The healthcare sector and related exchange traded funds look ill after Cigna (NYSE: CI) warned of the negative full-year impact of the coronavirus pandemic.
On Thursday, the iShares U.S. Healthcare Providers ETF (NYSE: IHF) declined 2.4% while the broader Health Care Select Sector SPDR ETF (NYSEArca: XLV) fell 0.4%.
Meanwhile, Cigna shares plunged 10.9%, breaking below its long-term support at the 200-day simple moving average. CI makes up 10.3% of IHF’s underlying portfolio and 1.7% of XLV.
Cigna revealed a 16.4% decline in second quarter profits due to high medical costs and warned of a negative earnings impact from Covid-19 of about $2.50 per share for all of 2021, Reuters reports.
The health services provider said its medical costs over the reported quarter increased as demand for non-COVID healthcare services normalized. Health insurers largely benefited from a dropoff in patient use of discretionary healthcare services as many delayed operations in face of the ongoing pandemic, but demand for these services is rebounding as more Americans receive vaccinations.
“Let me be clear: Our second-quarter results and our full-year outlook have been adversely impacted by elevated claim costs compared to our prior expectations,” Brian Evanko, Cigna’s chief financial officer, said on the company’s earnings call.
Consequently, Cigna’s medical care ratio (MCR), or what was spent on medical claims compared to the income from premiums, worsened to 85.4% in the second quarter from 70.5% a year ago, compared to market estimates of 81.04%, according to Refinitiv. Looking ahead, the company anticipates the 2021 medical care ratio to be around 83.0% to 84.0%, compared to its prior projections of 81.0% to 82.0%. Health insurers profit from a lower medical expense ratio.
Cantor Fitzgerald analyst Steven Halper, though, said in a note that while the spike in Cigna’s MCR is disappointing, the issue is transitory and manageable.
“Within this challenging environment, we continue to take proactive steps to ensure our customers have access to the care they need,” CEO David Cordani said.
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