Cigna Group ($CI) Q4 2025 Earnings Call

Ladies and gentlemen, thank you for standing by for the Sigma Group's fourth quarter 2025 results review. At this time, all callers are in a listen-only mode. We will conduct a question and answer session later during the conference and review procedures on how to enter Q to ask questions at that time. If you should require assistance during the call, please press star zero on your touchtone phone. As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ralph Jacobe. Please go ahead.

Thanks. Good morning everyone. Thanks for joining today's call. I'm Ralph Jacobe, senior vice president of investor relations. With me on the line this morning are David Cordani, Cigna Group's chairman and chief executive officer, Brian Evanko, president and chief operating officer, and Anne Dannenberg, chief financial officer. In our remarks today, David, Brian, and Anne will cover a number of topics, including our fourth quarter and full year 2025 financial results and our financial outlook for 2026. Following their prepared remarks, David, Brian, and Anne will be available for Q&A. As noted in our earnings release, when describing our financial results, we use certain financial measures, including adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders' net income and total revenues, respectively, is contained in today's earnings release, which is posted in the investor relations section of thecignagroup.com. We use the term adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2026 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Regarding our results in the fourth quarter, we recorded after-tax special item charges of $483 million or $1.82 per share. Details of the special items are included in our quarterly financial supplement. Additionally, please note that when we make prospective comments regarding financial performance, including our full-year 2026 outlook, we will do so on a basis that includes the potential impact of future share purchases and anticipated 2026 dividends. With that, I'll turn the call over to David.

Thank you, David. Good morning, everyone. I'll start by outlining some highlights of our business performance in the fourth quarter and the full year. I will then highlight the key innovations we introduced in a dynamic environment and outline our view of the years ahead. Our performance underscores the value we provide for those we serve through our three business platforms, providing multiple paths for sustainable growth, including our specialty and care services businesses within Evernorth, our pharmacy benefits services business, also within Evernorth, and Cigna Healthcare, our health benefits business. During the quarter, our Evernorth portfolio demonstrated continued performance. Starting in our specialty and care businesses, we delivered strong results with 14% adjusted revenue growth, reflecting the demand for our services. And we saw 13% year-over-year growth in the number of specialty scripts in 2025. This is supported by the shift to biosimilars and our industry-leading patient support and accretion. Our portfolio shaping efforts have resulted in an expansion of our specialty capabilities to serve hospitals and health systems in part through our investment in Shields Health Solutions that we announced in late 2025. Next, in Evernorth's pharmacy benefit services business, our fourth quarter and full-year results reflect continued solid performance. We built on our track record of innovative pharmacy benefit solutions to meet market demands. This includes our suite of GLP-1 solutions. In 2025, we added EnreachRx, a new patient support model designed for pharmacies dispensing GLP-1 drugs committed to providing enhanced clinical services. We also expanded our patient assurance program to include these GLP-1 medicines, which sets caps on member out-of-pocket costs to improve predictability and affordability. And we are proud of our continued focus on service. We delivered a seamless January 1st implementation for new and existing clients, ensuring customers and patients have access to care when they need it. Overall, we're pleased to deliver another year of solid results across our Evernorth portfolio. Now turning to Cigna Healthcare, our consultative approach and focus on affordability are driving strong overall performance. We delivered financial results that were slightly ahead of expectations. We maintained disciplined pricing while driving affordability and introducing or expanding differentiated clinical offerings. We're doing this in a number of ways including encouraging customers to utilize lower-cost generic and biosimilar medicines, optimizing sites of care between hospital facilities and lower-cost alternatives, and improving administrative processes for providers. We also continue to maintain a disciplined pricing stance for sold business in the first quarter of 2026. Our price increases are in excess of what we achieved for the comparable period in 2025. We expanded our suite of AI-powered digital tools to improve and personalize customer experiences. These include a provider matching tool to help customers find in-network providers based on their specific needs and preferences and a real-time cost tracking tool to provide a simple breakdown of costs both before and after clinician and specialist visits. We also launched new partnerships to expand our offerings. For example, we collaborated with Progyny and Carrot to offer new coverage options for employers to support patients through their fertility journeys. And we announced an industry-first collaboration with Headspace to support the mental health of millions of Cigna Healthcare customers with exclusive digital features and content. We see partnerships like these as critical to building a more sustainable model for healthcare and further accelerating innovation for our customers. Our performance across Cigna Healthcare underscores our focus on driving innovation, improving personalization, thoughtfully shaping our product portfolio, and our execution orientation. As we look ahead over a multi-year horizon, we are focused on leading the changes needed in healthcare to better serve our customers and clients, resulting in improved affordability and access. To do this, we are taking bold actions, including investments in defining the future of healthcare. Let me outline a few of these. First, we're focused on putting the customer at the center of everything we do through new innovations that are data-driven and tech-forward. To do this, we are focused on personalizing the healthcare experience by leveraging and growing our digital and analytics capabilities. Already this year, we have seen a significant increase in digital registrations for our US employer businesses and decreased call volumes. We are facilitating seamless interactions for customers based on their engagement preferences, whether that be mobile, web, text, or phone, including chat options with AI virtual assistants and easy connectivity to our service agents for even more personalized support. Beyond this, we are finding new ways to utilize data and analytics, insights, and digital tools to better identify patients who need help earlier, particularly those with complex and high-cost conditions. We continue to lead the way in transforming our models and capabilities for those we serve through meaningful innovations. In October of last year, we announced the transformation of our pharmacy benefits model to meet the demands of the market and improve both affordability and transparency for our customers and patients. As David mentioned, our new rebate-free model will help people stay healthy and get the medications they need by lowering costs and supporting local pharmacies so care is always within reach. We have received positive feedback about our new model from our broker partners, clients, and other stakeholders. Moving ahead and following our recent settlement with the FTC, we are confident in the transformation of pharmacy benefits we are leading for the industry. In Cigna Healthcare, we are similarly driving step changes in our product offerings to create patient-centered solutions that simplify healthcare and ensure we're rewarding outcomes rather than volume. One example is Clarity, our newest offering that we introduced in November, which puts customers and patients in control so they can focus on getting the care they need. Designed with cost transparency available to customers at the time they need it, Clarity helps individuals manage their health with ease and saves clients up to 10% medical costs. And it has a simple co-pay-only structure. Clarity also has a single digital front door for all Cigna Healthcare customers, integrating experiences for pharmacy, dental, and supplemental health. And patients have access to our trusted national network without referrals supported by clinically sound externally validated quality measures. Finally, in our specialty and care services business, our expanded suite of offerings has helped grow these businesses from around 25% of the company 3 years ago to around 35% this year, driven by high secular growth and our deliberate portfolio shaping to increase exposure in this highly attractive growth sector. And we see significant runway for additional growth in our specialty platforms in the future. This includes leveraging competition and the shift to more biosimilars and specialty generics with expected launches and uptake across other drug classes such as oncology, bone, autoimmune, and inflammatory conditions. Guided by a clear mission and vision that prioritizes improving health care and keeping the customer at the center. Paired with a partnership orientation and a portfolio intentionally shaped for sustained growth markets, we are leaning into the disruption necessary to drive industry transformation. As I wrap up, I'd like to reflect on some bright spots for the quarter and the full year. Throughout 2025, we delivered through a dynamic environment. Revenues for the full year increased 11% driven by specialty pharmacy growth and client relationships. We had a strong selling season in pharmacy benefit services with a retention rate over 97% for 2026 and we grew customers in our select segment in Cigna Healthcare by 7%. We are leading change in our industry from our commitments to better that we announced early last year to our partnership with the administration on improving prior authorization to our announcements of affordable fertility drugs available through TrumpRx to our transformative new model for pharmacy benefits and our introduction of Clarity in Cigna Healthcare. Our mission coupled with our capabilities, deep expertise, and diverse portfolio of businesses positions us well to continue our track record of delivering for all stakeholders. Now I'll turn it over to Anne.

Thank you Brian and good morning everyone. Today I'll review Cigna's fourth quarter and full year 2025 results and I'll provide our outlook for 2026. We are pleased to deliver another strong year for the Cigna Group reflecting focused execution across Evernorth and Cigna Healthcare with both segments achieving pre-tax adjusted earnings at or above the outlook we shared a year ago. For full year 2025, we delivered consolidated adjusted revenues of $275 billion, adjusted after-tax earnings of $8 billion, and adjusted earnings per share of $29.84. Now turning to our segment results. I'll start with Evernorth. 2025 marked another year of growth in Evernorth and the introduction of an industry-leading innovation in pharmacy benefit services as we advance our more simple, predictable, and transparent rebate-free model. We also advanced our specialty and care services capabilities through a strategic investment in Shields Health Solutions as we build on our market-leading position and enhance our offerings in one of the largest and fastest-growing areas in healthcare. Fourth quarter revenues grew to $63.1 billion and pre-tax adjusted earnings grew to $2.2 billion in line with expectations. Our specialty and care services business delivered strong growth, generating $26.7 billion in revenue, an increase of 14% year-over-year, and a billion dollars in adjusted earnings. This performance reflects sustained momentum in our fastest-growing business driven by robust specialty volumes and rising biosimilar use, which continues to generate meaningful savings for our patients and clients. Our pharmacy benefit services business delivered $36.3 billion in revenue and $1.2 billion in adjusted earnings, reflecting the impact of our strategic investments, including initiatives to enhance patient experience. Overall, the fourth quarter capped another year of growth for Evernorth. The underlying strength across our Evernorth businesses reinforces our confidence in making deliberate near-term investments to transform our pharmacy benefit services model, positioning us well for sustained long-term value creation. Turning to Cigna Healthcare, in 2025, Cigna Healthcare delivered strong results above our original expectations in a dynamic environment. This performance underscores the strength and resilience of our purposefully constructed portfolio, including the divestiture of our Medicare businesses, which positions us to navigate volatility and drive durable growth. For fourth quarter 2025, Cigna Healthcare delivered adjusted revenues of $11.2 billion and pre-tax adjusted earnings of $734 million. Adjusted earnings slightly exceeded expectations as favorable net investment income more than offset modestly higher medical costs. The higher medical costs equated to approximately 60 basis points of MCR or about $50 million without notable impact to any one part of the portfolio. Relative to our stop-loss products, the full-year MCR was slightly higher in 2025 compared to 2024, consistent with what we expected and communicated at the beginning of the year, and we remain on track with our margin improvement plan. Overall, we're pleased with Cigna Healthcare's performance in 2025. Looking ahead, we remain focused on driving greater affordability and value for the patients and clients we serve while continuing to execute with discipline against our financial targets. Now, turning to our 2026 outlook, we expect full year 2026 consolidated adjusted revenues of approximately $280 billion. And we expect full year 2026 consolidated adjusted income from operations of at least $30.25 per share. Considering earning seasonality, we expect first quarter EPS to be slightly above 25% of our full-year guidance. Now turning to our 2026 outlook for each of our segments. In Evernorth, we expect full-year 2026 adjusted earnings of at least $6.9 billion. As we discussed previously, we expect investment spending to build the infrastructure required for our transformative rebate-free model to commence in 2026 with this spend more back-half weighted. As a result, we expect Evernorth first-half earnings to be higher than the historical pattern with the first quarter representing over 20% of full-year earnings. For Cigna Healthcare, we expect full year 2026 adjusted earnings of at least $4.5 billion. Within Cigna Healthcare, we expect earnings seasonality to be consistent with prior years with the first quarter representing over 30% of our full-year adjusted earnings expectations for the business. Assumptions underlying our 2026 outlook for Cigna Healthcare include a medical care ratio in the range of 83.7% to 84.7%, incorporating the pricing actions taken across stop-loss and individual exchange businesses as well as the assumption of a cost trend environment that remains elevated. We expect the first quarter 2026 medical care ratio to be below 81% reflecting typical seasonality. We expect approximately 18.1 million total medical customers at year-end, including growth in our middle, select, and international markets, offset by lower membership in our national accounts and individual exchange business. For the enterprise, we project an adjusted SG&A ratio of approximately 5% for 2026, consistent with the 2025 level, reflecting both the investments to advance our pharmacy benefit services model and continued improvements in operating efficiency. We expect the consolidated adjusted tax rate to be approximately 19%. Now moving to our 2025 capital management position and 2026 capital outlook. Our fourth quarter cash flow was strong and we finished the full year by delivering $9.6 billion of cash flow from operations. In 2025, we repurchased 11.9 million shares of common stock for approximately $3.6 billion and returned $1.6 billion to shareholders via dividends. We also improved our debt-to-capitalization ratio to 43% during 2025, including an improvement of 190 basis points in the fourth quarter. Now, framing our 2026 capital outlook, we expect to deliver approximately $9 billion of cash flow from operations. As previously noted and consistent with 2025, we expect the majority of operating cash flow to be realized in the second half. Our capital deployment priorities remain consistent with our long-term framework. We expect to deploy approximately $1.3 billion to capital expenditures and we expect to deploy approximately $1.6 billion to shareholder dividends reflecting our increased quarterly dividend of $1.56 per share. Our guidance assumes full-year weighted average shares outstanding to be in the range of 261 million to 265 million shares. And during 2026, we expect to continue progressing towards our long-term debt-to-capitalization ratio of approximately 40%. Now to close. As we move into 2026 and beyond, we remain confident in the strength and the resilience of our enterprise. Our disciplined execution, balanced portfolio, and strategic investments to drive innovation, affordability, and enhanced customer and patient experience all position us well to deliver differentiated value for our customers, clients, and shareholders over the long term. We are confident in our ability to deliver full-year 2026 adjusted earnings of at least $30.25 per share and our ability to deliver attractive long-term EPS growth. And with that, we'll turn it over to the operator for the Q&A portion of the call.

Ladies and gentlemen, at this time, if you do have a question, please press star one on your touchtone phone. If someone asked your question ahead of you, you can remove yourself from the queue by pressing star two. Also, if you're using a speaker phone, please pick up your handset before pressing the buttons. One moment, please, for the first question. Our first question comes from Lisa Gill with JP Morgan. Your line is open. You may ask your question.

Well, thanks very much and good morning. David, I feel like we've been waiting for a long time for this PBM legislation to finally pass. It's finally passed. You've put behind you the FTC suit. Can we talk about a few things? The first, the change in economics. You talked about this with the new plan in October, but now that everything's kind of settled in place, we've got legislation, etc. Can you spend a few minutes talking about the margin profile of what we would expect in the steady state for the PBM? And then secondly, one of the things that stood out to me in the FTC settlement was the moving of the GPO back to the US from Switzerland. I want to understand what that means to the tax rate. My understanding is that the tax rate over in Switzerland is about 15%. So when I think about that coming back, you know, what's the financial implication for that as well?

Thank you. Our next question comes from Scott Fidel with Goldman Sachs. Your line is open. You may ask your question.

Hi, thanks. Good morning. Just wanted to follow up on Lisa's and then ask a follow-up around Brian's comments on the new pricing model with the customer. So the first question, just following up on Lisa's question, is just it really does feel like there's been a real sea change and inflection and just the amount of activity and developments that actually occurred around sort of moving the PBM pricing model forward. And just from curious from your perspective, do you feel like at this point now you've largely fully aligned your PBM model with how the regulators, with how the policymakers have been really pushing the industry to adapt to, or are there still some sort of regulatory battles, residual battles still ahead? And then wanted to just ask Brian around the PBM clients in terms of moving to the new pricing model, just the traction that you're seeing there in terms of your updated view on the ramp that you're expecting in terms of 2026 through 2028, the percentage of clients that you expect to move on to the TVM pricing model. Thanks.

Thanks, David. Morning, Scott. As it relates to the adoption rates and the pricing model, etc., consistent with what we talked about in the third quarter call, the entire Cigna Healthcare fully insured book will be adopting this new model in 2027 and we expect at least 50% of our Evernorth business will adopt the model by year-end 2028. Early feedback from clients, brokers, and other external stakeholders has been positive to date. And I think importantly, coming back to link Lisa's question and yours, the core value creators in both our legacy models and our new rebate-free model really remain the same. If you think about securing better unit pricing for prescription drugs, administering benefits for plan sponsors, and supporting patients with clinical safety checks and advanced clinical programs, those three core value creators are the same in the legacy model as they are in the new model that we've introduced. The primary difference is the way in which we're compensated. So there's two primary ways we'll be paid in the future in this model. The first is a core admin fee that'll be per member per script, delinked from the price of the drug, that'll grow with inflation over time. And then the second category will be for clinical programs and other innovations that we bring to market, and we expect to take risk on this portion of the compensation. But in aggregate, as David said earlier, we expect to achieve a comparable level of profitability between the legacy model and the new model, although the sources of profit will evolve as I outlined.

Okay. Thank you. Thank you. Our next question comes from Charles Rhyne with TD Cowen. Your line is open. You may ask your question.

Yeah. Thanks for taking the question. First one just on a clarification is just I think Brian you kind of mentioned it with the settlement, the timing of the settlement requirements. Is that aligned with the launch of the new rebate-free model? That's the first just sort of clarification question. But the second, my second question really is more, obviously all these settlement agreements are related to the standard offer to provide a standard offering, right, which largely aligns it feels like with the new model that you're launching by 2028. I guess the question is to the extent that clients don't take this new offering, what is the responsibility for Cigna or Evernorth in this case to push the new standard offering so that these requirements are met? And if clients don't choose to take the new offering, is there any sort of liability to Cigna down the road? And in particular, I'm kind of looking at for example ensuring members' out-of-pocket expenses are lowest net cost, but if an employer doesn't choose that new option or if the employer chooses to maybe increase a co-insurance amount or deductible, is there any kind of responsibility that falls back to Cigna? Thanks.

I think that was a pretty comprehensive answer, David, but just a few additional comments, Charles. So our launch plan from the standpoint of our new rebate-free model is unchanged based upon the FTC agreement that we reached this week. So we'll continue with the same milestones, the same expectations, and importantly, as David made reference to earlier, inherent in our new model is what we call our Price Assure technology, which guarantees patients the lowest possible price on the drug when they get it filled. So whether that's the price we've negotiated with drug manufacturers, whether it's a cash pay alternative, whether it's their co-pay, whatever the lowest possible price is, we're guaranteeing in the new model that the patient will get that. And so that enables us to meet the spirit of the FTC's goals as well to drive lower patient out-of-pocket. And to the point of what else could be a little bit different, Lisa's question earlier, the move of our go capabilities from Switzerland to the US is unrelated to the new rebate-free model. So there's some elements of the FTC agreement that are unrelated to it, but the launch plan for our rebate-free model is unchanged as a result of the agreement.

Thank you. Thank you. Our next question comes from Kevin Fishbach with Bank of America. Your line is open. You may ask your question.

Kevin, your line is open. You may ask your question.

Great. Thanks. I'm a little bit surprised that the MLR in 2026 isn't expected to make any progress given exchanges should be repriced and smaller and stop-loss, it sounds like you're repricing that again, getting generally speaking better pricing this year than last year. Why is that? And then I guess if you could just maybe give us a sense on the current business mix, what the right MLR to think about is when the business is fully repriced in the future. Thanks.

Morning, Kevin. So, I'll start by just reminding you what I mentioned in my prepared remarks. Our 2026 MCR outlook incorporates the pricing actions we've taken across stop-loss and the individual exchange businesses as well as the assumption that the cost trend environment remains elevated. So, when thinking about the walk, the MCR walk from '25 to '26, I point to two things that reduce the MCR and two things that increase it. With respect to the reductions, within stop-loss, pricing is tracking in line with expectations and we've achieved rate increases consistent with our targets for improvement in 2026. And then the second is for individual business, we've repriced for margin improvement. So those are the two things that will reduce MCR going into '26. Items that increase the MCR on a comparative basis, if you recall that the 2025 MCR benefited from several one-time items in our individual business, both of which impact the jump-off point for the year and tempers the year-over-year MCR improvement. And beyond those items, there are mix dynamics to consider as well. And lastly, I'd say overall our assumptions incorporate appropriate prudence given the continued elevated cost environment. So to summarize, our MCR outlook incorporates stop-loss and individual pricing actions, one-time impact to '25 as well as mix considerations impact that year-over-year view. And we continue to assume an elevated cost environment and appropriate prudence. And for your question around MCR, I'd point you to the outlook that we provided in terms of the range of where we expect to end up for 2026.

Thank you. Our next question comes from Justin Lake with Wolfe Research. Your line is open. You may ask your question.

Thanks. Good morning. I wanted to ask a couple more PBM questions. As you look out to 2027, it certainly seems like you don't expect the business transitions associated with the FTC settlement, the legislation to be a headwind to earnings, but wanted to confirm that is the case. And you expect 2027 PBM earnings growth at this distance to be in line with your long-term algorithm. And then just from an accounting perspective, is there any changes to PBM revenue recognition here from all these business model changes, effectively the move away from spread pricing, rebate guarantees towards a fee-based model? Will PBM still be able to book the total pharmacy spending as revenue or would it move to kind of booking fee revenue similar to ASO on the medical side? Thanks.

Morning, Justin. Brian. So on the first part of your question, at this point in time, the FTC agreement will not impact our '27 financial outlook. Many of the agreements and commitments are multi-year in nature as we talked about earlier and as David said, our long-term growth algorithm for PBS remains intact as we move through the transitional period here. And as we talked about on the third quarter call, we do expect 2026 and 2027 to have investment-related costs as we build out technology and infrastructure to support our new rebate-free model. So that's really the only thing I'd have you think about as it relates to 2027 in terms of the PBS outlook. On the revenue recognition question, at this point in time, we do not expect there to be changes in the way that our revenue is being recognized in the PBS segment, even with the transition to a fee-based model as opposed to a spread or rebate-oriented model that we have today. So we'll refine that over time and certainly can take that offline with you, but do not expect a change in the denominator and the margin profile.

Thank you. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. You may ask your question.

Great. Thanks. I know there's a lot of focus on the PBM, but can you talk about the specialty business? You mentioned some of the strong organic growth there. Can you unpack a little bit some of the key drivers there, what you're anticipating in 2026, any other implications from some of the dynamics at the PBM side as well, but also biosimilar pipeline and as we head into 2026 how you're thinking about that. Thanks.

Good morning, it's Brian. So, as we mentioned in our prepared comments, really pleased with the momentum of the specialty business, 14% topline growth and attractive earnings contributions alongside of that. And we've talked about before with you, this is already a $400 billion plus addressable market growing at a high single-digit secular growth rate. And we're really well positioned to capitalize on that over the longer run. And we certainly saw those dynamics emerge throughout 2025. So the full year we had 13% growth in prescriptions. Higher rate of growth in our Medicare book of business, but also strong growth in the commercial employer and the Medicaid portfolio. And our Evernorth business is really well positioned to capitalize on each of those different payer types. We continue to expect long-term average annual income growth of 8 to 12% in this business, benefiting from some of these strong secular tailwinds. A few specific therapeutic classes or cost categories I'd highlight that were particularly strong growers include inflammatory, asthma, and allergy. Those generated a good bit of the year-over-year growth in the specialty space. And as it relates to biosimilars, we're really pleased to see the building momentum across the United States. Really, Humira the past two years becoming mainstream was a great win for the market. And as David said earlier, we expect another $100 billion of specialty drug spend to be subject to competition from biosimilars and generics by 2030. Each of these biosimilars have a slightly different adoption rate based on factors such as interchangeability, dosage levels, branded alternatives, and other dimensions. But we've, as you know, introduced a zero patient out-of-pocket for both Humira and biosimilars, and the Humira penetration in 2025 ended up representing the vast majority of eligible scripts. So that's clearly been a success story for American healthcare from the standpoint of patients getting significant savings, financiers whether those be employers or health plans getting the benefit of the savings on these biosimilars, and we look forward to continue driving savings for patients in the future in the biosimilar and specialty generic space. So to kind of wrap this up, this is a space we're really excited about. It's 35% of the company's income now. That percentage will continue to grow in the future as we execute.

Thank you. Our next question comes from AJ Rice with UBS. Your line is open. You may ask your question.

Hi everybody. Thanks for the question. First, just a point of clarification to the previous comments. You guys gave the outlook for the new rebate-free model and what that may mean for growth when you talked about third quarter and you haven't really changed that today. But you obviously had the FTC settlement and other things. Were those, I know those don't happen overnight, were those largely contemplated when you made your comments about the outlook in the third quarter? And then the other thing I was wondering, on your deals with manufacturers on the pharmacy side, do those need to be significantly renegotiated? How much of an unknown is that over the next few years? And do you envision formulary changes, significant or any other things we should be thinking about from the cost side of the pharmacy business?

Okay, thank you. Thank you. Our next question comes from Stephen Baxter with Wells Fargo. Your line is open. You may ask your question.

Yeah. Hi, thank you. I was hoping you could maybe expand a little bit more on the healthcare medical membership outlook that you gave. Seems like we're seeing a bit more of an outside shift into ASO funding models based on some of the other reports this earnings season. Maybe that's the higher cost trend environments. I was hoping you could expand a little bit on what you're seeing there, whether you might see more outsized growth in select this year, and then just broadly how you're thinking about in-group enrollment trends given some of the uncertainty in the macro right now. Thank you.

Morning, Stephen. It's Brian. So, as it relates to the Cigna Healthcare membership outlook, as you saw in the press release, we expect flat year-over-year at about 18.1 million lives. And really, you can think of that big picture as we expect growth in our US employer and international health businesses offset by a decline in individual exchange customers. Within the US employer portfolio, we expect to see growth in both our select and middle market subsegments, reflecting the continued strength of the consultative model along with our integrated medical, pharmacy, and behavioral offerings plus our focus on affordability for these employers. I would not expect an outsized year of growth to your question on select necessarily, but we do expect growth in that space in 2026. And that growth in select and middle market is partially offset by some decline in national accounts customers in 2026. Similar to what we signaled to you previously, within the individual exchange business, we expect to end 2026 with fewer than 300,000 customers, reflecting another year where we prioritized margin over growth. So again, the net effect of all of this is membership that's approximately flat, although we anticipate an attractive year of earnings growth within Cigna Healthcare. As it relates to the funding mix, we expect our group risk business to be stable for 2026 compared to 2025. So think of around 2.2 million lives, which again reflects our disciplined pricing posture. And as we talked about in prior settings, our select segment mix today is roughly two-thirds self-funded. And our net growth in select has been coming from ASO and level-funded style solutions in recent years. And as a reminder, we're not active in the under-50 regulated small group market. So our commercial group risk business here is essentially all large group in nature. On in-group enrollment trends, we are not seeing anything out of the ordinary. Obviously, we continue to monitor economic data and unemployment data, but to date, we have not seen anything out of the ordinary. And our 2026 outlook reflects our current view of what the economy will do.

Thank you. And this question comes from Jason Casora with Guggenheim. Your line is open. You may ask your question.

Great. Thanks. Good morning. I wanted to ask on specialty and care for 2026. I just wanted to confirm, are you still anticipating AOI growth at the higher end of your 8 to 12% target for '26? And then can you help spike out what the implied AOI growth would be when excluding the income attribution from the Shields investment, just maybe like more core basis growth would be helpful. Thanks.

Sure. Morning, Jason. So for specialty and care, we expect earnings to grow towards the high end of the long-term growth rate, reflecting both strong fundamentals and the contribution from the Shields investment. We're really pleased with what we saw in 2025 overall for specialty and care. Our expectations for 2026 remain consistent with what we shared coming out of the third quarter. We haven't shared the details specifically around Shields. It's built into our expectations, but that takes us to the high end of the range.

Thank you. Our last question comes from Andrew Mock with Barclays. Your line is open. You may ask your question.

Hi, good morning. The operating cash flow and capex guidance implies less than 80% free cash flow conversion on your pre-tax income, which is below recent history and lower sequentially. So, can you walk us through the drivers of that pressure and comment on the expected impact of the new rebate-free model on working capital? Thanks.

I'll start with the cash flow expectations. So, we were really pleased with $9.6 billion for this year. And as I said in my prepared remarks, we do expect a dynamic of higher cash flow or more cash flow in the back half of the year next year. When stepping back and looking at our 2026 cash flow expectations, the decline, so the $9 billion that we're getting to next year, it's roughly $600 million less than what we saw in 2025. That primarily reflects a lower contribution from the PBS business, from our pharmacy benefit services business, and really that includes the impact of large client renewals and some of the investments that we're making in 2026.

Great. Thank you. Thank you. I will now turn the call over to David Cordani for closing remarks.

Ladies and gentlemen, this concludes the Cigna Group's fourth quarter 2025 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 866-457-2929 or 203-369-6030. There is no passcode required for this replay. Thank you for participating. We will now disconnect.