Ritter Insurance Marketing

Oppenheimer’s Stock Analyst, Carl MacDonald, downgraded Cigna’s stock to “Perform” from “Out-Perform” based on his belief that Cigna had “significantly underpriced” it’s Private Fee for Service (PFFS) product.  He noted that Cigna added 50,000 PFFS members in the first 3 weeks of annual enrollment and expected about 100,000 new members for the full year of 2010.

He stated that “Cigna knows there is a problem, as it alerted brokers last week that it wouldn’t be accepting any additional (Private Fee-For-Service) applications effective Feb. 1. Cigna hasn’t seen any PFFS claims yet, but as they begin to arrive, it will be more clear that the product was underpriced.”

This is not entirely true, as Cigna’s announcement only applied to OEP business.  Cigna will continue to allow SEP and ICEP enrollments through the balance of 2010.

I ran through some of the January 2010 enrollment numbers from CMS over the weekend (I know, I lead an exciting life!) and found that Cigna was one of the very few companies to grow it’s PFFS membership.  I don’t put too much stock in CMS’ January numbers since they cut off their report as of early December which misses a good portion of the AEP.

Looking overall PFFS membership, it dropped by about 1/3 from December 31st 2009 to January 1st 2010. . .from 2.4 million to 1.6 million or about 800,000 NET lost.  A good portion of this comes from conversions of group retiree business from PFFS to PPO or RPPO business, however, that’s still a major shift in the individual market, as well.

Overall MA membership dropped by about 300,000 which was the first monthly drop I can remember.  I’m not as concerned with this for 2 reasons.  First, it means that “Network Based” MA plans grew by about 500,000 (offsetting the 800,000 loss in PFFS business).  Secondly, since the data only counts the first 3 weeks (or so) of AEP, CMS was deducting all of the disenrollments and not crediting those folks who were disenrolled and re-enrolled in mid to late December (I think this is a significant number!)

Anyway, back to Cigna, the Oppenheimer Analyst thinks that Cigna priced the PFFS business at negative 5% margin.  A Cigna spokesman said they felt, “This is based on one analyst’s opinion. We feel that our product is appropriately priced.”

Obviously, the product is attractively positioned to garner 100,000 new enrollments in a market that shrank by a third.  On the flip side, it wouldn’t make sense for Cigna to continue to add new members via SEP and ICEP if they are losing money on every enrollment.

Time will tell.  Looking at last year, I learned about Coventry’s decision to disenroll it’s PFFS business (I think I was one of the first to report this) after listening to their 1Q Conference Call and reported that in late April (Blog post here).  I think I’ll have a better idea after listening to the Cigna 1Q call where I’m sure this topic will come up.

This comes from a Wall Street Journal Blog posting here.