and Medicaid provider rules and regulations, and exposes
the pharmacies to various changes the federal and state governments may impose regarding reimbursement methodologies and
amounts to be paid to participating providers under these programs. In addition, several of our pharmacy facilities are participating
providers under Medicare Part D and are required to adhere to certain requirements applicable to Medicare Part D. Additionally, we
are subject to CMS rules regarding the administration of our Medicare plans and pricing between our plans and related parties,
including our pharmacy business.
Other statutes and regulations affect our home delivery and specialty pharmacy operations, including the federal and state anti-
kickback laws and the federal civil monetary penalty law described above. Federal and state statutes and regulations govern the
labeling, packaging, advertising, adulteration and security of prescription drugs and the dispensing of controlled substances and certain
of our pharmacies must register with the U.S. Drug Enforcement Administration and individual state controlled substance authorities.
The FTC requires mail order sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the product to
be sold, to fill mail orders within thirty days and to provide clients with refunds when appropriate. The United States Postal Service
also has significant statutory authority to restrict the delivery of drugs and medicines through the mail.
Financial Reporting, Internal Control and Corporate Governance
Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content of
statutory financial statements, the type and concentration of permitted investments and corporate governance over financial reporting.
Our insurance and HMO subsidiaries are required to file periodic financial reports and schedules with regulators in most of the
jurisdictions in which they do business as well as annual financial statements audited by independent registered public accounting
firms. Certain insurance and HMO subsidiaries are required to file an annual report of internal control over financial reporting with
most jurisdictions in which they do business. Insurance and HMO subsidiaries’ operations and financial statements are subject to
examination by such agencies. Many states have expanded regulations relating to corporate governance and internal control activities
of insurance and HMO subsidiaries as a result of model regulations adopted by the NAIC with elements similar to corporate
governance and risk oversight disclosure requirements under federal securities laws.
Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds
Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds that
are established to pay claims on behalf of insolvent insurance companies. Some states have similar laws relating to HMOs and other
payors, such as consumer operated and oriented plans (co-ops) established under the ACA. In the United States, these associations
levy assessments on member insurers licensed in a particular state to pay such claims. Certain states require HMOs to participate in
guaranty funds, special risk pools and administrative funds. For additional information about guaranty funds and other assessments,
see Note 21 to the Consolidated Financial Statements.
Certain states continue to require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools
or other residual market mechanisms to cover risks not acceptable under normal underwriting standards, although some states have
eliminated these requirements as a result of the ACA.
Solvency and Capital Requirements
Many states have adopted some form of the NAIC model solvency-related laws and risk-based capital (“RBC”) rules for life and
health insurance companies and HMOs. The RBC rules recommend a minimum level of capital depending on the types and quality of
investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer’s adjusted surplus to its
RBC falls below statutorily required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to
conservatorship.
In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and
reserve coverage measures. Our HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, are
compliant with applicable RBC and non-U.S. surplus rules.
The Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA”), adopted by the NAIC, provides requirements
and principles for maintaining a group solvency assessment and a risk management framework and reflects a broader approach to U.S.
insurance regulation. ORSA includes a requirement to file an annual ORSA Summary Report in the lead state of domicile. To date, an
overwhelming majority of the states have adopted the same or similar versions of ORSA. We file our ORSA report annually as
required.
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Holding Company Laws
Our domestic insurance companies and certain of our HMOs are subject to state laws regulating subsidiaries of insurance holding
companies. Under such laws, certain dividends, distributions and other transactions between an insurance company or an HMO
subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. In addition, the
holding company acts of states in which our subsidiaries are domiciled restrict the ability of any person to obtain control of an
insurance company or HMO subsidiary without prior regulatory approval. State holding company laws and regulations also subject
our insurance companies and certain HMO subsidiaries to additional regulatory scrutiny related to their oversight of affiliates
performing regulated services on behalf of the insurance company or HMO and require the Company to file an annual Enterprise Risk
Report, which summarizes material risks that could pose enterprise risk to the insurance company subsidiaries.
Marketing, Advertising and Products
In most states, our insurance companies and HMO subsidiaries are required to certify compliance with applicable advertising
regulations on an annual basis. Our insurance companies and HMO subsidiaries are also required by most states to file and secure
regulatory approval of products prior to the marketing, advertising and sale of such products.
Licensing and Registration Requirements
Our insurance companies and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. Additionally,
certain subsidiaries contract to provide claim administration, utilization management and other related services for the administration
of self-insured benefit plans. These subsidiaries may be subject to state third-party administration and other licensing requirements and
regulation, as well as third-party accreditation requirements.
We have received full accreditation for Utilization Review Accreditation Commission Pharmacy Benefit Management version 2.2
Standards, which includes quality standards for drug utilization management, and select subsidiaries have received full accreditation
for Utilization Review Accreditation Commission for Health Utilization Management version 7.2, which includes quality standards for
medical utilization management.
Certain states have adopted pharmacy benefit management registration, licensure or disclosure laws. In addition to registration laws,
some states have adopted legislation mandating disclosure of various aspects of our financial practices, including those concerning
pharmaceutical company revenue, as well as prescribing processes for prescription switching programs and client and provider audit
terms.
Our international subsidiaries are often required to be licensed when entering new markets or starting new operations in certain
jurisdictions. The licensure requirements for these subsidiaries vary by country and are subject to change.
International Regulations
Our operations outside the United States expose us to laws of multiple jurisdictions and the rules and regulations of various governing
bodies and regulators, including those related to the provision of insurance, financial and other disclosures, the provision of health
care-related services, corporate governance, privacy, data protection, data mining, data transfer, intellectual property, labor and
employment, consumer protection, direct-to-consumer communications activities, tax, anti-corruption and anti-money laundering.
Foreign laws and rules may include requirements that are different from, or more stringent than, similar requirements in the United
States.
Our operations in countries outside the United States:
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are subject to local regulations of the jurisdictions where we operate;
in some cases, are subject to regulations in the jurisdictions where customers reside; and
in all cases, are subject to the Foreign Corrupt Practices Act (“FCPA”).
In particular, in South Korea, regulators are focused on protecting the rights of individual customers by enforcing “Treating Customers
Fairly” concepts. This regulatory focus has resulted in rigorous data localization requirements, network separation obligations and
system monitoring restrictions, as well as obligations to closely monitor marketing communications and sales scripts. Anti-money
laundering requirements in South Korea and other countries where we do business also may impose obligations to collect certain
information about each customer at time of sale or to risk rank each customer to determine possible future money laundering risk.
The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official or
employee to obtain or retain business or otherwise secure a business advantage. Outside of the United States, we may interact with
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government officials in several different capacities: as regulators of our insurance business; as clients or partners who are state-owned
or partially state-owned; as health care providers who are employed by the government; as hospitals that are state-owned; and as
officials issuing permits in connection with real estate transactions. Violations of the FCPA and other anti-corruption laws may result
in severe criminal and civil sanctions as well as other penalties, and the SEC and DOJ have increased their enforcement activities with
respect to FCPA. The UK Bribery Act of 2010 applies to all companies with a nexus to the United Kingdom. Under this act, any
voluntary disclosures of FCPA violations may be shared with United Kingdom authorities, thus potentially exposing companies to
liability and potential penalties in multiple jurisdictions. Other countries in which we do business also have anti-corruption laws to
which we are subject.
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Item 1A. RISK FACTORS
As a large global health service company operating in a complex industry, we encounter a variety of risks and uncertainties, which
could have a material adverse effect on our business, liquidity, results of operations, financial condition or the trading price of our
securities. You should carefully consider each of the risks and uncertainties discussed below, together with other information
contained in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Results of Operations and
Financial Condition. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also adversely affect us. The following risk factors have been organized
by category for ease of use; however many of the risks may have impacts in more than one category. These categories, therefore,
should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential impact of
the matters discussed. Risk factors are not necessarily listed in order of importance.
Strategic and Operational Risks
Future performance of our business will depend on our ability to execute our strategic and operational initiatives effectively.
The future performance of our business will depend in large part on our ability to effectively implement and execute our strategic and
operational initiatives. Successfully executing on these initiatives depends on a number of factors, including our ability to:
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differentiate our products, services and solutions from those of our competitors;
develop, introduce and partner to bring forward new and innovative products, solutions or programs that focus on improving
patient outcomes and assist in controlling costs or are in response to government regulation and the increased focus on consumer-
directed products;
develop and create data and analytic solutions to support and improve outcomes for our products, services and solutions,
including creating and developing solutions and services through partnerships with other industry participants;
grow our product portfolio, expand our addressable markets and identify and introduce the proper mix, coordination or integration
of products that will be accepted by the marketplace;
evaluate drugs for efficacy, value and price to assist clients in selecting a cost-effective formulary;
offer cost-effective home delivery pharmacy and specialty services;
access or continue accessing key drugs and successfully penetrate key treatment categories in our specialty pharmacy business;
leverage purchase volume to deliver discounts to health benefit providers;
attract and retain sufficient numbers of qualified employees;
attract, develop and maintain collaborative relationships with a sufficient number of qualified partners;
attract new and maintain existing customer and client relationships;
transition health care providers from volume-based fee-for-service arrangements to a value-based system;
improve medical cost competitiveness in our targeted markets;
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• manage our medical, pharmacy, administrative and other operating costs effectively; and
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contract with health care providers, pharmacy providers and pharmaceutical manufacturers on favorable terms.
For our strategic initiatives to succeed, we must effectively collaborate across our operations, integrate our acquired businesses,
actively work to ensure consistency throughout the organization and promote a global mind-set along with a focus on individual
customers and clients. If we fail to do so, our business may be unable to grow as planned, or the result of expansion may be
unsatisfactory. We will be unable to rapidly respond to competitive, economic and regulatory changes if we do not make important
strategic and operational decisions quickly, define our appetite for risk, implement new governance, managerial and organizational
processes smoothly and communicate roles and responsibilities clearly. If these initiatives fail or are not executed effectively, our
consolidated financial position and results of operations could be negatively affected.
We operate in a highly competitive, evolving and rapidly changing industry and our failure to adapt could negatively impact our
business.
The health service industry continues to be dynamic and rapidly evolving. Any significant shifts in the structure of the industry could
alter industry dynamics and adversely affect our ability to attract or retain clients and customers. Industry shifts could result (and have
resulted) from, among other things:
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a large intra- or inter-industry merger or industry consolidation;
strategic alliances;
new or alternative business models or new government options or offerings;
continuing consolidation among physicians, hospitals and other health care providers, as well as changes in the organizational
structures chosen by physicians, hospitals and health care providers;
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new market entrants, including those not traditionally in the health service industry;
the ability of larger employers and clients to contract directly with providers;
technological changes and rapid shifts in the use of technology, such as telehealth;
the impact or consequences of legislation or regulatory changes;
changes in the United States Postal Service or the consolidation of shipping carriers;
increased drug acquisition cost or unexpected changes to drug pricing trend;
changes in the generic drug market or the failure of new generic drugs to come to market; or
changes in utilization of health care, prescription drugs or other covered services and items, including under risk-based contracts
in the health benefit management market and for those businesses that utilize risk adjustment methodology.
Our failure to anticipate or appropriately adapt to changes in the industry could negatively impact our competitive position and
adversely affect our business and results of operations.
The scale, scope and duration of the COVID-19 pandemic continues to be unknown and the overall impact on our business,
operating results, cash flows or financial condition has been and may continue to be material.
The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment for our business,
and the extent to which it may impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has in some instances, and may continue to, heighten the potential adverse effects on our business,
operating results, cash flows or financial condition as described below or in other risk factors within this section of the Form 10-K
including, but not limited to, the likelihood of and impact from:
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unfavorable economic conditions on our clients and customers (both employers and individuals), health care providers,
pharmaceutical manufacturers, pharmacy providers and third-party vendors, as well as federal and state entities and programs;
changes in medical claims submission and processing patterns or procedures; changes in customer base and product mix; changes
in utilization of prescription drugs, medical or other covered items or services, including increased behavioral health services
utilization; changes in medical cost trends; changes in our health management practices; and the introduction of new benefits and
products causing actual claims to exceed our estimates;
changes in health care utilization patterns, provider billing practices and other external events that we cannot forecast or project
and over which we have little or no control impacting our ability to accurately predict, price for and manage health care costs and
ultimately our profitability, including impacts from care deferral on, among other things, risk adjustment revenue and acuity of
future care;
increased costs or reductions in revenue, including costs for COVID-19-related care, testing and treatment and related cost-share
waivers for our customers; vaccine and other coverage mandates; and support for employees, clients, customers and providers;
significant disruptions in service within our operations or among our key suppliers or other third parties, including decreased
worker productivity and operational and sales disruptions, including as a result of remote working arrangements, increased
medical, emergency or other leave, quarantines, government actions or restrictions;
compliance with substantial government regulation, including privacy and security requirements associated with providing
telehealth and remote care options for individuals and new laws or regulations or changes in existing laws or regulations, such as
vaccine and coverage mandates and premium deferrals, which laws or regulations may vary significantly by jurisdiction;
prioritization of matters relating to COVID-19 resulting in delays in responsiveness by regulatory agencies and other third parties
in matters arising in the ordinary course of business;
cyberattacks or other privacy or data security incidents, including as a result of the transition to a remote work environment by
substantially all of our workforce and the workforces of third parties with whom we contract;
significant shifts in the structure of the industry which could alter dynamics and, if we fail to adapt, negatively impact our
business;
risks inherent in foreign operations, including political, legal, operational, regulatory, economic and other risks;
economic and market conditions affecting the value of our financial instruments and the value of particular assets and liabilities;
and
fluctuations in equity market prices, interest rates and credit spreads limiting our ability to raise or deploy capital and affecting our
overall liquidity.
Additionally, if we do not respond appropriately to the pandemic, or if our clients or customers do not perceive our response to be
adequate, we could suffer damage to our reputation, which could adversely affect our business.
We believe COVID-19’s adverse impact on our business, operating results, cash flows or financial condition will be driven primarily
by the severity and duration of the pandemic, including the impact of the breadth and timing of implementation and the efficacy and
costs of vaccination programs, the pandemic’s impact on our employees, clients, customers, suppliers and partners, as well as the U.S.
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and global economies and the continued actions taken by governmental authorities and other third parties in response to the pandemic.
Those primary drivers are largely beyond our knowledge and control, and may be more adverse than our current expectations. Given
these uncertainties, we cannot estimate the full impact COVID-19 will have on our business, operating results, cash flows or financial
condition, but the adverse impact could be material.
Our failure to compete effectively, to differentiate our products and services from those of our competitors and maintain or
increase market share could materially adversely affect our results of operations, financial position and cash flows.
We operate in a highly competitive environment and an industry subject to significant market pressures brought about by customer
and client needs, legislative and regulatory developments and other market factors. In particular markets, our competitors may have
greater, better or more established capabilities, resources, market share, reputation or business relationships, or lower profit margin or
financial return expectations. Our clients are well informed and organized and can easily move between our competitors and us. Our
Express Scripts client contracts generally have three-year terms and may be subject to periodic renegotiation of pricing terms based on
market factors. As described in greater detail in the description of our business in Item 1 of this Form 10-K, one of our key clients in
the Evernorth segment is the United States Department of Defense. If one or more of our large clients terminates or does not renew a
contract for any reason, including as a result of being acquired, or if the provisions of a contract with a large client are modified,
renewed or otherwise changed with terms less favorable to us, our results of operations could be adversely affected and we could
experience a negative reaction in the investment community resulting in decreases in the trading price of our securities or other
adverse effects.
Our success depends, in part, on our ability to compete effectively in our markets, set prices appropriately in highly competitive
markets to keep or increase our market share, increase customers as planned, differentiate our business offerings by innovating and
delivering products and services that provide enhanced value to our customers, provide quality and satisfactory levels of service and
retain accounts with favorable medical cost experience or more profitable products versus retaining or increasing our customer base in
accounts with unfavorable medical cost experience or less profitable products.
We must remain competitive to attract new customers, retain existing customers and further integrate additional product and service
offerings. To succeed in this highly competitive marketplace, it is imperative that we maintain a strong reputation. The negative
reputational impact of a significant event, including a failure to execute on customer or client contracts or strategic or operational
initiatives, failure to comply with applicable laws or regulations, or failure to innovate and deliver products and services that
demonstrate greater value to our customers, could affect our ability to grow and retain profitable arrangements, which could have a
material adverse effect on our business, results of operations, financial position and cash flows.
We face price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover
the cost of services delivered to our customers.
While we compete on the basis of many service and quality-related factors, we expect that price will continue to be a significant basis
of competition. Our client contracts are subject to negotiation as clients seek to contain their costs, including by reducing benefits
offered. Increasingly, our clients seek to negotiate performance guarantees that require us to pay penalties if the guaranteed
performance standard is not met. Clients can easily move between our competitors and us. Our clients are well informed and typically
have knowledgeable consultants that seek competing bids from our competitors before contract renewal. In addition, as brokers and
benefit consultants seek to enhance their revenue streams, they look to take on services that we typically provide. Each of these events
could negatively impact our financial results.
Federal and state regulatory agencies may restrict or prevent entirely our ability to implement changes in premium rates. Fiscal or
other concerns related to the government-sponsored programs in which we participate, such as Medicare Advantage plans and
Medicare Part D plans, may cause decreasing reimbursement rates, delays in premium payments, restrictions on implementing
changes in premium rates or insufficient increases in reimbursement rates. Any limitation on our ability to maintain or increase our
premium or reimbursement levels, or a significant loss of customers or clients resulting from our need to increase or maintain
premium or reimbursement levels, could adversely affect our business, cash flows, financial condition and results of operations.
Premiums in the U.S. Medical segment are generally set for one-year periods and are priced well in advance of the date on which the
contract commences or renews. Our revenue on Medicare Advantage plans, Individual and Family Plans (“IFP”) and Medicare Part D
plans is based on rates and bids submitted midyear in the year before the contract year. Although we base the premiums we charge and
our Medicare Advantage, IFP and Medicare Part D rates and bids on our estimate of future health care costs over the contract period,
actual costs may exceed what we estimate in setting premiums. Our health care costs also are affected by external events that we
cannot forecast or project and over which we have little or no control, including changes in regulations, as well as provider billing
practices and changes in customers’ health care utilization patterns, which may, among other things, impact our ability to
appropriately document their health conditions. Our participation in health insurance exchanges through our IFP offerings involves
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uncertainties associated with mix and volume of business and could adversely affect our results of operations, financial position and
cash flows. Our profitability depends, in part, on our ability to accurately predict, price for and effectively manage future health care
costs. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenue can result
in significant changes in our financial results.
Strong competition within the pharmacy benefit business has also generated greater demand for lower product and service pricing,
increased revenue sharing and enhanced product and service offerings. These competitive factors have historically applied pressure on
our operating margins and caused many companies, including us, to reduce the prices charged for products and services while sharing
with clients a greater portion of the formulary fees and related rebates received from pharmaceutical manufacturers. Our inability to
maintain positive trends, or failure to identify and implement new ways to mitigate pricing pressures, could negatively impact our
ability to attract or retain clients or sell additional services, which could negatively impact our margins and have a material adverse
effect on our business and results of operations.
The reserves we hold for expected medical claims are based on estimates that involve an extensive degree of judgment and are
inherently variable. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our
ability to take timely corrective actions to contain future costs may be limited.
We maintain and record medical claims reserves on our balance sheet for estimated future payments. Our estimates of health care
costs payable are based on a number of factors, including historical claim experience, but this estimation process requires extensive
judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in
medical claims submission and processing patterns or procedures, changes in customer base and product mix, changes in the
utilization of prescription drugs, medical or other covered items or services, changes in medical cost trends, changes in our health
management practices, changes in regulations and the introduction of new benefits and products. If we are not able to accurately and
promptly anticipate and detect medical cost trends, our ability to take timely corrective actions to limit future costs and reflect our
current benefit cost experience in our pricing process may be limited. Additionally, we must estimate the amount of rebates payable by
us under the ACA’s and CMS’ minimum loss ratio rules and the amounts payable by us to, and receivable by us from, the United
States federal government under the ACA’s remaining premium stabilization program. Because establishing reserves is an inherently
uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing reserves
which may adversely affect our results of operations, financial position and cash flows.
If we fail to develop and maintain satisfactory relationships with physicians, hospitals and other health service providers and with
producers and consultants, our business and results of operations may be adversely affected.
We contract with or employ physicians, hospitals and other health service providers and facilities to provide health services to our
customers. Our results of operations are substantially dependent on our ability to contract for these services at competitive prices. In
any particular market, physicians, hospitals and health service providers may enter into exclusive arrangements with competitors or
simply refuse to contract with us, demand higher payments or take other actions that could result in higher medical costs or less
desirable products or services for our customers. In some markets, certain providers, particularly hospitals, physician/hospital
organizations and multispecialty physician groups, may have significant or controlling market positions that could result in a
diminished bargaining position for us. If providers refuse to contract with us, use their market position to negotiate more favorable
contracts or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially
adversely affected. Additionally, certain regulations may impact our ability to obtain competitive prices. Establishing collaborative
arrangements with physician groups, specialist groups, independent practice associations, hospitals and health care delivery systems is
key to our strategic focus to transition from volume-based fee-for-service arrangements to a value-based health care system. If such
collaborative arrangements do not result in the lower medical costs that we project or if we fail to attract health care providers to such
arrangements, or are less successful at implementing such arrangements than our competitors, our attractiveness to customers may be
reduced and our ability to profitably grow our business may be adversely affected.
Our ability to develop and maintain satisfactory relationships with providers may also be negatively impacted by other factors not
associated with us, such as changes in Medicare or Medicaid reimbursement levels, increasing pressure on revenue and other pressures
on health care providers and increasing consolidation activity among hospitals, physician groups and providers. Continuing
consolidation among physicians, hospitals and other providers, the emergence of accountable care organizations, vertical integration of
providers and other entities, changes in the organizational structures chosen by physicians, hospitals and providers and new market
entrants, including those not traditionally in the health care industry, may affect the way providers interact with us and may change the
competitive landscape in which we operate. In some instances, these organizations may compete directly with us, potentially affecting
the way we price our products and services or causing us to incur increased costs if we change our operations to be more competitive.
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Out-of-network providers are not limited by any agreement with us in the amounts they bill. While benefit plans place limits on the
amount of charges that will be considered for reimbursement and regulations seek to prescribe payment levels, establish
methodologies and dispute resolution processes, out-of-network providers are increasingly sophisticated and aggressive. As a result,
the outcome of disputes where we do not have a provider contract may cause us to pay higher medical or other benefit costs than we
projected.
Additionally, certain of our products and services are sold in part through nonexclusive producers and consultants for whose services
and allegiance we compete. Our sales could be materially adversely affected if we are unable to attract, retain and support such
independent producers and consultants or if our sales strategy is not appropriately aligned across distribution channels.
If we lose our relationship with one or more key pharmaceutical manufacturers, or if the payments made or discounts provided by
pharmaceutical manufacturers decline, our business and results of operations could be adversely affected.
We maintain contractual relationships with numerous pharmaceutical manufacturers, which provide us with, among other things:
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discounts for drugs we purchase to be dispensed from our home delivery and specialty pharmacies;
discounts, in the form of rebates, for drug utilization;
fees for administering rebate programs, including invoicing, allocating and collecting rebates;
fees for services provided to pharmaceutical manufacturers by our specialty pharmacies; and
access to limited distribution specialty pharmaceuticals by our specialty pharmacies.
Our contracts with pharmaceutical manufacturers are typically nonexclusive and terminable on relatively short notice by either party.
The consolidation of pharmaceutical manufacturers, the termination or material alteration of our contractual relationships, or our
failure to renew such contracts on favorable terms could have a material adverse effect on our business and results of operations. In
addition, arrangements between payors and pharmaceutical manufacturers have been the subject of debate in federal and state
legislatures and various other public and governmental forums. Adoption of new laws, rules or regulations or changes in, or new
interpretations of, existing laws, rules or regulations, relating to any of these programs could materially adversely affect our business
and results of operations.
If significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy
networks, including the loss of or adverse change in our relationship with one or more key pharmacy providers, our business and
financial results could be adversely affected.
More than 67,700 pharmacies participated in one or more of our networks as of December 31, 2020. The ten largest retail pharmacy
chains represent approximately 64% of the total number of stores in our largest network. In certain geographic areas of the United
States, our networks may be comprised of higher concentrations of one or more large pharmacy chains. Contracts with retail
pharmacies are generally nonexclusive and are terminable on relatively short notice by either party. If one or more of the larger
pharmacy chains terminates its relationship with us, or is able to renegotiate terms substantially less favorable to us, our customers’
access to retail pharmacies or our business could be materially adversely affected. The entry of one or more additional large pharmacy
chains into the pharmacy benefit management business, the consolidation of existing pharmacy chains or increased leverage or market
share by the largest pharmacy providers could increase the likelihood of negative changes in our relationship with such pharmacies.
Changes in the overall composition of our pharmacy networks, or reduced pharmacy access under our networks, could have a negative
impact on our claims volume or our competitiveness in the marketplace, which could cause us to fall short of certain guarantees in our
contracts with clients or otherwise impair our business or results of operations.
Changes in drug pricing or industry pricing benchmarks could materially impact our financial performance.
Contracts in the prescription drug industry, including our contracts with retail pharmacy networks and our pharmacy and specialty
pharmacy clients, generally use pricing metrics published by third parties as benchmarks to establish pricing for prescription drugs. If
these benchmarks are no longer published by third parties, we, or our contractual partners, adopt other pricing benchmarks for
establishing prices within the industry, legislation or regulation requires the use of other pricing benchmarks, or future changes in drug
prices substantially deviate from our expectations, the short- or long-term impacts may have a material adverse effect on our business
and results of operations.
As a global company, we face political, legal, operational, regulatory, economic and other risks that present challenges and could
negatively affect our multinational operations or our long-term growth.
As a global company, our business is increasingly exposed to risks inherent in foreign operations. These risks can vary substantially
by market, and include political, legal, operational, regulatory, economic and other risks, including government intervention that we
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do not face in our U.S. operations. The global nature of our business and operations may present challenges including, but not limited
to, those arising from:
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geopolitical business conditions and demands, including the United Kingdom’s withdrawal from the European Union;
regulation that may discriminate against U.S. companies, favor nationalization or expropriate assets;
price controls or other pricing issues and exchange controls; restrictions that prevent us from transferring funds out of the
countries in which we operate; foreign currency exchange rates and fluctuations and restrictions on converting currencies from
foreign operations into other currencies; uncertainty with respect to the interpretation of tax positions;
reliance on local employees and interpretations of labor laws in foreign jurisdictions;
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• managing our partner relationships in countries outside of the United States;
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providing data protection on a global basis and sufficient levels of technical support in different locations;
the global trend for companies to enact local data residency requirements;
acts of civil unrest, war and terrorism, as well as other political and economic conflicts such as through imposition of economic or
political sanctions;
• man-made disasters, natural disasters and pandemics, such as the COVID-19 pandemic, in locations where we operate; and
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general economic and political conditions.
These factors may increase in significance as we continue to expand globally and operating in new foreign markets may require
considerable management time before operations generate any significant revenues and earnings. Any one of these challenges could
negatively affect our operations or long term growth. For example, due to the concentration of our international business in South
Korea, the International Markets segment is exposed to potential losses resulting from economic and regulatory changes in that
country and the geopolitical climate in the Korean Peninsula, as well as foreign currency movements affecting the South Korean
currency, that could have a significant impact on the segment’s results and our consolidated financial results.
International operations also require us to devote significant resources to implement controls and systems in new markets to comply
with, and to ensure that our vendors and partners comply with, U.S. and foreign laws prohibiting bribery, corruption and money
laundering, in addition to other regulations regarding, among other things, our products, direct-to-consumer communications,
customer privacy, data protection and data residency. Violations of these laws and regulations could result in fines, criminal sanctions
against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant reputational
harm. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. Our failure to comply with
laws and regulations governing our conduct outside the United States or to establish constructive relations with non-U.S. regulators
could have a material adverse effect on our business, results of operations, financial condition, liquidity and long-term growth.
Strategic transactions involve risks and we may not realize the expected benefits because of integration difficulties,
underperformance relative to our expectations and other challenges.
As part of our strategy, we regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures,
licensing arrangements, divestitures and other relationships (collectively referred to as “strategic transactions”). There is significant
competition for attractive targets and opportunities and we may be unable to identify and successfully complete strategic transactions
in the future. In addition, from time to time, we evaluate alternatives for our businesses that do not meet our strategic, growth or
profitability objectives, and we may divest or wind down such businesses. We may be unable to complete any such divestiture on
terms favorable to us, within the expected timeframes, or at all. We may have continued financial exposure to divested businesses
following the completion of any such transaction, including increased costs due to potential litigation, contingent liabilities and
indemnification of the buyer related to, among other things, lawsuits, regulatory matters or tax liabilities.
Our ability to achieve the anticipated benefits of strategic transactions, including synergies, cost savings, innovation and operational
efficiencies, is subject to numerous uncertainties and risks, including our ability to successfully combine or separate business
operations, resources and systems, including data security systems and internal financial control standards, in an efficient and effective
manner. Integration and separation activities may result in additional and unforeseen expenses, and the anticipated benefits may not be
fully realized or may take longer to realize than expected. These activities are complex, costly and time-consuming and may divert
management’s attention from ongoing business concerns. Delays or issues encountered in these activities could have a material
adverse effect on the revenues, expenses, operating results and financial condition of the company.
Strategic transactions could result in increased costs, including facilities and systems consolidation or separation costs and costs to
retain key employees, decreases in expected revenues, earnings or cash flows and goodwill or other intangible asset impairment
charges. As of December 31, 2020, our goodwill and other intangible assets had a carrying value of approximately $80 billion,
representing 51% of our total consolidated assets. The value of our goodwill may be materially and adversely impacted if the
businesses we acquire do not perform in a manner consistent with our assumptions. Future evaluations requiring an impairment to
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goodwill and other intangible assets could materially affect our results of operations and shareholders’ equity in the period in which
the impairment occurs. A material decrease in shareholders’ equity could negatively impact our debt ratings or potentially impact our
compliance with existing debt covenants. In addition, the trading price of our securities may decline if, among other things, we are
unable to achieve our estimates of earnings growth and operational cost savings, or the transaction costs related to acquisitions,
integrations or divestitures are greater than expected. The trading price also may decline if we do not achieve the perceived benefits of
a transaction as rapidly or to the extent anticipated by financial or industry analysts.
Additionally, joint ventures and equity investments present risks that are different from acquisitions, including risks related to: specific
operations and finances of the businesses we invest in, selection of appropriate parties, differing objectives of the various parties,
competition between and among parties, compliance activities (including compliance with applicable CMS requirements), growing the
business in a manner acceptable to all the parties, maintaining positive relationships among the parties, clients and customers, initial
and ongoing governance of joint ventures and customer and business disruption that may occur upon a joint venture termination.
Further, we may finance strategic transactions by issuing common stock for some or all of the purchase price that could dilute the
ownership interests of our shareholders, or by incurring additional debt that could increase costs and impact our ability to access
capital in the future.
In addition, effective internal controls are necessary to provide reliable and accurate financial reports and to mitigate the risk of fraud.
The integration of businesses is likely to cause increasing complexity in our systems and internal controls and make them more
difficult to manage. Any difficulties in assimilating businesses into our control system could cause us to fail to meet our financial
reporting obligations. We also rely on the internal controls and financial reporting controls of joint venture entities and other entities in
which we invest and their failure to maintain effectiveness or comply with applicable standards may materially and adversely affect
us. Ineffective internal controls could also cause investors to lose confidence in our reported financial information that could
negatively impact the trading price of our securities and our access to capital.
We are dependent on the success of our relationships with third parties for various services and functions.
To improve operating costs, productivity and efficiencies, we contract with third parties for the provision of specific services. Our
operations may be adversely affected if a third party fails to satisfy its obligations to us, if the arrangement is terminated in whole or in
part or if there is a contractual dispute between us and the third party. Even though contracts are intended to provide certain
protections, we have limited control over the actions of third parties. For example, noncompliance with any privacy or security laws
and regulations, any security breach involving one of our third-party vendors or a dispute between us and a third-party vendor related
to our arrangement could have a material adverse effect on our business, results of operations, financial condition, liquidity and
reputation.
Outsourcing also may require us to change our existing operations, adopt new processes for managing these service providers or
redistribute responsibilities to realize the potential productivity and operational efficiencies. If there are delays or difficulties in
changing business processes or our third-party vendors do not perform as expected, we may not realize, or not realize on a timely
basis, the anticipated economic and other benefits of these relationships. This could result in additional costs or regulatory compliance
issues or create other operational or financial problems for us. Terminating or transitioning, in whole or in part, arrangements with key
vendors could result in additional costs or penalties, risks of operational delays or potential errors and control issues during the
termination or transition phase. We may not be able to find an alternative vendor in a timely manner or on acceptable terms. If there is
an interruption in business or loss of access to data resulting from a security breach, termination or transition in services, we may not
be able to meet the demands of our customers and, in turn, our business and results of operations could be adversely impacted.
A significant disruption in service within our operations or among our key suppliers or other third parties could materially
adversely affect our business and results of operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted fashion, necessary business functions,
such as claims processing and payment, internet support and customer call centers, data centers and corporate facilities, processing
new and renewal business, maintaining appropriate shipment and storage conditions for prescriptions (such as temperature and
protection from contamination) and home delivery processing. In some instances, our ability to provide services or products (including
processing and dispensing prescriptions) depends on the availability of services and products provided by suppliers, providers,
pharmaceutical manufacturers, vendors or shipping carriers. A disruption, or threat of disruption, in our supply chain, including as a
result of the COVID-19 pandemic, or inability to access or deliver products that meet requisite quality safety standards in a timely and
efficient manner could adversely impact our business. Additionally, any failure or disruption of our performance of, or our ability to
perform, key business functions, including through unavailability or cyberattack of our information technology systems or those of
third parties, could cause slower response times, decreased levels of service satisfaction and harm to our reputation. Our information
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technology and other systems interface with and depend on third-party systems and we could experience service denials if demand for
such service exceeds capacity or a third-party system fails or experiences an interruption. Our failure to implement adequate business
continuity and disaster recovery strategies could significantly reduce our ability to provide products and services to our customers and
clients, which could have material adverse effects on our business and results of operations.
Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted
operation and data integrity of our information technology and other business systems.
Our business is highly dependent on maintaining effective information systems as well as the integrity and timeliness of the data we
use to serve our customers and health care providers and to operate our business. If our data were found to be inaccurate or unreliable
due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems
and data integrity effectively, we could experience operational disruptions that may impact our clients, customers and health care
providers and hinder our ability to provide services and products, establish appropriate pricing for products and services, retain and
attract clients and customers, establish reserves and report financial results timely and accurately and maintain regulatory compliance,
among other things.
Our information technology strategy and execution are critical to our continued success. We must continue to invest in long-term
solutions that will enable us to anticipate customer needs and expectations, enhance the customer experience, act as a differentiator in
the market and protect against cybersecurity risks and threats. Our success is dependent, in large part, on maintaining the effectiveness
of existing technology systems and continuing to deliver and enhance technology systems that support our business processes in a
cost-efficient and resource-efficient manner. Increasing regulatory and legislative changes will place additional demands on our
information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic
initiatives. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies,
including more sophisticated applications for mobile devices. Connectivity among technologies is becoming increasingly important.
We must also develop new systems to meet current market standards and keep pace with continuing changes in information processing
technology, evolving industry and regulatory standards and customer needs. Failure to do so may present compliance challenges and
impede our ability to deliver services in a competitive manner. Further, because system development projects are long-term in nature,
they may be more costly than expected to complete and may not deliver the expected benefits upon completion. Our failure to
effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our
information technology and other business systems could adversely affect our results of operations, financial position and cash flow.
As a large health service company, we are subject to cyberattacks or other privacy or data security incidents. If we are unable to
prevent or contain the effects of any such attacks, we may suffer exposure to substantial liability, reputational harm, loss of
revenue or other damages.
Our business depends on our clients’ and customers’ willingness to entrust us with their health-related and other sensitive personal
information. Computer systems may be vulnerable to physical break-ins, computer viruses or malware, programming errors, attacks by
third parties or similar disruptive problems. We have been, and will likely continue to be, the target of computer viruses or other
malicious codes, unauthorized access, cyberattacks or other computer-related penetrations. There have been, and will likely continue
to be, large scale cyberattacks within the health service industry. Additionally, hardware, software or applications we develop or
procure from third parties may contain defects in design, manufacturer defects or other problems that could unexpectedly compromise
information technology. Human or technological error has and could in the future result in, for example, unauthorized access to,
disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems; theft of sensitive,
regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems
through ransomware, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
As we increase the amount of personal information that we store and share digitally, our exposure to unintended disclosures, data
security and related cybersecurity risks increases, including the risk of undetected attacks, damage, loss or unauthorized access or
misappropriation of proprietary or personal information, and the cost of attempting to protect against these risks also increases. If
disruptions, disclosures or breaches are not detected quickly, their effect could be compounded. We have implemented security
technologies, processes and procedures to protect consumer identity and provide employee awareness training around phishing,
malware and other cyber risks; however, there are no assurances that such measures will be effective against all types of breaches.
Cybersecurity threats are rapidly evolving and those threats and the means for obtaining access to our proprietary systems are
becoming increasingly sophisticated. Cyberattacks can originate from a wide variety of sources including third parties, such as
external service providers, and the techniques used change frequently or are often not recognized until after they have been launched.
Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive
information in order to gain access to our data or that of our customers. In addition, while we have certain standards for all vendors
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that provide us services, our vendors, and in turn, their own service providers, may become subject to the same types of security
breaches. Finally, our offices may be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost
data, human error or similar events that could negatively affect our systems and our customers’ and clients’ data.
The costs to eliminate or address security threats and vulnerabilities before or after a cyber-incident could be significant. Our
remediation efforts may not be successful and could result in interruptions, delays, or cessation of service and loss of existing or
potential customers.
In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information, proprietary
information or confidential information about us, our customers or other third parties could expose our customers' private information
and our customers to the risk of financial or medical identity theft. Unauthorized dissemination of confidential and proprietary
information about our business and strategy could also negatively affect the achievement of our strategic initiatives. Such events could
cause us to breach our contractual obligations and violate applicable laws. These events would negatively affect our ability to
compete, others’ trust in us, our reputation, customer base and revenues and expose us to mandatory disclosure requirements, litigation
and other enforcement proceedings, material fines, penalties or remediation costs and compensatory, special, punitive and statutory
damages, consent orders and other adverse actions, any of which could adversely affect our business, results of operations, financial
condition or liquidity.
In managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities, we may be subject to
additional liability that could result in significant time and expense.
In addition to contracting with physicians and other health care providers for services, we employ physicians, pharmacists, nurses and
other health care providers at our home delivery and specialty pharmacies, onsite low acuity and primary care practices and infusion
clinics that we manage and operate for our customers, as well as certain clinics for our employees. We also provide in-home care
through health care providers that we employ, as well as, through third-party contractors. As such, we may be subject to liability for
certain acts, omissions, or injuries caused by our employees or agents, or occurring at one of these practices, pharmacies or clinics.
The defense of any actions may require the diversion of personnel and other resources and the incurrence of significant costs that
could have a material adverse effect on our business, results of operations, financial condition, liquidity and reputation.
Legal and Compliance Risks
Our business is subject to substantial government regulation, as well as new laws or regulations or changes in existing laws or
regulations that could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Our business is regulated at the federal, state, local and international levels. The laws and rules governing our business and related
interpretations are increasing in number and complexity, are subject to frequent change and can be inconsistent or in conflict with each
other. Noncompliance with applicable regulations by us or our third-party vendors could have material adverse effects on our business,
results of operations, financial condition, liquidity and reputation.
We must identify, assess and respond to new trends in the legislative and regulatory environment, as well as comply with the various
existing regulations applicable to our business. There are currently pending, and in the future there will likely be, legislative or
regulatory proposals which seek to manage the health services industry, including managing prescription drug costs and health
records, as well as regulating drug distribution. We expect federal and state governments to continue to enact and seriously consider
many broad-based legislative and regulatory proposals that will or could materially impact various aspects of the health care and
related benefits system. In addition, changes to government policies not specifically targeted to the health services industry, such as a
change in tax laws and the corporate tax rate or government spending cuts, could have significant impacts on our business, results of
operations, financial condition and liquidity. The trading price of our securities may react to the announcement of such proposals. We
are unable to predict whether any such proposals will be enacted, or the specific terms thereof, including their effect on our operations;
however, certain of these proposals could, if enacted, adversely impact our business and results of operations.
Existing or future laws, rules, regulatory interpretations or judgments could force us to change how we conduct our business, affect the
products and services we offer and where we offer them, restrict revenue and enrollment growth, increase our costs, including
medical, operating, health care technology and administrative costs, and require enhancements to our compliance infrastructure and
internal controls environment. For example, a decision invalidating the ACA or portions thereof could result in material changes to the
way we conduct our business, as well as the loss of subsidies related to our IFP offerings. We are required to obtain and maintain
insurance and other regulatory approvals to, among other things, market many of our products, expand into additional geographic or
product markets, increase prices for certain regulated products and consummate some of our acquisitions and dispositions. Delays in
obtaining or failure to obtain or maintain these approvals could reduce our revenue or increase our costs. Existing or future laws and
rules could also require or lead us to take other actions such as changing our business practices, and could increase our liability.
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Further, failure to effectively implement or adjust our strategic and operational initiatives, such as by reducing operating costs,
adjusting premium pricing or benefit design or transforming our business model in response to regulatory changes may have a material
adverse effect on our results of operations, financial condition and cash flows.
For more information on regulations affecting our business, see “Business – Regulation” in Part I, Item 1 of this Form 10-K.
There are various risks associated with participating in government-sponsored programs, such as Medicare, including dependence
upon government funding, compliance with government contracts and increased regulatory oversight and enforcement.
Through our U.S. Government business, we contract with CMS and various state governmental agencies to provide managed health
care services including Medicare Advantage plans and Medicare Part D plans. Additionally, our Evernorth business provides services
to government entities and payers participating in government health care programs.
Our revenues from government funded programs, including our Medicare programs and our government clients, are dependent, in
whole or in part, upon annual funding from the federal government or applicable state or local governments. Funding for these
programs is dependent on many factors outside our control, including general economic conditions, continuing government efforts to
contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and
priorities. These entities generally have the right to not renew or cancel their contracts with us on short notice without cause or if funds
are not available. Unanticipated changes in funding, such as the application of sequestration by the federal or state governments or the
failure to provide for continued appropriations or regular ongoing scheduled payments to us, could substantially reduce our revenues
and profitability.
The Medicare program has been the subject of regulatory reform initiatives. The premium rates paid to Medicare Advantage plans and
Medicare Part D plans are established by contract, although the rates differ depending on a combination of factors, some of which are
outside our control. For example, the base premium rate paid differs depending upon a combination of various factors such as defined
upper payment limits, a member's health status, age, gender, county or region, benefit mix, member eligibility category and risk
scores. Additionally, a portion of each Medicare Advantage plan’s reimbursement is tied to the plan’s Star Rating, with those plans
receiving a rating of four or more stars eligible for quality-based bonus payments. A plan’s Star Rating affects its image in the market
and plans that perform well are able to offer enhanced benefits, market more effectively and for longer periods of time than other
plans. The Star Rating system is subject to change annually by CMS, which may make it more difficult to achieve four stars or greater.
Our Medicare Advantage plans’ and Medicare Part D plans’ operating results, premium revenue and benefit offerings are likely to
continue to be significantly determined by their Star Ratings. There can be no assurances that we will be successful in maintaining or
improving our Star Ratings in future years. In addition, audits of our performance for past or future periods may result in downgrades
to our Star Ratings. Accordingly, our plans may not be eligible for full level quality bonuses, which could adversely affect the benefits
such plans can offer, reduce membership or impact our financial performance. See Part II, Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Information – Industry Developments and Other Matters Affecting our Evernorth and
U.S. Medical Segments for additional information on our Star Ratings.
Additionally, if we fail to comply with CMS’ contractual requirements, including data submission, enrollment and marketing, provider
network adequacy, provider directory accuracy, quality measures, claims payment, continuity of care, timely and accurate processing
of appeals and grievances, oversight of first tier downstream and related entities and call center performance, we may be subject to
administrative actions, including enrollment sanctions or contract termination, fines or other penalties that could impact our
profitability. As described under “Business – Regulation” in Part I, Item 1 of this Form 10-K, on November 1, 2018, CMS released a
proposed rule that would revise its RADV methodology and, if adopted in its current form, could result in some combination of
degraded plan benefits, higher monthly premiums or reduced choice for the population served by all Medicare Advantage insurers.
While it is uncertain whether CMS will finalize the rule as proposed, if adopted, it could have a material impact on the Company’s
future results of operations.
Any failure to comply with various state and federal health care laws and regulations, including those directed at preventing fraud and
abuse in government funded programs, could result in investigations or litigation, such as actions under the federal False Claims Act
and similar whistleblower statutes under state laws. This could subject us to damage awards, including treble damages, fines, penalties
or other enforcement actions, restrictions on our ability to market or enroll new customers, limits on expansion, restrictions or
exclusions from programs or other agreements with federal or state governmental agencies, which could adversely impact our
business, cash flows, financial condition, results of operations and reputation.
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We face risks related to litigation, regulatory audits and investigations.
We are routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal matters arising, for the most
part, in the ordinary course of business. These legal matters could include benefit claims, breach of contract actions, tort claims, claims
arising from consumer protection laws, false claims act laws, claims disputes under federal or state laws and disputes regarding
reinsurance arrangements, employment and employment discrimination-related suits, antitrust claims, employee benefit claims, wage
and hour claims, tax, privacy, intellectual property and whistleblower claims, shareholder suits and other securities law claims, real
estate disputes, claims related to disclosure of certain business practices and claims arising from customer audits and contract
performance, including government contracts. In addition, we have incurred and likely will continue to incur liability for practices and
claims related to our health care business, such as marketing misconduct, failure to timely or appropriately pay for or provide health
care, provider network structure, poor outcomes for care delivered or arranged, provider disputes including disputes over
compensation or contractual provisions, ERISA claims, allegations related to calculations of cost sharing and claims related to our
administration of self-funded business. We are also routinely involved in legal matters arising from our health services business,
including without limitation claims related to the dispensing of pharmaceutical products by our home delivery and specialty
pharmacies, pharmacy benefit management services, such as formulary management services, health benefit management services and
provider services. There are currently, and may be in the future, attempts to bring class action lawsuits against the Company and other
companies in our industry; individual plaintiffs also may bring multiple claims regarding the same subject matter against us and other
companies in our industry.
Court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial
noneconomic or punitive damages may be sought. We procure insurance coverage to cover some of these potential liabilities, however
we also self-insure a significant portion of our litigation risks. While we maintain some third-party insurance coverage, including
excess liability insurance with third-party insurance carriers, certain liabilities or types of damages, such as punitive damages, may not
be covered by insurance, insurers may dispute coverage or the amount of insurance may be insufficient to cover the entire damages
awarded. Resolving disputes is often expensive and disruptive, regardless of the outcome. Additionally, it is possible that the
resolution of current or future legal matters and claims could result in changes to our industry and business practices, losses material to
our results of operations, financial condition and liquidity or damage to our reputation.
We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance and health
and welfare and pharmacy departments, attorneys general, DOJ, CMS, DOL and the OIG and comparable authorities in foreign
jurisdictions. Additionally, we are, and may in the future be, subject to qui tam actions in which the government may or may not
intervene. With respect to our Medicare Advantage and Medicare Part D businesses, CMS and OIG perform audits to determine a
health plan's compliance with federal regulations and contractual obligations, including compliance with proper coding practices and
fraud and abuse enforcement practices through audits designed to detect and correct improper payments. Certain of our contracts are
currently subject to RADV audits by CMS and the OIG. The DOJ is conducting an industry-wide investigation of the risk adjustment
data submission practices and business processes, including review of medical charts and health exams, of Cigna and a number of
other Medicare Advantage organizations under Medicare Parts C and D. There also continues to be heightened review by federal and
state regulators of business and reporting practices within the health services industry, including with respect to claims payment and
related escheat practices, and increased scrutiny by other federal and state governmental agencies (such as state attorneys general)
empowered to bring criminal actions in circumstances that could have previously given rise only to civil or administrative
proceedings.
In addition, various government agencies have conducted investigations and audits into certain pharmacy benefit management
practices. Many of these investigations and audits have resulted in other companies being subject to civil penalties, including the
payment of money and entry into corporate integrity agreements. We cannot predict what effect, if any, such government
investigations and audits may ultimately have on us or on the industry in general. However, we will likely continue to experience
government scrutiny and audit activity, which has and may in the future result in civil penalties.
Regulatory audits, investigations or reviews or actions by other government agencies could result in changes to our business practices,
retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions,
including corporate integrity agreements, restrictions on our ability to participate in government programs, market certain products or
engage in business-related activities, that could have a material adverse effect on our business, results of operation, financial condition
and liquidity. In addition, disclosure of an adverse investigation or audit or the imposition of fines or other sanctions could negatively
affect our reputation in certain markets and make it more difficult for us to sell our products and services.
A description of material pending legal actions and other legal and regulatory matters is included in Note 21 to the Consolidated
Financial Statements included in this Form 10-K. The outcome of litigation and other legal or regulatory matters is always uncertain.
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If we fail to comply with applicable privacy, security and data laws, regulations and standards, our business and reputation could
be materially adversely affected.
Most of our activities involve the receipt, use, storage or transmission of a substantial amount of individuals’ protected health
information and personally identifiable information. We also use aggregated and anonymized data for research and analysis purposes,
and in some cases, provide access to such de-identified data, or analytics created from such data, to pharmaceutical manufacturers and
third-party data aggregators and analysts. We may also use such information to create analytic models designed to predict, and
potentially improve, outcomes and patient care. The collection, maintenance, protection, use, transmission, disclosure and disposal of
sensitive personal information are regulated at the federal, state, international and industry levels and requirements are imposed on us
by contracts with clients. In some cases, such laws, rules, regulations and contractual requirements also apply to our vendors and
require us to obtain written assurances of their compliance with such requirements. We are also subject to various other consumer
protection laws that regulate our communications with customers. Certain of our businesses are also subject to the Payment Card
Industry Data Security Standard, which is designed to protect credit card account data as mandated by payment card industry entities.
International laws, rules and regulations governing the use and disclosure of such information, such as the GDPR, can be more
stringent than in the United States, and they vary across jurisdictions. In addition, more jurisdictions are regulating the transfer of data
across borders and domestic privacy and data protection laws are generally becoming more onerous.
These laws, rules and contractual requirements are subject to change and the regulatory environment surrounding data security and
privacy is increasingly demanding. Compliance with existing or new privacy, security and data laws, regulations and requirements
may result in increased operating costs, and may constrain or require us to alter our business model or operations. For more
information on privacy regulations to which we are subject, see “Business – Regulation” in Part I, Item 1 of this Form 10-K.
HIPAA requires covered entities to comply with the HIPAA privacy, security and breach rules. In addition, business associates must
comply with the HIPAA security and breach requirements. While we endeavor to provide appropriate protections through our
contracts with our third-party service providers and in certain cases assess their security controls, we have limited oversight or control
over their actions and practices. Several of our businesses act as business associates to their covered entity customers and, as a result,
collect, use, disclose and maintain sensitive personal information in order to provide services to these customers. HHS administers an
audit program to assess HIPAA compliance efforts by covered entities and business associates. In addition, HHS continues to exercise
its enforcement authority, such as enforcement actions resulting from investigations brought on by notification to HHS of a breach. An
audit resulting in findings or allegations of noncompliance or the implementation of an enforcement action could have an adverse
effect on our results of operations, financial position, cash flows and reputation.
Noncompliance or findings of noncompliance with applicable laws, regulations or requirements, or the occurrence of any privacy or
security breach involving the misappropriation, loss or other unauthorized disclosure of protected personal information, whether by us
or by one of our third-party service providers, could materially adversely affect our business and reputation, including our results of
operations, financial position and cash flows.
Effective prevention, detection and control systems are critical to maintain regulatory compliance and prevent fraud and failure of
these systems could adversely affect us.
Federal and state governments have made investigating and prosecuting health care and other insurance fraud and abuse a priority.
Fraud and abuse prohibitions encompass a wide range of activities including kickbacks for referral of customers, billing for
unnecessary medical services, improper marketing and violations of patient privacy rights. The regulations and contractual
requirements applicable to us are complex and subject to change. In addition, ongoing vigorous law enforcement, a highly technical
regulatory scheme and the Dodd-Frank Act and related regulations enhance regulators’ enforcement powers and whistleblower
incentives and protections. Our compliance efforts in this area will continue to require significant resources. Failure of our prevention,
detection or control systems related to regulatory compliance or the failure of employees to comply with our internal policies
including data systems security or unethical conduct by managers and employees, could adversely affect our reputation and also
expose us to litigation and other proceedings, fines and penalties.
In addition, provider or customer fraud that is not prevented or detected could impact our medical costs or those of our self-insured
clients. Further, during an economic downturn, we may experience increased fraudulent claims volume that may lead to additional
costs due to an increase in disputed claims and litigation.
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Economic Risks
Economic and market conditions affect the value of our financial instruments and the value of particular assets and liabilities,
investment income and interest expense.
As an insurer, we have substantial investment assets that support insurance and contractholder deposit liabilities and surplus
requirements in our regulated companies. The market values of our investments vary depending on economic and market conditions
with no offsetting change in the value of a majority of our liabilities. A substantial portion of our investment assets are in fixed
interest-yielding debt securities of varying maturities and commercial mortgage loans. The value of these investment assets can
fluctuate significantly with changes in market conditions. A rise in interest rates would likely reduce the value of our investment
portfolio, increase interest expense on our indebtedness and increase investment income as investment assets mature and are replaced.
In addition, an economic contraction could result in delay in payment of principal or interest by issuers, or defaults by issuers,
reducing our investment income and requiring us to write down the value of our investments.
Significant stock market or interest rate declines could result in additional unfunded pension obligations resulting in the need for
additional plan funding by us and increased pension expenses.
We currently have unfunded obligations in our frozen pension plans. A significant decline in the value of the plans’ equity and fixed
income investments or unfavorable changes in applicable laws or regulations could materially increase our expenses and change the
timing and amount of required plan funding. This could reduce the cash available to us, including our subsidiaries. We are also
exposed to interest rate and equity risk associated with our pension obligations. Sustained declines in interest rates could have an
adverse impact on the funded status of our pension plans and our reinvestment yield on new investments. See Note 15 to the
Consolidated Financial Statements for more information on our obligations under the pension plans.
A downgrade in the financial strength ratings of our insurance subsidiaries could adversely affect new sales and retention of
current business, and a downgrade in our debt ratings would increase the cost of borrowed funds and could negatively affect our
ability to access capital.
Financial strength, claims paying ability and debt ratings by recognized rating organizations are each important factors in establishing
the competitive position of insurance and health benefits companies. Ratings information by nationally recognized ratings agencies is
broadly disseminated and generally used throughout the industry. We believe that the claims paying ability and financial strength
ratings of our principal insurance subsidiaries are important factors in marketing our products to certain customers. Our debt ratings
impact both the cost and availability of future borrowings and, accordingly, our cost of capital. Each of the rating agencies reviews
ratings periodically and there can be no assurance that current ratings will be maintained in the future. A downgrade of any of these
ratings in the future could make it more difficult to either market our products successfully or raise capital to support business growth.
We maintain significant indebtedness in the ordinary course of business and may incur further indebtedness in the future. Our
indebtedness could adversely affect our financial condition, our ability to react to changes in the economy or our industry and
could divert our cash flow from operations for debt service costs, leaving us with less cash flow from operations available to fund
growth, stock repurchases, dividends and other corporate purposes.
The total indebtedness of Cigna was approximately $32.9 billion as of December 31, 2020. Carrying indebtedness:
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requires us to dedicate a portion of our cash flow from operations to debt payments, thereby reducing the availability of cash flow
to fund our operations and growth strategy, including investments, acquisitions and capital expenditures, make stock repurchases,
pay dividends and for general corporate purposes;
increases our vulnerability to general adverse economic and industry conditions, which may require us to dedicate an even greater
percentage of our cash flow from operations to the payment of principal and interest on our debt and limit our access to capital
markets such that additional capital may not be available or may be available only on unfavorable terms;
exposes us to increases in interest rates to the extent increased interest expense is not offset by increased income from our
investment assets; and
limits our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry.
The covenants in our debt instruments may have the effect, among other things, of restricting our financial and operating flexibility to
respond to significant changes in business and economic conditions. We may incur or assume significantly more debt in the future
which may subject us to additional restrictive covenants and increase the risks described above. If our cash flow and capital resources
are insufficient to service our debt obligations, we may be forced to seek additional dividends from our subsidiaries, sell assets, seek
additional equity or debt capital or restructure our debt.
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Unfavorable developments in economic conditions may adversely affect our business, results of operations and financial condition.
Many factors, including geopolitical issues, future economic downturns, natural disasters and pandemics, availability and cost of credit
and other capital and consumer spending can negatively impact the U.S. and global economies. Our results of operations could be
materially adversely affected by the impact of unfavorable economic conditions on our clients and customers (both employers and
individuals), health care providers, pharmacy manufacturers, pharmacy providers and third-party vendors. For example:
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•
•
Employers may take action to reduce their operating costs by modifying, delaying or canceling plans to purchase our products or
making changes in the mix of products purchased that are unfavorable to us.
Higher unemployment rates and workforce reductions could result in lower enrollment in our employer-based plans (including an
increase in the number of employees who opt out of employer-based plans) or our individual plans.
Because of unfavorable economic conditions or the ACA, employers may stop offering health care coverage to employees or elect
to offer this coverage on a voluntary, employee-funded basis as a means to reduce their operating costs.
If clients are not successful in generating sufficient funds or are precluded from securing financing, they may not be able to pay,
or may delay payment of, accounts receivable that are owed to us.
Our clients or potential clients may force us to compete more vigorously on factors such as price and service to retain or obtain
their business.
Our clients may be acquired, consolidated, or otherwise fail to successfully maintain or grow their business or workforce, which
could reduce the number of customers we serve or otherwise result in lower than anticipated utilization of our services.
A prolonged unfavorable economic environment could adversely impact the financial position of hospitals and other health care
providers, potentially increasing our medical costs.
Our third-party vendors could significantly and quickly increase their prices or reduce their output to reduce their operating costs.
Our business depends on our ability to perform necessary business functions in an efficient and uninterrupted fashion.
Other insurers' financial condition may be weakened, increasing the risk that we will receive significant assessments for
obligations of insolvent insurers pursuant to guaranty associations, indemnity funds or other similar laws and regulations.
These factors could lead to a decrease in our customer base, revenues or margins or an increase in our operating costs.
In addition, during and following a prolonged unfavorable economic environment, federal and state budgets could be materially
adversely affected, resulting in reduced or delayed reimbursements or payments in federal and state government programs such as
Medicare and Social Security or under contracts with government entities. These federal and state budgetary pressures also could
cause the government to impose new or a higher level of taxes or assessments on us, such as premium taxes on insurance companies
and HMOs and surcharges or fees on select fee-for-service and capitated medical claims. Although we could attempt to mitigate or
cover our exposure from such increased costs through, among other things, increases in premiums, there can be no assurance that we
will be able to mitigate or cover all of such costs, which may have a material adverse effect on our business, results of operations,
financial condition and liquidity.
We are subject to the credit risk of our reinsurers.
We enter into reinsurance arrangements with other insurance companies, primarily in connection with acquisition or divestiture
transactions when the underwriting company is not being acquired or sold.
Under all reinsurance arrangements, reinsurers assume insured losses, subject to certain limitations or exceptions that may include a
loss limit. These arrangements also subject us to various obligations, representations and warranties with the reinsurers. Reinsurance
does not relieve us of liability as the originating insurer. We remain liable to the underlying policyholders if a reinsurer defaults on
obligations under the reinsurance arrangement. Although we regularly evaluate the financial condition of reinsurers to minimize
exposure to significant losses from reinsurer insolvencies, reinsurers may become financially unsound. If a reinsurer fails to meet its
obligations under the reinsurance contract or if the liabilities exceed any applicable loss limit, we will be forced to cover the claims on
the reinsured policies.
The collectability of amounts due from reinsurers is subject to uncertainty arising from a number of factors, including whether the
insured losses meet the qualifying conditions of the reinsurance contract, whether reinsurers or their affiliates have the financial
capacity and willingness to make payments under the terms of the reinsurance contract and the magnitude and type of collateral
supporting our reinsurance recoverable, such as holding sufficient qualifying assets in trusts or letters of credit issued. Although a
portion of our reinsurance exposures are secured, the inability to collect a material recovery from a reinsurer could have a material
adverse effect on our results of operations, financial condition and liquidity.
47
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
As of the end of fiscal year 2020, our global real estate portfolio consisted of approximately 12.4 million square feet of owned and
leased properties. Our domestic portfolio had approximately 10.5 million square feet in 42 states, the District of Columbia, Puerto
Rico and the U.S. Virgin Islands. Our international properties contain approximately 2.1 million square feet located throughout the
following countries: Australia, Bahrain, Belgium, Canada, China, France, Germany, Hong Kong, India, Indonesia, Kenya, Kuwait,
Lebanon, Malaysia, Netherlands, New Zealand, Oman, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey,
United Arab Emirates and the United Kingdom.
Our principal domestic office locations include the Wilde Building located at 900 Cottage Grove Road in Bloomfield, Connecticut
(our corporate headquarters), Two Liberty Place located at 1601 Chestnut Street in Philadelphia, Pennsylvania, and Evernorth's
corporate offices located at and around One Express Way in St. Louis, Missouri. The Wilde Building measures approximately 893,000
square feet and is owned. Express Scripts’ campus measures approximately 1.2 million square feet of leased space and Two Liberty
Place measures approximately 322,000 square feet and is leased space.
The pharmacy operations consist of ten order processing pharmacies, five patient contact centers, 26 specialty branch pharmacies and
11 high-volume automated home delivery and specialty dispensing pharmacies located throughout the United States. Dispensing
pharmacies are located in Arizona, Delaware, Florida, Indiana, Massachusetts, Missouri, New Jersey, Pennsylvania and Tennessee.
We believe our properties are adequate and suitable for our business as presently conducted. The foregoing does not include
information on investment properties.
Item 3. LEGAL PROCEEDINGS
The information contained under Litigation Matters and Regulatory Matters in Note 21 to the Consolidated Financial Statements of
this Form 10-K is incorporated herein by reference.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
48
Information about our Executive Officers
The principal occupations and employment histories of our executive officers are listed below.
DAVID M. CORDANI, 55, Chief Executive Officer of Cigna beginning December 2009; Director since October 2009; President
beginning June 2008; and Chief Operating Officer from June 2008 until December 2009.
NOELLE K. EDER, 51, Executive Vice President, Chief Information Officer beginning September 2020; Executive Vice President,
Chief Information and Digital Officer at Hilton Worldwide Holdings from March 2018 until August 2020; Executive Vice President,
Chief Card Customer Experience Officer at Capital One Financial Corporation from November 2016 until 2018; and Executive Vice
President, Customer Experience and Operations at Capital One Financial Corporation from September 2014 until November 2016.
BRIAN C. EVANKO, 44, Executive Vice President and Chief Financial Officer beginning January 2021; President, Government
Business from November 2017 to January 2021; President, U.S. Individual Business from August 2013 to November 2017; Business
Financial Officer, Cigna Global Individual, Health, Life and Accident from August 2011 to August 2013.
NICOLE S. JONES, 50, Executive Vice President and General Counsel of Cigna beginning June 2011; Senior Vice President and
General Counsel of Lincoln Financial Group from May 2010 until June 2011; Vice President and Deputy General Counsel of Cigna
from April 2008 until May 2010; and Corporate Secretary of Cigna from September 2006 until April 2010.
KRISTEN LAURIA, 52, Executive Vice President, Chief Marketing Officer beginning March 2020; General Manager, Watson Media
and Weather at IBM from February 2017 until March 2020; Vice President, Strategy and Business Development, IBM Analytics
Group at IBM from April 2016 until February 2017; and Chief Marketing Officer, IBM Global Business Services at IBM from August
2014 to August 2016.
MATTHEW G. MANDERS, 59, President, Government and Solutions beginning January 2021; President, Strategy and Solutions
from November 2018 until January 2021; President, Government & Individual Programs and Group Insurance from February 2017
through November 2017; President, U.S. Markets from June 2014 until February 2017; President, Regional and Operations from
November 2011 until June 2014; President, U.S. Service, Clinical and Specialty from January 2010 until November 2011; and
President, Cigna HealthCare, Total Health, Productivity, Network & Middle Market from June 2009 until January 2010.
STEVEN B. MILLER, MD, 63, Executive Vice President and Chief Clinical Officer beginning December 2018; Senior Vice President
and Chief Medical Officer, of Express Scripts from October 2007 through December 2018.
JOHN M. MURABITO, 62, Executive Vice President, Human Resources and Services of Cigna beginning August 2003.
EVERETT NEVILLE, 56, Executive Vice President, Strategy and Business Development beginning January 2021; Senior Vice
President, Value Creation and Solutions from January 2020 until January 2021; Chief Value Officer from December 2018 until
January 2020; Executive Vice President, Strategy, Supply Chain & Specialty, Express Scripts from January 2018 until December
2018; Senior Vice President, Strategy, Supply Chain & Specialty from November 2016 until January 2018; Senior Vice President,
Supply Chain from March 2015 until November 2016; Vice President, Pharma Strategy and Contracting from March 2009 until March
2015.
ERIC P. PALMER, 44, President and Chief Operating Officer, Evernorth beginning January 2021; Executive Vice President and
Chief Financial Officer from June 2017 to January 2021; Deputy Chief Financial Officer from February 2017 until June 2017; Senior
Vice President, Chief Business Financial Officer from November 2015 to February 2017; Vice President, Business Financial Officer,
Health Care from April 2012 to November 2015; and Vice President, Business Financial Officer, U.S. Commercial Markets from June
2010 to April 2012.
JASON D. SADLER, 52, President, International Markets beginning June 2014; President, Global Individual Health, Life and
Accident from July 2010 until June 2014; and Managing Director Insurance Business Hong Kong, HSBC Insurance Asia Limited
from January 2007 until July 2010.
MICHAEL W. TRIPLETT, 59, President, U.S. Commercial beginning February 2017; Regional Segment Lead from June 2009 to
February 2017.
TIMOTHY C. WENTWORTH, 60, Chief Executive Officer, Evernorth beginning September 2020; President, Health Services from
February 2020 until September 2020; President, Express Scripts and Cigna Services from December 2018 until February 2020; Chief
Executive Officer of Express Scripts from May 2016 until December 2018; President from February 2014 through December 2018;
and Senior Vice President and President, Sales and Account Management from April 2012 until February 2014.
49
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
As of December 31, 2020, the number of shareholders of record was 33,418. Cigna’s common stock is listed with, and trades on, the
New York Stock Exchange under the symbol “CI”.
On January 6, 2021 Cigna initiated a quarterly cash dividend and declared the first quarterly cash dividend of $1.00 per share of Cigna
common stock to be paid on March 25, 2021 to shareholders of record as of March 10, 2021. Cigna currently intends to pay regular
quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the
declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends
and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital
requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.
For the years ended December 31, 2020 and 2019 Cigna paid a yearly cash dividend of $0.04 per share of Cigna common stock.
Issuer Purchases of Equity Securities
The following table provides information about Cigna’s share repurchase activity for the quarter ended December 31, 2020:
Period
October 1-31, 2020
November 1-30, 2020
December 1-31, 2020
Total # of shares
purchased (1)
Average price paid per
share
Total # of shares purchased as part of
publicly announced program (2)
Approximate dollar value of shares
that may yet be purchased as part
of publicly announced program (3)
2,513,269 $
2,264,316 $
3,933,971 $
174.20
208.21
206.97
2,511,898 $
2,263,127 $
3,915,223 $
3,154,849,988
2,683,607,700
3,873,160,092
Total
(1) Includes shares tendered by employees under the Company’s equity compensation plans as follows: 1) payment of taxes on vesting of restricted stock (grants and
units) and strategic performance shares and 2) payment of the exercise price and taxes for certain stock options exercised. Employees tendered 1,371 shares in
October, 1,189 shares in November and 18,748 shares in December 2020.
8,711,556 $
8,690,248
197.84
N/A
(2) Additionally, the Company maintains a share repurchase program authorized by the Board of Directors. Under this program, the Company may repurchase shares
from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of
factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through Rule 10b5-1
plans, open market purchases, each in compliance with Rule 10b-18 under the Exchange Act, or privately negotiated transactions. The program may be suspended
or discontinued at any time and does not have an expiration date. In December 2020, the Board increased repurchase authority by an additional $2 billion. From
January 1, 2021 through February 24, 2021, the Company repurchased 8.1 million shares for approximately $1.7 billion, leaving repurchase authority at $2.1
billion as of February 24, 2021.
(3) Approximate dollar value of shares is as of the last date of the applicable month.
50
Stock Price Performance Graph
The graph below compares the cumulative total shareholder return on our common stock for the five years ended December 31, 2020
with the cumulative total return of the Standard & Poor’s 500 Index, the Standard & Poor’s 500 Health Care Providers & Services
Index and the Standard & Poor’s Managed Health Care, Life & Health Insurance Indexes. The stock performance shown in the graph
is not intended to forecast or be indicative of future performance.
With consideration to Cigna's evolved strategy and recent divestiture of the Group Disability and Life business, for future filings we
will select to present the S&P 500 Health Care Index as our peer group for this disclosure. Peer indices disclosed in previous filings
are included herein for comparison.
Item 6. SELECTED FINANCIAL DATA
The selected financial data previously required by Item 301 of Regulation S-K has been omitted in reliance on SEC Release No.
33-10890, Management’s Discussion and Analysis, Selected Financial Data and Supplementary Financial Information.
51
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview...........................................................................................................................................
Liquidity and Capital Resources.......................................................................................................................
Critical Accounting Estimates..........................................................................................................................
Segment Reporting............................................................................................................................................
Evernorth........................................................................................................................................................
U.S. Medical...................................................................................................................................................
International Markets.....................................................................................................................................
Group Disability and Other...........................................................................................................................
Corporate.......................................................................................................................................................
Investment Assets..............................................................................................................................................
PAGE
52
60
65
68
68
70
71
72
73
73
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide
information to assist you in better understanding and evaluating our financial condition as of December 31, 2020 compared with
December 31, 2019 and our results of operations for 2020 compared with 2019 and 2018 and is intended to help you understand the
ongoing trends in our business. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K ("Form 10-K") and the “Risk Factors” contained in Part I, Item 1A of
this Form 10-K. For comparisons of our results of operations for 2019 compared with 2018, please refer to the previously filed
MD&A included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2019.
Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). See Note 3 to the Consolidated Financial Statements in this Form 10-K for
additional information regarding the Company’s significant accounting policies. In some of our financial tables in this MD&A, we
present either percentage changes or “N/M” when those changes are so large as to become not meaningful. Changes in percentages
are expressed in basis points (“bps”).
In this MD&A, our consolidated measures “adjusted income from operations,” earnings per share on that same basis and “adjusted
revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable
GAAP measures of “shareholders’ net income,” “earnings per share” and “total revenues.” We also use pre-tax adjusted income
from operations and adjusted revenues to measure the results of our segments.
We use adjusted income from operations as our principal financial measure of operating performance because management believes
it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and
profitability. We define adjusted income from operations as shareholders’ net income (or income before taxes for the segment metric)
excluding realized investment gains and losses, amortization of acquired intangible assets, special items and prior to 2020, results of
Anthem, Inc. and Coventry Health Care Inc. (“Coventry”) (collectively, the “transitioning clients”) (see the “Key Transactions and
Business Developments” section of this MD&A for further discussion of transitioning clients). Cigna’s share of certain realized
investment results of its joint ventures reported in the International Markets segment using the equity method of accounting are also
excluded. Income or expense amounts excluded from adjusted income from operations because they are not indicative of underlying
performance or the responsibility of operating segment management include:
•
•
•
•
Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet
dates, as well as gains and losses associated with invested asset sales.
Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.
Results of transitioning clients prior to 2020, because those results are not indicative of ongoing results.
Special items, if any, that management believes are not representative of the underlying results of operations due to the
nature or size of these matters.
The term adjusted revenues is defined as total revenues excluding the following adjustments: revenue contribution from transitioning
clients prior to 2020, special items and Cigna’s share of certain realized investment results of its joint ventures reported in the
International Markets segment using the equity method of accounting. We exclude these items from this measure because management
believes they are not indicative of past or future underlying performance of the business.
52
EXECUTIVE OVERVIEW
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health services organization with a mission of helping those we serve improve their health, well-being and
peace of mind. We offer a differentiated set of pharmacy, medical, dental and related products and services offered by our subsidiaries.
For further information on our business and strategy, see Item 1, "Business" in this Form 10-K.
COVID-19 Update
The novel strain of coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization in March 2020. From the
onset of the COVID-19 pandemic we have taken actions to drive affordability, reduce uncertainty and make health care easier. For
customers, these actions include COVID-19 related cost share waivers, expanded access to virtual care, support for access to
medication and advocating for whole person health through various behavioral health initiatives. We have supported the medical
community by simplifying processes and donating medications for a COVID-19 clinical trial. Cigna and the Cigna Foundation have
assisted our communities through several initiatives including the launch of the Brave of Heart Fund that provides financial assistance
to survivors of front-line U.S. health care workers who gave their lives in the fight against COVID-19. Cigna also provides emotional
support services to their families. The Evernorth team launched ParachuteRx, a drug cost assistance program to certain customers
without health coverage due to furlough or job loss. Cigna Medical Group was among the first in the United States to administer
antibody therapies to high-risk COVID-19 patients in a non-hospital setting. Cigna also partnered with other organizations on digital
access to vaccination records for those who have received the COVID-19 vaccine to facilitate return to work and daily activities.
We have continued to support our workforce by enabling remote work where appropriate, and implemented enhanced safety protocols
and programs that support the health and mental well-being of our employees. We have continued to execute our business continuity
plans over our operations such as leveraging purchasing volume across the pharmaceutical supply chain in order to mitigate risk
associated with prescription drug supply. We did not incur significant disruptions to our operations during 2020 from COVID-19.
We will continue to work with our clients, customers, providers and employees to provide support during the pandemic.
The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. The
effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not
material to the Company's results of operations or financial condition for that period.
Beginning in April, we experienced a significant deferral of care by our customers. The deferral of care moderated over the course of
the second quarter with utilization levels eventually returning to nearly normal levels by the end of June. In the third quarter, we
experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for
COVID-19 testing and treatment.
In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of
care. These impacts were most prevalent in the U.S. Medical segment where fourth quarter earnings were adversely impacted by
increased costs of COVID-19 care and decreased contributions from our specialty products. Full year U.S. Medical results reflect
COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related
actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions
to support providers and employees.
Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its
effects in the third and fourth quarters. Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the
pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method
used for dispensing and fulfilling, partially offset by lower 30-day retail script volume. Segment results are discussed further in the
"Segment Reporting" section of this MD&A and discussion of the impact of COVID-19 on our investment portfolio and related
considerations regarding our investment outlook can be found in Note 11 to the Consolidated Financial Statements and in the
"Investment Assets" discussion of this MD&A.
While it is difficult to predict the impact of the COVID-19 pandemic on our results beyond 2020, we believe that such results may be
impacted by, among other things, higher medical costs to treat those affected by the virus, lower customer volumes due to rising
unemployment, lower future risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk
profiles in our Medicare Advantage business, the return of costs for those who had previously deferred care, vaccine costs, continued
cost share waivers, the potential for continued deferral of care, or lower investment returns.
53
Cigna has taken actions to enhance our liquidity that, combined with our other sources of liquidity described in the "Liquidity and
Capital Resources Outlook" section below, and our current projections for operating cash flows, we believe are sufficient to support
our operations and meet our obligations.
The situation surrounding COVID-19 remains fluid, and we are actively managing our response and assessing impacts to our financial
position and operating results, as well as adverse developments in our business.
For further information regarding the potential impact of COVID-19 on the Company, see “Risk Factors” contained in Part I, Item 1A
of this Form 10-K.
Financial Highlights
See Note 1 to the Consolidated Financial Statements for a description of our segments. Unless otherwise specified, the commentary
provided below describes our results for the year ended December 31, 2020 compared with the year ended December 31, 2019.
Results for 2018 only include Express Scripts for the period following the acquisition on December 20, 2018.
Summarized below are certain key measures of our performance by segment for the years ended December 31:
Financial highlights by segment
(Dollars in millions, except per share amounts)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
For the Years Ended December 31,
Increase
(Decrease)
Increase
(Decrease)
Revenues
Adjusted revenues by segment
Evernorth
U.S. Medical
International Markets
Group Disability and Other
Corporate, net of eliminations
Adjusted revenues
Revenue contribution from transitioning clients
Net realized investment results from certain equity method investments
Special items
Total revenues
Shareholders’ net income
Adjusted income from operations
Earnings per share (diluted)
Shareholders’ net income
Adjusted income from operations
Pre-tax adjusted income from operations by segment
Evernorth
U.S. Medical
International Markets
Group Disability and Other
Corporate, net of eliminations
Consolidated pre-tax adjusted income from operations
Adjustment for transitioning clients
Income attributable to noncontrolling interests
Net realized investment gains (losses)
Amortization of acquired intangible assets
Special items
Income before income taxes
$
116,130 $
96,447 $
38,451
5,877
5,264
(5,655)
160,067
—
130
204
36,519
5,615
5,182
(3,588)
140,175
13,347
44
—
6,606
32,791
5,366
5,061
(1,713)
48,111
459
(43)
123
$
$
$
$
$
$
160,401 $
153,566 $
48,650
8,458 $
6,795 $
5,104 $
6,476 $
22.96 $
18.45 $
13.44 $
17.05 $
5,363 $
5,092 $
3,807
900
290
(1,552)
8,808
—
37
279
(1,982)
3,726
3,831
762
501
(1,824)
8,362
1,726
20
221
(2,949)
(810)
2,637
3,557
10.54
14.22
380
3,502
735
529
(403)
4,743
62
14
(124)
(235)
(879)
20 %
5
5
2
(58)
14
N/M
195
N/M
4 %
66 %
5 %
71 %
8 %
N/M
11 %
5
2
(109)
191
N/M
N/M
N/M
216 %
94 %
82 %
28 %
20 %
5 %
N/M
(1)
18
(42)
15
5
N/M
85
26
33
N/M
9 %
4
(5)
N/M
76
N/M
43
N/M
N/M
8
$
10,868 $
6,570 $
3,581
65 %
83 %
For further analysis and explanation of each segment’s results, see the “Segment Reporting” section of this MD&A.
54
Consolidated Results of Operations (GAAP basis)
(Dollars in millions)
Pharmacy revenues
Premiums
Fees and other revenues
Net investment income
Total revenues
Pharmacy and other service costs
Medical costs and other benefit expenses
Selling, general and administrative expenses
Amortization of acquired intangible assets
Total benefits and expenses
Income from operations
Interest expense and other
Debt extinguishment costs
Gain (loss) on sale of business
Net realized investment gains (losses)
Income before income taxes
Total income taxes
Net income
Less: Net income attributable to noncontrolling
interests
Shareholders' net income
Consolidated effective tax rate
Medical customers (in thousands)
U.S. Medical
International Markets
Total
For the Years Ended December 31,
Increase (Decrease)
Increase (Decrease)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$ 107,769
$ 103,099
$
5,479
$
4,670
5 % $ 97,620
N/M
42,627
8,761
1,244
160,401
103,484
32,710
14,072
1,982
39,714
9,363
1,390
153,566
97,668
30,819
14,053
2,949
152,248
145,489
8,153
(1,438)
(199)
4,203
149
10,868
2,379
8,489
31
8,077
(1,682)
(2)
—
177
6,570
1,450
5,120
16
36,113
5,578
1,480
48,650
4,793
27,528
11,934
235
44,490
4,160
(498)
—
—
(81)
3,581
935
2,646
2,913
(602)
(146)
6,835
5,816
1,891
19
(967)
6,759
76
244
(197)
4,203
7
(6)
(11)
4
6
6
—
(33)
5
1
15
N/M
N/M
(28)
(16)
4,298
929
3,369
65
64
66
3,601
3,785
(90)
104,916
92,875
3,291
2,119
2,714
100,999
3,917
(1,184)
(2)
—
258
2,989
515
2,474
10 %
68
(6)
216
N/M
12
18
N/M
227
94
(238)
N/M
N/M
N/M
83
55
93
9
15
94
7
78
$
8,458
$
5,104
$
2,637
$
3,354
66 % $ 2,467
94 %
21.9 %
22.1 %
26.1 %
(20) bps
(400) bps
15,013
1,660
16,673
15,548
1,597
17,145
15,389
1,572
16,961
(535)
63
(472)
(3) %
4
(3) %
159
25
184
1 %
2
1 %
Reconciliation of Shareholders’ Net Income (GAAP) to Adjusted Income from Operations
Dollars in Millions
Diluted Earnings Per Share
For the Years Ended December 31,
For the Years Ended December 31,
2020
2019
2018
2020
2019
2018
Shareholders’ net income
$
8,458 $
5,104 $
2,637 $
22.96 $
13.44 $
10.54
After-tax adjustments required to reconcile to adjusted income from operations
Net realized investment (gains) losses
Amortization of acquired intangible assets
Adjustment for transitioning clients
Special items
Integration and transaction-related costs
Debt extinguishment costs
Charge for organizational efficiency plan
Charges associated with litigation matters
Risk corridors recovery
Contractual adjustment for a former client
(Gain) on sale of business
Charges (benefits) associated with tax reform
Total special items
(244)
1,431
—
404
151
24
19
(76)
(155)
(3,217)
—
(2,850)
(190)
2,248
(1,316)
427
—
162
41
—
—
—
—
630
104
177
(47)
669
—
—
19
—
—
—
(2)
686
(0.66)
3.88
—
1.10
0.41
0.07
0.05
(0.21)
(0.42)
(8.73)
—
(7.73)
(0.50)
5.92
(3.46)
1.11
—
0.43
0.11
—
—
—
—
1.65
Adjusted income from operations
$
6,795 $
6,476 $
3,557 $
18.45 $
17.05 $
0.42
0.71
(0.19)
2.67
—
—
0.08
—
—
—
(0.01)
2.74
14.22
55
Commentary: 2020 versus 2019
Unless indicated otherwise, the commentary presented below, and in the segment discussions that follow, compare results for the year
ended December 31, 2020 with results for the year ended December 31, 2019.
Shareholders’ net income increase was driven by the gain on sale of the Group Disability and Life business, lower amortization
charges and higher adjusted income from operations, partially offset by the absence of earnings from transitioning clients.
Adjusted income from operations increased, driven in part by higher earnings in the Evernorth segment reflecting customer growth
and increased script volumes, an increase in the International Markets segment results and lower interest costs in Corporate due to a
lower level of outstanding debt. These favorable effects were partially offset by lower earnings in the Group Disability and Other
segment reflecting significantly elevated life claims related to the effects of COVID-19.
Medical customers decreased due to declines in the Middle Market and National Accounts market segments and increased
disenrollment driven by the impacts of COVID-19. Those decreases were partially offset by growth in the Select, International and
Medicare Advantage segments.
Pharmacy revenues increased, reflecting the transition of U.S. Medical's customers to Evernorth, higher claims volumes, driven by
the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on branded drugs. These
factors were substantially offset by the absence of revenues from the transitioning clients and, to a lesser extent, an increase in the
generic fill rate. See the "Evernorth segment" section of this MD&A for further discussion of pharmacy revenues.
Premiums increased, reflecting customer growth in insured products and rate increases reflecting expected medical cost inflation and
the return of the health insurance industry tax. These factors were partially offset by the impact of premium relief programs
implemented in response to significantly lower than historical utilization as customers deferred care in 2020 due to the COVID-19
pandemic.
Fees and other revenues decreased, primarily reflecting the transition of U.S. Medical's commercial customers to Evernorth's retail
pharmacy network beginning in the third quarter of 2019 (see Note 3(K) to the Consolidated Financial Statements for further
information).
Net investment income decrease was driven by lower yields, including lower income from partnership investments due to current
economic conditions. These effects were partially offset by higher average assets. See the "Investment Assets" section of this MD&A
for further discussion.
Pharmacy and other service costs increased, reflecting the transition of U.S. Medical's customers to Evernorth, higher claims
volumes, driven by the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on
branded drugs. These factors were substantially offset by the impact of the absence of the transitioning clients and, to a lesser extent,
effective management of supply chain and the favorable impact of the mix of claims.
Medical costs and other benefit expenses increased, reflecting both customer growth and direct costs associated with COVID-19,
partially offset by care deferrals in insured products in U.S. Medical and higher life claims in Group Disability and Other due to the
effects of the COVID-19 pandemic.
Selling, general and administrative expenses were essentially flat, primarily reflecting lower charges in 2020 for the organizational
efficiency plan and the risk corridors claim recovery recognized in the third quarter of 2020 (see the "Risk Mitigation Programs -
Individual ACA Business" section of this MD&A and Note 21 to the Consolidated Financial Statements for further discussion), offset
by the return of the health insurance industry tax.
Amortization of acquired intangible assets decreased, primarily reflecting lower amortization of customer-related intangibles
associated with the transitioning clients.
Income tax expense increased for 2020, largely attributable to the sale of Cigna's Group Disability and Life business. The
consolidated effective tax rate decreased slightly, driven by recognition of certain incremental federal and state tax benefits, largely
offset by the return of the nondeductible health insurance industry tax.
56
Key Transactions and Business Developments
Sale of Group Disability and Life Business
As discussed in Note 5 to the Consolidated Financial Statements, Cigna sold the U.S. Group Disability and Life business to New York
Life Insurance Company for $6.2 billion on December 31, 2020. The “Liquidity and Capital Resources” section of this MD&A
provides discussion of the use of proceeds from this divestiture.
Organizational Efficiency Plan
Consistent with our commitment to affordability for our customers and clients, during the fourth quarter of 2019 the Company
committed to a plan to increase our organizational alignment and operational efficiency and reduce costs. As a result, we recognized a
charge in Selling, general and administrative expenses of $207 million, pre-tax ($162 million, after-tax) in the fourth quarter of 2019
and an additional charge of $31 million pre-tax ($24 million, after-tax) in the first quarter of 2020. We expect to realize annualized
after-tax savings of approximately $200 million. A substantial portion of the savings was realized in 2020.
Merger with Express Scripts
As discussed in more detail in our 2019 Form 10-K, Cigna acquired Express Scripts on December 20, 2018 in a cash and stock
transaction valued at $52.8 billion. Costs related to this transaction are reported in “integration and transaction-related costs” as a
special item and excluded from adjusted income from operations because they are not indicative of future underlying performance of
the business. The integration of this acquisition has been completed.
On January 30, 2019, Anthem, a former client, exercised its early termination right and terminated its pharmacy benefit management
services agreement with us, effective March 1, 2019. There was a twelve-month transition period that ended March 1, 2020. We
excluded the results of Express Scripts’ contract with Anthem (and also Coventry) from our non-GAAP reporting metrics adjusted
revenues and adjusted income from operations for 2019 and refer to these clients as transitioning clients. As of December 31, 2019,
the transition was substantially complete; therefore, beginning in 2020, we no longer exclude results of transitioning clients from our
reported adjusted revenues and adjusted income from operations.
57
Industry Developments and Other Matters
The "Business - Regulation" section of this Form 10-K provides a detailed description of The Patient Protection and Affordable Care
Act (“ACA”) provisions and other legislative initiatives that impact our businesses, including regulations issued by the Centers for
Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and Human Services. Our businesses
continue to operate in a dynamic environment, and the laws and regulations applicable to us, including the ACA, continue to be
subject to legislative, regulatory and judicial challenges. The following table provides information on the expected impact of these
items and other matters:
Item
Medicare
Advantage ("MA")
Description
Medicare Star Quality Ratings ("Star Ratings"): CMS uses a Star Rating system to measure how well MA
plans perform and scores performance in several categories, including quality of care and customer service.
Star Ratings range from one to five stars. CMS recognizes plans with Star Ratings of four stars or greater with
quality bonus payments and the ability to offer enhanced benefits. Approximately 77% of our MA customers
were in four star or greater plans for bonus payments received in 2020 and 87% for bonus payments to be
received in 2021. In October 2020, CMS announced the Star Ratings for bonus payments to be received in
2022. We expect the percentage of our MA customers in four star or greater plans will increase to 88% for
bonus payments to be received in 2022.
MA Rates: Final MA reimbursement rates for 2021 were published by CMS in April 2020, and final rates for
2022 were published by CMS in January 2021. We do not expect the new rates to have a material impact on
our consolidated results of operations in 2021 or 2022.
Risk Adjustment: As discussed in the “Regulation” and “Risk Factors” sections of this Form 10-K, our MA
business is subject to reviews, including risk adjustment data validation (“RADV”) audits by CMS and the
Office of the Inspector General (“OIG”). We expect that CMS, OIG and other federal agencies will continue to
closely scrutinize components of the Medicare program.
The “Regulation” section of this Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV
audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the
error rate related to RADV audit findings without applying the adjustment for underlying fee-for-service data
errors as currently contemplated by CMS’ RADV audit methodology. RADV audits for our contract years
2011 through 2015 are currently in process. CMS has announced its intent to use third-party auditors to audit
all Medicare Advantage contracts by either a comprehensive or a targeted RADV review for each contract
year. If the proposed rule is adopted in its current form, it could result in some combination of degraded plan
benefits, higher monthly premiums and reduced choice for the population served by all MA insurers. The
Company, along with other MA organizations and additional interested parties, submitted comments to CMS
on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded
on August 28, 2019 and CMS is expected to act by November 2021. If CMS adopts the rule as proposed, there
could be a material impact on the Company’s future results of operations, though we expect the rule would be
subject to legal challenges. In addition, the Company is subject to OIG RADV audits that are in process.
Also, as described in Note 21 to the Consolidated Financial Statements, the U.S. Department of Justice is
currently conducting an industry-wide investigation of risk adjustment data submission practices and business
processes, which in the case of certain other MA organizations has resulted in litigation.
58
Item
Affordable Care Act
Description
Cost-Sharing Reduction Subsidies: The ACA provides for cost-sharing reductions that offset the amount
that qualifying customers pay for deductibles, copays and coinsurance. The federal government stopped
funding insurers for the cost-sharing reduction ("CSR”) subsidies in 2017. Certain insurers have sued the
federal government for failure to pay cost-sharing reduction subsidies and the matter remains unresolved.
In the first set of consolidated appeals, the Court of Appeals for the Federal Circuit issued a decision on
August 14, 2020, finding that (i) the CSR reimbursement provision of the ACA imposes an obligation on
the government to pay, but (ii) the insurers' damages must be reduced by the amount of additional premium
tax credit payments that each insurer received as a result of the government’s termination of CSR
payments. On September 28 and October 2, 2020, the insurers filed petitions for rehearing en banc in the
Federal Circuit. The court denied those petitions on November 10 and December 16, 2020, respectively.
On February 19, 2021 two insurers filed a petition seeking Supreme Court review. As described in Note 21
to the Consolidated Financial Statements, we filed a lawsuit in May 2020 against the federal government
seeking payment of these subsidies. Our case is stayed until either the Federal Circuit’s judgments in the
CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of
certiorari. Our premium rates for the 2018, 2019 and 2020 plan years reflected a lack of government
funding for cost-sharing reduction subsidies.
ACA Litigation: As described in the “Business - Regulation” section of this Form 10-K, a federal district
court ruled that the “individual mandate” in the ACA is unconstitutional and that the entire law must be
struck down. On appeal, the Court of Appeals for the Fifth Circuit agreed that the “individual mandate” is
unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA can
remain in effect, thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final
judicial determination on appeal. The California-led states and the U.S. House of Representatives filed
petitions seeking to appeal the Fifth Circuit's ruling to the U.S. Supreme Court. On March 2, 2020, the
Supreme Court agreed to hear the appeals. The case was argued before the Supreme Court on November
10, 2020, and a decision is expected by the end of June 2021.
59
Risk Mitigation Programs – Individual ACA Business
Risk Corridors. In 2016, we recorded an allowance for the balance of our ACA risk corridors receivable based on court decisions and
the large program deficit. On April 27, 2020, the U.S. Supreme Court ruled that insurers are entitled to the full amount due under the
risk corridors program. The Supreme Court remanded the cases before it to the lower courts for further proceedings consistent with its
opinion. We filed a lawsuit in May 2020 seeking payment of these funds. We received $120 million in payments in September 2020,
which resolved our risk corridors claim.
Risk Adjustment. At the end of each program year the risk adjustment balances are subject to audit by CMS through the RADV
program. RADV audits for the 2017 and 2018 benefit years have been completed, subject to the error rates appeal period. Final
settlement for the 2017 and 2018 benefit years is expected in 2021 and 2022, respectively. Based on the information currently
available, we have adjusted our risk adjustment balances to reflect our estimate of expected outcome as of December 31, 2020 and
December 31, 2019.
(In millions)
Risk Adjustment
Receivables (1)
Payables (2)
Total risk adjustment balance
(1) Receivables, net of allowances, are reported in Accounts receivable, net in the Consolidated Balance Sheets.
(2) Payables are reported in Accrued expenses and other liabilities (current) in the Consolidated Balance Sheets.
December 31,
2020
December 31,
2019
$
$
80 $
(153)
(73) $
47
(213)
(166)
Risk adjustment program charges of $(26) million pre-tax were fully offset by RADV adjustment favorability of $26 million pre-tax
for 2020, compared with net charges of $162 million pre-tax ($126 million after-tax) in 2019 and $147 million pre-tax ($116 million
after-tax) in 2018.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
Financial Summary
Short-term investments
Cash and cash equivalents
Short-term debt
Long-term debt
Shareholders’ equity
Liquidity
2020
2019
2018
$
$
$
$
$
359 $
10,182 $
3,374 $
29,545 $
50,321 $
423 $
4,619 $
5,514 $
31,893 $
45,338 $
316
3,855
2,955
39,523
41,028
We maintain liquidity at two levels: the subsidiary level and the parent company level.
Liquidity requirements at the subsidiary level generally consist of:
•
•
•
•
pharmacy, medical costs and other benefit payments;
expense requirements, primarily for employee compensation and benefits, information technology and facilities costs;
income taxes; and
debt service.
Our subsidiaries normally meet their liquidity requirements by:
using cash flows from operating activities;
• maintaining appropriate levels of cash, cash equivalents and short-term investments;
•
• matching investment durations to those estimated for the related insurance and contractholder liabilities;
•
•
selling investments; and
borrowing from affiliates, subject to applicable regulatory limits.
60
Liquidity requirements at the parent company level generally consist of:
•
•
•
•
debt service;
payment of declared dividends to shareholders;
lending to subsidiaries as needed; and
pension plan funding.
The parent company normally meets its liquidity requirements by:
• maintaining appropriate levels of cash and various types of marketable investments;
•
•
•
collecting dividends from its subsidiaries;
using proceeds from issuing debt and common stock; and
borrowing from its subsidiaries, subject to applicable regulatory limits.
Dividends from our insurance, Health Maintenance Organization (“HMO”) and foreign subsidiaries are subject to regulatory
restrictions. See Note 19 to the Consolidated Financial Statements for additional information regarding these restrictions. Most of
Evernorth's subsidiaries are not subject to regulatory restrictions regarding dividends and therefore provide significant financial
flexibility to Cigna.
Cash flows for the years ended December 31 were as follows:
(In millions)
Net cash provided by operating activities
Net cash provided by (used in) investing activities:
Cash proceeds from sale of U.S. Group Disability and Life business, net of cash sold
Cash used to acquire Express Scripts, net of cash acquired
Other acquisitions
Net investment sales (purchases)
Purchases of property and equipment and other
Net investing activities
Net cash (used in) provided by financing activities:
Debt (repayments) issuances
Stock repurchase
Other, net
Net financing activities
Foreign currency effect on cash
2020
2019
2018
$
10,350 $
9,485 $
3,770
5,592
—
(139)
(1,406)
(1,071)
2,976
(4,736)
(4,042)
245
(8,533)
41
—
—
(153)
480
(1,061)
(734)
(5,175)
(1,987)
(25)
(7,187)
(8)
—
(24,062)
(393)
(1,383)
(540)
(26,378)
24,212
(342)
(355)
23,515
(24)
883
Change in cash, cash equivalents and restricted cash
$
4,834 $
1,556 $
The following discussion explains variances in the various categories of cash flows for the year ended December 31, 2020 compared
with the same period in 2019.
Operating activities
Cash flows from operating activities consist principally of cash receipts and disbursements for pharmacy revenues and costs,
premiums, fees, investment income, taxes, benefit costs and other expenses.
Cash flows from operating activities increased, primarily driven by higher pharmacy and services costs payables due to business
growth, offset by increases in accounts receivable due to business growth, higher inventory purchases and the resumption of the health
insurance industry tax.
Investing and Financing activities
Cash flows from investing activities increased, primarily due to the net proceeds from the sale of the Group Disability and Life
business, partially offset by higher net investment purchases.
Cash used in finance activities increased, primarily due to stock repurchases and debt repayments, partially offset by higher debt
issuance.
61
We maintain a share repurchase program authorized by our Board of Directors. Under this program, we may repurchase shares from
time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will
depend on a variety of factors including price, general business and market conditions and alternate uses of capital. The share
repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange
Act of 1934, as amended, including through Rule 10b5-1 trading plans or privately negotiated transactions. The program may be
suspended or discontinued at any time.
For the year ended December 31, 2020, we repurchased 21.9 million shares for approximately $4.1 billion. From January 1, 2021
through February 24, 2021, we repurchased 8.1 million shares for approximately $1.7 billion. Share repurchase authority was $2.1
billion as of February 24, 2021.
Capital Resources
Our capital resources consist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to
underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and the issuance of
long-term debt and equity securities. Our businesses generate significant cash flow from operations, some of which is subject to
regulatory restrictions relative to the amount and timing of dividend payments to parent. Dividends from U.S. regulated subsidiaries
were $2.3 billion in 2020 and 2019. Nonregulated subsidiaries also generate significant cash flow from operating activities, which is
typically available immediately to parent for general corporate purposes.
We prioritize our use of capital resources to:
•
•
•
•
Invest in capital expenditures, primarily related to technology to support innovative solutions for our customers, provide the
capital necessary to maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension
obligations if necessary;
pay dividends to shareholders;
consider acquisitions that are strategically and economically advantageous; and
return capital to shareholders through share repurchases.
At December 31, 2020, our debt-to-capitalization ratio was 39.5%, a decline from 45.2% at December 31, 2019.
In connection with the sale of the Group Disability and Life business that closed on December 31, 2020, we deployed approximately
$3.0 billion to debt repayment by: (i) repaying in full our $1.4 billion 364-Day Term Loan Credit Agreement entered into on April 1,
2020, on December 31, 2020; (ii) redeeming in full the $1.0 billion aggregate principal amount of Cigna’s Senior Floating Rate Notes
due 2021 on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing
the Notes; and (iii) repaying certain of our outstanding commercial paper balances in January 2021.
In 2018, Cigna entered into a $3.25 billion five-year revolving credit agreement and a $3.0 billion term loan credit agreement in
financing the Express Scripts acquisition. The term loan credit agreement was repaid in full and terminated in the fourth quarter of
2019.
In 2019, Cigna entered into an additional $1.0 billion 364-day revolving credit agreement that expired in October 2020, at which point
we replaced the revolving credit agreement with a new $1.0 billion 364-day revolving credit agreement which will expire in October
2021.
Our revolving credit agreements provide us the ability to borrow amounts for general corporate purposes, including for purpose of
providing liquidity support if necessary under our commercial paper program discussed below. As of December 31, 2020, there were
no outstanding balances under either of the revolving credit agreements.
Cigna also maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a
discount basis through certain broker dealers at any time not to exceed $4.25 billion. The net proceeds of issuances have been and are
expected to be used for general corporate purposes. The commercial paper program had approximately $1.0 billion outstanding at
December 31, 2020 at an average interest rate of 0.2%.
See Note 7 to the Consolidated Financial Statements for further information on our credit agreements and commercial paper program.
62
Our capital management strategy to support the liquidity and regulatory capital requirements of our foreign operations and certain
international growth initiatives is to retain overseas a significant portion of the earnings generated by our foreign operations. This
strategy does not materially limit our ability to meet our liquidity and capital needs in the United States.
Liquidity and Capital Resources Outlook
We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations,
commercial paper program, credit agreements and the issuance of long-term debt and equity securities. As of December 31, 2020, we
had $4.25 billion of undrawn committed capacity under our revolving credit agreements (which amounts are available for general
corporate purposes, including providing liquidity support for our commercial paper program), $3.2 billion of remaining capacity under
our commercial paper program and $10.5 billion in cash and short-term investments, approximately $5.2 billion of which was held by
the parent company or certain nonregulated subsidiaries. We actively monitor our debt obligations and engage in issuance or
redemption activities as needed in accordance with our capital management strategy. A description of our outstanding debt can be
found in Note 7 to the Consolidated Financial Statements.
On January 6, 2021, Cigna initiated a quarterly cash dividend and declared the first quarterly cash dividend of $1.00 per share of
Cigna common stock to be paid on March 25, 2021 to shareholders of record as of March 10, 2021. Cigna currently intends to pay
regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that
the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future
dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows,
capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.
As of December 31, 2020, our unfunded pension liability was $977 million, an increase of $104 million from December 31, 2019,
primarily attributable to a decrease in discount rates of approximately 80 basis points, partially offset by investment asset returns. In
2020, we made an immaterial pension contribution as required under the Pension Protection Act of 2006. We expect the required
contributions for 2021 to be immaterial. See Note 15 to the Consolidated Financial Statements for additional information.
Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could
exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects
from one or more risks or uncertainties described more fully in the "Risk Factors" section of this Form 10-K. Though we believe we
have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access
those markets for additional borrowings or increase costs. In addition to the sources of liquidity discussed above, the parent company
can borrow an additional $1.7 billion from its subsidiaries without further approvals as of December 31, 2020.
Guarantees and Contractual Obligations
We are contingently liable for various contractual obligations entered into in the ordinary course of business. See the: "Liquidity and
Capital Resources" section of this MD&A for additional information on how we manage our liquidity requirements related to these
obligations. See Note 21 to the Consolidated Financial Statements for discussion of various guarantees.
(In millions, on an undiscounted basis)
Total
2021
2022 to 2023
2024 to 2025
Thereafter
On-Balance Sheet
Insurance liabilities
Contractholder deposit funds
Future policy benefits
Health Care Medical claims payable
Unpaid claims and claim expenses
Long-term debt (1)
Other noncurrent liabilities
Operating leases
Off-Balance Sheet
Purchase Obligations
$
5,430 $
282 $
12,339
3,041
1,195
48,029
623
705
338
3,041
1,141
3,595
156
150
502 $
776
462 $
900
11
8,048
104
288
9
6,062
99
146
3,197
1,399
1,283
493
4,184
10,325
34
30,324
264
121
22
$
Total
(1) Amounts include scheduled interest payments and current maturities of long-term debt. Finance leases are included in long-term debt and primarily represent
11,012 $
10,102 $
74,559 $
8,171 $
45,274
obligations for information technology network storage, servers and equipment. See Note 18 to the Consolidated Financial Statements for information regarding
finance leases. See Note 7 to the Consolidated Financial Statements for information regarding our long-term debt.
63
On balance sheet:
•
•
•
•
Insurance liabilities. Excluded from the table above are $4 billion of insurance liabilities ($3 billion in contractholder deposit
funds; $1 billion in future policy benefits) associated with the sold retirement benefits, individual life insurance and annuity
businesses, reinsured workers’ compensation, as well as the group life and personal accident businesses as their related net cash
flows are not expected to impact our cash flows. Excluding these amounts, the sum of the obligations presented above exceeds the
corresponding insurance and contractholder liabilities of $17 billion recorded on the balance sheet. This is because some of the
recorded insurance liabilities reflect discounting for interest and the recorded contractholder liabilities exclude future interest
crediting, charges and fees. The timing and amount of actual future cash flows may differ from those presented above.
◦
Contractholder deposit funds: see Note 9 to the Consolidated Financial Statements for our accounting policy for this
liability. Expected future cash flows presented above also include estimated future interest crediting on current fund balances
based on current investment yields less the estimated cost of insurance charges and mortality and administrative fees for
universal life policies.
Future policy benefits and unpaid claims and claim expenses: see Note 9 to the Consolidated Financial Statements for our
accounting policies for these liabilities. Expected future cash flows for these liabilities presented in the table above are
undiscounted. The expected future cash flows for guaranteed minimum death benefit (“GMDB”) reported in future policy
benefits do not consider any of the related reinsurance arrangements.
◦
Long-term debt includes scheduled interest payments and current maturities of long-term debt. See Note 7 to the Consolidated
Financial Statements for information regarding long-term debt. Finance leases are included in long-term debt and primarily
represent obligations for information technology network storage, servers and equipment. See Note 18 to the Consolidated
Financial Statements for information regarding finance leases.
Other noncurrent liabilities include estimated payments for guaranteed minimum income benefit (“GMIB”) contracts (without
considering any related reinsurance arrangements), pension, other postretirement and postemployment benefit obligations,
supplemental and deferred compensation plans, interest rate and foreign currency swap contracts and reinsurance liabilities.
Estimated payments of $61 million for deferred compensation, non-qualified and international pension plans and other
postretirement and postemployment benefit plans are expected to be paid in less than one year and are included in the table above.
We expect to make immaterial contributions to the qualified domestic pension plans during 2021 and they are reflected in the
above table. We expect to make payments subsequent to 2021 for these obligations; however, subsequent payments have been
excluded from the table as their timing is based on plan assumptions that may materially differ from actual activities. See Note 15
to the Consolidated Financial Statements for further information on pension obligations.
Operating leases see Note 18 to the Consolidated Financial Statements for additional information.
The table above excludes the liabilities for uncertain tax positions because we cannot reasonably estimate the timing of such future
payments. In the event we are unable to sustain all of our $1.2 billion of uncertain tax positions it could result in future tax payments
of approximately $900 million. See Note 20 to the Consolidated Financial Statements for additional information on uncertain tax
positions.
Off-Balance Sheet:
•
Purchase obligations. As of December 31, 2020, purchase obligations consisted of estimated payments required under contractual
arrangements for future services and investment commitments and they are included in the table below.
(In millions)
Debt securities
Commercial mortgage loans
Limited liability entities (other long-term investments) (1)
Total investment commitments
Future service commitments
Total purchase obligations
(1) See Note 11 to the Consolidated Financial Statements for additional information.
$
$
149
10
2,325
2,484
713
3,197
Our estimated future service commitments primarily represent contracts for certain outsourced business processes and information
technology maintenance and support. We generally have the ability to terminate these agreements, but do not anticipate doing so at
this time. Purchase obligations exclude contracts that are cancellable without penalty and those that do not contractually require
minimum levels of goods or services to be purchased.
64
Guarantees
We are contingently liable for various financial and other guarantees provided in the ordinary course of business. See Note 21 to the
Consolidated Financial Statements for additional information on guarantees.
CRITICAL ACCOUNTING ESTIMATES
The preparation of Consolidated Financial Statements in accordance with GAAP requires management to make estimates and
assumptions that affect reported amounts and related disclosures in the Consolidated Financial Statements. Management considers an
accounting estimate to be critical if:
•
•
it requires assumptions to be made that were uncertain at the time the estimate was made; and
changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated
results of operations or financial condition.
Management has discussed how critical accounting estimates are developed and selected with the Audit Committee of our Board of
Directors and the Audit Committee has reviewed the disclosures presented below. We regularly evaluate items that may impact critical
accounting estimates.
As discussed in the executive overview of this MD&A, the COVID-19 pandemic has pervasively impacted the economy, financial
markets and the global health care delivery systems. If the impact of the COVID-19 pandemic beyond 2020 is worse than
management's current projections, these adverse effects to our business could impact the estimated fair value of our reporting units.
In addition to the estimates presented in the following tables, there are other accounting estimates used in preparing our Consolidated
Financial Statements, including estimates of liabilities for future policy benefits, as well as estimates with respect to pension and
postretirement benefits other than pensions and certain compensation accruals.
Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are
appropriate. However, if actual experience significantly differs from the assumptions used in estimating amounts reflected in our
Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations
and in certain situations, could have a material adverse effect on liquidity and our financial condition. The tables below present the
adverse impacts of certain possible changes in assumptions. The effect of assumption changes in the opposite direction would be a
positive impact to our consolidated results of operations, liquidity or financial condition, except for assessing impairment of goodwill.
65
Effect if Different Assumptions Used
We completed our normal annual evaluations for impairment of goodwill and
intangible assets during the third quarter of 2020. The evaluations indicated that
the fair value estimates of our reporting units exceed their carrying values by
significant margins. Changes in assumptions concerning future financial results or
other underlying assumptions, including macroeconomic factors, government
legislation, changes in the competitive landscape or other market conditions could
impact our ability to achieve profitability projections. If we consistently do not
achieve our earnings and cash flow projections or our cost of capital rises
significantly, the assumptions and estimates underlying the goodwill and
intangible asset impairment evaluations could be adversely affected and result in
future impairment charges that would negatively impact our operating results and
financial position.
Effect if Different Assumptions Used
The factors that could impact our estimates of uncertain tax positions include the
likelihood of being sustained upon audit based on the technical merits of the tax
position and related assumed interest and penalties. If our positions are upheld
upon audit, our net income would increase.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Goodwill and other intangible assets
Goodwill represents the excess of the cost of businesses acquired over the fair
value of their net assets at the acquisition date. Intangible assets primarily reflect
the value of customer relationships and other intangibles acquired in business
combinations.
Fair values of reporting units are estimated using models and assumptions that we
believe a hypothetical market participant would use to determine a current
transaction price. The significant assumptions and estimates used in determining
fair value include the discount rate and future cash flows. A discount rate is
selected to correspond with each reporting unit’s weighted average cost of capital,
consistent with that used for investment decisions considering the specific and
detailed operating plans and strategies within each reporting unit. Projections of
future cash flows for each reporting unit are consistent with our annual planning
process for revenues, pharmacy costs, benefits expenses, operating expenses,
taxes, capital levels and long-term growth rates. In addition to these assumptions,
we consider market data to evaluate the fair value of each reporting unit. The fair
value of intangibles and the amortization method were determined using an
income approach that relies on projected future cash flows including key
assumptions for customer attrition and discount rates. Management revises
amortization periods if it believes there has been a change in the length of time
that an intangible asset will continue to have value.
The Company conducts its quantitative evaluation for goodwill impairment at
least annually during the third quarter at the reporting unit level and performs
qualitative impairment assessments on a quarterly basis to determine if events or
changes in circumstances indicate that it is more likely than not that the carrying
value of a reporting unit exceeds its estimated fair value.
Goodwill and other intangibles as of December 31 were as follows (in millions):
·2020 – Goodwill $44,648; Other intangible assets $35,179
·2019 – Goodwill $44,602; Other intangible assets $36,562
See Note 17 to the Consolidated Financial Statements for additional discussion of
our goodwill and other intangible assets.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Income taxes – uncertain tax positions
We evaluate tax positions to determine whether the benefits are more likely than
not to be sustained on audit based on their technical merits. The Company
establishes a liability if the probability that the position will be sustained is 50% or
less. For uncertain positions that management believes are more likely than not to
be sustained, the Company recognizes a liability based upon management's
estimate of the most likely settlement outcome with the taxing authority. These
amounts primarily relate to federal and state uncertain positions of the value and
timing of deductions and uncertain positions of attributing taxable income to
states
Balances that are included in the Consolidated Balance Sheets are as follows (in
millions):
·2020 – $1,210
·2019 – $1,018
See Note 20 to the Consolidated Financial Statements for additional discussion
around uncertain tax positions and the Liquidity and Capital Resource section of
this MD&A for a discussion of their potential impact on liquidity.
66
Effect if Different Assumptions Used
Based on studies of our claim experience, it is reasonably possible that a 100 basis
point change in the medical cost trend and a 50 basis point change in completion
factors could occur in the near term.
A 100 basis point increase in the medical cost trend rate would increase this
liability by approximately $45 million, resulting in a decrease in net income of
approximately $35 million after-tax, and a 50 basis point decrease in completion
factors would increase this liability by approximately $90 million, resulting in a
decrease in net income of approximately $70 million after-tax.
Effect if Different Assumptions Used
If the derived interest rates used to calculate fair value increased by 100 basis
points, the fair value of the total debt security portfolio of $18 billion would
decrease by approximately $1.3 billion, resulting in an after-tax decrease to
shareholders’ equity of approximately $0.8 billion as of December 31, 2020.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Unpaid claims and claim expenses – U.S. Medical
Unpaid claims and claim expenses include both reported claims and estimates for
losses incurred but not yet reported.
Unpaid claims and claim expenses in U.S. Medical are primarily impacted by
assumptions related to completion factors and medical cost trend. Variation of
actual results from either assumption could impact the unpaid claims balance as
noted below. A large number of factors may cause the medical cost trend to vary
from the Company’s estimates, including: changes in health management
practices, changes in the level and mix of benefits offered and services utilized,
and changes in medical practices. Completion factors may be affected if actual
claims submission rates from providers differ from estimates (that can be
influenced by a number of factors, including provider mix and electronic versus
manual submissions), or if changes to the Company’s internal claims processing
patterns occur.
Unpaid claims and claim expenses for the U.S. Medical segment as of December
31 were as follows (in millions):
·2020 – gross $3,184; net $2,960
·2019 – gross $2,892; net $2,589
These liabilities are presented above both gross and net of reinsurance and other
recoverables.
See Note 9 to the Consolidated Financial Statements for additional information
regarding assumptions and methods used to estimate this liability.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Valuation of debt security investments
Most debt securities are classified as available for sale and are carried at fair value
with changes in fair value recorded in accumulated other comprehensive income
(loss) within shareholders’ equity.
Fair value is defined as the price at which an asset could be exchanged in an
orderly transaction between market participants at the balance sheet date.
Determining fair value for a financial instrument requires management judgment.
The degree of judgment involved generally correlates to the level of pricing
readily observable in the markets. Financial instruments with quoted prices in
active markets or with market observable inputs to determine fair value, such as
public securities, generally require less judgment. Conversely, private placements
including more complex securities that are traded infrequently are typically
measured using pricing models that require more judgment as to the inputs and
assumptions used to estimate fair value. There may be a number of alternative
inputs to select based on an understanding of the issuer, the structure of the
security and overall market conditions. In addition, these factors are inherently
variable in nature as they change frequently in response to market conditions.
Approximately two-thirds of our debt securities are public securities, and one-
third are private placement securities.
Typically, the most significant input in the measurement of fair value is the
market interest rate used to discount the estimated future cash flows of the
instrument. Such market rates are derived by calculating the appropriate spreads
over comparable U.S. Treasury securities, based on the credit quality, industry and
structure of the asset.
See Notes 11A. and 12 to the Consolidated Financial Statements for a discussion
of our fair value measurements, the procedures performed by management to
determine that the amounts represent appropriate estimates and our accounting
policy regarding unrealized appreciation on debt securities.
67
SEGMENT REPORTING
The following section of this MD&A discusses the results of each of our segments. See Note 1 to the Consolidated Financial
Statements for a description of our segments.
In segment discussions, we present adjusted revenues and “pre-tax adjusted income from operations,” defined as income before taxes
excluding realized investment gains (losses), amortization of acquired intangible assets, special items and, for periods prior to 2020,
results of transitioning clients. Ratios presented in this segment discussion exclude the same items as pre-tax adjusted income from
operations. See Note 22 to the Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of
income before income taxes to pre-tax adjusted income from operations, as well as a reconciliation of total revenues to adjusted
revenues. Note 22 to the Consolidated Financial Statements also explains that segment revenues include both external revenues and
sales between segments that are eliminated in Corporate.
In these segment discussions, we also present “pre-tax adjusted margin,” defined as pre-tax adjusted income from operations divided
by adjusted revenues.
As of the third quarter 2020, the segment previously reported as Health Services is reported as Evernorth, and the segment previously
reported as Integrated Medical is reported as U.S. Medical. There are no changes to the underlying business reported in either
segment.
See the "Executive Overview" section of this MD&A for summarized financial results of each of our segments.
Evernorth Segment
Evernorth includes a broad range of coordinated and point solution health services, including pharmacy solutions, benefits
management solutions, care solutions and intelligence solutions. As described in the introduction to Segment Reporting, Evernorth
performance is measured using the below metrics:
•
•
•
Adjusted gross profit and pre-tax adjusted income from operations, which exclude the impact of special items.
Adjusted pharmacy script volume is calculated by multiplying the total non-specialty network scripts filled through 90-day
programs and home delivery scripts by three and counting all other network and specialty scripts as one script.
Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled. Generally, higher
generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace. However,
as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher
generic fill rates generally have a favorable impact on our gross profit. The home delivery generic fill rate is currently lower
than the network generic fill rate as fewer generic substitutions are available among maintenance medications (such as
therapies for chronic conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that
are primarily dispensed by pharmacies in our retail networks.
The key factors that impact Evernorth revenues and costs of revenues are volume, mix of claims and price. These key factors are
discussed further below. See Note 3 to the Consolidated Financial Statements included in this Form 10-K for additional information
on revenue and cost recognition policies for this segment.
•
•
•
As our clients’ claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or
decrease. Our gross profit could also increase or decrease as a result of changes in purchasing discounts.
The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. Types of
drugs can have an impact on our pharmacy revenues, pharmacy and other service costs and gross profit, including amounts
payable under certain financial and performance guarantees with our clients. In addition to the types of drugs, the mix of
generic claims (i.e., generic fill rate) also impacts our gross profit. Furthermore, our gross profit differs among network, home
delivery and specialty distribution methods and can impact our profitability.
Our client contract pricing is impacted by our ongoing ability to negotiate supply chain contracts for pharmacy network,
pharmaceutical and wholesaler purchasing and manufacturer rebates. As we seek to improve the effectiveness of our
integrated solutions for the benefit of our clients, we are continuously innovating and optimizing the supply chain. Our gross
profit could also increase or decrease as a result of supply chain initiatives implemented. Inflation also impacts our pricing
because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for
pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients
can affect our revenues and cost of revenues.
68
In this MD&A, we present revenues and gross profit, as well as adjusted revenues and adjusted gross profit, consistent with our
segment reporting metrics, which exclude special items and, for periods prior to 2020, contributions from transitioning clients. As of
December 31, 2019, the transition of these clients was substantially complete; therefore, beginning in 2020, we no longer exclude
results of transitioning clients from our adjusted metrics. See the “Key Transactions and Business Developments” section of this Form
10-K MD&A for further discussion of transitioning clients and why we present this information.
Results of Operations
Financial Summary
(In millions)
Total revenues
Less: Transitioning clients
Less: Contractual adjustment for a former client
Adjusted revenues(1)
Gross profit
Adjusted gross profit(1)
Pre-tax adjusted income from operations
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$ 116,334
$ 109,794
$
7,065
$
6,540
6 % $ 102,729
—
(204)
$ 116,130
$
$
$
7,797
7,593
5,363
$
$
$
$
(13,347)
—
96,447
8,908
6,984
5,092
$
$
$
$
(459)
—
13,347
(204)
6,606
$ 19,683
N/M
N/M
20
(12,888)
—
$ 89,841
604
531
380
$
$
$
(1,111)
(12)
$ 8,304
609
271
9
$ 6,453
5 % $ 4,712
N/M
N/M
N/M
N/M
N/M
N/M
N/M
Pre-tax adjusted margin
4.6 %
5.3 %
5.8 %
(70) bps
(50) bps
(Dollars and adjusted scripts in millions)
Selected Financial Information(1)
Pharmacy revenue by distribution channel
Adjusted network revenues
Adjusted home delivery and specialty revenues
Other revenues
Total adjusted pharmacy revenues
Pharmacy script volume
Adjusted network scripts(2)
Adjusted home delivery and specialty scripts(2)
Total adjusted scripts(2)
Generic fill rate
Network
Home delivery
Overall generic fill rate
For the Years Ended December 31,
2020
2019
Change Favorable
(Unfavorable)
$
$
56,181
49,886
5,403
$
111,470
$
1,206
287
1,493
87.4 %
85.2 %
87.2 %
41,483
45,836
4,900
92,219
941
283
1,224
87.1 %
84.3 %
86.8 %
35 %
9 %
10 %
21 %
28 %
1 %
22 %
30 bps
90 bps
40 bps
(1) Amounts exclude special items and, for periods prior to 2020, contributions from transitioning clients.
(2) Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted
as one script.
2020 versus 2019
In the first quarter of 2020, U.S. Government operating segment customers transitioned to Express Scripts’ retail pharmacy network.
In the third quarter of 2019, U.S. Commercial operating segment customers transitioned to Express Scripts’ retail pharmacy network.
Results of operations for 2018 reflected the results for the period following the acquisition of Express Scripts on December 20, 2018
along with the legacy Cigna home delivery business.
Adjusted network revenues. The increase reflected the transition of U.S. Medical’s customers, higher claims volume, due to our
collaboration with Prime Therapeutics, and increased prices due to inflation on branded drugs. These favorable effects were partially
offset by claims mix due to the increase in the generic fill rate.
Adjusted home delivery and specialty revenues. The increase reflected higher prices, due to inflation on branded drugs and higher
home delivery and specialty claims volume. These increases were partially offset by claims mix due to an increase in the generic fill
rate.
Adjusted gross profit. The increase reflected customer growth, higher adjusted pharmacy script volumes, benefits from the effective
management of supply chain and the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution
method used for dispensing and fulfilling and an increase in the generic fill rate.
69
Pre-tax adjusted income from operations. The increase reflected customer growth, higher adjusted pharmacy scripts volumes,
benefits from the effective management of supply chain, and the favorable impact of claims mix as a result of the types of drugs
dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate, partially offset by an
increase in operating expenses due to client transitions.
U.S. Medical Segment
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and
coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health,
dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government
solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual
health insurance plans both on and off the public exchanges. As described in the introduction to Segment Reporting, performance of
the U.S. Medical segment is measured using pre-tax adjusted income from operations. Key factors affecting profitability for this
segment include:
•
•
•
•
•
customer growth;
revenues from integrated specialty products, including pharmacy services sold to clients and customers across all funding
solutions;
percentage of Medicare Advantage customers in plans eligible for quality bonus payments;
benefit expenses as a percentage of premiums (medical care ratio or “MCR”) for our insured commercial and government
businesses; and
selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
Pre-tax adjusted margin
Medical care ratio
Expense ratio
(In thousands)
U.S. Medical Customers
U.S. Commercial
U.S. Government
Insured
Service
Total
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$ 38,451
$ 36,519
$ 32,791
$ 3,807
$ 3,831
$ 3,502
$
$
1,932
5 % $
3,728
11 %
(24)
(1) % $
329
9 %
9.9 %
79.4 %
22.8 %
10.5 %
80.8 %
22.9 %
10.7 %
78.9 %
24.7 %
(60) bps
140 bps
10 bps
(20) bps
(190) bps
180 bps
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
2,141
1,387
3,528
11,485
15,013
2,114
1,361
3,475
12,073
15,548
1,911
1,407
3,318
12,071
15,389
27
26
53
(588)
(535)
1 %
2 %
2 %
(5) %
(3) %
203
(46)
157
11 %
(3) %
5 %
2
— %
159
1 %
(In millions)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
Unpaid claims and claim expenses – U.S. Medical
$
3,184 $
2,892 $
2,697 $
292
10 % $
195
7 %
As of December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
70
2020 versus 2019
Adjusted revenues. The increase for the year ended December 31, 2020 compared with 2019 reflects customer growth in our Medicare
Advantage and U.S. Commercial insured businesses, as well as higher premium rates due to anticipated underlying medical cost trend
and the resumption of the health insurance industry tax. These favorable effects were partially offset by the impact of premium relief
programs for clients beginning in the second quarter of 2020 in response to significantly lower than historical utilization as individuals
deferred care due to the COVID-19 pandemic.
Pre-tax adjusted income from operations was essentially flat reflecting customer growth in our U.S. Commercial insured and
Medicare Advantage businesses and net favorable COVID-19 related impacts; offset by the return of the health insurance industry tax
and less favorable prior period development. COVID-19 related impacts include deferral of care by our customers; partially offset by
direct COVID-19 costs, costs of actions we have taken to support customers, providers and employees, and increased disenrollment
resulting from the economic impacts of the pandemic.
Medical care ratio. The decrease reflects COVID-19 related impacts and the pricing effect of the health insurance industry tax.
COVID-19 related impacts include deferral of care by our customers; partially offset by direct COVID-19 costs and premium relief
programs extended to employer clients.
Expense ratio. The expense ratio was flat reflecting higher insured revenues as well as efficiencies from continued disciplined
expense management and the resumption of the health insurance industry tax.
Other Items Affecting U.S. Medical Results
Unpaid Claims and Claim Expenses
Our unpaid claims and claim expenses liability was higher as of December 31, 2020 compared with December 31, 2019, primarily due
to customer growth in our Medicare Advantage and U.S. Commercial insured businesses.
Medical Customers
Our medical customer base decreased at December 31, 2020 compared with December 31, 2019, reflecting a lower customer base in
our Middle Markets and National Accounts segments and increased disenrollment resulting from the economic impacts of the
COVID-19 pandemic; partially offset by growth in our Select segment and our Medicare Advantage business.
A medical customer is defined as a person meeting any one of the following criteria:
•
•
•
is covered under a medical insurance policy, managed care arrangement or service agreement issued by us;
has access to our provider network for covered services under their medical plan; or
has medical claims that are administered by us.
International Markets Segment
As described in the introduction to Segment Reporting, performance of the International Markets segment is measured using pre-tax
adjusted income from operations. Key factors affecting pre-tax adjusted income from operations for this segment are:
•
•
•
•
premium growth, including new business and customer retention;
benefit expenses as a percentage of premiums (loss ratio);
selling, general and administrative expense as a percentage of revenues (expense ratio and acquisition cost ratio); and
the impact of foreign currency movements.
71
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
Pre-tax adjusted margin
Loss ratio
Acquisition cost ratio
Expense ratio (excluding acquisition costs)
2020 versus 2019
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
$
$
5,877
900
$
$
5,615
762
$
$
5,366
735
$
$
262
5 % $
138
18 % $
249
27
5 %
4 %
15.3 %
56.5 %
11.3 %
20.2 %
13.6 %
57.3 %
12.9 %
19.5 %
13.7 %
57.4 %
13.1 %
18.9 %
170 bps
80 bps
160 bps
(70) bps
(10) bps
10 bps
20 bps
(60) bps
Adjusted revenues increased mainly due to business growth in Asia and Europe, partially offset by premium relief programs, primarily
in Europe and unfavorable foreign currency movements.
Pre-tax adjusted income from operations increased reflecting lower acquisition and loss ratios and business growth, primarily in
Asia, partially offset by higher expense ratios. The ratios in 2020 reflect the costs of actions to support clients; additionally, the
expense ratio reflects actions to support employees and investments in the business for future growth.
The segment’s loss ratio decreased reflecting lower medical utilization due to the COVID-19 pandemic, partially offset by premium
relief programs.
The acquisition cost ratio decreased reflecting an update to our commission deferral process and lower acquisition expenses in Asia,
partially offset by premium relief programs.
The expense ratio (excluding acquisition costs) increased, reflecting strategic investments and the unfavorable impact of premium
relief programs.
Other Items Related to International Markets Results
South Korea is the single largest geographic market for our International Markets segment. For the year ended December 31, 2020,
South Korea generated 38% of the segment’s adjusted revenues and 60% of the segment’s pre-tax adjusted income from operations.
Group Disability and Other
Group Disability and Other included for the period presented, Cigna’s Group Disability and Life business which offered group long-
term and short-term disability, and group life, accident, voluntary and specialty insurance products and services. Additionally, this
segment includes Corporate Owned Life Insurance (“COLI”) and the Company’s run-off operations. As described in the introduction
of Segment Reporting, performance of Group Disability and Other is measured using pre-tax adjusted income from operations. Key
factors affecting pre-tax adjusted income from operations are:
•
•
•
•
premium growth, including new business and customer retention;
net investment income;
benefit expenses as a percentage of premiums (loss ratio); and
selling, general and administrative expense as a percentage of revenues excluding net investment income (expense ratio).
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
Pre-tax adjusted margin
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
5,264
290
$
$
2019
5,182
501
$
$
2018
5,061
529
$
$
$
$
2020 vs. 2019
2019 vs. 2018
82
2 % $
121
2 %
(211)
(42) % $
(28)
(5) %
5.5 %
9.7 %
10.5 %
(420) bps
(80) bps
72
2020 versus 2019
Adjusted revenues increased due to growth in disability, life and voluntary products, partially offset by lower investment income.
Pre-tax adjusted income from operations and margin decreased due to unfavorable life claims experience related to the COVID-19
pandemic, unfavorable disability claims experience and lower investment income, partially offset by favorable results in our voluntary
products.
Sale of U.S. Group Disability and Life Business. As discussed further in the Executive Overview section of this MD&A, we sold our
U.S. Group Disability and Life business on December 31, 2020. Because this business constituted the vast majority of the segment,
going forward, we would expect a substantial decline in adjusted revenues and adjusted income from operations in this segment.
Corporate
Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt
less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated
with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations
for products and services sold between segments.
Financial Summary
(In millions)
For the Years Ended December 31,
Change Favorable
(Unfavorable)
Change Favorable
(Unfavorable)
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
Pre-tax adjusted loss from operations
$
(1,552) $
(1,824) $
(403) $
272
15 % $
(1,421) N/M %
2020 versus 2019
Pre-tax adjusted loss from operations was lower, reflecting lower interest expense due to lower levels of debt.
INVESTMENT ASSETS
The following table presents our investment asset portfolio excluding separate account assets as of December 31, 2020 and
December 31, 2019. Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated
Financial Statements.
(In millions)
Debt securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments
December 31,
2020
December 31,
2019
$
18,131 $
23,755
501
1,419
1,351
2,832
359
303
1,947
1,357
2,403
423
Total
Investments classified as assets of business held for sale (1)
Investments per Consolidated Balance Sheets
(1) On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business and transferred a total of $8.4 billion of investments to New York
Life Insurance Company as part of this divestiture. The investment assets transferred to New York Life were primarily debt securities and, to a lesser extent,
commercial mortgage loans. The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business that was previously held
for sale.
24,593 $
$
30,188
(7,709)
22,479
Debt Securities
Investments in debt securities include publicly-traded and privately-placed bonds, mortgage and other asset-backed securities and
preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our
balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 12 to the
Consolidated Financial Statements. More detailed information about debt securities by type of issuer and maturity dates is included in
Note 11 to the Consolidated Financial Statements.
73
The following table reflects our portfolio of debt securities by type of issuer as of December 31, 2020 and December 31, 2019.
(In millions)
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
December 31,
2020
December 31,
2019
$
456 $
167
2,511
14,562
435
733
810
2,256
19,420
536
$
18,131 $
23,755
As a result of the U.S. Group Disability and Life business divestiture, $7.8 billion of debt securities were transferred to New York Life
on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information. The debt securities transferred to
New York Life were primarily Corporate and State and local government sectors. This decrease in our debt securities portfolio was
partially offset by an increase in valuations due to decreasing yields and net purchase activity during the year.
As of December 31, 2020, $15.6 billion, or 86% of the debt securities in our investment portfolio were investment grade (Baa and
above, or equivalent) and the remaining $2.5 billion were below investment grade. The majority of the bonds that are below
investment grade are rated at the higher end of the non-investment grade spectrum. Although our allocation to below investment grade
bonds has increased since the prior year, these quality characteristics have not otherwise changed materially from the prior year and
remain consistent with our investment strategy.
Investments in debt securities are diversified by issuer, geography and industry as appropriate. On an aggregate basis, the debt
securities portfolio continues to perform according to original investment expectations. However, due to the economic impacts of the
COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that are showing signs
of distress, primarily in the form of requests for temporary covenant relief. There were no material unrealized losses in any of these
sectors as of the reporting date. We continue to monitor the economic environment and its effect on our portfolio, and consider the
impact of various factors in determining the allowance for credit losses on debt securities, which is discussed in Note 11 to the
Consolidated Financial Statements.
Foreign government obligations are concentrated in Asia, primarily South Korea, consistent with our risk management practice and
local regulatory requirements of our international business operations. Corporate debt securities include private placement assets of
$6.0 billion. These investments are generally less marketable than publicly-traded bonds; however, yields on these investments tend to
be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer and require
financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if
warranted.
Commercial Mortgage Loans
As of December 31, 2020, the $1.4 billion commercial mortgage loan portfolio consisted of approximately 45 loans that are in good
standing. Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Given the quality
and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested generally ranging
between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their
contract terms. For further discussion of the results and changes in key loan metrics, see Note 11 to the Consolidated Financial
Statements.
As a result of the U.S. Group Disability and Life business divestiture, $0.6 billion of commercial mortgage loans were transferred to
New York Life on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information. Loans are secured
by high quality commercial properties, located in strong institutional markets, and are generally made at less than 65% of the
property’s value at origination of the loan. Property value, debt service coverage, quality, building tenancy and stability of cash flows
are all important financial underwriting considerations. We hold no direct residential mortgage loans and do not originate or service
securitized mortgage loans.
COVID-19 has negatively impacted commercial real estate fundamentals and capital market activity with concentrated weakness in
hotels and regional malls. Our mortgage loan portfolio is well diversified by property type and geography with no material exposure to
hotels and no exposure to regional shopping malls. We continue to monitor the long-term impacts on the office sector due to growing
headwinds: expanded remote working flexibility, shorter term leases and corporate migration to lower cost states. Our mortgage loans
secured by office properties are in good standing.
74
Other Long-term Investments
Other long-term investments of $2.8 billion as of December 31, 2020 included investments in securities limited partnerships and real
estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various
insurance and health services businesses. The increase in other long-term investments is driven by net new funding activity. These
limited partnership entities typically invest in mezzanine debt or equity of privately-held companies and equity real estate. Given our
subordinate position in the capital structure of these underlying entities, we assume a higher level of risk for higher expected returns.
To mitigate risk, these investments are diversified across approximately 175 separate partnerships and approximately 90 general
partners who manage one or more of these partnerships. Also, the underlying investments are diversified by industry sector or property
type and geographic region. No single partnership investment exceeded 4% of our securities and real estate partnership portfolio.
Income from our limited partnership investments is generally reported on a one quarter lag due to the timing of when financial
information is received from the general partner or manager of the investments. We could experience losses into future periods, but the
magnitude of these losses will depend in part on the length and extent of the economic disruption, the speed of the recovery and the
overall economic impacts.
We participate in an insurance joint venture in China with a 50% ownership interest. We account for this joint venture on the equity
method of accounting and report our share of the net assets of $0.8 billion in Other assets. Our 50% share of the investment portfolio
supporting the joint venture's business is approximately $5.6 billion, primarily invested in Chinese corporate and government debt
securities diversified by issuer, industry and geography, as appropriate. To a lesser extent and consistent with its investment strategy,
the joint venture is invested in Chinese equity investments comprised of approximately 50% equity mutual funds, with the remainder
invested in equity securities and private equity partnerships. We participate in the approval of the joint venture's investment strategy
and continuously review its execution. There were no investments with a material unrealized loss as of December 31, 2020.
Investment Outlook
The impact of COVID-19 on the economy, despite unprecedented monetary and fiscal support, and the uncertainty as to the strength
and sustainability of the recovery prior to a widely available vaccine, continues to dominate financial markets. The low interest rate
environment continues to pressure income from both short-term and longer-term investments. U.S. treasury rates remain near all-time
lows and the wider market credit spreads experienced during the beginning of the second quarter of 2020 have meaningfully narrowed,
resulting in historically low yields for investment grade assets. We continue to actively monitor the economic impact of the pandemic,
as well as fiscal and monetary responses, and their potential impact on the portfolio. Net investment income projections into 2021
reflect continued market volatility and portfolio impacts, particularly in certain sectors such as aviation, hospitality and energy, as well
as other areas most severely impacted by COVID-19. Future realized and unrealized investment results will be driven largely by
market conditions that exist when a transaction occurs or at the reporting date. These future conditions are not reasonably predictable;
however, we believe that the vast majority of our investments will continue to perform under their contractual terms. Based on our
strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a
significant portion of these assets for the long-term. Although future impairment losses resulting from interest rate movements and
credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not
expect these losses to have a material adverse effect on our financial condition or liquidity.
MARKET RISK
Financial Instruments
Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and
prices. Consistent with disclosure requirements, the following items have been excluded from this consideration of market risk for
financial instruments:
•
•
•
changes in the fair values of insurance-related assets and liabilities because their primary risks are insurance rather than market
risk;
changes in the fair values of investments recorded using the equity method of accounting and liabilities for pension and other
postretirement and postemployment benefit plans (and related assets); and
changes in the fair values of other significant assets and liabilities, such as goodwill, deferred policy acquisition costs, taxes and
various accrued liabilities. Because they are not financial instruments, their primary risks are other than market risk.
Excluding these items, our primary market risk exposures from financial instruments are:
•
Interest-rate risk on fixed-rate, medium-term instruments. Changes in market interest rates affect the value of instruments that
promise a fixed return.
75
•
Foreign currency exchange rate risk of the U.S. dollar, net of derivatives used for hedging, is primarily to the South Korean
won, Chinese yuan renminbi and New Zealand dollar. An unfavorable change in exchange rates reduces the carrying value of net
assets denominated in foreign currencies.
Our Management of Market Risks
We predominantly rely on three techniques to manage our exposure to market risk:
•
•
•
Investment/liability matching. We generally select investment assets with characteristics (such as duration, yield, currency and
liquidity) that correspond to the underlying characteristics of our related insurance and contractholder liabilities so that we can
match the investments to our obligations. Shorter-term investments generally support shorter-term life and health liabilities.
Medium-term, fixed-rate investments support interest-sensitive and health liabilities. Longer-term investments generally support
products with longer payout periods such as annuities.
Use of local currencies for foreign operations. We generally conduct our international business through foreign operating entities
that maintain assets and liabilities in local currencies. This technique limits exchange rate risk to our net assets.
Use of derivatives. We use derivative financial instruments to reduce our primary market risks. See Note 11 to the Consolidated
Financial Statements for additional information about derivative financial instruments.
Effect of Market Fluctuations
Assuming a 100 basis point increase in interest rates and 10% strengthening in the U.S. dollar to foreign currencies, the effect of
hypothetical changes in market rates or prices on the fair value of certain financial instruments, subject to the exclusions noted above
(particularly insurance liabilities), would have been as follows as of December 31:
Market scenario for certain non-insurance financial instruments
(in billions)
100 basis point increase in interest rates (excluding long-term debt)
10% strengthening in U.S. dollar to foreign currencies
Loss in Fair Value
2020
2019
$
$
1.4 $
0.4 $
1.6
0.3
The effect of a hypothetical increase in interest rates, primarily on debt securities and commercial mortgage loans, was determined by
estimating the present value of future cash flows using various models, primarily duration modeling. The decrease in our sensitivity to
market interest rates since the prior year is primarily due to our decreased interest sensitive investment portfolio base, due to the
transfer of debt securities and commercial mortgage loans to New York Life on December 31, 2020. See Note 5 to the Consolidated
Financial Statements for additional information on the divestiture of our U.S. Group Disability and Life business.
In the event of a hypothetical 100 basis point increase in interest rates, the fair value of the Company’s long-term debt would decrease
approximately $3.0 billion at December 31, 2020 and $2.5 billion at December 31, 2019. Changes in the fair value of our long-term
debt do not impact our financial position or operating results. See Note 7 to the Consolidated Financial Statements for additional
information about the Company’s debt.
The effect of a hypothetical strengthening of the U.S. dollar relative to the foreign currencies of certain financial instruments held by
us was estimated to be 10% of the fair value of these instruments, translated to the U.S. dollar. Our foreign operations hold investment
assets, such as debt securities, cash and cash equivalents that are generally invested in the currency of the related liabilities.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption “Market Risk” in the MD&A section of this Form 10-K is incorporated by reference.
76
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Cigna Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cigna Corporation and its subsidiaries (the “Company”) as of
December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in total equity and
cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December
31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Evernorth and U.S. Medical Reporting Units
As described in Note 17 to the consolidated financial statements, as of December 31, 2020, goodwill is primarily reported in the
Evernorth segment ($33.8 billion), the U.S. Medical segment ($10.4 billion) and, to a lesser extent, the International Markets segment
($0.4 billion). Management conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the
reporting unit level and writes it down through shareholders’ net income if impaired. On a quarterly basis, management performs a
qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the
carrying value of a reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a
market approach or a discounted cash flow analysis using assumptions that management believes a hypothetical market participant
would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include
the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit's weighted average cost of
capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within
that reporting unit. Projections of future cash flows for each reporting unit are consistent with management’s annual planning process
for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the
Evernorth and U.S. Medical reporting units is a critical audit matter are the significant judgment by management when determining
the fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in
performing procedures and evaluating management’s estimate of the reporting units’ fair value related to the assumptions for the
discount rate and projection of future cash flows. In addition, the audit effort involved the use of professionals with specialized skill
and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
goodwill impairment assessment, including controls over management’s methodology, inputs and assumptions used in its goodwill
impairment assessment of the Evernorth and U.S. Medical reporting units. These procedures also included, among others, testing
management’s process for determining the fair value estimate of the reporting units; evaluating the appropriateness of the discounted
cash flow analysis; testing the completeness and accuracy of underlying data used in the discounted cash flow analysis; and evaluating
the key inputs and significant assumptions related to the discount rate and the projections of future cash flows. The underlying inputs
and assumptions used in the development of the discount rate and the projections of future cash flows that were evaluated related to
the weighted average cost of capital, revenues, pharmacy costs, benefits expenses, operating expenses, capital levels and long-term
growth rates. Evaluating the reasonableness of management’s inputs and assumptions involved considering (i) the current and past
performance of the reporting unit, (ii) the consistency of the discount rate and long-term growth rates with external market and
industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals
with specialized skill and knowledge were used to assist in the evaluation of certain significant assumptions related to the discount
rate.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 25, 2021
We have served as the Company’s auditor since 1983.
78
Cigna Corporation
Consolidated Statements of Income
(In millions, except per share amounts)
Revenues
Pharmacy revenues
Premiums
Fees and other revenues
Net investment income
TOTAL REVENUES
Benefits and expenses
Pharmacy and other service costs
Medical costs and other benefit expenses
Selling, general and administrative expenses
Amortization of acquired intangible assets
TOTAL BENEFITS AND EXPENSES
Income from operations
Interest expense and other
Debt extinguishment costs
Gain (loss) on sale of business
Net realized investment gains (losses)
Income before income taxes
TOTAL INCOME TAXES
Net income
Less: Net income attributable to noncontrolling interests
SHAREHOLDERS' NET INCOME
Shareholders’ net income per share
Basic
Diluted
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
For the Years Ended December 31,
2020
2019
2018
$
107,769 $
103,099 $
42,627
8,761
1,244
39,714
9,363
1,390
160,401
153,566
103,484
32,710
14,072
1,982
97,668
30,819
14,053
2,949
152,248
145,489
8,153
(1,438)
(199)
4,203
149
10,868
2,379
8,489
31
8,077
(1,682)
(2)
—
177
6,570
1,450
5,120
16
5,479
36,113
5,578
1,480
48,650
4,793
27,528
11,934
235
44,490
4,160
(498)
—
—
(81)
3,581
935
2,646
9
$
$
$
8,458 $
5,104 $
2,637
23.17 $
22.96 $
13.58 $
13.44 $
10.69
10.54
79
Cigna Corporation
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss), net of tax
Net unrealized (depreciation) appreciation on securities and derivatives
Net translation gains (losses) on foreign currencies
Postretirement benefits liability adjustment
Other comprehensive income (loss), net of tax
Total comprehensive income
Comprehensive income (loss) attributable to noncontrolling interests
Net income attributable to redeemable noncontrolling interest
Net income attributable to other noncontrolling interests
Other comprehensive (loss) attributable to redeemable noncontrolling interest
Total comprehensive income (loss) attributable to noncontrolling interests
For the Years Ended December 31,
2020
2019
2018
$
8,489 $
5,120 $
2,646
(75)
252
(105)
72
8,561
14
17
(8)
23
957
(59)
(133)
765
5,885
11
5
(5)
11
(365)
(167)
127
(405)
2,241
9
—
(15)
(6)
SHAREHOLDERS' COMPREHENSIVE INCOME
$
8,538 $
5,874 $
2,247
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
80
Cigna Corporation
Consolidated Balance Sheets
(In millions)
Assets
Cash and cash equivalents
Investments
Accounts receivable, net
Inventories
Other current assets
Assets of business held for sale
Total current assets
Long-term investments
Reinsurance recoverables
Deferred policy acquisition costs
Property and equipment
Goodwill
Other intangible assets
Other assets
Separate account assets
TOTAL ASSETS
Liabilities
Current insurance and contractholder liabilities
Pharmacy and other service costs payable
Accounts payable
Accrued expenses and other liabilities
Short-term debt
Liabilities of business held for sale
Total current liabilities
Non-current insurance and contractholder liabilities
Deferred tax liabilities, net
Other non-current liabilities
Long-term debt
Separate account liabilities
TOTAL LIABILITIES
Contingencies — Note 21
Redeemable noncontrolling interests
Shareholders’ equity
Common stock (1)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less: treasury stock, at cost
TOTAL SHAREHOLDERS’ EQUITY
Other noncontrolling interests
Total equity
As of December 31,
2020
2019
$
10,182 $
1,331
12,191
3,165
930
—
27,799
23,262
5,200
3,385
4,205
44,648
35,179
2,687
9,086
4,619
937
10,716
2,661
1,400
9,512
29,845
21,542
5,100
2,958
4,417
44,602
36,562
2,283
8,465
$
$
155,451 $
155,774
5,308 $
13,347
5,478
8,515
3,374
—
36,022
16,844
8,939
4,629
29,545
9,086
4,921
10,454
5,090
7,347
5,514
6,812
40,138
16,052
9,387
4,460
31,893
8,465
105,065
110,395
58
4
28,975
(861)
28,575
(6,372)
50,321
7
50,328
35
4
28,306
(941)
20,162
(2,193)
45,338
6
45,344
155,774
Total liabilities and equity
(1) Par value per share, $0.01; shares issued, 390 million as of December 31, 2020 and 386 million as of December 31, 2019; authorized shares, 600 million.
155,451 $
$
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
81
Cigna Corporation
Consolidated Statements of Changes in Total Equity
(In millions)
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
(Loss)
Retained
Earnings
Treasury
Stock
Shareholders’
Equity
Other
Non-
controlling
Interests
Total
Equity
Redeemable
Noncontrolling
Interests
Balance at December 31, 2017
$
74 $
2,940 $
(1,082) $ 15,800 $
(4,021) $
13,711 $
— $ 13,711 $
49
Cumulative effect of accounting
for financial instruments and
hedging
Reclassification adjustment
related to U.S. tax reform
legislation
Retirement of treasury stock
Exchange of Old Cigna common
stock
Acquisition of Express Scripts
(see Note 5)
Effect of issuing stock for
employee benefit plans
Other comprehensive (loss)
Net income
Common dividends declared
(per share: $0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
(10)
68
(229)
229
(3,498)
4,040
58
—
—
—
58
—
—
—
25,224
7
25,231
(13)
(58)
(529)
58
1
25,223
59
(138)
206
(390)
2,637
(10)
(329)
127
(390)
2,637
(10)
(329)
—
127
(390)
2,637
(10)
(329)
—
Balance at December 31, 2018
$
4 $ 27,751 $
(1,711) $ 15,088 $
(104) $
41,028 $
7 $ 41,035 $
Cumulative effect of adopting
new lease accounting guidance
(ASU 2016-02)
Effect of issuing stock for
employee benefit plans
Other comprehensive income
(loss)
Net income
Common dividends declared
(per share: $0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
(15)
555
(104)
770
5,104
(15)
(1,985)
(15)
451
770
5,104
(15)
(1,985)
(15)
451
770
5,109
(15)
(1,985)
5
—
(6)
(6)
Balance at December 31, 2019
$
4 $ 28,306 $
(941) $ 20,162 $
(2,193) $
45,338 $
6 $ 45,344 $
Cumulative effect of adopting
new credit loss guidance (ASU
2016-13) (1)
Effect of issuing stock for
employee benefit plans
Other comprehensive income
(loss)
Net income
Common dividends declared
(per share: $0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
(30)
672
(90)
80
8,458
(15)
(4,089)
(3)
Balance at December 31, 2020
(1) See Note 3 for further information about the Company's adoption of new credit loss guidance (ASU 2016-13).
(861) $ 28,575 $
4 $ 28,975 $
(6,372) $
$
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
82
(30)
582
80
8,458
(15)
(4,089)
(30)
582
80
17
8,475
(15)
(4,089)
(3)
(16)
(19)
50,321 $
7 $ 50,328 $
(15)
9
(6)
37
(5)
11
(8)
35
(8)
14
17
58
Cigna Corporation
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Realized investment losses (gains), net
Deferred income tax (benefit)
Gain on sale of business
Debt extinguishment costs
Net changes in assets and liabilities, net of non-operating effects:
Accounts receivable
Inventories
Deferred policy acquisition costs
Reinsurance recoverable and Other assets
Insurance liabilities
Pharmacy and other service costs payable
Accounts payable and Accrued expenses and other liabilities
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows from Investing Activities
Proceeds from investments sold:
Debt securities and equity securities
Investment maturities and repayments:
Debt securities and equity securities
Commercial mortgage loans
Other sales, maturities and repayments (primarily short-term and other long-term investments)
Investments purchased or originated:
Debt securities and equity securities
Commercial mortgage loans
Other (primarily short-term and other long-term investments)
Property and equipment purchases, net
Acquisitions, net of cash acquired
Divestiture, net of cash sold
Other, net
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds
Withdrawals and benefit payments from contractholder deposit funds
Net change in short-term debt
Net proceeds on issuance of term loan
Repayment of term loan
Payments for debt extinguishment
Repayment of long-term debt
Net proceeds on issuance of long-term debt
Repurchase of common stock
Issuance of common stock
Other, net
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash January 1, (1)
Cash, cash equivalents and restricted cash, December 31,
Cash reclassified to assets of business held for sale
Cash, cash equivalents and restricted cash December 31, per Consolidated Balance Sheets (2)
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds
Interest paid
For the Years Ended December 31,
2020
2019
2018
$
8,489 $
5,120 $
2,646
2,802
(149)
(386)
(4,203)
199
(1,496)
(504)
(307)
230
841
2,891
1,346
597
10,350
2,283
1,519
19
1,575
(4,765)
(113)
(1,924)
(1,094)
(139)
5,592
23
2,976
1,023
(979)
60
1,398
(1,400)
(212)
(8,047)
3,465
(4,042)
376
(175)
(8,533)
41
4,834
5,411
10,245
—
3,651
(177)
(313)
—
2
(713)
149
(242)
(277)
575
(192)
1,343
559
9,485
3,487
1,825
199
1,311
(4,282)
(307)
(1,753)
(1,050)
(153)
—
(11)
(734)
955
(1,097)
(681)
—
—
(3)
(4,491)
—
(1,987)
224
(107)
(7,187)
(8)
1,556
3,855
5,411
(743)
$
$
$
10,245 $
4,668 $
1,837 $
1,439 $
1,776 $
1,645 $
695
81
(101)
—
—
705
(107)
(237)
(234)
560
(842)
332
272
3,770
2,655
2,151
215
734
(5,637)
(312)
(1,189)
(528)
(24,455)
—
(12)
(26,378)
1,040
(1,151)
1,487
—
—
—
(131)
22,856
(342)
68
(312)
23,515
(24)
883
2,972
3,855
—
3,855
1,019
267
(1) Includes $743 million reported in Assets of business held for sale as of January 1, 2020. See table below for Cash, cash equivalents and restricted cash
reconciliation.
(2) See table below for Cash, cash equivalents and restricted cash reconciliation as of December 31, 2020 and December 31, 2019.
83
The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported within the
Consolidated Balance Sheets to the totals above:
(In millions)
Cash and cash equivalents
Restricted cash and cash equivalents, included in other long-term investments
Total cash, cash equivalents, and restricted cash and cash equivalents
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
As of December 31,
2020
2019
$
$
10,182 $
63
10,245 $
4,619
49
4,668
84
CIGNA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Note Number Footnote
Description of Business..............................................................................................................
COVID-19 and Related Economic Impact................................................................................
Summary of Significant Accounting Policies............................................................................
Accounts Receivable, Net..........................................................................................................
Mergers, Acquisitions and Divestitures.....................................................................................
Earnings Per Share.....................................................................................................................
Debt............................................................................................................................................
Common and Preferred Stock....................................................................................................
Insurance and Contractholder Liabilities...................................................................................
Reinsurance................................................................................................................................
Investments................................................................................................................................
Fair Value Measurements..........................................................................................................
Variable Interest Entities............................................................................................................
Accumulated Other Comprehensive Income (Loss)..................................................................
Pension.......................................................................................................................................
Employee Incentive Plans..........................................................................................................
BUSINESS AND CAPITAL STRUCTURE
1
2
3
4
5
6
7
8
INSURANCE INFORMATION
9
10
INVESTMENTS
11
12
13
14
WORKFORCE MANAGEMENT AND COMPENSATION
15
16
PROPERTY, LEASES AND OTHER ASSET BALANCES
17
18
COMPLIANCE, REGULATION AND CONTINGENCIES
19
20
21
RESULTS DETAILS
22
Goodwill, Other Intangibles and Property and Equipment........................................................
Leases.........................................................................................................................................
Shareholders’ Equity and Dividend Restrictions.......................................................................
Income Taxes.............................................................................................................................
Contingencies and Other Matters...............................................................................................
Segment Information..................................................................................................................
Page
86
87
87
94
95
96
97
99
100
104
108
115
120
122
123
127
130
132
134
134
137
138
85
Note 1 – Description of Business
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health services organization with a mission of helping those we serve improve their health, well-being and
peace of mind. We offer a differentiated set of pharmacy, medical, dental, disability, life and accident insurance and related products
and services by our subsidiaries.
The majority of these products are offered through employers and other groups such as governmental and non-governmental
organizations, unions and associations. Cigna also offers commercial health and dental insurance, Medicare and Medicaid products
and health, life and accident insurance coverages to individuals in the United States and selected international markets. In addition to
these ongoing operations, Cigna also has certain run-off operations.
The Company reports its results in the segments detailed below:
In connection with the launch of Evernorth in the third quarter 2020, two reporting segments were re-named: Health Services was
renamed as Evernorth and Integrated Medical was renamed as U.S. Medical. In addition, two of our operating segments were re-
named: Commercial and Government were renamed as U.S. Commercial and U.S. Government, respectively. There were no changes
to the underlying businesses reported in the segments.
Evernorth includes a broad range of coordinated and point solution health services capabilities, as well as those from partners across
the health care system in pharmacy solutions, benefits management solutions, care solutions and intelligence solutions, which are
provided to health plans, employers, government organizations and health care providers.
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and
coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health,
dental, vision, health advocacy programs and other products and services for insured and self-insured clients. U.S. Government
solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual
health insurance plans both on and off the public exchanges.
International Markets includes supplemental health, life and accident insurance products and health care coverage in our international
markets, as well as health care benefits for globally mobile employees of multinational organizations.
The remainder of our business operations are reported in Group Disability and Other, consisting of the following:
•
•
•
Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty
insurance products and related services. On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and
Life business to New York Life Insurance Company. See Note 5 for additional information.
Corporate-Owned Life Insurance (“COLI”) offers permanent insurance contracts sold to corporations to provide coverage
on the lives of certain employees for the purpose of financing employer-paid future benefit obligations.
Run-off businesses:
•
•
•
Reinsurance: predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed minimum
income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance
Company of Nebraska (“Berkshire”) in 2013.
Settlement Annuity business in run-off.
Individual Life Insurance and Annuity and Retirement Benefits businesses: deferred gains from the sales of these
businesses.
Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt
less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated
with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations
for products and services sold between segments.
86
Note 2 – COVID-19 and Related Economic Impact
All aspects of our business were impacted in fiscal year 2020 by the ongoing coronavirus ("COVID-19") pandemic. The Company
initiated several actions to assist our customers, clients, health care providers and employees in this time of crisis. As described below,
management has taken a number of steps to assess the impact on our business, including the financial reporting implications associated
with this pandemic.
The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. The
effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not
material to the Company's results of operations or financial condition for that period.
Beginning in April, we experienced a significant deferral of care by our customers. The deferral of care moderated over the course of
the second quarter with utilization levels eventually returning to nearly normal levels by the end of June. In the third quarter, we
experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for
COVID-19 testing and treatment.
In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of
care. These impacts were most prevalent in the U.S. Medical segment where fourth quarter earnings were adversely impacted by
increased costs of COVID-19 care and decreased contributions from our specialty products. Full year U.S. Medical results reflect
COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related
actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions
to support providers and employees.
Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its
effects in the third and fourth quarters. Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the
pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method
used for dispensing and fulfilling, partially offset by lower 30-day retail script volume.
The Company conducted its annual quantitative evaluation of goodwill impairment during the third quarter of 2020. These evaluations
were performed at the reporting unit level, based on discounted cash flow analyses and market data. The estimated fair value of each
of our reporting units exceeded their carrying values by significant margins. During the fourth quarter of 2020, the Company
conducted its normal quarterly qualitative assessment and concluded that the current economic and business conditions did not result
in a triggering event requiring a quantitative analysis.
For all other long-lived assets, including intangible assets, the Company conducted its normal quarterly qualitative impairment
assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a
quantitative impairment analysis. There were no material impairments recorded for the year ended December 31, 2020.
The Company reviewed all classes of financial instruments including investments, accounts receivable and reinsurance recoverables.
The additional allowance for expected credit losses recorded was not material for the year ended December 31, 2020.
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Cigna Corporation and its consolidated subsidiaries. Intercompany
transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in
conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Amounts recorded in the Consolidated Financial Statements necessarily reflect management’s estimates and assumptions about
medical costs, investment and receivable valuations, interest rates and other factors. Significant estimates are discussed throughout
these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in
earnings in the period of adjustment.
Recently Adopted Accounting Guidance
The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments,
and its related amendments, as of January 1, 2020, using the modified retrospective transition method. The new standard requires the
use of a current expected credit loss impairment model to develop and recognize credit losses for financial instruments at amortized
cost when the asset is first originated or acquired, and each subsequent reporting period. The new standard also eliminates the concept
87
of other-than-temporary impairments and changes the criteria for impairment of available-for-sale debt securities. A cumulative effect
adjustment of $30 million after-tax was recorded as a reduction to retained earnings as of January 1, 2020, reflecting an additional
allowance for future expected credit losses required under the new model, primarily related to reinsurance recoverables. Subsequent
changes in the allowance are reported in current period earnings. See additional information regarding the Company’s accounting
policy for establishing the allowance for credit losses in Accounts Receivable, Net (Note 4), Reinsurance (Note 10) and Investments
(Note 11).
The Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, as of January 1, 2020, on a prospective basis.
The new standard eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a
goodwill impairment. There was no impact of adopting this new standard to the Company’s financial statements because our quarterly
qualitative assessments did not result in a triggering event for impairment of goodwill, and the results of our annual quantitative
evaluation performed in the third quarter of 2020 indicated that the estimated fair value of each of our reporting units exceeded their
carrying values by significant margins.
Accounting Guidance Not Yet Adopted
Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)
•
•
•
•
Optional, effective upon issuance (March 12, 2020) through December 31, 2022.
Provides temporary optional relief to ease the potential burden of accounting for reference rate reform under existing GAAP.
Amendments are elective and apply to all entities that have contracts, hedging relationships and other transactions that
reference interbank offered rates, including LIBOR, expected to be discontinued for new contracts by December 31, 2021.
Permits optional expedients and exceptions to simplify the accounting for contract modifications, hedging arrangements and
held-to-maturity investments, when certain changes are made to a contract or instrument to facilitate reference rate reform.
An entity may elect to apply the amendments, by topic or subsection, at any point prospectively through December 31, 2022.
When elected, the optional expedients must be applied consistently for all eligible contracts or transactions.
To date, the Company has identified minimal exposure to LIBOR and does not anticipate that LIBOR’s phase-out will have a material
impact on its operations or financial results.
88
Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12)
•
•
•
Effective date of January 1, 2023 for Cigna (early adoption permitted) and requires the following key provisions (for
insurance entities that issue long-duration contracts)
Changes to the measurement of the future policy benefits liability for traditional and limited-pay insurance contracts:
•
•
Assumptions used to measure cash flows (such as mortality, morbidity and lapse assumptions) to be updated at least
annually with the effect of changes in those assumptions remeasured retrospectively and reflected in current period
net income.
Discount rate assumptions to be updated quarterly based on an upper-medium grade fixed-income instrument yield
that maximizes the use of observable market inputs, with any changes reflected in other comprehensive income.
Deferred policy acquisition costs ("DAC") related to long-duration insurance contracts to be amortized on a constant-level
basis over the expected term of the related contracts. Other related deferred or capitalized balances (such as unearned revenue
liability and value of business acquired) may use this simplified amortization method.
• Market risk benefits (defined as protecting the contractholder from other-than-nominal capital market risk and exposing the
insurer to that risk) to be measured at fair value, with changes in fair value recognized in net income each period, except for
the effect of changes in the insurance entity’s credit risk to be recognized in other comprehensive income.
Additional disclosures, including disaggregated rollforwards for the liability for future policy benefits, market risk benefits,
separate account liabilities and deferred acquisition costs, as well as information about significant inputs, judgments,
assumptions and methods used in measurement.
Transition methods at adoption vary:
•
•
•
Changes to the liability for future policy benefits to use a modified retrospective approach applied to all outstanding
contracts on the basis of their existing carrying amounts as of the beginning of the earliest period presented, with an
option to elect a full retrospective transition under certain criteria. Remeasuring the future policy benefits liability
for the discount rate to be recorded through accumulated other comprehensive income at transition.
DAC to follow the transition method used for future policyholder benefits.
•
• Market risk benefits to be transitioned retrospectively and measured at fair value at the beginning of the earliest
period presented. The difference between this fair value and carrying value to be recognized in the opening balance
of retained earnings, excluding the effect of credit risk changes that are to be recognized in accumulated other
comprehensive income.
Expected effects:
•
•
•
•
The new guidance will apply to our long-duration insurance products predominantly within the International Markets and
Other segments.
The Company will adopt the standard on January 1, 2023, using the modified retrospective transition method for changes to
the liability for future policy benefits and DAC.
The Company has developed a cross-functional implementation project plan and expects to have significant changes to our
processes, systems, controls and financial results and disclosures.
Although we continue to evaluate the new requirements of the standard and model their impacts across various products, we
are unable to project or estimate the magnitude or frequency of expected changes to our financial results. However, it is
possible that our income recognition pattern could change for several reasons:
•
•
•
Applying periodic assumption updates, versus the current locked-in model, may change our timing of profit or loss
recognition.
DAC amortization will be on a constant level basis over the expected term of the related contracts, and no longer
tied to the emergence of profit on such contracts.
Features, such as the Company’s GMDB product, that provide market-risk benefits are not currently measured at fair
value, so these liabilities and related reinsurance recoverables will become subject to market sensitivity, notably to
interest rates.
• While not yet quantified, the cumulative effect of implementing this guidance may be material to the Company’s beginning
•
shareholders' equity balance upon adoption.
The Company continues to monitor developing implementation guidance, particularly with respect to reinsured blocks of
business.
89
Significant Accounting Policies
The Company’s accounting policies are described either in this Note or in the applicable Notes to the Consolidated Financial
Statements as listed in the table of contents.
A. Cash and Cash Equivalents
Cash and cash equivalents are carried at cost that approximates fair value. Cash equivalents consist of short-term investments with
maturities of three months or less from the time of purchase. The Company reclassifies cash overdraft positions to liabilities when the
legal right of offset does not exist.
B.
Inventories
Inventories consist of prescription drugs and medical supplies and are stated at the lower of first-in-first-out cost or net realizable
value.
C. Deferred Policy Acquisition Costs
Costs eligible for deferral include incremental, direct costs of acquiring new or renewal insurance and investment contracts and other
costs directly related to successful contract acquisition. Examples of deferrable costs include commissions, sales compensation and
benefits, policy issuance and underwriting costs. The Company records acquisition costs differently depending on the product line.
Acquisition costs for:
•
•
•
Supplemental health, life and accident insurance products (primarily individual products) that comprise the majority of the
Company’s deferred policy acquisition costs and group health and accident insurance products are deferred and amortized,
generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.
Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the
expected lives of the contracts.
Other products are expensed as incurred.
Deferred policy acquisition costs also include the value of business acquired (“VOBA”) for certain acquisitions with material long-
duration insurance contracts. The Company recorded amortization of deferred policy acquisition costs of $502 million in 2020, $483
million in 2019 and $406 million in 2018 primarily in Selling, general and administrative expenses.
Each year, deferred policy acquisition costs are tested for recoverability. For universal life and other individual products, management
estimates the present value of future revenues less expected payments. For group health and accident insurance products, management
estimates the sum of unearned premiums and anticipated net investment income less future expected claims and related costs. If
management’s estimates of these sums are less than the deferred costs, the Company reduces deferred policy acquisition costs and
records an additional expense.
D. Other Assets (Current and Non-Current)
Other current assets consist primarily of prepaid expenses, accrued investment income and the current portion of reinsurance
recoverables. Other non-current assets consist primarily of GMIB assets, operating lease right-of-use assets and various other
insurance-related assets. See Note 10 for the Company’s accounting policy for GMIB assets and Note 18 for the Company's
accounting policy related to leases. Additionally, other non-current assets include the carrying value of our equity-method investments
in joint ventures in China, India, the U.S. and other foreign jurisdictions.
E. Assets and Liabilities of Business Held for Sale
The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the
disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present condition. The
Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely that significant
changes to the plan will be made or the plan will be withdrawn. Assets held for sale are measured at the lower of carrying value or fair
value less costs to sell. Any loss resulting from the measurement is recognized in the period the held for sale criteria are met.
Conversely, gains are not recognized until the date of the sale. When the disposal group is classified as held for sale, depreciation and
amortization ceases and the Company tests the assets for impairment.
90
F. Redeemable Noncontrolling Interest
Redeemable noncontrolling interest on our Consolidated Balance Sheets represents the noncontrolling shareholders preferred and
common stock interests of the Company's consolidated less than fully owned subsidiaries. Those shareholders may choose to require
the Company to purchase their redeemable noncontrolling interest. We also have the right to require those shareholders to sell their
redeemable noncontrolling interest to us. The redeemable noncontrolling interest was recorded at fair value as of the date of purchase.
When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase
the redeemable noncontrolling interest is recorded with an offsetting reduction to retained earnings or additional paid-in capital in the
absence of retained earnings. When an adjustment is made to the carrying value of the redeemable noncontrolling interest, the
calculation of shareholders’ net income per share will be adjusted if the redemption value exceeds fair value.
G. Accrued Expenses and Other Current and Non-Current Liabilities
Accrued expenses (current) primarily includes financial and performance guarantee liabilities under pharmacy contracts (see section
I), management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and
the risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act (the
“ACA”). Other non-current liabilities include obligations for pension (see Note 15), GMIB contract liabilities (see Note 10), lease
liabilities (see Note 18) and self-insured exposures not expected to be settled within one year.
The Company accrues for legal and regulatory matters when a loss contingency is both probable and estimable. The estimated loss is
generally recorded in Selling, general and administrative expenses and represents the Company’s best estimate of the loss
contingency. If the loss estimate is a range, the Company accrues the minimum amount in the range if no amount is better than any
other estimated amount in the range. Legal costs to defend the Company’s litigation and arbitration matters are expensed as incurred in
cases that the Company cannot reasonably estimate the ultimate cost to defend. If the Company can reasonably estimate the cost to
defend, a liability for these costs is accrued when the claim is reported. Litigation and legal or regulatory matters that the Company has
identified with a reasonable possibility of material loss are described in Note 21.
H. Translation of Foreign Currencies
The Company generally conducts its international business through foreign operating entities that maintain assets and liabilities in
local currencies that are their functional currencies. The Company uses exchange rates as of the balance sheet date to translate assets
and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in
Accumulated other comprehensive income (loss). The Company uses average monthly exchange rates during the year to translate
revenues and expenses into U.S. dollars.
I. Pharmacy revenues and Costs
Pharmacy revenues. Pharmacy revenues are primarily derived from providing pharmacy benefit management services to clients and
customers. Pharmacy revenues are recognized when control of the promised goods or services is transferred to clients and customers,
in an amount that reflects the consideration the Company expects to receive for those goods or services.
The Company provides or makes available various services supporting benefit management and claims administration and is generally
obligated to provide prescription drugs to clients’ members using multiple distribution methods including retail networks, home
delivery and specialty pharmacies. These goods and services are integrated into a single performance obligation to process claims,
dispense prescription drugs and provide other services over the contract period (generally three years). This performance obligation is
satisfied as the business stands ready to fulfill its obligation.
Revenues for dispensing prescription drugs through retail pharmacies are reported gross and consist of the prescription price
(ingredient cost and dispensing fee) contracted with clients, including the customer copayment, and any associated fees for services
because the Company acts as the principal in these arrangements. When a prescription is presented to a retail network pharmacy, the
Company is solely responsible for customer eligibility, drug utilization review, drug-to-drug interaction review, any required clinical
intervention, plan provision information, payment to the pharmacy and client billing. These revenues are recognized based on the full
prescription price when the pharmacy claim is processed and approved for payment. The Company also provides benefit design and
formulary consultation services to clients and negotiates separate contractual relationships with clients and network pharmacies. These
factors indicate that the Company has control over these transactions until the prescription is processed. Revenues are billed, due and
recognized at contract rates either on a periodic basis or as services are provided (such as based on volume of claims processed). This
recognition pattern aligns with the benefits from services provided.
91
Home delivery and specialty pharmacy revenues are due and recognized as each prescription is shipped, net of reserves for discounts
and contractual allowances estimated based on historical experience. Any differences between estimates and actual collections are
reflected in operations when payments are received. Historically, adjustments to original estimates and returns have not been material.
The Company has elected the practical expedient to account for shipping and handling as a fulfillment activity.
We may also provide certain financial and performance guarantees, including a minimum level of discounts a client may receive,
generic utilization rates and various service levels. Clients may be entitled to receive compensation if we fail to meet the guarantees.
Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue
for any estimated payouts within Accrued expenses and other liabilities (current). These estimates are adjusted at the end of the
guarantee period. Historically, adjustments to original estimates have not been material. The performance guarantee liability was $1.1
billion as of December 31, 2020 and $1.0 billion as of December 31, 2019.
The Company administers programs through which we may receive rebates and other vendor consideration from pharmaceutical
manufacturers. The amounts of such rebates or other vendor consideration shared with pharmacy benefit management services clients
vary based on the contractual arrangement with the client and in some cases the type of consideration received from the
pharmaceutical manufacturer. Rebates and other vendor consideration payable to pharmacy benefit management services clients are
recorded as a reduction of Pharmacy revenues. Estimated amounts payable to clients are based on contractual sharing arrangements
between the Company and the client and these amounts are adjusted when amounts are collected from pharmaceutical manufacturers
in accordance with the contractual arrangement between the Company and the client. Historically, these adjustments have not been
material.
In certain retail, home delivery and specialty transactions certain amounts may be collected from third-party payors. These are billed
and collected subject to normal account receivable collections procedures.
Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and
hospitals and services to specialty pharmacy manufacturers. These revenues are recognized as prescriptions and supplies are shipped
and services are provided.
Pharmacy costs. Pharmacy costs include the cost of prescriptions sold, network pharmacy claim costs and copayments. Also included
are direct costs of dispensing prescriptions including supplies, shipping and handling and direct costs associated with clinical
programs, such as drug utilization management and medication adherence counseling. Home delivery and specialty pharmacy costs
are recognized when the drug is shipped and retail network costs are recognized when the drug is processed and approved for
payment. Rebates and other vendor consideration received when providing pharmacy benefit management services are recorded as a
reduction of pharmacy costs. Rebates are recognized as prescriptions are shipped or processed and approved for payment. Historically,
the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been
material. The Company maintains reimbursement guarantees with certain retail network pharmacies. For each such guarantee, the
Company records a pharmacy and other service costs payable or prepaid asset for applicable retail network claims based on our actual
performance throughout the period against the contractual reimbursement rate. The Company’s contracts with certain retail
pharmacies give the Company the right to adjust reimbursement rates during the annual guarantee period.
Other. Incremental costs of obtaining service and pharmacy contracts for short-term arrangements are expensed as incurred.
J. Premiums and Related Expenses
Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over
the contract period. Benefits and expenses are recognized when incurred and, for our U.S. Medical insured business, are presented net
of pharmaceutical manufacturer rebates. For experience-rated contracts, premium revenue includes an adjustment for experience-rated
refunds based on contract terms and calculated using the customer’s experience (including estimates of incurred but not reported
claims).
Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial
minimum medical loss ratio provisions of the ACA. These rebates are settled in the subsequent calendar year.
Premiums received for the Company’s Medicare Advantage plans and Medicare Part D products from the Centers for Medicare and
Medicaid Services (“CMS”) and customers are recognized as revenue ratably over the contract period. CMS provides risk-adjusted
premium payments for Medicare Advantage Plans and Medicare Part D products based on our customer demographics and wellness.
The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is
reasonably assured. Additionally, Medicare Part D premiums include payments from CMS for risk-sharing adjustments. These
92
adjustments are estimated quarterly based on claim experience by comparing actual incurred drug benefit costs to estimated costs
submitted in original contracts. These adjustments may result in more or less revenue from CMS. Final revenue adjustments are
determined and settled with CMS in the year following the contract year. Premium revenue may also include an adjustment to reflect
the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio
provisions of the ACA.
The ACA prescribed three programs to mitigate the risk for participating health insurance companies selling coverage on the public
exchanges: risk adjustment, reinsurance and risk corridor. The reinsurance and ACA risk corridor programs expired at the end of
2016, while the permanent risk-adjustment program continues.
The risk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based
on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the
exchanges. We estimate our receivable or payable based on the risk of our customers compared to the risk of other customers in the
same state and market, considering data obtained from industry studies and the United States Department of Health and Human
Services (“HHS”). Receivables or payables are recorded as adjustments to premium revenue based on our year-to-date experience
when the amounts are reasonably estimable and collection is reasonably assured. Final revenue adjustments are determined by HHS in
the year following the policy year.
Premiums for individual life, accident and supplemental health insurance and annuity products, excluding universal life and
investment-related products, are recognized as revenue when due. Benefits and expenses are matched with premiums.
Revenue for universal life products is recognized as follows:
•
•
Investment income on assets supporting universal life products is recognized in Net investment income as earned.
Charges for mortality, administration and policy surrender are recognized in premiums as earned. Administrative fees are
considered earned when services are provided.
Benefits and expenses for universal life products consist of benefit claims in excess of policyholder account balances and income
earned by policyholders. Expenses are recognized when claims are incurred, and income is credited to policyholders in accordance
with contract provisions.
The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities
(see Note 9 for further information).
K. Fees and Related Expenses
The majority of the Company’s service fees are derived from administrative services only (“ASO”) arrangements, fee-for-service
clinical solutions and health benefit management services.
ASO arrangements allow plan sponsors to self-fund claims and assume the risk of medical or other benefit costs. Most of the
Company’s ASO arrangements are for medical and specialty services, including pharmacy benefits. Generally, the Company’s ASO
arrangements are short-term. Contract modifications typically occur on renewal and are prospective in nature.
In return for fees from these clients, the Company provides access to our participating provider networks and other services supporting
benefit management, including claims administration, behavioral health services, disease management, utilization management and
cost containment programs. In general, the Company considers these services to be a combined performance obligation to provide cost
effective administration of plan benefits over the contract period. Fees are billed, due and recognized monthly at contracted rates based
on current membership or utilization. This recognition pattern aligns with the benefits from services provided to clients. These
revenues are reported in Fees and other revenues in the Consolidated Statements of Income.
The Company may also provide performance guarantees that provide potential refunds to clients if certain service standards, clinical
outcomes or financial metrics are not met. If these standards, outcomes and metrics are not met, the Company may be financially at
risk up to a stated percentage of the contracted fee or a stated dollar amount. The Company defers revenue by recording a liability for
estimated payouts associated with these guarantees within Accrued expenses and other liabilities. The amount of revenue deferred is
estimated for each type of guarantee using either a most likely amount or expected value method depending on the nature of the
guarantee and the information available to estimate refunds. Estimates are refined each reporting period as additional information on
the Company’s performance becomes available and upon final reconciliation and settlement at the end of the guarantee period.
Amounts accrued and paid for these performance guarantees during the reporting periods were not material.
93
Rebates from pharmaceutical manufacturers for ASO client purchases at retail pharmacies, net of amounts payable to ASO clients,
were considered compensation for use of the manufacturer’s products and recorded in Fees and other revenues prior to transitioning
U.S. Commercial customers to Express Scripts’ retail pharmacy network in the third quarter of 2019. After this transition, these
rebates are reflected as a reduction to pharmacy costs (See “Pharmacy Costs” above).
Expenses associated with administrative programs and services are recognized as incurred in Selling, general and administrative
expenses.
The Company also earns revenue, as part of its integrated pharmacy benefits performance obligation, by offering fee-for-service
clinical solutions to our clients, such as drug utilization management and medication adherence counseling. These clinical programs
help clients to drive better health outcomes at a lower cost by identifying and addressing potentially unsafe or wasteful prescribing,
dispensing and utilization of prescription drugs and communicating with, or supporting communications with physicians, pharmacies
and patients. Fees are billed, due and recognized at contracted rates either on a periodic basis or as services are provided. This
recognition pattern aligns with the benefits from services provided. These revenues are reported in Fees and other revenues in the
Consolidated Statements of Income. Direct costs associated with these programs are recognized in Pharmacy and other service costs,
and other related expenses are recorded as incurred in Selling, general and administrative expenses.
The Company also earns fees by providing health benefit management solutions that drive cost reductions and improve quality
outcomes. Clients are primarily sponsors of health benefit plans and fees may be stated as a per-member-per-month fee or as a per-
claim fee. The Company considers the services to be a single performance obligation to stand ready to provide utilization management
services over the contract period (generally three years). In certain arrangements, the Company assumes the financial obligation for
third-party provider costs for medical services provided to the health plan’s customers. Fees are recorded gross in Fees and other
revenues in the Consolidated Statements of Income because the Company is acting as a principal in arranging for and controlling the
services provided by third-party network providers. Contractual fees vary based on enrollment and provider costs and are billed, due
and recognized monthly. Direct costs associated with these programs are recognized in Pharmacy and other service costs, and other
related expenses are recorded in Selling, general and administrative expenses as incurred.
Certain health benefit management contracts require the Company to share the results of medical cost experience that differ from
specified targets. This variable consideration is estimated at contract inception and adjusted through the contract period. The estimated
profits and costs are recognized net in Fees and other revenues.
Note 4 – Accounts Receivable, Net
Accounting policy. The Company's accounts receivable balances primarily include amounts due from clients, third-party payors,
customers and pharmaceutical manufacturers, and are presented net of allowances. The Company's adoption of ASU 2016-13,
Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as of January 1, 2020 did not have a material impact on our
accounts receivable credit loss allowance, as there were no substantive changes to our methodology for this class of assets. The
allowance for expected credit losses for current accounts receivable is based primarily on past collections experience relative to the
length of time receivables are past due; however, when available evidence reasonably supports an assumption that counterparty credit
risk over the expected payment period will differ from current and historical payment collections, a forecasting adjustment is reflected
in the allowance for expected credit losses.
All other (non-credit) allowances are based on the current status of each customer's receivable balance as well as current economic and
market conditions and a variety of other factors, including the length of time the receivables are past due, the financial health of
customers and our past experience. We bill pharmaceutical manufacturers based on management's interpretation of contractual terms
and estimate a contractual allowance based on the best information available at the time a claim is processed. Contractual allowances
for certain rebates receivable from pharmaceutical manufacturers are determined by reviewing payment experience and specific
known items that could be adjusted under contract terms. The Company's estimation process for contractual allowances for
pharmaceutical manufacturer receivables generally results in an allowance for balances outstanding greater than 90 days. Contractual
allowances for certain receivables from third-party payors are based on their contractual terms and are estimates based on the
Company's best information available at the time revenue is recognized.
Receivables and any associated allowance are written off only when all collection attempts have failed and such amounts are
determined unrecoverable. We regularly review the adequacy of these allowances based on a variety of factors, including age of the
outstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the
recoverability of receivables are adjusted.
94
The following amounts were included within Accounts receivable, net:
(In millions)
Noninsurance customer receivables
Pharmaceutical manufacturers receivable
Insurance customer receivables
Other receivables
Total
Accounts receivable, net classified as assets of business held for sale
Accounts receivable, net per Consolidated Balance Sheets
December 31,
2020
December 31,
2019
$
5,534 $
4,676
1,789
192
5,143
3,439
2,321
334
11,237
(521)
$
12,191 $
10,716
These receivables are reported net of our allowances of $1.2 billion as of December 31, 2020 and $778 million as of December 31,
2019. The allowances as of December 31, 2020 include contractual allowances for certain rebates receivable with pharmaceutical
manufacturers of $757 million and contractual allowances from third-party payors of $208 million based upon the contractual payment
terms. The remaining allowances of $224 million include allowances, discounts and claims adjustments issued to customers in the
form of client credits, an allowance for current expected credit losses and other non-credit adjustments.
The Company's allowance for current expected credit losses was $65 million as of December 31, 2020 and $39 million as of January
1, 2020 (no change to allowance for credit losses from December 31, 2019).
Note 5 – Mergers, Acquisitions and Divestitures
A. Divestiture of Group Disability and Life business
On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business to New York Life Insurance
Company for cash proceeds of $6.2 billion. The Company recognized a gain of $4.2 billion pre-tax ($3.2 billion after-tax), which
includes recognition of previously unrealized capital gains on investments sold (see Note 14 for further information).
In December 2019, Cigna entered into a definitive agreement to sell this business and since the sale was expected to close in the fourth
quarter of 2020 following applicable regulatory approvals and other customary closing conditions, the Company aggregated and
classified the assets and liabilities directly associated with the pending sale of its Group Disability and Life business as held for sale
and has reported them separately on our Consolidated Balance Sheet as of December 31, 2019.
The assets and liabilities of business held for sale were as follows:
(In millions)
Cash and cash equivalents
Accounts receivable, net
Investments
Other assets
Total assets of business held for sale
Insurance and contractholder liabilities
Other liabilities
Total liabilities of business held for sale
B. Acquisition of Express Scripts
December 31,
2019
$
$
743
521
7,709
539
9,512
6,308
504
6,812
On December 20, 2018, Cigna acquired Express Scripts Holding Company (“Express Scripts") through a series of mergers for a
purchase price of $52.8 billion, which consisted of cash and stock consideration. The purchase price was allocated to the tangible and
intangible net assets acquired based on management’s final estimates of their fair values. Total goodwill of $38.4 billion was recorded,
of which $33.7 billion resides in the Company’s Evernorth segment, with the remainder in the Company’s U.S. Medical segment. The
results of Express Scripts have been included in the Company’s Consolidated Financial Statements from the date of the acquisition.
Revenues of Express Scripts included in the Company’s results for 2018 approximated $2.6 billion and Express Scripts’ results of
operations were immaterial to Cigna’s net income.
C.
Integration and Transaction-related Costs
The Company has incurred costs detailed in the table below related to the acquisition and integration of Express Scripts, the
terminated merger with Anthem, Inc. (“Anthem”), the sale of the U.S. Group Disability and Life business and other transactions.
95
These costs consisted primarily of certain projects to integrate the Company’s systems, products and services, fees for legal, advisory
and other professional services and certain employment-related costs. Costs in 2018 also included charitable contributions and
amortization of certain financing fees and interest expense on the debt issued in the third quarter of 2018 to fund the Express Scripts
merger, net of investment income earned on proceeds of the debt issuance.
(In millions)
Before-tax
After-tax
Before-tax
After-tax
Before-tax
After-tax
2020
2019
2018
Interest expense on newly-issued debt
$
— $
— $
— $
— $
Net investment income on debt proceeds
Charitable contributions
Legal and advisory fees
Bridge facility fees
—
—
48
—
—
—
36
—
—
—
53
—
—
—
41
—
All other integration and transaction-related costs
Integration and transaction-related costs, net
$
479
527 $
368
404 $
499
552 $
386
427 $
227 $
(123)
200
204
140
204
852 $
179
(97)
158
185
111
133
669
Note 6 – Earnings Per Share (“EPS”)
Accounting policy. The Company computes basic earnings per share using the weighted-average number of unrestricted common and
deferred shares outstanding. Diluted earnings per share also includes the dilutive effect of outstanding employee stock options and
restricted stock using the treasury stock method and the effect of strategic performance shares.
Basic and diluted earnings per share were computed as follows:
Diluted
$
2,637
246,652
3,573
250,225
(Shares in thousands, dollars in
millions, except per share
amounts)
Basic
2020
Effect of
Dilution
Diluted
Basic
2019
Effect of
Dilution
Diluted
Basic
2018
Effect of
Dilution
Shareholders’ net income
$
8,458
$
8,458 $
5,104
$
5,104 $
2,637
Shares:
Weighted average
364,979
364,979
375,919
375,919
246,652
Common stock equivalents
Total shares
EPS
364,979
3,410
3,410
3,410
368,389
375,919
3,898
3,898
3,898
379,817
246,652
3,573
3,573
$
23.17 $
(0.21) $
22.96 $
13.58 $
(0.14) $
13.44 $
10.69 $
(0.15) $
10.54
The following outstanding employee stock options were not included in the computation of diluted earnings per share because their
effect was anti-dilutive.
(In millions)
Anti-dilutive options
2020
4.1
2019
3.5
2018
0.9
96
Note 7 – Debt
The outstanding amounts of debt and finance leases were as follows:
(In millions)
Short-term debt
$1,000 million, Floating Rate Notes due 3/2020
$300 million, 5.125% Notes due 6/2020
$1,750 million, 3.2% Notes due 9/2020
$349 million, 4.125% Notes due 9/2020
$500 million, 2.6% Notes due 11/2020
$400 million, Floating Rate Notes due 11/2020
$250 million, 4.375% Notes due 12/2020
$78 million, 6.37% Notes due 6/2021
$1,000 million, Floating Rate Notes due 9/2021
$1,250 million, 3.4% Notes due 9/2021
Commercial paper
Other, including finance leases
Total short-term debt
Long-term debt
$500 million, 3.3% Notes due 2021
$300 million, 4.5% Notes due 2021
$78 million, 6.37% Notes due 2021
$1,000 million, Floating Rate Notes due 2021
$1,250 million, 3.4% Notes due 2021
$1,248 million, 4.75% Notes due 2021
$277 million, 4% Notes due 2022
$973 million, 3.9% Notes due 2022
$500 million, 3.05% Notes due 2022
$17 million, 8.3% Notes due 2023
$63 million, 7.65% Notes due 2023
$700 million, Floating Rate Notes due 2023
$1,000 million, 3% Notes due 2023
$2,187 million, 3.75% Notes due 2023
$1,000 million, 3.5% Notes due 2024
$900 million, 3.25% Notes due 2025
$2,200 million, 4.125% Notes due 2025
$1,500 million, 4.5% Notes due 2026
$1,500 million, 3.4% Notes due 2027
$259 million, 7.875% Debentures due 2027
$600 million, 3.05% Notes due 2027
$3,800 million, 4.375% Notes due 2028
$1,500 million, 2.4% Notes due 2030
$45 million, 8.3% Step Down Notes due 2033
$190 million, 6.15% Notes due 2036
$2,200 million, 4.8% Notes due 2038
$750 million, 3.2% Notes due 2040
$121 million, 5.875% Notes due 2041
$448 million, 6.125% Notes due 2041
$317 million, 5.375% Notes due 2042
$1,500 million, 4.8% Notes due 2046
$1,000 million, 3.875% Notes due 2047
$3,000 million, 4.9% Notes due 2048
$1,250 million, 3.4% Notes due 2050
Other, including finance leases
Total long-term debt
December 31,
2020
December 31,
2019
$
— $
—
—
—
—
—
—
78
999
1,249
1,030
18
999
300
1,748
351
496
400
249
—
—
—
944
27
$
$
3,374 $
5,514
— $
—
—
—
—
—
276
972
490
17
63
698
975
2,181
977
896
2,191
1,505
1,410
259
595
3,780
1,489
45
190
2,180
742
119
490
315
1,465
988
2,966
1,235
36
499
298
78
998
1,247
1,272
747
999
485
17
100
698
966
3,088
970
895
2,188
1,506
1,396
259
595
3,776
—
45
190
2,178
—
119
491
315
1,465
988
2,964
—
61
$
29,545 $
31,893
97
Debt Issuance and Redemption. In order to decrease future interest expense and reduce future refinancing risk, the Company entered
into the following transactions during 2020:
•
•
Debt issuance: On March 16, 2020, the Company issued $3.5 billion of new senior notes. The proceeds of this issuance were
mainly used to pay the consideration for the cash tender and redemption offer as described below. Interest on this debt is paid
semi-annually.
Principal
$1,500 million
$750 million
$1,250 million
Maturity Date
March 15, 2030
March 15, 2040
March 15, 2050
Interest Rate
2.4%
3.2%
3.4%
Net Proceeds
$1,491 million
$743 million
$1,237 million
Debt tender and redemption: In March and April 2020, the Company completed a tender offer and an optional redemption
totaling $3.5 billion of aggregate principal amount of certain of its outstanding debt securities. The principal amount
repurchased in this tender offer was $1.5 billion. Additionally, $2.0 billion of notes were repurchased via optional
redemption. The Company recorded a pre-tax loss of $199 million ($151 million after-tax), consisting primarily of premium
payments on the tender and optional redemption.
Debt Exchange. In the fourth quarter of 2019, the Company settled an exchange of approximately $12.7 billion of Notes issued by
Express Scripts Holding Company, Medco Health Solutions, Inc. and Cigna Holding Company (formerly named Cigna Corporation)
for privately placed Notes issued by Cigna with the same interest rates and maturities and comparable other terms. We initiated an
exchange offer to register such debt in the second quarter of 2020 and completed the exchange in July 2020.
Debt Repayment. In 2020, the Company repaid $8.0 billion of long-term debt, including the $3.5 billion debt tender and redemption
described above. On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes
due 2021 (the “Notes”) pursuant to which Cigna redeemed the entire $1.0 billion aggregate principal amount of the Notes outstanding
on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the
Notes.
Revolving Credit Agreements. Cigna has a revolving credit and letter of credit agreement that matures in April 2023 and is diversified
among 23 banks. Cigna can borrow up to $3.25 billion for general corporate purposes, with up to $500 million available for issuance
of letters of credit. This revolving credit agreement also includes an option to increase the facility amount up to $500 million and an
option to extend the termination date for additional one-year periods, subject to consent of the banks.
Additionally, Cigna has a 364-day $1.0 billion revolving credit agreement that will mature in October 2021. The agreement replaces
the $1.0 billion 364-day revolving credit agreement that expired in October 2020. The agreement is diversified among 23 banks.
Pursuant to this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate purposes. The agreement
includes the option to “term out” any revolving loans that are outstanding at maturity by converting them into a term loan maturing on
the one year anniversary of conversion.
The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s
leverage ratio may not exceed 60%. As of December 31, 2020, there were no outstanding balances under the revolving credit
agreements.
Term Loan Credit Agreement. On April 1, 2020, the Company borrowed an aggregate principal amount of $1.4 billion under a new
364-Day Term Loan Credit Agreement. In connection with the sale of the Group Life and Disability business, on December 31, 2020
we repaid the entire $1.4 billion balance outstanding.
Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately
placed on a discount basis through certain broker dealers at any time not to exceed $4.25 billion. Amounts available under the program
may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for
general corporate purposes. The commercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an
average interest rate of 0.2%.
The Company was in compliance with its debt covenants as of December 31, 2020.
98
Maturities of outstanding long-term debt are as follows:
(in millions)
2021
2022
2023
2024
2025
Maturities after 2025
(1) Long-term debt maturity amounts include current maturities of long-term debt.
Scheduled
Maturities (1)
2,328
$
$
$
$
$
$
1,749
3,967
1,000
3,100
19,981
Interest expense on long-term and short-term debt was $1.4 billion in 2020, $1.6 billion in 2019 and $507 million in 2018.
Note 8 – Common and Preferred Stock
On December 20, 2018 Cigna acquired Express Scripts through a series of mergers (collectively, the "Merger"). Cigna Holding
Company (formerly named Cigna Corporation and referred to as "Old Cigna") and Express Scripts each merged with and into a
wholly-owned subsidiary of Cigna. As a result of these transactions, Cigna became the parent of the combined company. Old Cigna
shareholders exchanged each of their shares for a share of Cigna common stock and shareholders of Express Scripts received 0.2434
of a share of Cigna (and $48.75 in cash) for each share of Express Scripts. Following the Merger, Old Cigna was de-listed and shares
of Cigna were listed on the New York Stock Exchange for trading.
Cigna (and, prior to the Merger, Old Cigna) has a total of 25 million shares of $1 par value preferred stock authorized for issuance. No
shares of preferred stock were outstanding at December 31, 2020, 2019 or 2018.
The following table presents the share activity of Cigna and Old Cigna for the years ended December 31, 2020, 2019 and 2018.
(Shares in thousands)
Common: Par value $0.01; 600,000 shares authorized - Cigna
Outstanding- January 1,
Shares issued to Old Cigna shareholders
Shares issued to Express Scripts shareholders
Issued for stock option exercises and other benefit plans
Repurchased common stock
Outstanding- December 31,
Treasury stock
Issued- December 31,
Common: Par value $0.25; 600,000 shares authorized - Old Cigna
Outstanding- January 1,
Issued for stock option exercises and other benefit plans
Repurchased common stock
Balance, December 20, 2018 (Merger Date)
Exchange of Old Cigna shares for shares of Cigna
Outstanding- December 31,
Retirement of treasury stock on December 20, 2018
Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock
Treasury stock- December 31,
Issued- December 31,
2020
2019
2018
372,531
380,924
4,142
(21,902)
354,771
35,505
390,276
3,413
(11,806)
372,531
13,012
385,543
—
243,785
137,337
91
(289)
380,924
570
381,494
243,967
1,118
(1,300)
243,785
(243,785)
—
(52,358)
(2)
—
—
99
Note 9 – Insurance and Contractholder Liabilities
A. Account Balances – Insurance and Contractholder Liabilities
As of December 31, 2020 and December 31, 2019, the Company’s insurance and contractholder liabilities were comprised of the
following:
(In millions)
Current
Non-current
Total
Current
Non-current
Total
December 31, 2020
December 31, 2019
Contractholder deposit funds
$
350 $
6,823 $
7,173 $
600 $
7,139 $
Future policy benefits
Unearned premiums
Unpaid claims and claim expenses
U.S. Medical
Other segments
Total
327
485
3,166
980
9,317
394
18
292
9,644
879
3,184
1,272
553
453
2,875
2,529
7,010
9,281
360
17
3,474
20,271
7,739
9,834
813
2,892
6,003
27,281
Insurance and contractholder liabilities classified as
liabilities of business held for sale (1)
Total insurance and contractholder liabilities
(1) Amounts classified as Liabilities of business held for sale primarily include $4.9 billion of unpaid claims, $717 million of contractholder deposit funds and $653
16,052 $
16,844 $
22,152 $
5,308 $
4,921 $
(4,219)
(2,089)
$
(6,308)
20,973
million of future policy benefits as of December 31, 2019.
Insurance and contractholder liabilities expected to be paid within one year are classified as current.
Accounting Policy - Contractholder Deposit Funds. Liabilities for contractholder deposit funds primarily include deposits received
from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are
adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1)
premium stabilization reserves under group health insurance contracts representing experience refunds left with the Company to pay
future premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts and
4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over
the contract period.
Accounting Policy - Future Policy Benefits. Future policy benefits represent the present value of estimated future obligations under
long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated
using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (GMDB
contracts are fully reinsured, see Note 10 for additional information) and certain health, life and accident insurance products of our
International Markets segment.
Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining
lives. Obligations for life insurance policies and GMDB contracts represent benefits expected to be paid to policyholders, net of future
premiums expected to be received. Management estimates these obligations based on assumptions as to premiums, interest rates,
mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate. Mortality,
morbidity and surrender assumptions are based on the Company’s own experience and published actuarial tables. Interest rate
assumptions are based on management’s judgment considering the Company’s experience and future expectations, and range from 1%
to 9%. Obligations for the direct and assumed run-off settlement annuity business include adjustments for realized and unrealized
investment returns consistent with GAAP when a premium deficiency exists. As of December 31, 2020, approximately 20% of the
liability for future policy benefits was supported by assets held in trust for the benefit of the ceding company under reinsurance
agreements.
Accounting Policy - Unearned Premium. The unrecognized portion of premiums received is recorded as unearned premiums included
in insurance and contractholder liabilities.
B. Unpaid Claims and Claim Expenses – U.S. Medical
This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development
on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and
services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and
facilities.
100
Accounting policy. The Company uses actuarial principles and assumptions that are consistently applied each reporting period and
recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent
with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.
The Company compares key assumptions used to establish the medical costs payable to actual experience for each reporting period.
The unpaid claims liability is adjusted through current period shareholders’ net income when actual experience differs from these
assumptions. Additionally, the Company evaluates expected future developments and emerging trends that may impact key
assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve
considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to
changes in the Company’s key assumptions, specifically completion factors and medical cost trend.
The liability is primarily calculated using “completion factors” developed by comparing the claim incurral date to the date claims were
paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual
claim processing; 2) frequency and timeliness of provider claims submissions; 3) membership and 4) the mix of products. The
Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current
estimates of completion factors. The Company estimates the liability for claims incurred in each month by applying the current
estimates of completion factors to the current paid claims data. This approach implicitly assumes that historical completion rates will
be a useful indicator for the current period.
The Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant
operational considerations for more recent months. Medical cost trend is primarily impacted by medical service utilization and unit
costs that are affected by changes in the level and mix of health benefits offered, including inpatient, outpatient and pharmacy, the
impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.
The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process,
was $2.9 billion at December 31, 2020 and $2.7 billion at December 31, 2019.
Activity, net of intercompany transactions, in the unpaid claims liability for the U.S. Medical segment for the years ended December
31 was as follows:
(In millions)
Beginning balance
Less: Reinsurance and other amounts recoverable
Beginning balance, net
Acquired, net
Incurred costs related to:
Current year
Prior years
Total incurred
Paid costs related to:
Current year
Prior years
Total paid
Ending balance, net
Add: Reinsurance and other amounts recoverable
Ending balance
2020
2019
2018
$
2,892 $
2,697 $
303
2,589
—
25,889
(115)
25,774
23,005
2,398
25,403
2,960
224
264
2,433
—
24,368
(165)
24,203
21,851
2,196
24,047
2,589
303
$
3,184 $
2,892 $
2,420
262
2,158
40
21,331
(173)
21,158
18,978
1,945
20,923
2,433
264
2,697
Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported
and pending claims of certain business for which the Company administers the plan benefits without any right of offset. See Note 10
for additional information on reinsurance.
101
Variances in incurred costs related to prior years’ unpaid claims and claim expenses that resulted from the differences between actual
experience and the Company’s key assumptions for the years ended December 31 were as follows:
(Dollars in millions)
Actual completion factors
Medical cost trend
$
Total favorable variance
(1) Percentage of current year incurred costs as reported for the year ended December 31, 2019.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2018.
$
Year Ended
December 31, 2020
%(1)
$
December 31, 2019
%(2)
$
42
73
115
0.2 % $
0.3
0.5 % $
90
75
165
0.4 %
0.4
0.8 %
Favorable prior year development in both years reflects lower than expected utilization of medical services.
The following table depicts the incurred and paid claims development as of December 31, 2020 (net of reinsurance), claims frequency
metrics and incurred but not reported liabilities reported in the U.S. Medical segment. The information about incurred and paid claims
development for the year ended December 31, 2019 is presented as supplementary information and is unaudited.
Incurral Year
(In millions)
2019
2020
Incurred Costs
2019
(Unaudited)
2020
Unpaid Claims &
Claim Expenses
Claims
Frequency
$
23,306 $
23,211
24,927
48,138
60
2,764
3.5 million
3.7 million
Cumulative incurred costs for the periods presented
$
Incurral Year
2019
2020
Cumulative paid costs for the periods presented
Outstanding liabilities for the periods presented, net of reinsurance
Other long-duration liabilities not included in development table above
Net unpaid claims and claims expenses - U.S. Medical
Reinsurance and other amounts recoverable
Unpaid claims and claim expenses - U.S. Medical
Cumulative Costs Paid
2019
(Unaudited)
2020
$
20,920 $
$
$
$
23,151
22,163
45,314
2,824
136
2,960
224
3,184
More than 95% of health claims incurred in a calendar year are paid within one year of their incurred date.
There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for its
health insurance business is the number of customers for whom an insured medical claim was paid. Customers for whom no insured
medical claim was paid are excluded from the calculation. Claims that did not result in a liability are not included in the frequency
metric.
C. Unpaid Claims and Claim Expenses – Group Disability and Other and International Markets
Accounting policy. Liabilities for unpaid claims and claim expenses are established by book of business within Group Disability and
Other and International Markets. Unpaid claims and claim expenses within the Group Disability and Other and International Markets
segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not
reported reserves for claims when the insured event has occurred but has not been reported to the Company and (3) loss adjustment
expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported
losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the
expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence,
consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. The Company
immediately records an adjustment in Medical costs and other benefit expenses when estimates of these liabilities change.
102
See Note 5 for a discussion of the divestiture of the Group Disability and Life business on December 31, 2020. For the year ended
December 31, 2019, liabilities for unpaid claims and claim expenses within the Group Disability and Life business reflect the
following primary products: long-term and short-term disability, life insurance and accident coverages and the majority of the
Company’s liability for disability claims consisted of “disabled life reserves”, measured as the present value of estimated future
benefit payments, including expected development, for each reported claim that is currently receiving benefit payments over the
expected disability period or pending a decision on eligibility for benefits. The Company projected the expected disability period by
using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of
resolution rates. Expected claim resolution rates may vary based upon the Company’s experience for the anticipated disability period,
the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and income level. The gross
monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security
Disability Income, workers’ compensation, statutory disability or other group benefit plans. The Company estimated the probability
and amount of future offset awards and lapses based on the Company’s experience for certain offsets not yet finalized.
The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently
been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company
establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion
factors and loss ratio assumptions using the Company’s experience combined with an analysis of current trends and operational
factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns,
changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted
prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.
Liability balance details. The liability details for unpaid claims and claim expenses for the years ended December 31 are as follows:
(In millions)
Group Disability and Other
Group Disability and Life
Other Operations
Total Group Disability and Other
International Markets
Unpaid claims and claim expenses Group Disability and Other and International Markets
(1) Includes unpaid claim amounts classified as Liabilities of business held for sale, see Note 5.
2020
2019 (1)
$
150 $
159
309
963
$
1,272 $
4,972
187
5,159
844
6,003
Group Disability and Life balances as of December 31, 2020 include reserves associated with retained business and amounts reinsured
to New York Life as part of the sale of the Group Disability and Life business.
The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over
extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset
portfolios.
Details of the Company’s Group Disability and Life unpaid claim discounted liability balance as of December 31, 2019 were as
follows:
(In billions)
Discounted liabilities
Aggregate amount of discount
Range of discount rates
(1) Includes unpaid claims amounts classified as Liabilities held for sale.
2019 (1)
4.5
1.2
$
$
4.0 % —
5.2 %
103
Activity in the Company’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are presented in the following
table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance
contracts or, if short-duration, the liabilities have been fully reinsured.
(In millions)
Beginning balance
Less: Reinsurance
Beginning balance, net
Incurred claims related to:
Current year
Prior years:
Interest accretion
All other incurred
Total incurred
Paid claims related to:
Current year
Prior years
Total paid
Acquisitions
Foreign currency
Divestiture of Group Disability and Life business
Ending balance, net
Add: Reinsurance
2020
2019 (1)
2018
$
5,816 $
5,432 $
184
5,632
156
5,276
5,274
140
5,134
5,810
5,616
5,350
154
19
5,983
3,595
2,015
5,610
—
42
(5,093)
954
159
152
(40)
5,728
3,488
1,873
5,361
—
(11)
—
5,632
184
156
(147)
5,359
3,391
1,808
5,199
23
(41)
—
5,276
156
5,432
Ending balance
(1) Includes unpaid claims amounts classified as Liabilities of business held for sale.
$
1,113 $
5,816 $
Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company’s insurance
subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a
portion of incurred losses. See Note 10 for additional information on reinsurance.
Following the sale of the Company's Group Disability and Life business (see Note 5 for further information), the majority of the
liability for unpaid claims and claim expenses relates to products sold in the International Markets segment. Prior to the sale, the
majority of the liability for unpaid claims and claim expenses related to disability claims with long-tailed payouts. The rollforward
above reflects activity inclusive of these reserves, which were sold on December 31, 2020. Interest earned on assets backing these
liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year balances is shown as a separate
component of prior year incurred claims and reported in Medical costs and other benefit expenses in the Consolidated Statements of
Income. This interest is calculated by applying the average discount rate used in determining the liability balance to the average
liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company’s
liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in
determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and will vary from
actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for
the long-term disability business. Favorable prior year incurred claims for the year ended December 31, 2019 primarily reflected
favorable long-term disability resolution rate experience relative to expectations reflected in the prior year reserve and favorable
reserve development for life, accident and voluntary driven by lower than expected incidence. Development for the year ended
December 31, 2020 was immaterial.
Note 10 – Reinsurance
The Company’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance.
Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired.
Reinsurance is also used to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses.
Reinsurance does not relieve the originating insurer of liability. Therefore, reinsured liabilities must continue to be reported along with
the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors
concentrations of its credit risk.
104
A. Reinsurance Recoverables
Accounting policy. Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the
Company’s insurance businesses. Most reinsurance recoverables are classified as non-current assets. The current portion of
reinsurance recoverables is reported in Other current assets and consists primarily of recoverables on paid claims expected to be
settled within one year. Reinsurance recoverables are presented net of allowances for uncollectible reinsurance that, effective with
adopting ASU 2016-13 on January 1, 2020, consists primarily of an allowance for expected credit losses. $31 million was recorded as
a cumulative effect adjustment to retained earnings at adoption. Estimates of the allowance for expected credit losses are based on
internal and external data used to develop expected loss rates over the anticipated duration of the recoverable asset that vary by
external credit rating and collateral level. The Company's allowance for credit losses on reinsurance recoverables was $32 million as
of December 31, 2020, of which $31 million was recorded as a cumulative effect adjustment to retained earnings at adoption.
The majority of the Company’s reinsurance recoverables resulted from acquisition and disposition transactions in which the
underwriting company was not acquired. Included in the table below is $217 million of current reinsurance recoverables that are
reported in Other current assets as of December 31, 2020; as of December 31, 2019 there was $222 million of current reinsurance
recoverables reported in Other current assets. The Company’s reinsurance recoverables are presented in the following table by range
of external credit rating and collateral level.
Fair value of
collateral
contractually
required to meet
or exceed carrying
value of
recoverable
Collateral
provisions exist
that may mitigate
risk of credit loss(3)
No collateral
Total
$
— $
— $
173 $
(Dollars in millions)
Ongoing Operations
Upper-medium grade and higher (1)
Lower-medium grade (2)
Not rated
Total recoverables related to ongoing operations
Acquisition, disposition or runoff activities
Upper-medium grade and higher (1)
Lincoln National Life and Lincoln Life & Annuity of New York
Berkshire
Prudential Retirement Insurance and Annuity
Life Insurance Company of North America
Other
Not rated
—
92
92
—
309
625
—
232
—
—
—
—
3,033
409
—
424
18
17
Total recoverables related to acquisition, disposition or runoff activities
Total
Allowance for uncollectible reinsurance
Total reinsurance recoverables
$
1,166
1,258 $
3,901
3,901 $
(1) Includes A- equivalent and higher current ratings certified by a nationally recognized statistical rating organization ("NRSRO")
(2) Includes BBB- to BBB+ equivalent current credit ratings certified by an NRSRO
(3) Includes collateral provisions requiring the reinsurer to fully collateralize its obligation if its external credit rating is downgraded to a specified level
Collateral levels are defined internally based on the fair value of the collateral relative to the carrying amount of the reinsurance
recoverable, the frequency at which collateral is required to be replenished and the potential for volatility in the collateral’s fair value.
The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance
obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables, as
further described above.
105
64
29
266
—
—
—
—
20
4
24
290 $
$
173
64
121
358
3,033
718
625
424
270
21
5,091
5,449
(32)
5,417
B. Effects of Reinsurance
The following table presents direct, assumed and ceded premiums for both short-duration and long-duration insurance contracts. It
also presents reinsurance recoveries that have been netted against benefit expenses in the Company’s Consolidated Statements of
Income.
(In millions)
Premiums
Short-duration contracts
Direct
Assumed
Ceded
Total short-duration contract premiums
Long-duration contracts
Direct
Assumed
Ceded
Individual life insurance and annuity business sold
Other
Total long-duration contract premiums
Total premiums
Reinsurance recoveries
Individual life insurance and annuity business sold
Other
Total reinsurance recoveries
2020
2019
2018
$
38,425 $
35,690 $
32,148
85
(230)
64
(203)
77
(182)
38,280
35,551
32,043
4,517
99
(119)
(150)
4,347
4,352
105
(126)
(168)
4,163
$
$
$
42,627 $
39,714 $
240 $
191
431 $
238 $
157
395 $
4,268
116
(133)
(181)
4,070
36,113
249
203
452
C. Effective Exit of GMDB and GMIB Business
The Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance
transaction in 2013. Berkshire reinsured 100% of the Company’s future claim payments in this business, net of other reinsurance
arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.2 billion remaining
at December 31, 2020.
GMDB is accounted for as assumed and ceded reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as
discussed below. GMIB assets are reported in Other current assets and Other assets, and GMIB liabilities are reported in Accrued
expenses and other liabilities and Other non-current liabilities.
GMDB
The GMDB exposure arises under annuities written by ceding companies that guarantee the benefit received at death. The Company’s
exposure arises when the guaranteed minimum death benefit exceeds the fair value of the related mutual fund investments at the time
of a contractholder’s death.
Accounting policy. The Company estimates the gross liability and reinsurance recoverable with an internal model based on the
Company’s experience and future expectations over an extended period, consistent with the long-term nature of this product. As a
result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided
the increased recoverable remains within the overall Berkshire limit (including the GMIB asset presented below).
106
The following table presents the account value, net amount at risk and the number of contractholders for guarantees assumed by the
Company in the event of death. The net amount at risk is the amount that the Company would have to pay if all contractholders died as
of the specified date. The Company should be reimbursed in full for these payments unless the Berkshire reinsurance limit is
exceeded.
(Dollars in millions, excludes impact of reinsurance ceded)
Account value
Net amount at risk
Average attained age of contractholders (weighted by exposure)
Number of contractholders (estimated)
GMIB
December 31,
2020
December 31,
2019
$
$
9,523 $
1,570 $
77
9,110
1,764
76
185,000
200,000
The Company reinsured contracts with issuers of GMIB products. The Company’s exposure represents the excess of a contractually
guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value in
the related underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income
payments that can only occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has purchased
retrocessional coverage (“GMIB assets”) for these contracts including retrocessional coverage from Berkshire.
Accounting policy. The Company reports GMIB liabilities and assets as derivatives at fair value because cash flows of these liabilities
and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum
payments. The Company receives and pays fees periodically based on either contractholders’ account values or deposits increased at a
contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates when
contractholders first elect to receive minimum income payments. Cash flows on these contracts are reported in operating activities.
Assumptions used in fair value measurement. GMIB assets and liabilities are established using capital market assumptions and
assumptions related to future annuitant behavior (including mortality, lapse and annuity election rates). The Company classifies GMIB
assets and liabilities in Level 3 of the fair value hierarchy described in Note 12 because assumptions related to future annuitant
behavior are largely unobservable.
The only assumption expected to impact future shareholders’ net income is non-performance risk. The non-performance risk
adjustment reflects a market participant’s view of nonpayment risk by adding an additional spread to the discount rate in the
calculation of both (a) the GMIB liabilities to be paid by the Company, and (b) the GMIB assets to be paid by the reinsurers, after
considering collateral. The impact of non-performance risk was immaterial for the years ended December 31, 2020 and December 31,
2019.
GMIB liabilities totaling $729 million as of December 31, 2020 and $688 million as of December 31, 2019 were reported in Accrued
expenses and other liabilities and Other non-current liabilities. There were three reinsurers covering 100% of the GMIB exposures as
of December 31, 2020 and December 31, 2019 as follows:
(In millions)
Line of Business
GMIB
Reinsurer
Berkshire
Sun Life Assurance Company of Canada
Liberty Re (Bermuda) Ltd.
Total GMIB recoverables reported in Other current assets and Other assets
All reinsurers are rated A- equivalent and higher by an NRSRO.
December 31,
2020
December 31,
2019
Collateral and Other Terms at
December 31, 2020
$
$
353 $
332 100% were secured by assets in a trust.
215
190
202
179 100% were secured by assets in a trust.
758 $
713
Amounts included in shareholders’ net income for GMIB assets and liabilities were not material in 2020, 2019 and 2018.
107
Note 11 – Investments
Cigna’s investment portfolio consists of a broad range of investments including debt securities, equity securities, commercial
mortgage loans, policy loans, other long-term investments, short-term investments and derivative financial instruments. The sections
below provide more detail regarding our investment balances and realized investment gains and losses. See Note 12 for information
about the valuation of the Company’s investment portfolio. Debt securities, commercial mortgage loans, derivative financial
instruments and short-term investments with contractual maturities during the next twelve months are classified on the balance sheet
as current investments, unless they are held as statutory deposits or restricted for other purposes and then they are classified in Long-
term investments. Equity securities may include exchange traded funds that are used in our cash management strategy and are
classified as current investments. All other investments are classified as Long-term investments. The following table summarizes the
Company's investments by category and current or long-term classification.
(In millions)
Debt securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments
Total
Investments classified as assets of business held for sale(1)
December 31, 2020
December 31, 2019
Current
Long-term
Total
Current
Long-term
Total
$
959 $
17,172 $
18,131 $
928 $
22,827 $
23,755
—
13
—
—
359
501
1,406
1,351
2,832
—
501
1,419
1,351
2,832
359
—
—
—
—
423
1,351
(414)
303
1,947
1,357
2,403
—
28,837
(7,295)
303
1,947
1,357
2,403
423
30,188
(7,709)
Investments per Consolidated Balance Sheets
$
1,331 $
23,262 $
24,593 $
937 $
21,542 $
22,479
(1) On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business and transferred a total of $8.4 billion of investments to New York
Life Insurance Company as part of this divestiture. The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business
that was previously held for sale.
A.
Investment Portfolio
Debt Securities
Accounting policy. Debt securities (including bonds, mortgage and other asset-backed securities and preferred stocks redeemable by
the investor) are classified as available for sale and are carried at fair value with changes in fair value recorded either in Accumulated
other comprehensive income (loss) within Shareholders’ equity or in credit loss expense based on fluctuations in the allowance for
credit losses, as further discussed below. Net unrealized appreciation on debt securities supporting the Company’s run-off settlement
annuity business is reported in Non-current insurance and contractholder liabilities rather than Accumulated other comprehensive
income (loss). When the Company intends to sell or determines that it is more likely than not to be required to sell an impaired debt
security, the excess of amortized cost over fair value is directly written down with a charge to Realized investment gains and losses. A
portion of these investments are unconsolidated variable interest entities, see Note 13 for additional information.
As of January 1, 2020, the Company adopted ASU 2016-13 that included certain targeted improvements to the accounting for
available-for-sale debt securities. The new guidance resulted in certain policy changes related to the process used by the Company to
review declines in fair value from a security’s amortized cost basis to determine whether a credit loss exists. For example, the length
of time that a debt security has been impaired is no longer a criterion for this review. In addition, under this new guidance, the
Company recognizes an allowance for credit loss with a corresponding charge to credit loss expense, presented in Realized investment
gains and losses in the Company’s income statement. Prior to this new guidance, the Company recorded a direct write-down of the
instrument’s amortized cost basis. The allowance for credit loss represents the excess of amortized cost over the greater of its fair
value or the net present value of the debt security's projected future cash flows (based on qualitative and quantitative factors, including
the probability of default, and the estimated timing and amount of recovery). Each period, the allowance for credit loss is adjusted
through credit loss expense.
The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables. Consistent with
prior practice, when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date)
of the investment have been restructured, accrued interest, reported in Other current assets, is written off through a charge to Net
investment income, and interest income is recognized on a cash basis.
108
Debt securities are classified as either Current or Long-term investments based on their contractual maturities.
The amortized cost and fair value by contractual maturity periods for debt securities were as follows at December 31, 2020:
(In millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage and other asset-backed securities
Total
Amortized
Cost
Fair
Value
$
991 $
5,412
5,581
3,809
427
1,001
5,699
6,178
4,818
435
$
16,220 $
18,131
Actual maturities of these securities could differ from their contractual maturities used in the table above because issuers may have the
right to call or prepay obligations, with or without penalties.
Gross unrealized appreciation (depreciation) on debt securities by type of issuer is shown below. As a result of the U.S. Group
Disability and Life business divestiture, debt securities with a fair value of $7.8 billion, primarily in the Corporate and State and local
government sectors, were transferred to New York Life on December 31, 2020. These debt securities included unrealized appreciation
of $864 million and unrealized depreciation of $2 million. See Note 5 for further information.
(In millions)
December 31, 2020
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
Investments supporting liabilities of the Company’s run-off settlement
annuity business (included in total above) (1)
December 31, 2019
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
Amortized
Cost
Allowance for
Credit Loss
Unrealized
Appreciation
Unrealized
Depreciation
Fair
Value
$
334 $
— $
122 $
— $
150
2,201
13,108
427
—
—
(19)
(7)
17
318
1,506
27
—
(8)
(33)
(12)
456
167
2,511
14,562
435
$
$
$
16,220 $
(26) $
1,990 $
(53) $
18,131
2,282 $
(5) $
838 $
(3) $
3,112
498 $
— $
235 $
— $
729
2,027
18,149
506
—
—
—
—
81
230
1,299
31
—
(1)
(28)
(1)
733
810
2,256
19,420
536
$
21,909 $
— $
1,876 $
(30) $
23,755
Investments supporting liabilities of the Company’s run-off settlement
annuity business (included in total above) (1)
(1) Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.
2,229 $
$
— $
740 $
(4) $
2,965
The Company had commitments to purchase $149 million of debt securities as of December 31, 2020, bearing interest at a fixed
market rate.
Review of declines in fair value. Management reviews impaired debt securities to determine whether a credit loss allowance is needed
based on criteria that include:
•
•
•
severity of decline;
financial health and specific prospects of the issuer; and
changes in the regulatory, economic or general market environment of the issuer’s industry or geographic region.
109
267
355
118
93
833
—
82
(15)
(41)
26
The table below summarizes debt securities with a decline in fair value from amortized cost for which an allowance for credit losses
has not been recorded, by investment grade and the length of time these securities have been in an unrealized loss position. These debt
securities are primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase. See
discussion of Realized Investment Gains and Losses below for further information on the credit loss expense recorded for the
Company's investments.
December 31, 2020
December 31, 2019
Fair
Value
Amortized
Cost
Unrealized
Depreciation
Number
of Issues
Fair
Value
Amortized
Cost
Unrealized
Depreciation
Number
of Issues
(Dollars in millions)
One year or less
Investment grade
Below investment grade
More than one year
Investment grade
Below investment grade
Total
$
$
$
$
$
1,026 $
1,045 $
381 $
405 $
18 $
90 $
18 $
100 $
1,515 $
1,568 $
(19)
(24)
—
(10)
(53)
300
232
6
33
571
$
$
$
$
$
723 $
340 $
366 $
84 $
729 $
348 $
378 $
88 $
1,513 $
1,543 $
(6)
(8)
(12)
(4)
(30)
The table below presents a roll-forward of the allowance for credit losses on debt securities for the year ended December 31, 2020.
(In millions)
Balance at beginning of period
Additions for debt securities where no credit loss has previously been recognized
Reductions for securities sold during the period
Decrease for debt securities where credit losses have previously been recorded
Balance December 31,
Equity Securities
2020
$
$
Accounting policy. Changes in the fair values of equity securities that have a readily determinable fair value are reported in Net
realized investment gains (losses). Equity securities without a readily determinable fair value are carried at cost minus impairment, if
any, plus or minus changes resulting from observable price changes. Equity securities also include hybrid investments consisting of
preferred stock with call features that are carried at fair value with changes in fair value reported in Net realized investment gains
(losses) and dividends reported in Net investment income.
Equity securities with a readily determinable fair value consist primarily of mutual funds that invest in fixed income debt securities
while those without a readily determinable fair value consist of private equity investments. The amount of impairments or value
changes resulting from observable price changes on equity securities still held was not material as of December 31, 2020 or 2019.
The following table provides the values of the Company's equity security investments as of December 31, 2020 and December 31,
2019.
(In millions)
Equity securities with readily determinable fair values
Equity securities with no readily determinable fair value
Hybrid equity securities
Total
Commercial Mortgage Loans
December 31, 2020
December 31, 2019
Cost
Carrying
Value
Cost
Carrying
Value
$
$
$
$
180 $
225 $
58 $
463 $
202 $
255 $
44 $
501 $
61 $
183 $
58 $
302 $
64
192
47
303
Accounting policy. Commercial mortgage loans are carried at unpaid principal balances. Beginning January 1, 2020 with the adoption
of ASU 2016-13, unpaid principal balances are presented net of an allowance for expected credit losses. Changes in the allowance for
expected credit losses are recognized as credit loss expense and presented in Realized investment gains and losses in the Company’s
income statement. Each period, the Company establishes (or adjusts) its allowance for expected credit losses for commercial mortgage
loans. The allowance for expected credit losses is based on a credit risk category that is assigned to each loan at origination using key
credit quality indicators, including debt service coverage and loan-to-value ratios. Credit risk categories are updated as key credit
quality indicators change. An expected loss rate, assigned based on the credit risk category, is applied to each loan's unpaid principal
balance to develop an aggregate allowance for expected credit losses. Prior to adoption, impaired commercial mortgage loans were
written down to the lower of unpaid principal or fair value of the underlying collateral when it became probable that the Company
110
would not collect all amounts due under its promissory note. The Company recorded an allowance of $7 million through a cumulative
effect adjustment to retained earnings to reflect expected credit losses at adoption. The credit loss allowance for the Company’s
commercial mortgage loan investments was $6 million as of December 31, 2020.
Commercial mortgage loans are considered impaired and written off against the allowance when it is probable that the Company will
not collect all amounts due per the terms of the promissory note. The Company elected the expedient to not measure an allowance for
credit losses for accrued interest receivables. Consistent with our prior practice, accrued interest, reported in Other current assets, is
written off through a charge to Net investment income; interest income on impaired loans is only recognized when a payment is
received.
In the event of a foreclosure, the allowance for credit losses is based on the excess of the carrying value of the mortgage loan over the
fair value of its underlying collateral.
Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location and
borrower. Loans are generally issued at fixed rates of interest and are secured by high quality, primarily completed and substantially
leased operating properties. Commercial mortgage loans are classified as either current or long-term investments based on their
contractual maturities.
Credit quality. The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan
and continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating
system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual
portfolio loan review. The Company evaluates and monitors credit quality on a consistent and ongoing basis.
Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market-related factors
such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics. However,
the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The debt
service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt,
with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-to-value ratio,
commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the
loan.
The following table summarizes the credit risk profile of the Company’s commercial mortgage loan portfolio based on loan-to-value
and debt service coverage ratios as of December 31, 2020 and December 31, 2019. As a result of the U.S. Group Disability and Life
business divestiture, $0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5
for further information.
(Dollars in millions)
December 31, 2020
December 31, 2019
Loan-to-Value Ratio
Below 60%
60% to 79%
80% to 100%
Allowance for credit losses
Total
Carrying
Value
Average Debt
Service
Coverage Ratio
Average
Loan-to-
Value Ratio
Carrying
Value
Average Debt
Service
Coverage Ratio
Average
Loan-to-
Value Ratio
$
533
751
141
(6)
$
1,419
2.28
2.08
1.33
2.08
$
1,136
723
88
61 % $
1,947
2.19
1.98
1.62
2.09
58 %
The Company’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying
emerging risks in the portfolio. The Company’s investment professionals completed the annual in-depth review in the second quarter
of 2020 that included an analysis of each underlying property’s most recent annual financial statements, rent rolls, operating plans,
budgets, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations
and rental conditions in each market, the Company estimated the current year and future stabilized property income and fair value for
each loan.
The Company re-evaluates a loan’s credit quality between annual reviews if new property information is received or an event such as
delinquency or a borrower’s request for restructure causes management to believe that the Company’s estimate of financial
performance, fair value or the risk profile of the underlying property has been impacted.
All commercial mortgage loans in the Company's portfolio are current as of December 31, 2020 and December 31, 2019.
111
Policy Loans
Accounting policy. Policy loans, primarily associated with our corporate-owned life insurance business, are carried at unpaid principal
balances plus accumulated interest, the total of which approximates fair value. These loans are collateralized by life insurance policy
cash values and therefore have minimal exposure to credit loss. Interest rates are reset annually based on a rolling average of
benchmark interest rates.
Other Long-Term Investments
Accounting policy. Other long-term investments include investments in unconsolidated entities, including certain limited partnerships
and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the Company's
ownership percentage of reporting income or loss, based on the financial statements of the underlying investments that are generally
reported at fair value. Income or loss from these investments is reported on a one quarter lag due to the timing of when financial
information is received from the general partner or manager of the investments.
Other long-term investments also include investment real estate carried at depreciated cost less any impairment write-downs to fair
value when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally recorded using the straight-
line method based on the estimated useful life of each asset. Investment real estate as of December 31, 2020 and 2019 is expected to
be held longer than one year and may include real estate acquired through the foreclosure of commercial mortgage loans.
Additionally, statutory and other restricted deposits, healthcare related investment partnerships and foreign currency swaps carried at
fair value are reported in the table below as Other. See discussion below for information on the Company’s accounting policies for
derivative financial instruments.
Other long-term investments and related commitments are diversified by issuer, property type and geographic regions. A majority of
these investments are unconsolidated variable entities, see Note 13 for additional information. The following table provides unfunded
commitment and carrying value information for these investments. The Company expects to disburse approximately 38% of the
committed amounts in 2021.
(In millions)
Real estate investments
Securities partnerships
Other
Total
Short-Term Investments and Cash Equivalents
Carrying value as of December 31,
Unfunded
Commitments as of
2020
2019
December 31, 2020
$
$
951 $
788 $
1,683
198
1,409
206
2,832 $
2,403 $
677
1,617
31
2,325
Accounting policy. Security investments with maturities of greater than three months to one year from time of purchase are classified
as short-term, available for sale and carried at fair value that approximates cost. Cash equivalents consist of short-term investments
with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.
Short-term investments and cash equivalents included the following types of issuers. The increase since prior year end is substantially
attributable to proceeds received on December 31, 2020 from the U.S. Group Disability and Life business divestiture, see Note 5 for
further information.
(In millions)
Corporate securities
Federal government securities
Foreign government securities
Money market funds
B. Derivative Financial Instruments
December 31,
2020
December 31,
2019
$
$
$
$
2,669 $
1,985
158 $
90 $
5,134 $
472
65
631
The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield,
currency and liquidity) to meet the varying demands of the related insurance and contract holder liabilities. The Company also uses
derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in
foreign currency exchange rates. The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance
business that are accounted for as freestanding derivatives as discussed in Note 10. Derivatives in the Company’s separate accounts
112
are excluded from the following discussion because associated gains and losses generally accrue directly to separate account
policyholders.
Derivative instruments used by the Company typically include foreign currency swap contracts and foreign currency forward
contracts. Foreign currency swap contracts periodically exchange cash flows between two currencies for principal and interest.
Foreign currency forward contracts require the Company to purchase a foreign currency in exchange for the functional currency of its
operating unit at a future date.
The Company manages the credit risk of these derivative instruments by diversifying its portfolio among approved dealers of high
credit quality and through routine monitoring of credit risk exposures. Certain of the Company’s over-the-counter derivative
instruments require either the Company or the counterparty to post collateral or demand immediate payment depending on the amount
of the net liability position of the derivative instrument and predefined financial strength or credit rating thresholds. These collateral
posting requirements vary by counterparty. The Company may incur a loss if dealers failed to perform under derivative contracts,
however collateral has been posted by dealers to cover substantially all of the net fair values owed at December 31, 2020 and
December 31, 2019. The fair value of collateral posted by the Company was not significant as of December 31, 2020 or December 31,
2019.
Accounting policy. Derivatives are recorded on our balance sheet at fair value and are classified as current or non-current according to
their contractual maturities. Further information on our policies for determining fair value are discussed in Note 12. The Company
applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Under hedge accounting, the
changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in
Shareholders’ net income. Various qualitative or quantitative methods appropriate for each hedge are used to formally assess and
document hedge effectiveness at inception and each period throughout the life of a hedge.
The gross fair values of our derivative financial instruments are presented in Note 12. The following table summarizes the types and
notional quantity of derivative instruments held by the Company. As of December 31, 2020 and December 31, 2019, the effects of
these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified
from accumulated other comprehensive income into shareholders' net income, as well as amounts excluded from the assessment of
hedge effectiveness.
(In millions)
Purpose
Type of Instrument
Fair value hedge: To hedge the foreign exchange-related changes in fair values of
certain foreign-denominated bonds. The notional value of these derivatives matches
the amortized cost of the hedged bonds.
Foreign currency swap contracts
Net investment hedge: To reduce the risk of changes in net assets due to changes in
foreign currency spot exchange rates for certain foreign subsidiaries that conduct their
business principally in Euros, Korean Won and Taiwan Dollar. The notional value of
hedging instruments matches the hedged amount of subsidiary net assets.
Foreign currency swap contracts
Foreign currency forward contracts
Economic hedge: To hedge the foreign exchange-related changes in fair value of U.S.
dollar-denominated investment assets to reflect the local currency for the Company’s
foreign subsidiary in South Korea. The notional value of hedging instruments
generally aligns with the fair value of the hedged investments.
Foreign currency forward contracts
The Company’s derivative financial instruments are presented as follows:
Notional Value as of
December 31,
2020
December 31,
2019
$
$
$
$
925 $
817
526 $
636 $
538 $
438
406
410
•
•
Fair value hedges of the foreign exchange-related changes in fair values of certain foreign-denominated bonds: Swap fair
values are reported in Long-term investments or Other non-current liabilities. Changes in fair values attributable to foreign
exchange risk of the swap contracts and the hedged bonds are reported in Realized investment gains and losses. The portion
of the swap contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in Other
comprehensive income and recognized in Net investment income as swap coupon payments are accrued, offsetting the
foreign-denominated coupons received on the designated bonds. Net cash flows are reported in Operating activities, while
exchanges of notional principal amounts are reported in Investing activities.
Net investment hedges of certain foreign subsidiaries that conduct their business principally in currencies other than the U.S.
dollar: The fair values of the foreign currency swap and forward contracts are reported in Other assets or Other liabilities. The
changes in fair values of these instruments are reported in Other comprehensive income, specifically in translation of foreign
currencies. The portion of the change in fair values relating to foreign exchange spot rates will be recognized in earnings
upon deconsolidation of the hedged foreign subsidiaries. The remaining changes in fair value of these instruments are
excluded from our effectiveness assessment and recognized in interest expense when coupon payments are accrued or ratably
113
•
over the term of the instrument. The notional value of hedging instruments matches the hedged amount of subsidiary net
assets. Cash flows relating to these contracts are reported in Investing activities.
Economic hedges for derivatives not designated as accounting hedges: Fair values of forward contracts are reported in
Current investments or Accrued expenses and other liabilities. The changes in fair values are reported in Realized investment
gains and losses. Cash flows relating to these contracts are reported in Investing activities.
Concentration of Risk
The Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders' equity as of
December 31, 2020 or 2019.
C. Net Investment Income
Accounting policy. When interest and principal payments on investments are current, the Company recognizes interest income when it
is earned. The Company recognizes interest income on a cash basis when interest payments are delinquent based on contractual terms
or when certain terms (interest rate or maturity date) of the investment have been restructured. For unconsolidated entities that are
included in Other long-term investments, investment income is generally recognized according to the Company’s share of the reported
income or loss on the underlying investments. Investment income attributed to the Company’s separate accounts is excluded from our
earnings because associated gains and losses generally accrue directly to separate account policyholders.
The components of Net investment income for the years ended December 31 were as follows:
(In millions)
Debt Securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments and cash
Total investment income
Less investment expenses
Net investment income
2020
2019
2018
$
962 $
986 $
1,009
11
80
64
127
52
1,296
52
5
88
66
167
131
1,443
53
$
1,244 $
1,390 $
28
78
70
156
194
1,535
55
1,480
D. Realized Investment Gains and Losses
Accounting policy. Realized investment gains and losses are based on specifically identified assets and result from sales, investment
asset write-downs, change in the fair value of certain derivatives and equity securities and changes in valuation reserves on
commercial mortgage loans. Commencing January 1, 2020, realized gains and losses also include credit loss expense resulting from
the impact of changes in the allowances for credit losses on debt securities and commercial mortgage loan investments under ASU
2016-13.
Gains and losses relating to the transfers of investment assets associated with the divestiture of the U.S. Group Disability and Life
business are excluded from the activity below, see Note 5 for further information. The following realized gains and losses on
investments exclude amounts required to adjust future policy benefits for the run-off settlement annuity business (consistent with
accounting for a premium deficiency, see Note 9 for further information), as well as realized gains and losses attributed to the
Company’s separate accounts because those gains and losses generally accrue directly to separate account policyholders.
(In millions)
Net realized investment gains (losses), excluding credit loss expense and asset write-downs
Credit loss (expense) recoveries on invested assets
Other investment asset write-downs
Net realized investment gains (losses), before income taxes
2020
2019
2018
$
$
186 $
189 $
(27)
(10)
—
(12)
149 $
177 $
(34)
—
(47)
(81)
Net realized investment gains, excluding credit loss expense and asset write-downs for the year ended December 31, 2020 was
primarily driven by mark-to-market gains on equity securities and sales of debt securities, while this activity for the year ended
December 31, 2019 was primarily driven by gains on the sales of real estate partnerships and debt securities. Net realized investment
losses, excluding credit loss expense and asset write-downs in 2018 represented mark-to-market losses on equity securities and
114
derivatives, partially offset by gains on the sales of real estate partnerships. Credit loss (expense) recoveries on invested assets for the
year ended December 31, 2020 reflects credit losses incurred primarily on debt securities due to uncertainty around issuers in certain
industries that are particularly impacted by the global COVID-19 pandemic. Realized gains and losses on equity securities still held at
December 31, 2020, 2019 and 2018 were not material.
The following table presents sales information for available-for-sale debt securities. Gross gains on sales and gross losses on sales
exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.
(In millions)
Proceeds from sales
Gross gains on sales
Gross losses on sales
Note 12 – Fair Value Measurements
2020
2019
2018
$
$
$
2,186 $
3,077 $
2,625
89 $
(23) $
72 $
(19) $
28
(47)
The Company carries certain financial instruments at fair value in the financial statements including debt securities, certain equity
securities, short-term investments and derivatives. Other financial instruments are measured at fair value only under certain conditions,
such as when impaired or when there are observable price changes for equity securities with no readily determinable fair value.
Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the
balance sheet date. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a market participant,
not the amount that would be paid to settle the liability with the creditor.
The Company’s financial assets and liabilities carried at fair value have been classified based upon a hierarchy defined by GAAP. The
hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and
liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level
3). An asset’s or a liability’s classification is based on the lowest level of input that is significant to its measurement. For example, a
financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument’s
fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable
(Level 3).
The Company estimates fair values using prices from third parties or internal pricing methods. Fair value estimates received from
third-party pricing services are based on reported trade activity and quoted market prices when available, and other market information
that a market participant would use to estimate fair value. The internal pricing methods are performed by the Company’s investment
professionals and generally involve using discounted cash flow analyses, incorporating current market inputs for similar financial
instruments with comparable terms and credit quality as well as other qualitative factors. In instances where there is little or no market
activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the Company believes
a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of
estimation and judgment that becomes significant with increasingly complex instruments or pricing models.
The Company is responsible for determining fair value and for assigning the appropriate level within the fair value hierarchy based on
the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services
and compares prices on a test basis to those obtained from other external pricing sources or internal estimates. The Company performs
ongoing analyses of both prices received from third-party pricing services and those developed internally to determine that they
represent appropriate estimates of fair value. The controls executed by the Company include evaluating changes in prices and
monitoring for potentially stale valuations. The Company also performs sample testing of sales values to confirm the accuracy of prior
fair value estimates. The minimal exceptions identified during these processes indicate that adjustments to prices are infrequent and do
not significantly impact valuations. An annual due-diligence review of the most significant pricing service is conducted to review their
processes, methodologies and controls. This review includes a walk-through of inputs for a sample of securities held across various
asset types to validate the documented pricing process.
115
A. Financial Assets and Financial Liabilities Carried at Fair Value
The following table provides information as of December 31, 2020 and December 31, 2019 about the Company’s financial assets and
liabilities carried at fair value. As a result of the U.S. Group Disability and Life business divestiture, debt securities with a fair value of
$7.8 billion, primarily classified in Level 2 of the fair value hierarchy, were transferred to New York Life on December 31, 2020. See
Note 5 for further information. Separate account assets are also recorded at fair value on the Company’s Consolidated Balance Sheets
and are reported separately in the Separate Accounts section below as gains and losses related to these assets generally accrue directly
to policyholders.
(In millions)
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other Observable
Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
Total
As of
December 31,
2020
As of
December 31,
2019
As of
December 31,
2020
As of
December 31,
2019
As of
December 31,
2020
As of
December 31,
2019
As of
December 31,
2020
As of
December 31,
2019
Financial assets at fair
value
Debt securities
Federal government
and agency
State and local
government
Foreign government
Corporate
Mortgage and other
asset-backed
Total debt securities
Equity securities (1)
Short-term investments
Derivative assets (3)
Real estate funds priced at
NAV as a practical
expedient (2)
Financial liabilities at
fair value
$
207 $
197 $
249 $
536 $
— $
— $
456 $
—
—
—
—
207
50
—
—
—
—
—
—
197
7
—
—
167
2,498
13,878
309
810
2,228
19,063
398
17,101
23,035
165
325
72
72
423
83
—
13
684
126
823
31
—
—
—
28
357
138
523
32
—
—
733
810
2,256
19,420
536
167
2,511
14,562
435
18,131
23,755
246
325
72
156
111
423
83
184
108 $
Derivative liabilities
(1) Excludes certain equity securities that have no readily determinable fair value.
(2) As a practical expedient, certain real estate funds are carried at fair value based on the Company’s ownership share of the equity of the investee (Net Asset Value
108 $
— $
18 $
— $
— $
— $
$
18
(“NAV”)) including changes in the fair value of its underlying investments. The Company has $50 million in unfunded commitments in these funds as of
December 31, 2020.
(3) Derivative assets above include $34 million that are presented in the Short-term investments category in Note 11. See Note 11 for more information on our
accounting for Derivative Financial Instruments.
Level 1 Financial Assets
Inputs for instruments classified in Level 1 include unadjusted quoted prices for identical assets in active markets accessible at the
measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.
Assets in Level 1 include actively-traded U.S. government bonds and exchange-listed equity securities. A relatively small portion of
the Company’s investment assets are classified in this category given the narrow definition of Level 1 and the Company’s investment
asset strategy to maximize investment returns.
Level 2 Financial Assets and Financial Liabilities
Inputs for instruments classified in Level 2 include quoted prices for similar assets or liabilities in active markets, quoted prices from
those willing to trade in markets that are not active or other inputs that are market observable or can be corroborated by market data
for the term of the instrument. Such other inputs include market interest rates and volatilities, spreads and yield curves. An instrument
is classified in Level 2 if the Company determines that unobservable inputs are insignificant.
Debt and equity securities. Approximately 94% of the Company’s investments in debt and equity securities are classified in Level 2
including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government
mortgage-backed securities and preferred stocks. Third-party pricing services and internal methods often use recent trades of securities
116
with similar features and characteristics because many debt securities do not trade daily. Pricing models are used to determine these
prices when recent trades are not available. These models calculate fair values by discounting future cash flows at estimated market
interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities based on
the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include, but are not limited to,
a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers, reference data and
industry and economic events. For mortgage-backed securities, inputs and assumptions may also include characteristics of the issuer,
collateral attributes, prepayment speeds and credit rating.
Nearly all of these instruments are valued using recent trades or pricing models. Less than 1% of the fair value of investments
classified in Level 2 represents foreign bonds that are valued using a single, unadjusted market-observable input derived by averaging
multiple broker-dealer quotes, consistent with local market practice.
Short-term investments are carried at fair value that approximates cost. The Company compares market prices for these securities to
recorded amounts on a regular basis to validate that current carrying amounts approximate exit prices. The short-term nature of the
investments and corroboration of the reported amounts over the holding period support their classification in Level 2.
Derivative assets and liabilities classified in Level 2 represent over-the-counter instruments such as foreign currency forward and
swap contracts. Fair values for these instruments are determined using market observable inputs including forward currency and
interest rate curves and widely published market observable indices. Credit risk related to the counterparty and the Company is
considered when estimating the fair values of these derivatives. However, the Company is largely protected by collateral arrangements
with counterparties and determined that no adjustments for credit risk were required as of December 31, 2020 or 2019. The nature and
use of these derivative financial instruments are described in Note 11.
Level 3 Financial Assets and Financial Liabilities
Certain inputs for instruments classified in Level 3 are unobservable (supported by little or no market activity) and significant to their
resulting fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants
would use to determine a transaction price for the asset or liability at the reporting date.
The Company classifies certain newly-issued, privately-placed, complex or illiquid securities in Level 3. Approximately 5% of debt
and equity securities are priced using significant unobservable inputs and classified in this category.
Fair values of mortgage and other asset-backed securities, as well as corporate and government debt securities, are primarily
determined using pricing models that incorporate the specific characteristics of each asset and related assumptions including the
investment type and structure, credit quality, industry and maturity date in comparison to current market indices, spreads and liquidity
of assets with similar characteristics. Inputs and assumptions for pricing may also include characteristics of the issuer, collateral
attributes and prepayment speeds for mortgage and other asset-backed securities. Recent trades in the subject security or similar
securities are assessed when available, and the Company may also review published research in its evaluation, as well as the issuer’s
financial statements.
Quantitative Information about Unobservable Inputs
The following table summarizes the fair value and significant unobservable inputs used in pricing the following debt securities that
were developed directly by the Company as of December 31, 2020 and 2019. The range and weighted average basis point (“bps”)
amounts for liquidity and credit spreads (adjustment to discount rates) reflect the Company’s best estimates of the unobservable
adjustments a market participant would make to calculate these fair values. These liquidity and credit spreads have increased over the
reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19.
Corporate and government debt securities. The significant unobservable input used to value the following corporate and government
debt securities is an adjustment for liquidity. This adjustment is needed to reflect current market conditions and issuer circumstances
when there is limited trading activity for the security.
117
Mortgage and other asset-backed securities. The significant unobservable inputs used to value the following mortgage and other
asset-backed securities are liquidity and weighting of credit spreads. An adjustment for liquidity is made as of the measurement date
that considers current market conditions, issuer circumstances and complexity of the security structure when there is limited trading
activity for the security. An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple
underlying collateral and no standard market valuation technique. The weighting of credit spreads is primarily based on the underlying
collateral’s characteristics and their proportional cash flows supporting the bond obligations.
(Fair value in millions )
Debt securities
Fair Value as of
Unobservable Adjustment Range
(Weighted Average by Quantity) as of
December 31,
2020
December 31,
2019
Unobservable input
December 31, 2020
December 31,
2020
December 31,
2019
Corporate and government debt securities
$
Mortgage and other asset-backed securities
696 $
126
385
138
Liquidity
Liquidity
60 - 1370 (470) bps
70 - 930 (280) bps
60 - 380 (80) bps
60 - 370 (70) bps
Weighting of credit
spreads
300 - 670 (480) bps
240 - 460 (330) bps
Securities not priced by the Company (1)
Total Level 3 debt securities
(1) The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company.
823 $
523
—
1
$
Significant increases in liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would
result in higher fair value measurements. The unobservable inputs are generally not interrelated and a change in the assumption used
for one unobservable input is not accompanied by a change in the other unobservable input.
Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value
The following tables summarize the changes in financial assets and financial liabilities classified in Level 3 for the years ended
December 31, 2020 and 2019. Gains and losses reported in these tables may include net changes in fair value that are attributable to
both observable and unobservable inputs.
(In millions)
Balance at beginning of period
Total gains (losses) included in shareholders’ net income
Gains (losses) included in other comprehensive income
Gains (losses) required to adjust future policy benefits for settlement annuities (1)
Purchases, sales and settlements
Purchases
Sales (2)
Settlements
Total purchases, sales and settlements
Transfers into/(out of) Level 3
Transfers into Level 3
Transfers out of Level 3
Total transfers into/(out of) Level 3
Balance at December 31,
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date
2020
2019
$
555 $
(7)
(12)
7
107
(121)
(89)
$
(103) $
774
(360)
414 $
854 $
(17) $
$
$
$
410
(8)
22
2
72
—
(19)
53
170
(94)
76
555
(8)
Change in unrealized gains or losses included in other comprehensive income for assets held at the end of the reporting period
(1) Amounts do not accrue to shareholders.
(2) Sales in 2020 include $108 million of Level 3 debt securities transferred to New York Life Insurance Company on December 31, 2020 as part of the U.S. Group
(6)
$
N/A
Disability and Life business divestiture. See Note 5 for further details.
Total gains and losses included in Shareholders’ net income in the tables above are reflected in the Consolidated Statements of Income
as Net realized investment gains (losses) and Net investment income.
Gains and losses included in Other comprehensive income in the tables above are reflected in Net unrealized (depreciation)
appreciation on securities and derivatives in the Consolidated Statements of Comprehensive Income.
Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company’s best estimate of what a market
participant would use to determine a current transaction price, become more or less significant to the fair value measurement. Market
118
activity typically decreases during periods of economic uncertainty, and this decrease in activity reduces the availability of market
observable data. As a result, the level of unobservable judgement that must be applied to the pricing of certain instruments increases,
and is typically observed through the widening of liquidity and credit spreads. Transfers between Level 2 and Level 3 during 2020 and
2019 primarily reflected changes in liquidity and credit risk estimates for certain private placement issuers across several sectors.
Transfers into and out of Level 3 are higher in 2020 due to fluctuations in liquidity and credit spreads over the reported periods,
resulting from continued uncertainty over the economic impacts related to COVID-19. See discussion under Quantitative Information
about Unobservable Inputs above for more information.
Separate Accounts
Accounting policy. Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment
objectives. The assets of these accounts are legally segregated and are not subject to claims that arise out of any of the Company’s
other businesses. These separate account assets are carried at fair value with equal amounts recorded for related separate account
liabilities. The investment income and fair value gains and losses of separate account assets generally accrue directly to the
contractholders and, together with their deposits and withdrawals, are excluded from the Company’s Consolidated Statements of
Income and Cash Flows. Fees and charges earned for mortality risks, asset management or administrative services are reported in
either Premiums or Fees and other revenues. Investments that are measured using the practical expedient of NAV are excluded from
the fair value hierarchy.
Fair values of separate account assets at December 31 were as follows:
(In millions)
Guaranteed separate accounts
(See Note 21)
Non-guaranteed separate
accounts (1)
Subtotal
Non-guaranteed separate
accounts priced at NAV as a
practical expedient (1)
Total
Separate account assets of
business classified as held for
sale
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
Total
2020
2019
2020
2019
2020
2019
2020
2019
$
$
226 $
219 $
297 $
271 $
— $
— $
523 $
490
1,925
1,450
5,600
5,522
355
2,151 $
1,669 $
5,897 $
5,793 $
355 $
263
263
7,880
8,403
683
7,235
7,725
756
8,481
(16)
Separate account assets per
Consolidated Balance Sheets
(1) Non-guaranteed separate accounts included $4.2 billion as of December 31, 2020 and $4.0 billion as of December 31, 2019 in assets supporting the Company’s
9,086 $
$
8,465
pension plans, including $0.3 billion classified in Level 3 as of December 31, 2020 and $0.2 billion classified in Level 3 as of December 31, 2019.
Separate account assets classified as Level 1 primarily include exchange-listed equity securities. Level 2 assets primarily include:
•
•
corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash flows at
estimated market interest rates as described above; and
actively-traded institutional and retail mutual fund investments.
Separate account assets classified in Level 3 primarily support Cigna’s pension plans and include certain newly-issued, privately-
placed, complex, or illiquid securities that are priced using methods discussed above, as well as commercial mortgage loans. Activity,
including transfers into and out of Level 3, was not material in 2020 or 2019.
119
Separate account investments in securities partnerships, real estate and hedge funds are generally valued based on the separate
account’s ownership share of the equity of the investee (NAV as a practical expedient) including changes in the fair values of its
underlying investments. Substantially all of these assets support the Cigna Pension Plans. The following table provides additional
information on these investments.
(In millions)
Securities partnerships
Real estate funds
Hedge funds
Total
Fair Value as of
December 31,
2020
December 31,
2019
Unfunded
Commitment as of
December 31, 2020
Redemption Frequency
(if currently eligible)
Redemption Notice
Period
$
$
463 $
531 $
215
5
220
5
272
—
Not applicable
Quarterly
— Up to annually, varying by fund
Not applicable
30 - 90 days
30 - 90 days
683 $
756 $
272
As of December 31, 2020, the Company does not have plans to sell any of these assets at less than fair value. These investments are
structured to satisfy longer-term investment objectives. Securities partnerships are contractually non-redeemable, and the underlying
investment assets are expected to be liquidated by the fund managers within ten years after inception.
B. Assets and Liabilities Measured at Fair Value under Certain Conditions
Some financial assets and liabilities are not carried at fair value each reporting period, but may be measured using fair value only
under certain conditions such as when investments become impaired, including investment real estate and commercial mortgage loans
and certain equity securities with no readily determinable fair value. For 2020 and 2019, there were no such impairments. Equity
securities with no readily determinable fair value are also measured at fair value when there are observable price changes from orderly
transactions with the same issuer. There were $75 million in 2020 and $22 million in 2019 of realized investment gains relating to
price changes for equity securities with no readily determinable fair value. Carrying values represented less than 1% of total
investments as of both 2020 and 2019.
C. Fair Value Disclosures for Financial Instruments Not Carried at Fair Value
The following table includes the Company’s financial instruments not recorded at fair value that are subject to fair value disclosure
requirements at December 31, 2020 and 2019. In addition to universal life products and finance leases, financial instruments that are
carried in the Company’s Consolidated Financial Statements at amounts that approximate fair value are excluded from the following
table.
(In millions)
Commercial mortgage loans
Long-term debt, including current maturities, excluding finance leases
December 31, 2020
December 31, 2019
Classification in
Fair Value
Hierarchy
Fair Value
Carrying
Value
Fair Value
Carrying
Value
Level 3
Level 2
$
$
1,456 $
1,419 $
1,989 $
37,676 $
31,835 $
39,439 $
1,947
36,375
Off-balance sheet financial instruments include commitments to purchase debt securities or fund commercial mortgage loans at fixed
rates of interest. The fair values of off-balance sheet financial instruments were not material as of December 31, 2020 and 2019.
Note 13 – Variable Interest Entities
When the Company becomes involved with a variable interest entity and when there is a change in the Company’s involvement with
an entity, the Company must determine if it is the primary beneficiary and must consolidate the entity. The Company is considered the
primary beneficiary if it has the power to direct the entity’s most significant economic activities and has the right to receive benefits or
obligation to absorb losses that could be significant to the entity. The Company evaluates the following criteria:
•
•
•
the structure and purpose of the entity;
the risks and rewards created by, and shared through, the entity; and
the Company’s ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the
entity including its sponsors, equity holders, guarantors, creditors and servicers.
120
The Company determined it was not a primary beneficiary in any material variable interest entities as of December 31, 2020 or
December 31, 2019. The Company’s involvement in variable interest entities for which it is not the primary beneficiary is described
below.
Securities limited partnerships and real estate limited partnerships. The Company owns interests in securities limited partnerships
and real estate limited partnerships that are defined as unconsolidated variable interest entities. These partnerships invest in the equity
or mezzanine debt of privately-held companies and real estate properties. General partners unaffiliated with the Company control
decisions that most significantly impact the partnership’s operations and the limited partners do not have substantive kick-out or
participating rights. The Company’s investments in approximately 150 limited partnerships that have a carrying value of $2.1 billion
as of December 31, 2020 and are reported in Long-term investments. We have commitments to contribute an additional $1.9 billion to
these entities. The Company's maximum exposure to loss from these investments is $4.0 billion, calculated as the sum of our carrying
value and the additional funding commitments. Our noncontrolling interest in each of these limited partnerships is generally less than
15% of the partnership ownership interests. See Note 11 for further information on the Company's accounting policy for long-term
investments.
Other asset-backed and corporate securities. In the normal course of its investing activities, the Company also makes passive
investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are
unaffiliated with the Company. These investments provide the Company fixed-rate cash flows and are accounted for as debt securities.
As of December 31, 2020 the carrying value of these investments is $0.5 billion, which represents the Company's maximum exposure
related to these instruments. Our combined ownership interests are insignificant relative to the total principal amounts issued by these
entities. See Note 11 for further information on the Company's accounting policy for debt securities.
The Company is involved in other types of variable interest entities, including real estate joint ventures that develop properties for
residential and commercial use, independent physician associations (IPAs) that provide care management services and international
healthcare joint ventures. The carrying values and maximum exposures for each of these types of unconsolidated variable interest
entities was not material as of December 31, 2020.
The Company has not provided, and does not intend to provide, financial support to any of the variable interest entities in excess of its
maximum exposure. We perform ongoing qualitative analyses of our involvement with these variable interest entities to determine if
consolidation is required.
121
Note 14 – Accumulated Other Comprehensive Income (Loss) (“AOCI”)
AOCI includes unrealized appreciation on securities and derivatives (excluding appreciation on investments supporting future policy
benefit liabilities of the run-off settlement annuity business) (See Note 11), foreign currency translation and the net postretirement
benefits liability adjustment. AOCI includes the Company’s share from unconsolidated entities reported on the equity method.
Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to net income in the same period that
the related pre-tax AOCI reclassifications are recognized. Changes in the components of AOCI were as follows:
(In millions)
Securities and Derivatives
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Reclassification adjustment to retained earnings related to new financial instruments guidance
Reclassification adjustment from retained earnings related to new hedging guidance
Adjusted beginning balance
Appreciation (depreciation) on securities and derivatives
Tax (expense) benefit
Net appreciation (depreciation) on securities and derivatives
Reclassification adjustment for (gains) included in shareholders' net income ((gain) loss on sale of business)
Reclassification adjustment for (gains) losses included in shareholders' net income (net realized investment
(gains) losses)
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income
Net (gains) losses reclassified from AOCI to net income
Other comprehensive (loss) income, net of tax
Ending balance
Translation of foreign currencies
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Adjusted beginning balance
Translation of foreign currencies
Tax (expense) benefit
Net translation of foreign currencies
Reclassification adjustment for losses included in shareholders' net income ((gain) loss on sale of business)
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income
Net translation losses reclassified from AOCI to net income
Other comprehensive income (loss), net of tax
Less: Net translation gain (loss) on foreign currencies attributable to noncontrolling interests
Shareholders' other comprehensive income (loss), net of tax
Ending balance
Postretirement benefits liability
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Adjusted beginning balance
Reclassification adjustment for amortization of net prior actuarial losses and prior service costs (interest
expense and other)
Reclassification adjustment for settlement (interest expense and other)
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income
Net adjustments reclassified from AOCI to net income
$
$
$
$
Valuation update
Tax (expense) benefit
Net change due to valuation update
Other comprehensive (loss) income, net of tax
Ending balance
For the Years Ended December 31,
2020
2019
2018
$
975 $
18 $
—
—
—
975
776
(150)
626
(862)
(26)
187
(701)
(75)
—
—
—
18
1,266
(270)
996
—
(49)
10
(39)
957
900 $
975 $
(275) $
(221) $
—
(275)
232
12
244
11
(3)
8
252
(8)
260
—
(221)
(57)
(2)
(59)
—
—
—
(59)
(5)
(54)
(15) $
(275) $
328
65
(4)
(6)
383
(512)
100
(412)
—
60
(13)
47
(365)
18
(65)
(4)
(69)
(167)
—
(167)
—
—
—
(167)
(15)
(152)
(221)
(1,641) $
(1,508) $
—
(1,641)
—
(1,508)
(1,345)
(290)
(1,635)
70
—
(17)
53
(206)
48
(158)
(105)
62
10
(15)
57
(249)
59
(190)
(133)
69
—
(15)
54
93
(20)
73
127
$
(1,746) $
(1,641) $
(1,508)
122
Note 15 – Pension
A. About Our Plans
The Company sponsors U.S. and non-U.S. defined benefit pension plans; future benefit accruals for the domestic plans are frozen.
Accounting policy. The Company measures the assets and liabilities of its domestic pension plans as of December 31. Benefit
obligations are measured at the present value of estimated future payments based on actuarial assumptions. The Company uses the
“corridor” method to account for changes in the benefit obligation when actual results differ from those assumed, or when assumptions
change. These changes are called net unrecognized actuarial gains (losses). Under the corridor method, net unrecognized actuarial
gains (losses) are initially recorded in accumulated other comprehensive income. When the unrecognized gain (loss) exceeds 10% of
the benefit obligation, that excess is amortized to expense over the expected remaining lives of plan participants. The net plan expense
is reported in Interest expense and other in the Consolidated Statements of Income.
For balance sheet purposes, we measure plan assets at fair value. When the actual return differs from the expected return, those
differences are reflected in the net unrealized actuarial gain (loss) discussed above. However, to measure pension benefit costs, we use
a “market-related” asset valuation that differs from the actual fair value for domestic pension plan assets invested in non-fixed income
investments. The “market-related” value recognizes the difference between actual and expected long-term returns in the portfolio over
five years, a method that reduces the short-term impact of market fluctuations on pension costs. The market-related asset value was
approximately $4.4 billion, compared with a fair value of approximately $4.6 billion at December 31, 2020.
B. Funded Status and Amounts Included in Accumulated Other Comprehensive Income
The following table summarizes the projected benefit obligations and assets related to our U.S. and non-U.S. pension plans as of, and
for the years ended December 31:
(In millions)
Change in benefit obligation
Benefit obligation, January 1
Service cost
Interest cost
Litigation settlement
Actuarial losses, net (1)
Benefits paid from plan assets
Benefits paid — other
Benefit obligation, December 31
Change in plan assets
Fair value of plan assets, January 1
Actual return on plan assets
Benefits paid
Contributions
Fair value of plan assets, December 31
Funded status
Liability in Consolidated Balance Sheets
Accrued expenses and other liabilities
Pension Benefits
2020
2019
$
5,314 $
4,741
2
168
—
416
(285)
(15)
5,600
4,441
449
(285)
18
4,623
(977) $
2
194
142
574
(325)
(14)
5,314
4,151
594
(325)
21
4,441
(873)
(15) $
(18)
$
$
Other non-current liabilities
(1) 2020 Loss reflects a decrease in the discount rate, partially offset by a favorable change in the mortality assumption; 2019 loss reflects a decrease in the discount
(962) $
$
(855)
rate and an unfavorable change in the mortality assumption.
We fund our qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of
1974 and the Pension Protection Act of 2006. The Company made immaterial contributions to the qualified pension plans in 2020. For
2021, contributions to the qualified pension plans are expected to be immaterial. Future years’ contributions will ultimately be based
on a wide range of factors including but not limited to asset returns, discount rates and funding targets. Non-qualified pension and
other postretirement benefit plans are generally funded on a pay-as-you-go basis as there are no plan assets for these plans.
123
Benefit payments. The following benefit payments are expected to be paid in:
(In millions)
2021
2022
2023
2024
2025
2026-2030
Pension
Benefits
$
$
$
$
$
$
328
313
316
316
315
1,551
Amounts reflected in the pension liabilities shown above that have not yet been reported in net income and, therefore, have been
included in Accumulated other comprehensive loss consisted of the following as of December 31:
(In millions)
Unrecognized net (losses)
Unrecognized prior service cost
Postretirement benefits liability adjustment
C. Cost of Our Plans
Net pension cost was as follows:
(In millions)
Service cost
Interest cost
Expected long-term return on plan assets
Amortization of:
Prior actuarial losses, net
Prior service cost
Litigation settlement - plan amendment
Settlement loss
Net (benefit) cost
Pension Benefits
2020
2019
$
$
(2,277) $
(2,132)
(5)
(5)
(2,282) $
(2,137)
Pension Benefits
2020
2019
2018
$
2 $
2 $
168
(260)
78
—
—
—
194
(245)
59
—
142
10
$
(12) $
162 $
3
169
(257)
70
—
32
—
17
Old Cigna and the Cigna Pension Plan (the “Plan”) were defendants in a class action lawsuit related to the Plan’s conversion of certain
employees from an annuity to a cash balance benefit in 1997. In the fourth quarter of 2018, the Plan was ordered to pay $32 million
representing the attorney fee portion of the settlement. This payment was recognized as an expense in 2018. In the first quarter of
2019, the Plan implemented the court order resulting in an increase to the pension liability of $142 million. The Company reversed a
litigation reserve for the expenses recognized for this matter in both 2019 and 2018 aggregating to the same amount resulting in no
impact on net income.
D. Assumptions Used for Pension
Discount rate:
Pension benefit obligation
Pension benefit cost
Expected long-term return on plan assets:
Pension benefit cost
Mortality table for pension obligations
2020
2.49
3.30
6.75
%
%
%
2019
3.30
4.23
6.75
%
%
%
White Collar mortality table
with MP 2020 projection scale
White Collar mortality table with
MP 2019 projection scale
124
The Company develops discount rates by applying actual annualized yields for high quality bonds by duration to the expected pension
plan liability cash flows. The bond yields represent a diverse mix of actively traded high quality fixed-income securities that have an
above average return at each duration as management believes this approach is representative of the yield achieved through plan asset
investment strategy.
The expected long-term return on plan assets was developed considering historical long-term actual returns, expected long-term
market conditions, plan asset mix and management's plan asset investment strategy.
E. Pension Plan Assets
As of December 31, 2020, pension assets included $4.2 billion invested in the separate accounts of Connecticut General Life Insurance
Company, a subsidiary of the Company, as well as an additional $0.4 billion, primarily invested directly in funds offered by an
unaffiliated insurance company.
The fair values of pension assets by category are as follows as of December 31, 2020 and 2019.
(In millions)
Debt securities:
Federal government and agency
Corporate
Asset-backed
Fund investments
Total debt securities
Equity securities:
Domestic
International, including funds and pooled separate accounts (1)
Total equity securities
Securities partnerships
Real estate funds, including pooled separate accounts (1)
Commercial mortgage loans
Hedge funds
Guaranteed deposit account contract
Cash equivalents and other current assets, net
2020
2019
$
9 $
1,680
53
380
2,122
978
471
1,449
463
219
95
1
98
176
—
1,906
41
460
2,407
582
419
1,001
531
230
96
24
100
52
Total pension assets at fair value
(1) A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.
$
4,623 $
4,441
The Company’s current target investment allocation percentages (50% fixed income, 33% public equity securities and 17% in other
investments, including private equity (securities partnerships) and real estate) are developed by management as guidelines, although
the fair values of each asset category are expected to vary as a result of changes in market conditions. The Company will evaluate
further allocation changes to equity securities, other investments and fixed income securities as funding levels change.
See Note 12 for further details regarding how fair value is determined, including the level within the fair value hierarchy and the
procedures we use to validate fair value measurements. The Company classifies substantially all debt securities in Level 2 for pension
plan assets. These assets are valued using recent trades of similar securities or are fund investments priced using their daily net asset
value that is the exit price. A substantial portion of domestic equity securities within pension assets are classified as Level 1, while
international equity funds within pension assets are predominantly classified in Level 2 using daily net asset value.
Securities partnerships, real estate and hedge funds are valued using NAV as a practical expedient and are excluded from the fair value
hierarchy. See Note 12 for additional disclosures related to these assets invested in the separate accounts of the Company’s
subsidiaries. Certain securities as described in Note 12, as well as commercial mortgage loans and guaranteed deposit account
contracts, are classified in Level 3 because unobservable inputs used in their valuation are significant.
125
F. 401(k) Plans
The Company sponsors a 401(k) plan in which the Company matches a portion of employees’ pre-tax contributions. Participants in the
plan may invest in various funds that invest in the Company’s common stock, several diversified stock funds, a bond fund or a fixed-
income fund.
The Company may elect to increase its matching contributions if the Company’s annual performance meets certain targets. The
Company’s annual expense for these plans was as follows:
(In millions)
Expense
2020
2019
2018
$
243 $
256 $
196
126
Note 16 – Employee Incentive Plans
A. About Our Plans
The People Resources Committee (the “Committee”) of the Board of Directors awards stock options, restricted stock grants, restricted
stock units, deferred stock and strategic performance shares to certain employees.
Prior to the acquisition of Express Scripts, the Company issued shares from Treasury stock for these awards. Following the
acquisition, original issue shares were used.
Awards of Express Scripts options and restricted stock units were rolled over to Cigna stock options and restricted stock units in
connection with the Express Scripts acquisition on December 20, 2018. Information in this footnote includes the effect of the Express
Scripts rollover awards unless otherwise indicated.
The Company records compensation expense for stock and option awards over their vesting periods primarily based on the estimated
fair value at the grant date. Fair value is determined differently for each type of award as discussed below.
Shares of common stock available for award at December 31, were as follows:
(In millions)
Common shares available for award
B. Stock Options
2020
2019
2018
20.6
23.2
25.7
Accounting policy. The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date
except for rollover option awards issued to Express Scripts employees in connection with the acquisition. Options vest over periods
ranging from one year to three years and expire no later than 10 years from grant date. Fair value is estimated using the Black-Scholes
option-pricing model by applying the assumptions presented below. That fair value is reduced by options expected to be forfeited
during the vesting period. The Company estimates forfeitures at the grant date based on our experience and adjusts the expense to
reflect actual forfeitures over the vesting period. The fair value of options, net of forfeitures, is recognized in Selling, general and
administrative expenses on a straight-line basis over the vesting period.
Black-Scholes option-pricing model assumptions and the resulting fair value of options are presented in the following table. The
average fair value of options and the expected option life exclude the rollover options granted to Express Scripts employees in
connection with the acquisition.
Dividend yield
Expected volatility
Risk-free interest rate
Expected option life
Weighted average fair value of options
2020
2019
2018
— %
30.0 %
1.4 %
— %
30.0 %
2.5 %
— %
35.0 %
2.5 %
4.5 years
4.4 years
4.4 years
$
52.42
$
53.10
$
64.18
The expected volatility reflects the past daily stock price volatility of Cigna stock. The Company does not consider volatility implied
in the market prices of traded options to be a good indicator of future volatility because remaining traded options will expire within
one year. The risk-free interest rate is derived using the four-year U.S. Treasury bond yield rate as of the award date for the primary
annual grant. Expected option life reflects the Company’s historical experience.
127
The following table shows the status of, and changes in, common stock options during the last three years.
(Options in thousands)
2020
2019
2018
Outstanding - January 1
Granted
Exercised
Expired or canceled
Outstanding - December 31
Options exercisable at year-end
Weighted
Average
Exercise Price
Options
Weighted
Average
Exercise Price
Options
Weighted
Average
Exercise Price
Options
11,438 $
1,851 $
(3,289) $
(258) $
9,742 $
6,837 $
136.19
191.86
115.38
188.79
152.40
137.08
12,370 $
1,569 $
(2,297) $
(204) $
11,438 $
8,874 $
125.46
183.41
106.75
180.08
136.19
123.87
6,156 $
7,080 $
(771) $
(95) $
12,370 $
9,446 $
100.79
143.62
88.35
165.04
125.46
114.22
Compensation expense of $66 million related to unvested stock options at December 31, 2020 will be recognized over the next two
years (weighted average period).
The table below summarizes information for stock options exercised during the last three years:
(In millions)
Intrinsic value of options exercised
Cash received for options exercised
Tax benefit from options exercised
2020
2019
2018
$
$
$
304 $
376 $
57 $
180 $
224 $
34 $
86
68
8
The following table summarizes information for outstanding common stock options at December 31, 2020:
Number (in thousands)
Total intrinsic value (in millions)
Weighted average exercise price
Weighted average remaining contractual life
C. Restricted Stock
Options
Outstanding
Options
Exercisable
$
$
9,742
543 $
6,837
486
152.40 $
137.08
5.8 years
4.6 years
The Company awards restricted stock (grants and units) to the Company’s employees that vest over periods ranging from one to three
years. Recipients of restricted stock awards accumulate dividends during the vesting period, but forfeit their awards and accumulated
dividends if their employment terminates before the vesting date.
Accounting policy. Fair value of restricted stock awards is equal to the market price of Cigna’s common stock on the date of grant.
This fair value is reduced by awards that are expected to forfeit. At the grant date, the Company estimates forfeitures based on
experience and adjusts the expense to reflect actual forfeitures over the vesting period. This fair value, net of forfeitures, is recognized
in Selling, general and administrative expenses over the vesting period on a straight-line basis.
The following table shows the status of, and changes in, restricted stock awards during the last three years.
(Awards in thousands)
2020
2019
2018
Outstanding - January 1
Awarded
Vested
Forfeited
Outstanding - December 31
Weighted
Average Fair
Value at
Award Date
Grants/Units
Weighted
Average Fair
Value at
Award Date
Grants/Units
Weighted
Average Fair
Value at
Award Date
Grants/Units
1,945 $
791 $
(1,026) $
(110) $
1,600 $
178.78
191.22
161.58
186.63
186.12
2,138 $
870 $
(964) $
(99) $
1,945 $
168.12
183.86
160.74
168.68
178.78
1,295 $
1,451 $
(560) $
(48) $
2,138 $
126.44
183.29
112.53
150.84
168.12
128
The fair value of vested restricted stock at the vesting date for the years ended December 31 was as follows:
(In millions)
Fair value of vested restricted stock
2020
2019
2018
$
190 $
171 $
107
Approximately 10,300 employees held 1.6 million restricted stock awards at the end of 2020 with $152 million of related
compensation expense to be recognized over the next two years (weighted average period).
D. Strategic Performance Shares (“SPS”)
The Company awards SPSs to executives and certain other key employees generally with a performance period of three years. Half of
these shares are subject to a market condition (total shareholder return relative to industry peer companies) and half are subject to a
performance condition (cumulative adjusted net income). These targets are set by the Committee at the beginning of the performance
period. Holders of these awards receive shares of Cigna common stock at the end of the performance period ranging anywhere from 0
to 200% of the original awards.
Accounting policy. Compensation expense for SPSs is recorded over the performance period. Fair value is determined at the grant
date for “market condition” SPSs using a Monte Carlo simulation model and not subsequently adjusted regardless of the final
outcome. Expense is initially accrued for “performance condition” SPSs based on the most likely outcome, but evaluated for
adjustment each period for updates in the expected outcome. Expense is adjusted to the actual outcome (number of shares awarded
times the share price at the grant date) at the end of the performance period.
The following table shows the status of, and changes in, SPSs during the last three years:
(Awards in thousands)
Outstanding - January 1
Awarded
Vested
Forfeited
Outstanding - December 31
2020
2019
2018
Weighted
Average Fair
Value at
Award Date
Shares
Weighted
Average Fair
Value at
Award Date
Shares
Weighted
Average Fair
Value at
Award Date
Shares
818 $
362 $
(309) $
(63) $
808 $
177.94
191.52
159.67
187.76
190.02
707 $
389 $
(244) $
(34) $
818 $
160.74
184.72
139.27
178.98
177.94
778 $
221 $
(269) $
(23) $
707 $
136.57
197.51
121.57
158.16
160.74
The fair value of vested SPSs at the vesting date for the years ended December 31 was as follows:
(Shares in thousands; $ in millions)
Shares
Fair Value
Shares
Fair Value
Shares
Fair Value
Shares of Cigna common stock distributed upon SPS vesting
306 $
55
254 $
45
380 $
73
2020
2019
2018
Approximately 1,500 employees held 808,000 SPSs at the end of 2020 and $63 million of related compensation expense is expected to
be recognized over the next two years. The amount of expense for “performance condition” SPSs will vary based on actual
performance in 2021 and 2022.
E. Compensation Cost and Tax Effects of Share-based Compensation
The Company records tax benefits in shareholders’ net income during the vesting period based on the amount of expense being
recognized. The difference between tax benefits based on the expense and the actual tax benefit realized are also recorded in net
income when stock options are exercised, or when restricted stock and SPSs vest.
(In millions)
Total compensation cost for shared-based awards
Tax benefits recognized
2020
2019
2018
$
$
289 $
63 $
299 $
59 $
180
36
129
Note 17 – Goodwill, Other Intangibles and Property and Equipment
A. Goodwill
Accounting policy. Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. The
resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, based on those reporting
units’ relative fair values. As a result, goodwill is primarily reported in the Evernorth segment ($33.8 billion), the U.S. Medical
segment ($10.4 billion) and, to a lesser extent, the International Markets segment ($0.4 billion).
The Company conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level
and writes it down through shareholders’ net income if impaired. On a quarterly basis, the Company performs a qualitative impairment
assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a
reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a market approach
or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use to
determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount
rate and future cash flows. A discount rate is selected to correspond with each reporting unit’s weighted average cost of capital,
consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that
reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues,
pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.
Goodwill activity. Goodwill activity during 2020 and 2019 was as follows:
(In millions)
Balance at January 1,
Goodwill acquired, net
Impact of foreign currency translation
Balance at December 31,
B. Other Intangibles
2020
2019
$
44,602 $
44,505
29
17
103
(6)
$
44,648 $
44,602
Accounting policy. The Company’s other intangible assets primarily include purchased customer and producer relationships, provider
networks and trademarks. The fair value of purchased customer relationships and the amortization method were determined as of the
dates of purchase using an income approach that relies on projected future net cash flows including key assumptions for customer
attrition and discount rates. The Company’s definite-lived intangible assets are amortized on an accelerated or straight-line basis,
reflecting their pattern of economic benefits, over periods from three to 39 years. Management revises amortization periods if it
believes there has been a change in the length of time that an intangible asset will continue to have value. Costs incurred to renew or
extend the terms of these intangible assets are generally expensed as incurred.
The Company’s amortized intangible assets are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows generated by the underlying asset
group is less than the carrying amount of the asset group, the Company recognizes an impairment charge equal to the difference
between the carrying value of the asset group and its estimated fair value. The Company’s indefinite-lived intangible assets are each
reviewed for impairment at least annually by comparing their fair value with their carrying value. If the carrying value exceeds fair
value, that excess is recognized as an impairment loss.
There were no material impairments in the years ended December 31, 2020, 2019 or 2018.
130
Components of other assets, including other intangibles. Other intangible assets were comprised of the following at December 31:
(In millions)
2020
Customer relationships
Trade Name - Express Scripts
Other
Other intangible assets
Value of business acquired (reported in Deferred policy acquisition costs)
Total
2019
Customer relationships
Trade Name - Express Scripts
Other
Other intangible assets
Value of business acquired (reported in Deferred policy acquisition costs)
Cost
Accumulated
Amortization
Net Carrying
Value
$
29,432
3,024
$
$
8,400
475
38,307
670
38,977
31,184
8,400
383
39,967
643
26,408
8,400
371
35,179
518
35,697
27,865
8,400
297
36,562
521
37,083
104
3,128
152
3,280
3,319
86
3,405
122
3,527
Total
$
40,610
The Company has indefinite-lived intangible assets totaling $8.5 billion at December 31, 2020 and $8.4 billion at December 31, 2019,
largely consisting of trade names and licenses.
C. Property and Equipment
Accounting policy. Property and equipment is carried at cost less accumulated depreciation. Cost includes interest, real estate taxes
and other costs incurred during construction when applicable. Internal-use software that is acquired, developed or modified solely to
meet the Company’s internal needs, with no plan to market externally, is also included in this category. Costs directly related to
acquiring, developing or modifying internal-use software are capitalized.
The Company calculates depreciation and amortization principally using the straight-line method generally based on the estimated
useful life of each asset as follows: buildings and improvements, 10 to 40 years; purchased software, three to five years; internally
developed software, three to seven years and furniture and equipment (including computer equipment), three to 10 years.
Improvements to leased facilities are depreciated over the lesser of the remaining lease term or the estimated life of the improvement.
The Company considers events and circumstances that would indicate the carrying value of property, equipment or capitalized
software might not be recoverable. An impairment charge is recorded if the Company determines the carrying value of any of these
assets is not recoverable. The Company also reviews and shortens the estimated useful lives of these assets, if necessary.
Components of property and equipment. Property and equipment was comprised of the following as of December 31:
(In millions)
2020
Internal-use software
Other property and equipment
Total property and equipment
2019
Internal-use software
Other property and equipment
Total property and equipment
Property and equipment classified as Assets held for sale
Total property and equipment per Consolidated Balance Sheet
Cost
Accumulated
Amortization
Net Carrying
Value
$
$
$
7,061 $
4,048 $
2,719
1,527
9,780 $
5,575 $
6,578 $
3,282 $
2,569
9,147
(226)
1,353
4,635
(131)
$
8,921 $
4,504 $
3,013
1,192
4,205
3,296
1,216
4,512
(95)
4,417
131
Components of depreciation and amortization. Depreciation and amortization expense was comprised of the following for the years
ended December 31:
(In millions)
Internal-use software
Other property and equipment
Value of business acquired (reported in deferred policy acquisition costs)
Other intangibles
Total depreciation and amortization
2020
2019
2018
$
971 $
850 $
276
28
1,527
284
34
2,483
$
2,802 $
3,651 $
323
146
16
210
695
The Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar
years to be as follows:
(In millions)
2021
2022
2023
2024
2025
Note 18 – Leases
Pre-tax
Amortization
$
$
$
$
$
2,719
2,236
2,014
1,821
1,760
Cigna adopted ASU 2016-2, Leases, as of January 1, 2019. As permitted by the standard, the Company did not restate its Consolidated
Financial Statements for periods prior to the adoption date and the required disclosures presented below are prospective from the date
of adoption. The Company’s leases are primarily for office space and certain computer and other equipment, and have terms of up to
34 years.
Accounting policy. The Company determines if an arrangement is a lease and its lease classification (operating or finance) at
inception. Beginning in the first quarter of 2019, both operating and finance leases result in (1) a right-of-use (“ROU”) asset that
represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease
payments arising from the lease. ROU assets and lease liabilities are reflected in the following lines in the Company’s Consolidated
Balance Sheet:
Operating lease
Finance lease
ROU Asset
Other assets
Current Lease Liability
Non-Current Lease Liability
Accrued expenses and other liabilities
(current)
Other liabilities (non-current)
Property and equipment
Short-term debt
Long-term debt
These lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over
the lease term. Most of the Company’s leases do not provide an implicit rate, so the Company uses its incremental borrowing rate
based on the information available at commencement date in determining the present value of lease payments. The ROU asset also
includes any lease pre-payments made and excludes lease incentives for operating leases. The Company’s expected life of a lease may
consider options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components that are accounted for as a single lease component. Variable
lease payments are expensed as incurred and represent amounts that are neither fixed in nature, such as maintenance and other services
provided by the lessor, nor tied to an index or rate.
132
The components of lease expense were as follows:
(In millions)
Operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
Variable lease cost
Total lease cost
For the Years Ended December 31,
2020
2019
$
190 $
28
3
31
48
$
269 $
188
28
3
31
50
269
Rental expense under operating lease agreements was $162 million for the year ended December 31, 2018.
Supplemental cash flow information related to leases was as follows:
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Finance leases
For the Years Ended December 31,
2020
2019
$
$
$
$
$
189 $
3 $
26 $
189 $
9 $
173
3
25
89
68
The non-cash impact of adopting the new lease guidance in 2019 was an increase of Other assets of $615 million and an increase to
Accrued expenses and other liabilities of $630 million.
Operating and finance lease ROU assets and lease liabilities were as follows:
(In millions)
Operating leases:
Operating lease ROU assets
Accrued expenses and other liabilities
Other non-current liabilities
Total operating lease liabilities
Finance leases:
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
Short-term debt
Long-term debt
Total finance lease liabilities
December 31,
2020
December 31,
2019
$
$
$
$
$
$
$
552 $
152 $
491
643 $
98 $
(46)
52 $
18 $
36
54 $
536
166
465
631
110
(23)
87
27
61
88
133
As of December 31, 2020, the weighted average remaining lease term was five years for operating leases and four years for finance
leases, and the weighted average discount rate was 3.51% for operating leases and 3.95% for finance leases.
Maturities of lease liabilities as of December 31, 2020 were as follows:
(In millions)
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total
Operating
Leases
Finance
Leases
$
150 $
170
118
89
57
121
705
62
$
643 $
20
18
6
3
3
10
60
6
54
Note 19 – Shareholders' Equity and Dividend Restrictions
State insurance departments and foreign jurisdictions that regulate certain of the Company’s subsidiaries prescribe accounting
practices (differing in some respects from GAAP) to determine statutory net income and surplus. The Company’s life, accident and
health insurance and Health Maintenance Organization (“HMO”) subsidiaries are regulated by such statutory requirements. The
statutory net income of the Company’s life, accident and health insurance and HMO subsidiaries for the years ended, and their
statutory surplus as of December 31, were as follows:
(In billions)
Net income
Surplus
2020
2019
2018
$
$
4.0 $
12.9 $
3.8 $
13.8 $
3.4
12.2
The Company’s HMO and life, accident and health insurance subsidiaries are also subject to minimum statutory surplus requirements
and may be required to maintain investments on deposit with state departments of insurance or other regulatory bodies. Additionally,
these subsidiaries may be subject to regulatory restrictions on the amount of annual dividends or other distributions (such as loans or
cash advances) that insurance companies may extend to their parent companies without prior approval. As of December 31, 2020,
these amounts, including restricted GAAP net assets of the Company’s subsidiaries, were as follows:
(In billions)
Minimum statutory surplus required by regulators
Investments on deposit with regulatory bodies
Maximum dividend distributions permitted in 2021 without regulatory approval
Maximum loans to the parent company permitted without regulatory approval
Restricted GAAP net assets of Cigna Corporation's subsidiaries
2020
4.9
0.4
2.5
0.8
13.5
$
$
$
$
$
Permitted practices used by the Company’s insurance subsidiaries in 2020 that differed from prescribed regulatory accounting had an
immaterial impact on statutory surplus.
Note 20 – Income Taxes
Accounting policy. Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and
income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws.
Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation
allowance is established to the extent this standard is not met. The deferred income tax provision generally represents the net change in
deferred income tax assets and liabilities during the reporting period excluding adjustments to accumulated other comprehensive
income or amounts recorded in connection with a business combination. The current income tax provision generally represents
estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax
positions. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions will
be sustained is 50% or less. For uncertain positions that management believes are more likely than not to be sustained, the Company
recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. The
134
liabilities for uncertain tax positions are classified as current when the position is expected to be settled within 12 months or the statute
of limitation expires within 12 months.
Income taxes attributable to the Company’s foreign operations are generally provided using the respective foreign jurisdictions’ tax
rate.
The liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives are supported by
retaining overseas a significant portion of the earnings generated by our foreign operations. This strategy does not materially limit
Cigna's ability to meet the Company's liquidity and capital needs in the United States. The Company generally does not intend to
repatriate these earnings.
A.
Income Tax Expense
The components of income taxes for the years ended December 31 were as follows:
(In millions)
Current taxes
U.S. income taxes
Foreign income taxes
State income taxes
Total current taxes
Deferred taxes (benefits)
U.S. income taxes (benefits)
Foreign income taxes
State income tax (benefits)
Total deferred taxes (benefits)
Total income taxes
2020
2019
2018
$
2,128 $
1,476 $
334
303
2,765
(217)
11
(180)
(386)
173
114
1,763
(236)
16
(93)
(313)
$
2,379 $
1,450 $
804
185
47
1,036
(75)
8
(34)
(101)
935
Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax
rate for the following reasons:
(In millions)
Tax expense at nominal rate
Effect of U.S. tax reform legislation
Impact of sale of business
Effect of foreign earnings
Health insurance industry tax
State income tax (net of federal income tax benefit)
Other
Total income taxes
2020
2019
2018
$
%
$
%
$
%
$
2,282
21.0 % $
1,380
21.0 % $
—
104
(61)
93
24
(63)
—
1.0
(0.6)
0.9
0.2
(0.6)
—
—
24
—
32
14
—
—
0.4
—
0.5
0.2
752
(4)
—
74
78
10
25
21.0 %
(0.1)
—
2.1
2.2
0.3
0.6
$
2,379
21.9 % $
1,450
22.1 % $
935
26.1 %
Consolidated pre-tax income from the Company’s foreign operations was approximately 14% of the Company’s pre-tax income in
2020, 12% in 2019 and 15% in 2018.
135
B. Deferred Income Taxes
Deferred income tax assets and liabilities as of December 31, were as follows:
(In millions)
Deferred tax assets
Employee and retiree benefit plans
Other insurance and contractholder liabilities
Loss carryforwards
Other accrued liabilities
Other
Deferred tax assets before valuation allowance
Valuation allowance for deferred tax assets
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Depreciation and amortization
Acquisition-related basis differences
Policy acquisition expenses
Unrealized appreciation on investments and foreign currency translation
Other
Total deferred tax liabilities
Net deferred income tax (liabilities) assets
2020
2019
$
477 $
278
177
358
209
1,499
(207)
1,292
660
8,989
289
171
122
10,231
$
(8,939) $
511
282
260
183
218
1,454
(196)
1,258
630
9,386
113
223
293
10,645
(9,387)
Management believes that future results will be sufficient to realize a majority of the Company’s gross deferred tax assets. Valuation
allowances are established against deferred tax assets when it is determined that it is more likely than not that the asset will not be
recognized. Valuation allowances have been established against certain federal, state and foreign tax attributes. There are multiple
expiration dates associated with these tax attributes.
C. Uncertain Tax Positions and Other Tax Matters
Reconciliations of unrecognized tax benefits for the years ended December 31 follow:
(In millions)
Balance at January 1,
Increase due to prior year positions
Increase due to business combinations
Increase due to current year positions
Reduction related to settlements with taxing authorities
Reduction related to lapse of applicable statute of limitations
Balance at December 31,
2020
2019
2018
$
1,018 $
928 $
128
—
88
—
(24)
68
—
29
—
(7)
$
1,210 $
1,018 $
35
40
860
6
(1)
(12)
928
Substantially all unrecognized tax benefits would impact shareholders’ net income if recognized.
The Company classifies net interest expense on uncertain tax positions as a component of income tax expense and in Accrued
expenses and other liabilities on the balance sheet. In addition to the amounts in the table above, the liability for net interest expense
on uncertain tax positions was approximately $127 million as of December 31, 2020, $100 million as of December 31, 2019 and
immaterial for 2018.
D. Other Tax Matters
The statute of limitations for Cigna's consolidated federal income tax returns through 2015 have closed. However, Cigna filed an
amended return for the 2015 tax year, and it is being reviewed by the Internal Revenue Service (IRS). Additionally, the IRS has
opened an examination of Cigna's 2017 return. It is expected that the IRS will add tax years 2016 and 2018 to the existing Cigna cycle.
The IRS has examined Express Scripts’ tax returns for 2010 through 2012, for which there is a significant disputed tax matter, and is
currently examining returns for 2013 through 2017. In addition, the Company has pending refund claims for various years.
136
The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at
any given time. Generally, no further state or foreign audit activity is expected for tax years prior to 2012 for Cigna’s entities and 2006
for Express Scripts’ entities.
Note 21 – Contingencies and Other Matters
The Company, through its subsidiaries, is contingently liable for various guarantees provided in the ordinary course of business.
A. Financial Guarantees: Retiree and Life Insurance Benefits
The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree benefits. For the
majority of these benefits, the sponsoring employers are primarily responsible for ensuring that assets are sufficient to pay these
benefits and are required to maintain assets that exceed a certain percentage of benefit obligations. If employers fail to do so, the
Company or an affiliate of the buyer of the retirement benefits business has the right to redirect the management of the related assets
to provide for benefit payments. As of December 31, 2020, employers maintained assets that generally exceeded the benefit
obligations under these arrangements of approximately $450 million. An additional liability is established if management believes that
the Company will be required to make payments under the guarantees; there were no additional liabilities required for these
guarantees, net of reinsurance, as of December 31, 2020. Separate account assets supporting these guarantees are classified in Levels 1
and 2 of the GAAP fair value hierarchy.
The Company does not expect that these financial guarantees will have a material effect on the Company’s consolidated results of
operations, liquidity or financial condition.
B. Certain Other Guarantees
The Company had indemnification obligations as of December 31, 2020 in connection with acquisition and disposition transactions.
These indemnification obligations are triggered by the breach of representations or covenants provided by the Company, such as
representations for the presentation of financial statements, filing of tax returns, compliance with law or identification of outstanding
litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as
statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a percentage of
the transaction purchase price, while in other cases limitations are not specified or applicable. The Company does not believe that it is
possible to determine the maximum potential amount due under these obligations because not all amounts due under these
indemnification obligations are subject to limitation. There were no liabilities for these indemnification obligations as of December 31,
2020.
C. Guaranty Fund Assessments
The Company operates in a regulatory environment that may require its participation in assessments under state insurance guaranty
association laws. The Company’s exposure to assessments for certain obligations of insolvent insurance companies to policyholders
and claimants is based on its share of business written in the relevant jurisdictions.
There were no material effects for existing or new guaranty fund assessments for the year ended December 31, 2020.
D. Legal and Regulatory Matters
The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations,
including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam
relator’s filing of a complaint under court seal, and other legal matters arising, for the most part, in the ordinary course of managing a
global health service business. Additionally, the Company has received and is cooperating with subpoenas or similar processes from
various governmental agencies requesting information, all arising in the normal course of its business. Disputed tax matters arising
from audits by the Internal Revenue Service or other state and foreign jurisdictions, including those resulting in litigation, are
accounted for under GAAP guidance for uncertain tax positions. See Note 20 for additional information on income tax matters.
Pending litigation and legal or regulatory matters that the Company has identified with a reasonably possible material loss and certain
other material litigation matters are described below. For those matters that the Company has identified with a reasonably possible
material loss, the Company provides disclosure in the aggregate of accruals and range of loss, or a statement that such information
cannot be estimated. The Company’s accruals for the matters discussed below under “Litigation Matters” and “Regulatory Matters”
are not material. Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if
any) for these matters at this time. In light of the uncertainties involved in these matters, there is no assurance that their ultimate
137
resolution will not exceed the amounts currently accrued by the Company. An adverse outcome in one or more of these matters could
be material to the Company’s results of operations, financial condition or liquidity for any particular period. The outcomes of lawsuits
are inherently unpredictable and we may be unsuccessful in these ongoing litigation matters or any future claims or litigation.
Litigation Matters
Risk Corridors and CSR Litigation with the Federal Government. As a result of a Supreme Court decision in April 2020, the
Company filed suit in early May 2020 against the United States in the U.S. Court of Federal Claims seeking to recover two types of
payments the Federal Government owes Cigna under the risk corridors and cost-sharing reduction (“CSR”) programs of The Patient
Protection and Affordable Care Act. In aggregate, the complaint seeks to recover more than $315 million: $120 million in risk
corridors payments and more than $195 million in CSR payments. We received $120 million in payments in September 2020, which
resolved our risk corridors claim. Our claim seeking recovery for CSR payments is stayed until either the Federal Circuit’s judgments
in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari.
Cigna Litigation with Anthem. In February 2017, the Company filed suit against Anthem, Inc. in the Delaware Court of Chancery
(the “Chancery Court”) seeking, among other relief, payment of the $1.85 billion reverse termination fee under the parties’ 2015
merger agreement and damages. Anthem countersued, alleging its own claims for damages. A trial was held during the first quarter of
2019. In August 2020, the Chancery Court issued an opinion finding that, although Cigna breached its contractual obligation to use
reasonable best efforts to support the Anthem/Cigna merger, its actions did not cause the merger to fail. The Court denied claims by
both parties for damages and further denied Cigna’s claim for the reverse termination fee. The Company filed a Notice of Appeal with
the Delaware Supreme Court on October 30, 2020, and seeks reversal of the portion of the Chancery Court’s decision denying Cigna
the reverse termination fee. Briefing on the appeal was completed on January 29, 2021 and oral arguments are scheduled for April 14,
2021.
Express Scripts Litigation with Anthem. In March 2016, Anthem filed a lawsuit in the United States District Court for the Southern
District of New York alleging various breach of contract claims against Express Scripts relating to the parties’ rights and obligations
under the periodic pricing review section of the pharmacy benefit management agreement between the parties including allegations
that Express Scripts failed to negotiate new pricing concessions in good faith, as well as various alleged service issues. Anthem also
requested that the court enter declaratory judgment that Express Scripts is required to provide Anthem competitive benchmark pricing,
that Anthem can terminate the agreement and that Express Scripts is required to provide Anthem with post-termination services at
competitive benchmark pricing for one year following any termination by Anthem. Anthem claims it is entitled to $13 billion in
additional pricing concessions over the remaining term of the agreement, as well as $1.8 billion for one year following any contract
termination by Anthem and $150 million damages for service issues (“Anthem’s Allegations”). On April 19, 2016, in response to
Anthem’s complaint, Express Scripts filed its answer denying Anthem’s Allegations in their entirety and asserting affirmative
defenses and counterclaims against Anthem. The court subsequently granted Anthem’s motion to dismiss two of six counts of Express
Scripts’ amended counterclaims. The current scheduling order runs through the completion of summary judgment briefing in August
2021. There is no tentative trial date.
Regulatory Matters
Civil Investigative Demand. The U.S. Department of Justice (“DOJ”) is conducting an industry-wide investigation of Medicare
Advantage organizations’ risk adjustment practices under Medicare Parts C and D including medical chart reviews and health exams.
For certain other Medicare Advantage organizations, the investigation has resulted in litigation. The Company is currently responding
to information requests (civil investigative demands) received from the DOJ (U.S. Attorney’s Offices for the Eastern District of
Pennsylvania and the Southern District of New York ("SDNY")). We will continue to cooperate with the DOJ’s investigation.
Additionally, in relation to the SDNY’s pending investigation, a qui tam action that was filed by a relator in the United States District
Court for the Southern District of New York in 2017 was unsealed on August 6, 2020. The action asserts claims related to risk
adjustment practices arising from certain health exams conducted as part of Cigna’s Medicare Advantage business. The DOJ has not
intervened in the case at this time.
Note 22 – Segment Information
See Note 1 for a description of our segments. A description of our basis for reporting segment operating results is outlined below.
Intersegment revenues primarily reflect pharmacy related transactions between the Evernorth and U.S. Medical segments. Effective
with the first quarter of 2019, the Company began allocating compensation cost for stock options to segments. Prior year segment
information was not restated for this change. A description of our basis for reporting segment operating results is outlined below.
The Company uses “pre-tax adjusted income from operations” and “adjusted revenues” as its principal financial measures of segment
operating performance because management believes they best reflect the underlying results of business operations and permit
138
analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income
before taxes excluding realized investment results, amortization of acquired intangible assets, special items and, for periods prior to
2020, earnings contribution from transitioning clients Anthem Inc. and Coventry Health Care, Inc. (the “transitioning clients”). As of
December 31, 2019, the transition of these clients was substantially complete; therefore, beginning in 2020, we no longer exclude
results of transitioning clients from our adjusted revenues and adjusted income from operations. Income or expense amounts that are
excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of
operating segment management include:
•
•
•
•
Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet
dates, as well as gains and losses associated with invested asset sales.
Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.
Results of transitioning clients, for periods prior to 2020, because those results were not indicative of ongoing results.
Special items, if any, that management believes are not representative of the underlying results of operations due to the nature
or size of these matters.
The Company does not report total assets by segment because this is not a metric used to allocate resources or evaluate segment
performance.
Adjusted revenues is defined as revenues excluding: 1) revenue contribution from transitioning clients for periods prior to 2020; 2) the
Company’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the
equity method of accounting; and 3) special items, if any.
The following tables present the special items recorded by the Company in 2020, 2019 and 2018.
(In millions)
2020
2019
2018
Description of Special Item Charges (Benefits) and
Financial Statement Line Item(s)
Integration and transaction-related costs:
- Selling, general and administrative expenses
- Interest expense and other
- Net investment income
Integration and transaction-related costs
Debt extinguishment costs
Charge for organizational efficiency plan (Selling,
general and administrative expenses)
Charges associated with litigation matters (Selling,
general and administrative expenses)
Risk corridors recovery (Selling, general and
administrative expenses)
Contractual adjustment for a former client (Pharmacy
revenues)
(Gain) on sale of business
Charges (benefits) associated with tax reform:
- Selling, general and administrative expenses
- Tax (benefit)
Charges (benefits) associated with tax reform
Total impact from special items
$
$
$
$
$
$
After-tax
Before-tax
After-tax
Before-tax
After-tax
Before-tax
404 $
527 $
427 $
552 $
587 $
—
—
404 $
151 $
24
19
—
—
527 $
199 $
31
25
(76)
(101)
(155)
(3,217)
(204)
(4,203)
—
—
427 $
— $
—
—
552 $
— $
179
(97)
669 $
— $
162
207
41
—
—
—
51
—
—
—
—
19
—
—
—
— $
—
— $
— $
—
— $
(2,850) $
(3,726) $
— $
—
— $
630 $
— $
—
— $
810 $
1 $
(3)
(2) $
686 $
748
227
(123)
852
—
—
25
—
—
—
2
—
2
879
139
Summarized segment financial information for the years ended December 31 was as follows:
(In millions)
2020
Evernorth
U.S. Medical
International
Markets
Group
Disability and
Other
Corporate
and
Eliminations
Total
Revenues from external customers
$
112,647 $
36,027 $
5,853 $
4,630 $
— $
159,157
Inter-segment revenues
Net investment income
Total revenues
3,655
32
1,977
447
—
154
23
611
(5,655)
—
1,244
$
116,334 $
38,451 $
6,007 $
5,264 $
(5,655) $
160,401
Net realized investment results from certain equity method
investments
Special item related to contractual adjustment for a former
client
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
$
$
$
—
(204)
—
—
(130)
—
—
—
—
—
(130)
(204)
116,130 $
38,451 $
5,877 $
5,264 $
(5,655) $
160,067
2,248 $
3,684 $
426 $
68 $
35 $
25 $
3,956 $
1,048 $
4,514 $
(2,334) $
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) attributable to noncontrolling interests
Net realized investment (gains) losses (1)
Amortization of acquired intangible assets
Special items
Integration and transaction-related costs
Debt extinguishment costs
Charge for organizational efficiency plan
Charges associated with litigation matters
Risk corridors recovery
Contractual adjustment for a former client
(Gain) on sale of business
(17)
(17)
1,917
—
—
—
—
—
(204)
—
—
(77)
29
—
—
—
—
(101)
—
—
(20)
(161)
33
—
—
—
—
—
—
—
—
(24)
3
—
—
—
—
—
—
(4,203)
—
—
—
527
199
31
25
—
—
—
Pre-tax adjusted income (loss) from operations
$
5,363 $
3,807 $
900 $
290 $
(1,552) $
2,802
10,868
(37)
(279)
1,982
527
199
31
25
(101)
(204)
(4,203)
8,808
(In millions)
2019
Evernorth
U.S. Medical
International
Markets
Group
Disability and
Other
Corporate
and
Eliminations
Total
Revenues from external customers
$
107,354 $
34,861 $
5,500 $
4,461 $
— $
152,176
Inter-segment revenues
Net investment income (loss)
Total revenues
2,380
60
1,180
478
—
159
26
695
(3,586)
(2)
1,390
$
109,794 $
36,519 $
5,659 $
5,182 $
(3,588) $
153,566
Revenue contribution from transitioning clients
Net realized investment results from certain equity method
investments
(13,347)
—
—
—
—
(44)
—
—
—
—
(13,347)
(44)
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
$
$
$
96,447 $
36,519 $
5,615 $
5,182 $
(3,588) $
140,175
3,071 $
3,983 $
449 $
3,904 $
87 $
785 $
41 $
562 $
3 $
(2,664) $
3,651
6,570
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients
(Income) attributable to noncontrolling interests
Net realized investment (gains) losses (1)
Amortization of acquired intangible assets
Special items
Integration and transaction-related costs
Charge for organizational efficiency plan
Charges associated with litigation matters
(1,726)
(4)
—
2,839
—
—
—
—
—
(112)
69
—
—
(30)
—
(16)
(43)
36
—
—
—
—
—
(66)
5
—
—
—
—
—
—
—
552
207
81
Pre-tax adjusted income (loss) from operations
(1) Includes the Company's share of certain realized investment gains (losses) of its joint ventures reported using the equity method of accounting.
5,092 $
3,831 $
762 $
501 $
$
(1,824) $
(1,726)
(20)
(221)
2,949
552
207
51
8,362
140
(In millions)
2018
Revenues from external customers
Inter-segment revenues
Net investment income (loss)
Total revenues
Revenue contributions from transitioning clients
Net realized investment results from certain equity method
investments
Special items reported in integration and transaction-
related costs
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
$
$
$
$
$
Evernorth
U.S. Medical
International
Markets
Group
Disability and
Other
Corporate and
Eliminations
Total
5,902 $
31,759 $
5,174 $
4,335 $
— $
47,170
1,154
9
573
459
—
149
14
712
(1,741)
151
7,065 $
32,791 $
5,323 $
5,061 $
(1,590) $
(459)
—
—
—
—
—
—
43
—
—
—
—
6,606 $
32,791 $
5,366 $
5,061 $
(1,713) $
48,111
120 $
329 $
466 $
3,342 $
55 $
670 $
53 $
497 $
1 $
(1,257) $
695
3,581
1,480
48,650
(459)
43
—
—
(123)
(123)
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients
(Income) attributable to noncontrolling interests
Net realized investment (gains) losses (1)
Amortization of acquired intangible assets
Special items
Integration and transaction-related costs
Charges associated with litigation matters
Charges (benefits) associated with tax reform
(62)
—
—
113
—
—
—
—
—
36
99
—
25
—
—
(14)
61
18
—
—
—
—
—
25
5
—
—
2
—
—
2
—
852
—
—
Pre-tax adjusted income (loss) from operations
(1) Includes the Company's share of certain realized investment gains (losses) of its joint ventures reported using the equity method of accounting.
3,502 $
380 $
529 $
735 $
$
(403) $
(62)
(14)
124
235
852
25
2
4,743
141
Revenue from external customers includes pharmacy revenues, premiums and fees and other revenues. The following table presents
these revenues by product, premium and service type for the years ended December 31:
(In millions)
Products (Pharmacy revenues) (ASC 606)
Network revenues
Home delivery and specialty revenues
Other
Total pharmacy revenues
Insurance premiums (ASC 944)
U.S. Medical premiums
U.S. Commercial
Health Insurance
Stop loss
Other
U.S. Government
Medicare Advantage
Medicare Part D
Other
Total U.S. Medical premiums
International Markets premiums
Domestic disability, life and accident premiums
Other premiums
Total premiums
Services (ASC 606)
Fees
Other external revenues
Total services
2020
2019
2018
$
53,574 $
50,431 $
48,792
5,403
47,768
4,900
$
107,769 $
103,099 $
13,389
4,614
1,135
7,565
1,593
4,301
32,597
5,511
4,423
96
42,627
8,532
229
8,761
12,523
4,328
1,040
6,314
1,699
4,185
30,089
5,266
4,225
134
39,714
9,229
134
9,363
1,415
3,997
67
5,479
10,710
4,008
1,038
5,832
764
4,496
26,848
5,043
4,000
222
36,113
5,558
20
5,578
47,170
Total revenues from external customers
$
159,157 $
152,176 $
Foreign and U.S. revenues from external customers for the three years ended December 31 are shown below. The Company’s foreign
revenues are generated by its foreign operating entities. In the periods shown, no foreign country contributed more than 5% of
consolidated revenues from external customers.
(In millions)
United States
South Korea
All other foreign countries
Total
2020
2019
2018
$
154,042 $
147,332 $
42,773
2,123
2,992
2,022
2,822
2,093
2,304
$
159,157 $
152,176 $
47,170
Revenues from U.S. Federal Government agencies, under a number of contracts, were 15% of consolidated revenues in 2020, 14% in
2019 and 16% in 2018.
142
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
Based on an evaluation of the effectiveness of Cigna’s disclosure controls and procedures conducted under the supervision and with
the participation of Cigna’s management (including Cigna’s Chief Executive Officer and Chief Financial Officer), Cigna's Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, Cigna’s disclosure
controls and procedures are effective to ensure that information required to be disclosed by Cigna in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms and is accumulated and communicated to Cigna’s management, including Cigna’s Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
B.
Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Management of Cigna Corporation is responsible for establishing and maintaining adequate internal controls over financial reporting.
The Company’s internal controls were designed to provide reasonable assurance that the Company’s consolidated published financial
statements for external purposes were prepared in accordance with accounting principles generally accepted in the United States. The
Company’s internal control over financial reporting includes those policies and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the
Company are being made only in accordance with authorization of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2020. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on management’s assessment and the criteria set
forth by COSO, it was determined that the Company’s internal controls over financial reporting are effective as of December 31, 2020.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the
Company’s internal control over financial reporting, as stated in their report located in Item 8 of this Form 10-K.
Change in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have
materially affected, or are reasonably likely to materially affect, Cigna's internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
143
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A. Directors of the Registrant
PART III
The information under the captions “Corporate Governance Matters – Board of Directors’ Nominees” and “– Board Meetings and
Committees” (as it relates to Audit Committee disclosure) in Cigna’s definitive proxy statement related to the 2021 annual meeting of
shareholders is incorporated herein by reference.
B. Executive Officers of the Registrant
See PART I – “Information about our Executive Officers” in this Form 10-K.
C. Code of Ethics and Other Corporate Governance Disclosures
The information under the caption “Corporate Governance Matters – Codes of Ethics” in Cigna’s definitive proxy statement related to
the 2021 annual meeting of shareholders is incorporated herein by reference. We intend to promptly disclose on our website, in
accordance with applicable rules, any required disclosure of changes to or waivers, if any, of our Code of Ethics or our Director Code
of Business Conduct and Ethics.
D. Delinquent Section 16(a) Reports
The information under the caption “Ownership of Cigna Common Stock – Delinquent Section 16(a) Reports”, if included in Cigna’s
definitive proxy statement related to the 2021 annual meeting of shareholders, is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the captions “Corporate Governance Matters – Non-Employee Director Compensation,” “Certain Transactions
– Compensation Committee Interlocks and Inside Participation,” “Compensation Matters – Compensation Discussion and Analysis,”
“– Report of the People Resources Committee” and “– Executive Compensation Tables” in Cigna’s definitive proxy statement related
to the 2021 annual meeting of shareholders is incorporated herein by reference.
144
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table presents information regarding Cigna’s equity compensation plans as of December 31, 2020:
Plan Category
Equity Compensation Plans Approved by Security Holders
Equity Compensation Plans Not Approved by Security Holders
Total
(1) Includes, in addition to outstanding stock options:
(a)(1)
(b)(2)
(c)(3)
Securities To Be Issued
Upon Exercise Of
Outstanding Options,
Warrants And Rights
Weighted Average
Exercise Price Of
Outstanding Options,
Warrants And Rights
Securities Remaining
Available For Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column (a))
11,725,097 $
—
11,725,097 $
152.40
—
152.40
23,618,311
—
23,618,311
(i) 82,426 restricted stock units, 122,887 deferred shares and 1,615,392 strategic performance shares that are reported at the maximum 200% payout rate granted
under the Cigna Long-Term Incentive Plan, the Corporation Stock Plan and the Cigna Corporation Director Equity Plan; and
(ii) 637,546 shares of common stock underlying stock option awards and 153,959 restricted stock units granted under the Express Scripts Holding Company 2016
Long-Term Incentive Plan, 5,728 deferred shares granted under the Express Scripts, Inc. Executive Deferred Compensation Plan of 2005, 1,327,353 shares of
common stock underlying stock option awards granted under the Express Scripts, Inc. 2011 Long-Term Incentive Plan, 1,091,220 shares of common stock
underlying stock option awards and 3,300 restricted stock units granted under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan, and 43,737 shares of
common stock underlying stock option awards granted under the Accredo Health, Incorporated 2002 Long-Term Incentive Plan that were all approved by the
applicable company’s shareholders before Cigna’s acquisition of Express Scripts in December 2018.
(2) The weighted-average exercise price is based only on outstanding stock options. The outstanding stock options assumed due to Cigna's acquisition of Express
Scripts, in aggregate, have a weighted-average exercise price of $143.21. Excluding the assumed options from this acquisition results in a weighted-average
exercise price of $156.69.
(3) Includes 213,471 shares of common stock available as of the close of business December 31, 2020 for future issuance under the Cigna Corporation Director Equity
Plan, 20,591,667 shares of common stock available as of the close of business on December 31, 2020 for future issuance under the Cigna Long-Term Incentive
Plan that includes 10,728,281 shares of common stock available assumed from the Express Scripts, Inc. 2016 Long-Term Incentive Plan, and 2,813,173 shares of
common stock available as of the close of business December 31, 2020 for future issuance under the Express Scripts, Inc. Executive Deferred Compensation Plan
of 2005. Because no further grants may be made under the Express Scripts, Inc. 2011 Long-Term Incentive Plan, the Medco Health Solutions, Inc. 2002 Stock
Incentive Plan and the Accredo Health, Incorporated 2002 Long-Term Incentive Plan, shares available for issuance under these plans are not included.
The information under the captions “Ownership of Cigna Common Stock – Stock Held by Directors, Nominees and Executive
Officers” and “Ownership of Cigna Common Stock – Stock Held by Certain Beneficial Owners” in Cigna’s definitive proxy statement
related to the 2021 annual meeting of shareholders is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the captions “Corporate Governance Matters – Director Independence” and “– Certain Transactions” in Cigna’s
definitive proxy statement related to the 2021 annual meeting of shareholders is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information under the captions “Audit Matters – Policy for the Pre-Approval of Audit and Non-Audit Services” and “– Fees to
Independent Registered Public Accounting Firm” in Cigna’s definitive proxy statement related to the 2021 annual meeting of
shareholders is incorporated herein by reference.
145
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) The following Financial Statements can be found under Part II Item 8 of this Form 10-K:
PART IV
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018.
Consolidated Balance Sheets as of December 31, 2020 and 2019.
Consolidated Statements of Changes in Total Equity for the years ended December 31, 2020, 2019 and 2018.
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018.
Notes to the Consolidated Financial Statements.
(2) The financial statement schedules listed in the Index to Financial Statement Schedules on page FS-1 which list is incorporated
herein.
(3) Set forth in this Item 15 is a list of exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b) The exhibits listed in the accompanying “Index to Exhibits” in this Item 15 are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
(c) The financial statement schedules listed in the Index to Financial Statement Schedules on page FS-1 are filed as part of this
Annual Report on Form 10-K.
146
Number
2.1(a)
2.1(b)
3.1
3.2
4.1(a)
4.1(b)
4.1(c)
4.1(d)
4.1(e)
4.2
4.3(a)
4.3(b)
4.3(c)
4.3(d)
4.3(e)
INDEX TO EXHIBITS
Description
Agreement and Plan of Merger, dated as of March 8, 2018, by and
among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Express Scripts Holding Company, Cigna Holding Company
(formerly Cigna Corporation), Halfmoon I, Inc. and Halfmoon II,
Inc.
Amendment No. 1, dated as of June 27, 2018, to the Agreement and
Plan of Merger, dated as of March 8, 2018, by and among Cigna
Corporation, Express Scripts Holding Company, Cigna Holding
Company, Halfmoon I, Inc. and Halfmoon II, Inc.
Amended and Restated Certificate of Incorporation of the registrant
as last amended December 20, 2018
Amended and Restated By-Laws of the registrant as last amended
February 26, 2020.
Method of Filing
Filed by Cigna Holding Company (“CHC”) as
Exhibit 2.1 to the Current Report on Form 8-
K on March 13, 2018 and incorporated herein
by reference.
Filed by CHC as Exhibit 2.1 to the Current
Report on Form 8-K on July 2, 2018 and
incorporated herein by reference.
Filed by the registrant as Exhibit 3.1 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Filed by the registrant as Exhibit 3.1 to the
Current Report on Form 8-K on February 27,
2020 and incorporated herein by reference.
Indenture, dated as of September 17, 2018, between Cigna
Corporation (formerly Halfmoon Parent, Inc.) and U.S. Bank
National Association, as trustee
Filed by CHC as Exhibit 4.1 to the Current
Report on Form 8-K on September 21, 2018
and incorporated herein by reference.
Supplemental Indenture, dated as of September 17, 2018, between
Cigna Corporation (formerly Halfmoon Parent, Inc.) and U.S. Bank
National Association, as trustee
Filed by CHC as Exhibit 4.2 to the Current
Report on Form 8-K on September 21, 2018
and incorporated herein by reference.
Second Supplemental Indenture dated as of December 20, 2018, by
and among Express Scripts Holding Company, Cigna Holding
Company and U.S. Bank National Association, as Trustee
Filed by the registrant as Exhibit 4.7 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Third Supplemental Indenture, dated as of October 11, 2019, by and
among Cigna Corporation, as the Issuer, Cigna Holding Company
and Express Scripts Holding Company, each as guarantors, and U.S.
Bank, National Association, as trustee
Filed by the registrant as Exhibit 4.1 to the
Current Report on Form 8-K on October 11,
2019 and incorporated herein by reference.
Fourth Supplemental Indenture, dated as of March 16, 2020,
between Cigna Corporation and U.S. Bank, National Association, as
trustee
Filed by the registrant as Exhibit 4.1 to the
Current Report on Form 8-K on March 16,
2020 and incorporated herein by reference.
Registration Rights Agreement, dated as of October 11, 2019, by
and among Cigna Corporation, as the Issuer, Cigna Holding
Company and Express Scripts Holding Company, each as
guarantors, and J.P. Morgan Securities LLC, Deutsche Bank
Securities Inc., and Wells Fargo Securities, LLC, each as dealer
managers
Senior Indenture dated August 16, 2006 between Cigna Holding
Company (formerly Cigna Corporation) and U.S. Bank National
Association
Supplemental Indenture No. 1 dated November 10, 2006 between
Cigna Holding Company and U.S. Bank National Association
Supplemental Indenture No. 2 dated March 15, 2007 between Cigna
Holding Company and U.S. Bank National Association
Supplemental Indenture No. 3 dated March 7, 2008 between Cigna
Holding Company and U.S. Bank National Association
Supplemental Indenture No. 5 dated May 17, 2010 between Cigna
Holding Company and U.S. Bank National Association
Filed by the registrant as Exhibit 4.2 to the
Current Report on Form 8-K on October 11,
2019 and incorporated herein by reference.
Filed by CHC as Exhibit 4.1(a) to the Annual
Report on Form 10-K for the year ended
December 31, 2012 and incorporated herein
by reference.
Filed by CHC as Exhibit 4.1(b) to the Annual
Report on Form 10-K for the year ended
December 31, 2012 and incorporated herein
by reference.
Filed by CHC as Exhibit 4.1(c) to the
Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2011 and
incorporated herein by reference.
Filed by CHC as Exhibit 4.1 to the Current
Report on Form 8-K on March 10, 2008 and
incorporated herein by reference.
Filed by CHC as Exhibit 99.2 to the Current
Report on Form 8-K on May 28, 2010 and
incorporated herein by reference.
147
4.3(f)
4.3(g)
4.3(h)
4.3(i)
4.3(j)
4.3(k)
4.3(l)
4.4(a)
4.4(b)
4.4(c)
4.5(a)
4.5(b)
4.6(a)
4.6(b)
4.6(c)
4.6(d)
Supplemental Indenture No. 6 dated December 8, 2010 between
Cigna Holding Company and U.S. Bank National Association
Supplemental Indenture No. 7 dated March 7, 2011 between Cigna
Holding Company and U.S. Bank National Association
Supplemental Indenture No. 8 dated November 10, 2011 between
Cigna Holding Company and U.S. Bank National Association
Filed by CHC as Exhibit 99.2 to the Current
Report on Form 8-K on December 9, 2010
and incorporated herein by reference.
Filed by CHC as Exhibit 99.2 to the Current
Report on Form 8-K on March 8, 2011 and
incorporated herein by reference.
Filed by CHC as Exhibit 4.1 to the Current
Report on Form 8-K on November 14, 2011
and incorporated herein by reference.
Supplemental Indenture No. 9 dated as of March 20, 2015, between
Cigna Holding Company and U.S. Bank National Association, as
trustee
Filed by CHC as Exhibit 4.1 to the Current
Report on Form 8-K on March 26, 2015 and
incorporated herein by reference.
Supplemental Indenture No. 10 dated as of September 14, 2017
between Cigna Holding Company and U.S. Bank National
Association, as trustee
Filed by CHC as Exhibit 4.1 to the Current
Report on Form 8-K filed September 14, 2017
and incorporated herein by reference.
Supplemental Indenture No. 11 dated as of December 20, 2018, by
and among Cigna Corporation, Cigna Holding Company and U.S.
Bank National Association, as trustee
Filed by the registrant as Exhibit 4.1 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Supplemental Indenture No. 12, dated as of October 11, 2019,
among Cigna Holding Company, as Issuer, Cigna Corporation, as
parent guarantor, and U.S. Bank National Association, as trustee
Filed by the registrant as Exhibit 4.3 to the
Current Report on Form 8-K on October 11,
2019 and incorporated herein by reference.
Indenture dated January 1, 1994 between Cigna Holding Company
(formerly Cigna Corporation ) and Marine Midland Bank
Supplemental Indenture No. 1 dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Cigna Holding Company and HSBC Bank USA, National
Association (as successor to Marine Midland Bank, N.A.), as
Trustee
Supplemental Indenture No. 2, dated as of October 11, 2019, among
Cigna Holding Company, as Issuer, Cigna Corporation, as parent
guarantor, and HSBC Bank USA, National Association, as trustee
Indenture dated June 30, 1988 between Cigna Holding Company
(formerly Cigna Corporation) and Bankers Trust Company
Supplemental Indenture No. 1 dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Cigna Holding Company and Deutsche Bank Trust Company
Americas, a New York banking corporation (as successor to Bankers
Trust Company), as Trustee
Indenture, dated as of November 21, 2011, among Express Scripts,
Inc., Express Scripts Holding Company (formerly Aristotle Holding,
Inc.), the other subsidiaries of Express Scripts Holding Company
party thereto and Wells Fargo Bank, National Association, as
Trustee
Third Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company, the
other subsidiaries of Express Scripts Holding Company party thereto
and Wells Fargo Bank, National Association, as Trustee
Fourth Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company, the
other subsidiaries of Express Scripts Holding Company party thereto
and Wells Fargo Bank, National Association, as Trustee
Seventh Supplemental Indenture, dated as of February 9, 2012,
among Express Scripts, Inc., Express Scripts Holding Company, the
other subsidiaries of Express Scripts Holding Company party thereto
and Wells Fargo Bank, National Association, as Trustee, related to
Express Scripts Holding Company’s 3.900% senior notes due 2022
148
Filed by CHC as Exhibit 4.2 to the Annual
Report on Form 10-K for the year ended
December 31, 2009 and incorporated herein
by reference.
Filed by the registrant as Exhibit 4.2 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Filed by the registrant as Exhibit 4.4 to the
Current Report on Form 8-K on October 11,
2019 and incorporated herein by reference.
Filed by CHC as Exhibit 4.3 to the Annual
Report on Form 10-K for the year ended
December 31, 2009 and incorporated herein
by reference.
Filed by the registrant as Exhibit 4.3 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Filed by Express Scripts, Inc. (“ESI”) as
Exhibit 4.1 to the Current Report on Form 8-
K filed November 25, 2011 and incorporated
herein by reference.
Filed by ESI as Exhibit 4.4 to the Current
Report on Form 8-K on November 25, 2011
and incorporated herein by reference.
Filed by ESI as Exhibit 4.5 to the Current
Report on Form 8-K on November 25, 2011
and incorporated herein by reference.
Filed by ESI as Exhibit 4.3 to the Current
Report on Form 8-K filed February 10, 2012
and incorporated herein by reference.
4.6(e)
4.6(f)
4.6(g)
4.6(h)
4.6(i)
4.6(j)
4.6(k)
4.6(l)
4.6(m)
4.6(n)
4.6(o)
4.6(p)
4.6(q)
4.6(r)
4.7(a)
4.7(b)
Eighth Supplemental Indenture, dated as of April 2, 2012, among
Express Scripts, Inc., Express Scripts Holding Company, Medco
Health Solutions, Inc., the other subsidiaries of Express Scripts
Holding Company party thereto and Wells Fargo Bank, National
Association, as Trustee
Eleventh Supplemental Indenture, dated as of June 5, 2014, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by Express Scripts Holding Company
(“ESRX”) as Exhibit 4.1 to the Current Report
on Form 8-K on April 6, 2012 and
incorporated herein by reference.
Filed by ESRX as Exhibit 4.1 to the Current
Report on Form 8-K on June 5, 2014 and
incorporated herein by reference.
Twelfth Supplemental Indenture, dated as of June 5, 2014, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by ESRX as Exhibit 4.2 to the Current
Report on Form 8-K on June 5, 2014 and
incorporated herein by reference.
Thirteenth Supplemental Indenture, dated as of June 5, 2014, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by ESRX as Exhibit 4.3 to the Current
Report on Form 8-K on June 5, 2014 and
incorporated herein by reference.
Sixteenth Supplemental Indenture, dated as of February 25, 2016,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Seventeenth Supplemental Indenture, dated as of February 25, 2016,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Filed by ESRX as Exhibit 4.1 to the Current
Report on Form 8-K on February 25, 2016
and incorporated herein by reference.
Filed by ESRX as Exhibit 4.2 to the Current
Report on Form 8-K on February 25, 2016
and incorporated herein by reference.
Eighteenth Supplemental Indenture, dated as of July 5, 2016, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by ESRX as Exhibit 4.1 to the Current
Report on Form 8-K on July 5, 2016 and
incorporated herein by reference.
Nineteenth Supplemental Indenture, dated as of July 5, 2016, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by ESRX as Exhibit 4.2 to the Current
Report on Form 8-K on July 5, 2016 and
incorporated herein by reference.
Twentieth Supplemental Indenture, dated as of July 5, 2016, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Filed by ESRX as Exhibit 4.3 to the Current
Report on Form 8-K on July 5, 2016 and
incorporated herein by reference.
Twenty-Second Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Twenty-Third Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee and Calculation Agent
Twenty-Fourth Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Filed by ESRX as Exhibit 4.1 to the Current
Report on Form 8-K on November 30, 2017
and incorporated herein by reference.
Filed by ESRX as Exhibit 4.2 to the Current
Report on Form 8-K on November 30, 2017
and incorporated herein by reference.
Filed by ESRX as Exhibit 4.3 to the Current
Report on Form 8-K on November 30, 2017
and incorporated herein by reference.
Twenty-Fifth Supplemental Indenture dated as of December 20,
2018, by and among Cigna Corporation, Express Scripts Holding
Company and Wells Fargo Bank, National Association, as Trustee
Filed by the registrant as Exhibit 4.4 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
Twenty-Sixth Supplemental Indenture, dated as of October 11,
2019, among Express Scripts Holding Company, as Issuer, Cigna
Corporation, as parent guarantor, and Wells Fargo Bank, National
Association, as trustee
Filed by the registrant as Exhibit 4.5 to the
Current Report on Form 8-K on October 11,
2019 and incorporated herein by reference.
Indenture, dated as of June 9, 2009, among Express Scripts, Inc., the
Subsidiary Guarantors party thereto and Union Bank, N.A., as
Trustee
Filed by ESI as Exhibit 4.1 to the Current
Report on Form 8-K on June 10, 2009 and
incorporated herein by reference.
Third Supplemental Indenture, dated as of June 9, 2009, among
Express Scripts, Inc., the Subsidiary Guarantors party thereto and
Union Bank, N.A., as Trustee
Filed by ESI as Exhibit 4.4 to the Current
Report on Form 8-K on June 10, 2009 and
incorporated herein by reference.
149
4.7(c)
4.7(d)
4.7(e)
Seventh Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company, the
other subsidiaries of Express Scripts Holding Company party thereto
and Union Bank, N.A., as Trustee
Eighth Supplemental Indenture, dated as of April 2, 2012, among
Express Scripts, Inc., Express Scripts Holding Company, Medco
Health Solutions, Inc., the other subsidiaries of Express Scripts
Holding Company party thereto and Union Bank, N.A., as Trustee
Ninth Supplemental Indenture dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Express Scripts, Inc. and MUFG Union Bank, N.A. (as successor to
Union Bank, N.A.), as Trustee
Filed by ESI as Exhibit 4.6 to the Current
Report on Form 8-K on November 25, 2011
and incorporated herein by reference.
Filed by ESRX as Exhibit 4.2 to the Current
Report on Form 8-K on April 6, 2012 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.5 to the
Current Report on Form 8-K on December 20,
2018 and incorporated herein by reference.
4.8
Description of Securities
Filed herewith
Exhibits 10.1 through 10.37 are identified as compensatory plans, management contracts or arrangements pursuant to Item 15 of Form
10-K.
10.1(a)
Cigna Long-Term Incentive Plan as amended and restated effective
as of April 26, 2017 (the “Cigna LTIP”)
10.1(b)
Amendment No. 1, effective January 25, 2018, to the Cigna LTIP
10.1(c)
Form of Cigna LTIP: Nonqualified Stock Option and Grant Letter
10.1(d)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
10.1(e)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
10.1(f)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
Filed by the registrant as Exhibit 10.1 to the
Current Report on Form 8-K on May 1, 2017
and incorporated herein by reference.
Filed by CHC as Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarterly period
ended March 31, 2018 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.21 to Form 10-K
for the year ended December 31, 2011 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.2 to Form 10-Q
for the period ended March 31, 2014 and
incorporated herein by
Filed by CHC as Exhibit 10.3 to Form 10-Q
for the period ended March 31, 2015 and
incorporated herein by
Filed by CHC as Exhibit 10.3 to Form 10-Q
for the period ended March 31, 2017 and
incorporated herein by reference.
10.1(g)
Form of Cigna LTIP: Strategic Performance Share Grant Agreement Filed by CHC as Exhibit 10.4 to Quarterly
Report on Form 10-Q for the period ended
March 31, 2018 and incorporated herein by
reference.
10.1(h)
Form of Cigna LTIP: Restricted Stock Grant Agreement
10.1(i)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
Filed by CHC as Exhibit 10.6 to Quarterly
Report on Form 10-Q for the period ended
March 31, 2018 and incorporated herein by
reference
Filed by CHC as Exhibit 10.5 to Quarterly
Report on Form 10-Q for the period ended
March 31, 2018 and incorporated herein by
reference.
10.1(j)
Form of Cigna LTIP: Strategic Performance Share Grant Agreement Filed by the registrant as Exhibit 10.1 to
10.1(k)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
Quarterly Report on Form 10-Q for the period
ended March 31, 2019 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.2 to
Quarterly Report on Form 10-Q for the period
ended March 31, 2019 and incorporated
herein by reference.
150
10.1(l)
Form of Cigna LTIP: Restricted Stock Grant Agreement
Filed by the registrant as Exhibit 10.3 to
Quarterly Report on Form 10-Q for the period
ended March 31, 2019 and incorporated
herein by reference.
10.1(m)
Form of Cigna LTIP: Strategic Performance Share Grant Agreement Filed by the registrant as Exhibit 10.1 to
10.1(n)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
10.1(o)
Form of Cigna LTIP: Restricted Stock Grant Agreement
10.1(p)
Form of Cigna LTIP: Covenant Agreement
10.2
Cigna Corporation Stock Plan, as amended through July 2000
10.3
Cigna Stock Unit Plan, as amended and restated effective February
22, 2017
10.4(a)
Express Scripts Holding Company 2016 Long-Term Incentive Plan
(the “ESRX LTIP”)
Quarterly Report on Form 10-Q for the period
ended March 31, 2020 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.2 to
Quarterly Report on Form 10-Q for the period
ended March 31, 2020 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.3 to
Quarterly Report on Form 10-Q for the period
ended March 31, 2020 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.5 to
Quarterly Report on Form 10-Q for the period
ended March 31, 2020 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.7 to the Annual
Report on Form 10-K for the year ended
December 31, 2009 and incorporated herein
by reference.
Filed by CHC as Exhibit 10.5 to the Quarterly
Report on Form 10-Q for the quarterly period
ended March 31, 2017 and incorporated
herein by reference.
Filed by ESRX as Appendix A to ESRX’s
Definitive Proxy Statement on Schedule 14A
for its 2016 Annual Meeting of Stockholders,
filed March 21, 2016 and incorporated herein
by reference.
Filed by ESRX as Exhibit 10.4 to the Current
Report on Form 8-K on May 4, 2016 and
incorporated herein by reference.
10.4(b)
10.4(c)
10.4(d)
10.5(a)
10.5(b)
10.5(c)
10.5(d)
Form of Stock Option Grant Notice for Non-Employee Directors
used with respect to grants of stock options by Express Scripts
Holding Company to non-employee directors under the ESRX LTIP
Form of Restricted Stock Unit Grant Notice used with respect to
grants of restricted stock units by Express Scripts Holding Company
under the ESRX LTIP
Filed by ESRX as Exhibit 10.5 to the Current
Report on Form 8-K on May 4, 2016 and
incorporated herein by reference.
Form of Stock Option Grant Notice used with respect to grants of
stock options by Express Scripts Holding Company under the ESRX
LTIP
Filed by ESRX as Exhibit 10.7 to Current
Report on Form 8-K on May 4, 2016 and
incorporated herein by reference.
Express Scripts, Inc. 2011 Long-Term Incentive Plan (as amended
and restated effective April 2, 2012) (the “ESI LTIP”)
Form of Stock Option Grant Notice for Non-Employee Directors
used with respect to grants of stock options by Express Scripts
Holding Company under the ESI LTIP
Filed by the registrant as Exhibit 4.10 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Filed by ESRX as Exhibit 10.6 to Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2012 and incorporated herein by
reference.
Form of Stock Option Grant Notice used with respect to certain
grants of stock options by Express Scripts Holding Company prior
to 2013 under the ESI LTIP
Filed by ESRX as Exhibit 10.14 to the
Current Report on Form 8-K on April 2, 2012
and incorporated herein by reference.
Form of Stock Option Grant Notice used with respect to grants of
stock options by Express Scripts Holding Company under the ESI
LTIP
Filed by ESRX as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2013 and
incorporated herein by reference.
151
10.6(a)
10.6(b)
Medco Health Solutions, Inc. 2002 Stock Incentive Plan (as
amended and restated effective April 2, 2012).
Form of terms and conditions for director stock option and restricted
stock unit awards
10.7
Accredo Health, Incorporated 2002 Long-Term Incentive Plan
Deferred Compensation Plan for Directors of Cigna Corporation, as
amended and restated January 1, 1997
Cigna Deferred Compensation Plan, as amended and restated
October 24, 2001
Cigna Deferred Compensation Plan of 2005 effective as of January
1, 2005
10.8
10.9
10.10
10.11
Filed by the registrant as Exhibit 4.11 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Filed by Medco as Exhibit 10.2 to the Current
Report on Form 8-K on February 8, 2005 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.12 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1 the Annual
Report on Form 10-K for the year ended
December 31, 2011 and incorporated herein
by reference.
Filed by CHC as Exhibit 10.14 to the Annual
Report on Form 10-K for the year ended
December 31, 2011 and incorporated herein
by reference.
Filed by the registrant as Exhibit 4.6 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Express Scripts, Inc. Amended and Restated Executive Deferred
Compensation Plan (effective December 31, 2004 and grandfathered
for the purposes of Section 409A of the Code)
Filed by ESI as Exhibit No. 10.1 to the
Current Report on Form 8-K on May 25, 2007
and incorporated herein by reference.
10.12(a)
Express Scripts, Inc. Executive Deferred Compensation Plan of
2005 (as amended and restated effective December 20, 2018)
10.12(b)
Amendment No. 1 to the Express Scripts, Inc. Executive Deferred
Compensation Plan of 2005
10.13(a)
Cigna Supplemental Pension Plan as amended and restated effective
August 1, 1998
10.13(b)
Amendment No. 1 to the Cigna Supplemental Pension Plan,
amended and restated effective as of September 1, 1999
10.13(c)
Amendment No. 2 dated December 6, 2000 to the Cigna
Supplemental Pension
10.14(a)
Cigna Supplemental Pension Plan of 2005 effective as of January 1,
2005
Filed by the registrant as Exhibit 4.13 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.12(b) to
the Annual Report on Form 10-K for the year
ended December 31, 2019 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.15(a) to the
Annual Report on Form 10-K for the year
ended December 31, 2009 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.15(b) to the
Annual Report on Form 10-K for the year
ended December 31, 2009 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.16(c) to the
Annual Report on Form 10-K for the year
ended December 31, 2011 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.15 to the Annual
Report on Form 10-K for the year ended
December 31, 2007 and incorporated herein
by reference.
10.14(b)
Amendment No. 1 to the Cigna Supplemental Pension Plan of 2005 Filed by CHC as Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarterly period
ended June 30, 2009 and incorporated herein
by reference.
10.15(a)
Cigna Supplemental 401(k) Plan effective January 1, 2010
Filed by the registrant as Exhibit 4.7 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
152
10.15(b)
Amendment No. 1 to the Cigna Supplemental 401(k) Plan
10.15(c)
Amendment No. 2 to the Cigna Supplemental 401(k) Plan
10.15(d)
Amendment No. 3 to the Cigna Supplemental 401(k) Plan
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
Cigna Corporation Non-Employee Director Compensation Program
amended and restated effective February 26, 2014
Cigna Corporation Non-Employee Director Compensation Program,
amended and restated effective January 1, 2019
Cigna Corporation Director Equity Plan, as amended December 4,
2020
Cigna Restricted Share Equivalent Plan for Non-Employee Directors
as amended and restated effective January 1, 2008
Deferred Compensation Plan of 2005 for Directors of Cigna
Corporation, Amended and Restated effective April 28, 2010
Cigna Executive Severance Benefits Plan as amended and restated
effective December 21, 2020
Description of Severance Benefits for Executives in Non-Change of
Control Circumstances
Cigna Executive Incentive Plan amended and restated as of January
1, 2012
10.25
Description of Cigna Corporation Financial Services Program
10.26
Offer Letter for Eric P. Palmer dated June 16, 2017
10.27
Nicole Jones’ Offer of Employment dated April 27, 2011
153
Filed by the registrant as Exhibit 10.15(b) to
the Annual Report on Form 10-K for the year
ended December 31, 2019 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.15(c) to
the Annual Report on Form 10-K for the year
ended December 31, 2019 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.15(d) to
the Annual Report on Form 10-K for the year
ended December 31, 2019 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarterly period
ended March 31, 2014 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.18 to the
Annual Report on Form 10-K for the year
ended December 31, 2018 and incorporated
herein by reference.
Filed herewith.
Filed by CHC as Exhibit 10.4 to the Annual
Report on Form 10-K for the year ended
December 31, 2012 and incorporated herein
by reference.
Filed by the registrant as Exhibit 4.8 to the
Registration Statement on Form S-8 (No. 333-
228930) on December 20, 2018 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.1 to the
Current Report on Form 8-K on October 30,
2020 and incorporated herein by reference.
Filed by CHC as Exhibit 10.10 to the Annual
Report on Form 10-K for the year ended
December 31, 2009 and incorporated herein
by reference.
Filed by CHC as Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarterly period
ended March 31, 2012 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.18 to the Annual
Report on Form 10-K for the year ended
December 31, 2009 and incorporated herein
by reference.
Filed by CHC as Exhibit 10.1 to the Current
Report on Form 8-K on June 19, 2017 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the period ended
March 31, 2012 and incorporated herein by
reference.
Form of Indemnification Agreement with Express Scripts Holding
Company’s executive officers and former members of the Express
Scripts Holding Company’s board of directors
Filed by ESRX as Exhibit 10.1 to the Current
Report on Form 8-K on March 5, 2014 and
incorporated herein by reference.
10.28
Employment Agreement for Jason D. Sadler dated May 7, 2010
10.29
Promotion letter for Jason Sadler dated June 2, 2014
Retention Agreement by and between Cigna Corporation and Mr.
Timothy Wentworth, dated as of May 12, 2018.
Express Scripts Holding Company Executive Employment
Agreement with Timothy Wentworth dated May 4, 2016
Schedule regarding Amended Deferred Stock Unit Agreements
effective December 31, 2008 with John M. Murabito and Form of
Amended Deferred Stock Unit Agreement
Retention Agreement between the Cigna Corporation and Steven B.
Miller dated October 9, 2018
Agreement and Release between the Company and Matthew G.
Manders dated October 16, 2017
Filed by CHC as Exhibit 10.1(a) to the
Quarterly Report on Form 10-Q for the period
ended March 31, 2015 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.1(b) to the
Quarterly Report on Form 10-Q for the period
ended March 31, 2015 and incorporated
herein by reference.
Filed by the registrant as Exhibit 10.1 to
Amendment No. 1 to the Registration
Statement on Form S-4 (No. 333-224960) on
June 20, 2018 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.1 to the Current
Report on Form 8-K on May 4, 2016 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.20 to the Annual
Report on Form 10-K for the year ended
December 31, 2008 and incorporated herein
by reference.
Filed by the registrant as Exhibit 10.34 to the
Annual Report on Form 10-K for the year
ended December 31, 2018 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.1 to the Current
Report on Form 8-K on October 18, 2017 and
incorporated herein by reference.
Offer letter for Eric Palmer dated December 6, 2020
Offer letter for Matthew Manders dated December 6, 2020
Offer letter for Brian Evanko dated December 6, 2020
Filed herewith.
Filed herewith.
Filed herewith.
Revolving Credit and Letter of Credit Agreement, dated as of April
6, 2018
Master Transaction Agreement, dated February 4, 2013 among
Connecticut General Life Insurance Company, Berkshire Hathaway
Life Insurance Company of Nebraska and, solely for purposes of
Sections 3.10, 6.1, 6.3, 6.4, 6.6, 6.9 and Articles II, V, VII and VIII,
thereof, National Indemnity Company (including the Forms of
Retrocession Agreement, the Collateral Trust Agreement, the
Security and Control Agreement, the Surety Policy and the ALC
Model Purchase Option Agreement as exhibits)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer of Cigna Corporation
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934
Certification of Chief Financial Officer of Cigna Corporation
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934
Filed by CHC as Exhibit 10.1 to Current
Report on Form 8-K on April 12, 2018 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.29 to the Annual
Report on Form 10-K for the year ended
December 31, 2012 and incorporated herein
by reference.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Certification of Chief Executive Officer of Cigna Corporation
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350
Certification of Chief Financial Officer of Cigna Corporation
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section
1350
Furnished herewith.
Furnished herewith.
154
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21
23
31.1
31.2
32.1
32.2
101
The following materials from Cigna Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2020, formatted in
inline XBRL (Extensible Business Reporting Language): (i) the
Consolidated Balance Sheets; (ii) the Consolidated Statements of
Income; (iii) the Consolidated Statements of Comprehensive
Income; (iv) the Consolidated Statements of Cash Flows; (v) the
Consolidated Statements of Changes in Total Equity; (vi) the Notes
to Consolidated Financial Statements; and (vii) Financial Statement
Schedules I and II.
Filed herewith.
104
Cover Page Interactive Data File (formatted as inline XBRL and
contained in Exhibit 101)
Filed herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure
other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular,
any representations and warranties made by the Company in these agreements or other documents were made solely within the
specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at
any other time.
Item 16. FORM 10-K SUMMARY
None.
155
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 25, 2021
CIGNA CORPORATION
/s/ Brian C. Evanko
By:
Brian C. Evanko
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as of February 25, 2021.
Signature
Title
/s/ David M. Cordani
David M. Cordani
/s/ Brian C. Evanko
Brian C. Evanko
/s/ Mary T. Agoglia Hoeltzel
Mary T. Agoglia Hoeltzel
/s/ William J. DeLaney
William J. DeLaney
/s/ Eric J. Foss
Eric J. Foss
/s/ Elder Granger, M.D.
Elder Granger, M.D.
/s/ Isaiah Harris, Jr.
Isaiah Harris, Jr.
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President, Tax and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Chairman of the Board
156
/s/ Kathleen M. Mazzarella
Kathleen M. Mazzarella
/s/ Mark McClellan, M.D.
Mark McClellan, M.D.
/s/ John M. Partridge
John M. Partridge
/s/ William L. Roper, M.D.
William L. Roper, M.D.
/s/ Kimberly A. Ross
Kimberly A. Ross
/s/ Eric C. Wiseman
Eric C. Wiseman
/s/ Donna F. Zarcone
Donna F. Zarcone
Director
Director
Director
Director
Director
Director
Director
157
(This page has been left blank intentionally.)
CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules................................................
PAGE
FS-2
Schedules
I
II
Condensed Financial Information of Cigna Corporation (Registrant).................................................................
Statements of Income for the Years Ended December 31, 2020, 2019 and 2018..............................................
Balance Sheets as of December 31, 2020 and 2019...........................................................................................
Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018.......................................
Notes to Condensed Financial Statements.........................................................................................................
Valuation and Qualifying Accounts for the Years Ended December 31, 2020, 2019 and 2018..........................
FS-3
FS-3
FS-4
FS-5
FS-6
FS-8
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
FS-1
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules
To the Board of Directors and Shareholders of Cigna Corporation
Our audits of the consolidated financial statements referred to in our report dated February 25, 2021 (which report and consolidated
financial statements are included under Item 8 in this Annual Report on Form 10-K) also included an audit of the financial statement
schedules listed on page FS-1 in Item 15 of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 25, 2021
FS-2
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF INCOME
(in millions)
Revenues
Net investment income
Intercompany interest income
Total revenues
Operating expenses
Selling, general and administrative expenses
Total operating expenses
Income (loss) from operations
Interest and other (expense)
Intercompany interest (expense)
Debt extinguishment costs
Realized investment (loss)
Loss before taxes
Income tax (benefit)
Loss of Parent Company
Equity in income of subsidiaries
Shareholders' net income
Shareholders' other comprehensive income (loss), net of tax
Net unrealized appreciation (depreciation) on securities and derivatives
Net translation (losses) gains of foreign currencies
Postretirement benefits liability adjustment
Shareholders' other comprehensive income (loss), net of tax
Shareholders' comprehensive income
See Notes to Financial Statements on the following pages.
For the years ended
December 31,
Cigna
2020
Cigna
2019
Cigna
2018
$
1 $
— $
475
476
4
4
472
(1,324)
(48)
(171)
—
(1,071)
(234)
(837)
9,295
8,458
(75)
260
(105)
80
6
6
(85)
(85)
91
(1,032)
(127)
—
—
(1,068)
(251)
(817)
5,921
5,104
957
(54)
(133)
770
123
—
123
200
200
(77)
(244)
(5)
—
(1)
(327)
(74)
(253)
2,890
2,637
(365)
(152)
127
(390)
$
8,538 $
5,874 $
2,247
FS-3
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(in millions)
Assets
Cash and cash equivalents
Short-term investments
Other current assets
Total current assets
Intercompany receivable
Investments in subsidiaries
Other noncurrent assets
TOTAL ASSETS
Liabilities
Short-term debt
Other current liabilities
Total current liabilities
Intercompany payable
Long-term debt
TOTAL LIABILITIES
Shareholders’ Equity
Common stock (shares issued, 390 and 386; authorized, 600)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock, at cost
TOTAL SHAREHOLDERS’ EQUITY
As of December 31,
2020
2019
$
4,157 $
49
4
4,210
1,666
76,040
22
—
30
4
34
4,111
77,380
19
81,938 $
81,544
$
$
3,278 $
616
3,894
5
27,718
31,617
4
28,975
(861)
28,575
(6,372)
50,321
4,043
457
4,500
2,341
29,365
36,206
4
28,306
(941)
20,162
(2,193)
45,338
81,544
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
81,938 $
See Notes to Financial Statements on the following pages.
FS-4
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF CASH FLOWS
(in millions)
Cash Flows from Operating Activities
Shareholders’ net income
Adjustments to reconcile shareholders’ net income
to net cash provided by operating activities
Equity in income of subsidiaries
Debt extinguishment costs
Dividends received from subsidiaries
Other liabilities
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows from Investing Activities
Net change in loans due to (from) affiliates
Short-term investment purchased, net
Other, net
NET CASH (USED IN) INVESTING ACTIVITIES
Cash Flows from Financing Activities
Net change in amounts due to affiliates
Proceeds on issuance of commercial paper
Payments for debt extinguishment
Repayment of long-term debt
Net proceeds on issuance of long-term debt
Issuance of common stock
Common dividends paid
Repurchase of common stock
Tax withholding on stock compensation and other
Other
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
For the years ended
December 31,
Cigna
2020
Cigna
2019
Cigna
2018
$
8,458 $
5,104 $
2,637
(9,295)
171
8,627
112
500
8,573
(265)
(19)
—
(284)
2,262
86
(181)
(5,996)
3,465
376
(15)
(5,921)
—
2,457
43
20
1,703
—
(30)
—
(30)
2,015
944
—
(3,002)
—
224
(15)
(4,042)
(1,987)
(87)
—
(4,132)
4,157
—
4,157
(82)
(13)
(1,916)
(243)
243
—
(2,890)
—
—
412
(14)
145
—
—
(27,115)
(27,115)
4,437
—
—
—
22,856
1
—
(32)
(49)
—
27,213
243
—
243
See Notes to Financial Statements on the following pages.
FS-5
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the
accompanying notes thereto contained in this Annual Report on Form 10-K (“Form 10-K”).
Note 1 — Cigna Holding Company (formerly Cigna Corporation) was incorporated in Delaware in 1981. Halfmoon Parent, Inc. was
incorporated in Delaware in March 2018. Halfmoon Parent, Inc. was renamed Cigna Corporation and Cigna Holding Company
became its subsidiary concurrent with the consummation of the combination with Express Scripts on December 20, 2018.
For purposes of these condensed financial statements, Cigna Corporation’s (the “Company”) wholly-owned and majority-owned
subsidiaries are recorded using the equity method of accounting.
Note 2 — See Note 7 – Debt included in Part II, Item 8 of this Form 10-K for a description of the short-term and long-term debt
obligations of Cigna Corporation and its subsidiaries.
Debt Issuance and Redemption. In order to decrease future interest expense and reduce future refinancing risk, the Company entered
into the following transactions during 2020:
•
•
Debt issuance: On March 16, 2020, the Company issued $3.5 billion of new senior notes. The proceeds of this issuance were
mainly used to pay the consideration for the cash tender and redemption offer as described below. Interest on this debt is paid
semi-annually.
Principal
$1,500 million
$750 million
$1,250 million
Maturity Date
March 15, 2030
March 15, 2040
March 15, 2050
Interest Rate
2.4%
3.2%
3.4%
Net Proceeds
$1,491 million
$743 million
$1,237 million
Debt tender and redemption: In March and April 2020, the Company completed a tender offer and an optional redemption
totaling $2.9 billion of aggregate principal amount of certain of its outstanding debt securities. The principal amount
repurchased in this tender offer was $1.3 billion. Additionally, $1.6 billion of notes were repurchased via optional
redemption. The Company recorded a pre-tax loss of $171 million ($124 million after-tax), consisting primarily of premium
payments on the tender and optional redemption.
Debt Exchange. In the fourth quarter of 2019, the Company settled an exchange of approximately $12.7 billion of Notes issued by
Express Scripts Holding Company, Medco Health Solutions, Inc. and Cigna Holding Company for privately placed Notes issued by
Cigna with the same interest rates and maturities and comparable other terms. We initiated an exchange offer to register such debt in
the second quarter of 2020 and completed the exchange in July 2020.
Debt Repayment. In 2020, the Company repaid $6.0 billion of long-term debt, including the $2.9 billion debt tender and redemption
described above. On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes
due 2021 (the “Notes”) pursuant to which Cigna redeemed the entire $1.0 billion aggregate principal amount of the Notes outstanding
on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the
Notes.
Revolving Credit Agreements. Cigna has a revolving credit and letter of credit agreement that matures in April 2023 and is diversified
among 23 banks. Cigna can borrow up to $3.25 billion for general corporate purposes, with up to $500 million available for issuance
of letters of credit. This revolving credit agreement also includes an option to increase the facility amount up to $500 million and an
option to extend the termination date for additional one-year periods, subject to consent of the banks.
Additionally, Cigna has a 364-day $1.0 billion revolving credit agreement that will mature in October 2021. The agreement replaces
the $1.0 billion 364-day revolving credit agreement that expired in October 2020. The agreement is diversified among 23 banks.
Pursuant to this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate purposes. The agreement
includes the option to “term out” any revolving loans that are outstanding at maturity by converting them into a term loan maturing on
the one year anniversary of conversion.
FS-6
The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s
leverage ratio may not exceed 60%. As of December 31, 2020, there were no outstanding balances under the revolving credit
agreements.
Term Loan Credit Agreement. On April 1, 2020, the Company borrowed an aggregate principal amount of $1.4 billion under a new
364-Day Term Loan Credit Agreement. In connection with the sale of the Group Life and Disability business, on December 31, 2020
we repaid the entire $1.4 billion balance outstanding.
Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately
placed on a discount basis through certain broker dealers at any time not to exceed $4.25 billion. Amounts available under the program
may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for
general corporate purposes. The commercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an
average interest rate of 0.2%.
The Company was in compliance with its debt covenants as of December 31, 2020.
Maturity of the Company’s long-term debt is as follows:
(in millions)
2021
2022
2023
2024
2025
Maturities after 2025
$
$
$
$
$
$
2,250
1,378
3,754
714
2,957
19,182
Note 3 — Intercompany receivables of the Company consist primarily of net amounts due from Express Scripts Holdings of
$1.4 billion (consisting of an $8.2 billion receivable offset by a $6.8 billion payable) as of December 31, 2020 and $3.9 billion
(consisting of an $8.2 billion receivable offset by a $4.3 billion payable) as of December 31, 2019. Interest income on the receivable
was accrued at an annual fixed rate of 5.50%. Interest expense on the payable was accrued at an average rate of 0.97% in 2020.
Note 4 — The Company had guarantees of approximately $87 million as of December 31, 2020. These guarantees are primarily
related to outstanding letters of credit. In 2020, no payments have been made on these guarantees.
FS-7
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
Description
2020
Investment asset valuation reserves
Available-for-sale debt securities
Accounts receivable, net
Deferred tax asset valuation allowance
Reinsurance recoverables (1)
2019
Accounts receivable, net
Deferred tax asset valuation allowance
Reinsurance recoverables
2018
Balance at
beginning of
year
Charged
(Credited) to
costs and
expenses
Charged
(Credited) to
other
accounts
Other
deductions
Balance at
end of year
$
$
$
$
$
$
$
— $
252 $
196 $
2 $
217 $
199 $
2 $
82 $
(50) $
10 $
(1) $
51 $
(6) $
— $
— $
(12) $
1 $
31 $
— $
3 $
— $
(3) $
132 $
— $
(56) $
(34) $
— $
— $
(16) $
— $
— $
(5) $
— $
— $
26
156
207
32
252
196
2
217
199
2
Accounts receivable, net
Deferred tax asset valuation allowance (2)
Reinsurance recoverables
(1) The Company recorded an additional allowance of $31 million on January 1, 2020 upon the adoption of ASU 2016-13
(2) Deferred tax valuation allowance amount includes amount assumed from Express Scripts in 2018.
207 $
18 $
72 $
(1) $
(5) $
3 $
$
$
$
FS-8
Exhibit 21 – Subsidiaries of the Registrant
Listed below are subsidiaries of Cigna Corporation as of December 31, 2020 with their jurisdictions of organization. Those
subsidiaries not listed would not, in the aggregate, constitute a “significant subsidiary” of Cigna Corporation, as that term is defined in
Rule 1-02(w) of Regulation S-X.
Entity Name
Accredo Health Group, Inc.
Accredo Health, Incorporated
Allegiance Life & Health Insurance Company
American Retirement Life Insurance Company
Bravo Health Mid-Atlantic, Inc.
Bravo Health Pennsylvania, Inc.
Care Continuum, Inc.
CareCore National, LLC
CareCore NJ, LLC
Chiro Alliance Corporation
Cigna & CMB Life Insurance Company Limited
Cigna Arbor Life Insurance Company
Cigna Brokerage & Marketing (Thailand) Limited
Cigna Dental Health Of California, Inc.
Cigna Dental Health Of Colorado, Inc.
Cigna Dental Health Of Delaware, Inc.
Cigna Dental Health Of Florida, Inc.
Cigna Dental Health of Illinois, Inc.
Cigna Dental Health Of Kansas, Inc.
Cigna Dental Health Of Kentucky, Inc.
Cigna Dental Health Of Maryland, Inc.
Cigna Dental Health Of Missouri, Inc.
Cigna Dental Health Of New Jersey, Inc.
Cigna Dental Health Of North Carolina, Inc.
Cigna Dental Health Of Ohio, Inc.
Cigna Dental Health Of Pennsylvania, Inc.
Cigna Dental Health Of Texas, Inc.
Cigna Dental Health Of Virginia, Inc.
Cigna Dental Health Plan Of Arizona, Inc.
Cigna Europe Insurance Company S.A.-N.V.
Cigna Global Insurance Company Limited
Cigna Global Reinsurance Company, Ltd.
Cigna Health and Life Insurance Company
Cigna HealthCare Mid-Atlantic, Inc.
Cigna HealthCare of Arizona, Inc.
Cigna HealthCare of California, Inc.
E-1
Jurisdiction
Delaware
Delaware
Montana
Ohio
Maryland
Pennsylvania
Kentucky
New York
New Jersey
Florida
China
Connecticut
Thailand
California
Colorado
Delaware
Florida
Illinois
Kansas
Kentucky
Maryland
Missouri
New Jersey
North Carolina
Ohio
Pennsylvania
Texas
Virginia
Arizona
Belgium
Guernsey
Bermuda
Connecticut
Maryland
Arizona
California
Cigna HealthCare of Colorado, Inc.
Cigna HealthCare of Connecticut, Inc.
Cigna HealthCare of Florida, Inc.
Cigna HealthCare of Georgia, Inc.
Cigna HealthCare of Illinois, Inc.
Cigna HealthCare of Indiana, Inc.
Cigna HealthCare of Maine, Inc.
Cigna HealthCare of Massachusetts, Inc.
Cigna HealthCare of New Hampshire, Inc.
Cigna HealthCare of New Jersey, Inc.
Cigna HealthCare of North Carolina, Inc.
Cigna HealthCare of Pennsylvania, Inc.
Cigna HealthCare of South Carolina, Inc.
Cigna HealthCare of St. Louis, Inc.
Cigna HealthCare of Tennessee, Inc.
Cigna HealthCare of Texas, Inc.
Cigna HealthCare of Utah, Inc.
Cigna Holding Company
Cigna Holdings, Inc.
Cigna Insurance Middle East S.A.L.
Cigna Insurance Public Company Limited
Cigna Insurance Services (Europe) Limited
Cigna Life Insurance Company of Canada
Cigna Life Insurance Company of Europe S.A.-N.V.
Cigna Life Insurance New Zealand Limited
Cigna National Health Insurance Company
Cigna Saglik Hayat ve Emeklilik A.S.
Cigna Taiwan Life Assurance Company Limited
Cigna Worldwide Life Insurance Company Limited
Connecticut General Corporation
Connecticut General Life Insurance Company
CuraScript, Inc.
ESI Mail Pharmacy Service, Inc.
Evernorth Health, Inc.
eviCore healthcare MSI, LLC
Express Reinsurance Company
Express Scripts Administrators LLC
Express Scripts Pharmaceutical Procurement, LLC
Express Scripts Strategic Development, Inc.
Express Scripts Utilization Management Company
Express Scripts, Inc.
HealthSpring Life & Health Insurance Company, Inc.
HealthSpring of Florida, Inc.
E-2
Colorado
Connecticut
Florida
Georgia
Illinois
Indiana
Maine
Massachusetts
New Hampshire
New Jersey
North Carolina
Pennsylvania
South Carolina
Missouri
Tennessee
Texas
Utah
Delaware
Delaware
Lebanon
Thailand
United Kingdom
Canada
Belgium
New Zealand
Ohio
Turkey
Taiwan
Hong Kong
Connecticut
Connecticut
Delaware
Delaware
Delaware
Tennessee
Missouri
Delaware
Delaware
New Jersey
Delaware
Delaware
Texas
Florida
Inside RX, LLC
LINA Life Insurance Company of Korea
Loyal American Life Insurance Company
ManipalCigna Health Insurance Company Limited
Matrix Healthcare Services, Inc.
Medco Containment Insurance Company of NY
Medco Containment Life Insurance Company
Medco Health Services, Inc.
Medco Health Solutions, Inc.
MSI Health Organization of Texas, Inc.
Provident American Life & Health Insurance Company
PT Asuransi Cigna
Sterling Life Insurance Company
Temple Insurance Company Limited
United Benefit Life Insurance Company
Delaware
South Korea
Ohio
India
Florida
New York
Pennsylvania
Delaware
Delaware
Texas
Ohio
Indonesia
Illinois
Bermuda
Ohio
E-3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-236877) and Form S-8
(Nos. 333-228930 and 333-228931) of Cigna Corporation of our reports dated February 25, 2021 relating to the financial statements
and financial statement schedules and the effectiveness of internal control over financial reporting, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 25, 2021
E-4
Exhibit 31.1
I, DAVID M. CORDANI, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Cigna Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
b)
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
d)
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b)
registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant role in the
Date: February 25, 2021
/s/ David M. Cordani
Chief Executive Officer
E-5
Exhibit 31.2
I, BRIAN C. EVANKO, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Cigna Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
b)
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
d)
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b)
registrant’s internal control over financial reporting.
any fraud, whether or not material, that involves management or other employees who have a significant role in the
Date: February 25, 2021
/s/ Brian C. Evanko
Chief Financial Officer
E-6
Certification of Chief Executive Officer of
Cigna Corporation pursuant to 18 U.S.C. Section 1350
Exhibit 32.1
I certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K of Cigna Corporation for the fiscal period
ending December 31, 2020 (the “Report”):
(1)
(2)
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Cigna Corporation.
/s/ David M. Cordani
David M. Cordani
Chief Executive Officer
February 25, 2021
E-7
Certification of Chief Financial Officer of
Cigna Corporation pursuant to 18 U.S.C. Section 1350
Exhibit 32.2
I certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K of Cigna Corporation for the fiscal period
ending December 31, 2020 (the “Report”):
(1)
(2)
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Cigna Corporation.
/s/ Brian C. Evanko
Brian C. Evanko
Chief Financial Officer
February 25, 2021
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Cigna Coronavirus (COVID-19) resource center, Cigna.com/Coronavirus
Cigna Coronavirus (COVID-19) resource center, Cigna.com/Coronavirus
Cigna Press Release, Cigna Takes Action To Combat Systemic Racism And Improve Equity And Equality, July 17, 2020
Cigna Press Release, Cigna Takes Action To Combat Systemic Racism And Improve Equity And Equality, July 17, 2020
Cigna Press Release, Cigna Reports Fourth Quarter and Full Year 2020 Results, Expects Continued Revenue and Earnings Growth in 2021, February 4, 2021
Cigna Press Release, Cigna Reports Fourth Quarter and Full Year 2020 Results, Expects Continued Revenue and Earnings Growth in 2021, February 4, 2021
Our consolidated measures “adjusted income from operations,” earnings per share on that same basis, and “adjusted revenues” are not determined in
Our consolidated measures “adjusted income from operations,” earnings per share on that same basis, and “adjusted revenues” are not determined in
accordance with principles generally accepted in the United States (GAAP) and should not be viewed as substitutes for the most directly comparable
accordance with principles generally accepted in the United States (GAAP) and should not be viewed as substitutes for the most directly comparable
GAAP measures “shareholders’ net income,” “earnings per share” and “total revenues.” These measures are each defined on page 52 of our Form 10-K.
GAAP measures “shareholders’ net income,” “earnings per share” and “total revenues.” These measures are each defined on page 52 of our Form 10-K.
We use adjusted income from operations as our principal financial measure of operating performance because management believes it best reflects the
We use adjusted income from operations as our principal financial measure of operating performance because management believes it best reflects the
underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. Management is not able to
underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. Management is not able to
provide a reconciliation to shareholders’ net income (loss) or adjusted revenues to total revenues on a forward basis because we are unable to predict
provide a reconciliation to shareholders’ net income (loss) or adjusted revenues to total revenues on a forward basis because we are unable to predict
certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted revenues) and (ii)
certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted revenues) and (ii)
future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated
future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any associated
estimate and its impact on shareholders’ net income and total revenues could vary materially. As previously disclosed, for periods prior to 2020, we excluded
estimate and its impact on shareholders’ net income and total revenues could vary materially. As previously disclosed, for periods prior to 2020, we excluded
contributions from transitioning pharmacy benefit management clients, Anthem, Inc., and Coventry Health Care, Inc., from our adjusted metrics.
contributions from transitioning pharmacy benefit management clients, Anthem, Inc., and Coventry Health Care, Inc., from our adjusted metrics.
STAT, Americans with employer coverage saw growth in drug spending outpace other medical costs, February 13, 2020.
STAT, Americans with employer coverage saw growth in drug spending outpace other medical costs, February 13, 2020.
U.S. Centers for Disease Control and Prevention, Mental Health, Substance Use, and Suicidal Ideation During the COVID-19 Pandemic – August 14, 2020
U.S. Centers for Disease Control and Prevention, Mental Health, Substance Use, and Suicidal Ideation During the COVID-19 Pandemic – August 14, 2020
Cigna Press Release, New Landmark Study From Cigna Shows American Resilience Is At Risk, September 29, 2020
Cigna Press Release, New Landmark Study From Cigna Shows American Resilience Is At Risk, September 29, 2020
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8 World Health Organization, Mental health: strengthening our response, March 30, 2018
8 World Health Organization, Mental health: strengthening our response, March 30, 2018
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National Center for Biotechnology Information, Substance Use and Associated Health Conditions throughout the Lifespan, March 30, 2017
National Center for Biotechnology Information, Substance Use and Associated Health Conditions throughout the Lifespan, March 30, 2017
Cigna internal analysis of existing arrangements as of December 2020
Cigna internal analysis of existing arrangements as of December 2020
Journal of Medical Internet Research, Patterns of Use and Key Predictors for the Use of Wearable Health Care Devices by US Adults: Insights from a National
Journal of Medical Internet Research, Patterns of Use and Key Predictors for the Use of Wearable Health Care Devices by US Adults: Insights from a National
Survey, October 2020
Survey, October 2020
Cigna Newsroom, As Demand for Virtual Health Care Surges, Evernorth, Cigna’s Health Services Business, Announces Acquisition of MDLIVE, February 26, 2021
Cigna Newsroom, As Demand for Virtual Health Care Surges, Evernorth, Cigna’s Health Services Business, Announces Acquisition of MDLIVE, February 26, 2021
Cigna Newsroom, Cigna Health Improvement Tour Offering Free Flu Shots, PPE and COVID-19 Resources, December 2020
Cigna Newsroom, Cigna Health Improvement Tour Offering Free Flu Shots, PPE and COVID-19 Resources, December 2020
Cigna Stress Care Check-In, Comms.cigna.com/checkin-individuals
Cigna Stress Care Check-In, Comms.cigna.com/checkin-individuals
Cigna Coronavirus (COVID-19) resource center, Cigna.com/coronavirus/individuals-and-families
Cigna Coronavirus (COVID-19) resource center, Cigna.com/coronavirus/individuals-and-families
Cigna Press Release, Cigna Takes Action To Protect Its Customers From COVID-19 Surprise Bills, May 6, 2020
Cigna Press Release, Cigna Takes Action To Protect Its Customers From COVID-19 Surprise Bills, May 6, 2020
Cigna internal analysis of existing arrangements as of December 2020
Cigna internal analysis of existing arrangements as of December 2020
Cigna Coronavirus (COVID-19) resource center, Cigna.com/coronavirus/employers/working-during-covid/healthy-ways-to-work
Cigna Coronavirus (COVID-19) resource center, Cigna.com/coronavirus/employers/working-during-covid/healthy-ways-to-work
Cigna Press Release, Cigna Foundation And New York Life Foundation Partner To Launch Brave Of Heart Fund To Support The Families Of Front Line
Cigna Press Release, Cigna Foundation And New York Life Foundation Partner To Launch Brave Of Heart Fund To Support The Families Of Front Line
Healthcare Workers Who Give Their Lives In The COVID-19 Fight, April 21, 2020
Healthcare Workers Who Give Their Lives In The COVID-19 Fight, April 21, 2020
2020 Drug Trend Report, Evernorth.com
2020 Drug Trend Report, Evernorth.com
2020 Value of Integration Study, www.cignaclient.com/c/2020-voi-white-paper?x=hegVn1&lx=vGXolP
2020 Value of Integration Study, www.cignaclient.com/c/2020-voi-white-paper?x=hegVn1&lx=vGXolP
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22 Cigna internal analysis of existing arrangements as of December 2020
22 Cigna internal analysis of existing arrangements as of December 2020
23 Cigna Press Release, Cigna Expands Offerings for Individuals – Increasing Access to Quality Care in More Communities Across the Country, September 10, 2020
23 Cigna Press Release, Cigna Expands Offerings for Individuals – Increasing Access to Quality Care in More Communities Across the Country, September 10, 2020
24 Cigna Earnings Call, February 4, 2021; growth in pretax adjusted income from operations
24 Cigna Press Release, Cigna Launches Evernorth To Accelerate Delivery Of Innovative And Flexible Health Service Solutions, September 16, 2020
25 Cigna Press Release, Cigna Launches Evernorth To Accelerate Delivery Of Innovative And Flexible Health Service Solutions, September 16, 2020
25 Cigna Press Release, New York Life Completes Acquisition of Cigna’s Group Life and Disability Insurance Business, December 31, 2020
26 Cigna Press Release, New York Life Completes Acquisition of Cigna’s Group Life and Disability Insurance Business, December 31, 2020
26 Cigna Earnings Call, February 4, 2021
27 Cigna Earnings Call, February 4, 2021
27 Cigna internal analysis of existing arrangements as of December 2020
28 Cigna internal analysis of existing arrangements as of December 2020
28 Cigna internal analysis of existing arrangements as of December 2020
29 Cigna internal analysis of existing arrangements as of December 2020
29 Cigna Press Release, Cigna Takes Action To Combat Systemic Racism And Improve Equity And Equality, July 17, 2020
30 Cigna Press Release, Cigna Takes Action To Combat Systemic Racism And Improve Equity And Equality, July 17, 2020
30 Cigna Press Release, Cigna Leads Industry in 2020 Dow Jones Sustainability Indices, November 20, 2020
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Cigna Press Release, Cigna Leads Industry in 2020 Dow Jones Sustainability Indices, November 20, 2020
Cigna Newsroom, Cigna Earns Top-50 Honor From DiversityInc, May, 2020
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32 Cigna Newsroom, Cigna Earns Top-50 Honor From DiversityInc, May, 2020
32 Cigna Press Release, Cigna Named Among “Best Places to Work for LGBTQ Equality” For Eighth Year in a Row, January 21, 2020
33 Cigna Press Release, Cigna Named Among “Best Places to Work for LGBTQ Equality” For Eighth Year in a Row, January 21, 2020
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Cigna Press Release, Cigna Reports Fourth Quarter and Full Year 2020 Results, Expects Continued Revenue and Earnings Growth in 2021, February 4, 2021;
Cigna Press Release, Cigna Reports Fourth Quarter and Full Year 2020 Results, Expects Continued Revenue and Earnings Growth in 2021, February 4, 2021;
Cigna internal analysis of existing arrangements as of December 2020
Cigna internal analysis of existing arrangements as of December 2020
Our consolidated measures “adjusted income from operations,” earnings per share on that same basis, and “adjusted revenues” (each as defined on page 52
Our consolidated measures “adjusted income from operations,” earnings per share on that same basis, and “adjusted revenues” (each as defined on page 52
of our Form 10-K) are not determined in accordance with principles generally accepted in the United States (GAAP) and should not be viewed as sub stitutes
of our Form 10-K) are not determined in accordance with principles generally accepted in the United States (GAAP) and should not be viewed as sub stitutes
for the most directly comparable GAAP measures “shareholders’ net income,” “earnings per share” and “total revenues.” We use adjusted income from
for the most directly comparable GAAP measures “shareholders’ net income,” “earnings per share” and “total revenues.” We use adjusted income from
operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business
operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business
operations and permits analysis of trends in underlying revenue, expenses and profitability. We exclude certain items from adjusted revenues, as described
operations and permits analysis of trends in underlying revenue, expenses and profitability. We exclude certain items from adjusted revenues, as described
on page 52 of our Form 10-K, because management believes they are not indicative of past or future underlying performance of the business. Management
on page 52 of our Form 10-K, because management believes they are not indicative of past or future underlying performance of the business. Management
is not able to provide a reconciliation to shareholders’ net income (loss) or adjusted revenues to total revenues on a forward basis because we are unable to
is not able to provide a reconciliation to shareholders’ net income (loss) or adjusted revenues to total revenues on a forward basis because we are unable to
predict certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted revenues)
predict certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted revenues)
and (ii) future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any
and (ii) future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As such, any
associated estimate and its impact on shareholders’ net income and total revenues could vary materially. As previously disclosed, for periods prior to 2020,
associated estimate and its impact on shareholders’ net income and total revenues could vary materially. As previously disclosed, for periods prior to 2020,
we excluded contributions from transitioning clients from our adjusted metrics.
we excluded contributions from transitioning clients from our adjusted metrics.
All Cigna products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation, including Cigna Health
All Cigna products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation, including Cigna Health
and Life Insurance Company, Connecticut General Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance
and Life Insurance Company, Connecticut General Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance
Company of New York (New York, NY), Cigna Behavioral Health, Inc., Cigna Health Management, Inc., and HMO or service company
Company of New York (New York, NY), Cigna Behavioral Health, Inc., Cigna Health Management, Inc., and HMO or service company
subsidiaries of Cigna Health Corporation and Cigna Dental Health, Inc. The Cigna name, logo, and other Cigna marks are owned by Cigna
subsidiaries of Cigna Health Corporation and Cigna Dental Health, Inc. The Cigna name, logo, and other Cigna marks are owned by Cigna
Intellectual Property, Inc. The Express Scripts name, logo and related marks are owned by Express Scripts Strategic Development, Inc.
Intellectual Property, Inc. The Express Scripts name, logo and related marks are owned by Express Scripts Strategic Development, Inc.
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© 2021 Cigna. Some content provided under license.
© 2021 Cigna. Some content provided under license.
our mission
To improve the health, well-being, and peace of
mind of those we serve by making health care
simple, affordable, and predictable.