The Cigna Group (NYSE:CI) Goldman Sachs 45th Annual Global Healthcare Conference June 11, 2024 10:00 AM ET
Company Participants
Brian Evanko – CFO
Conference Call Participants
Nathan Rich – Goldman Sachs
Nathan Rich
Great. Good morning, everyone. Thanks for joining us for our next session. My name is Nathan Rich, I cover the managed care space here at Goldman. Very happy to have the Cigna Group with us today. We have Brian Evanko, CFO and now also President of Cigna Healthcare, so title continues to grow. I really appreciate the time. Thanks for being here today.
Question-and-Answer Session
Q – Nathan Rich
Brian, I maybe wanted to start. So last week, you had the 8-K out, reaffirmed guidance for the year. I guess, as you’ve seen the second quarter play out, was there anything that differed relative to your expectations within the quarter positively or negatively?
Brian Evanko
Yes. And thanks, Nate, for you and Goldman Sachs hosting us here this week, enjoying the conversation so far with investors. So if you didn’t see, we had an 8-K last week where we essentially reaffirmed our full year EPS outlook of at least $28.40, which was a $0.15 raise from where our guidance was as we entered the year. So after the strong first quarter, we raised the full year outlook and reaffirmed that in the quarter. Also, if you didn’t see the details of that, we also described some of our capital deployment plans for the year, specifically the share repurchase activity that we have underway where we recently completed the accelerated share repurchase program we had in place, which was $3.2 billion and indicated that we’ve done year-to-date $4.4 billion of repurchase, which includes some open market share repurchase subsequent to the ASR being completed, and we intend to complete at least $5 billion in the first half of the year in terms of share repurchase and have the majority of our full year capital available for deployment go to repurchase. So I just wanted to provide a little bit of clarity to investors of our capital to fund plans to augment the strong EPS performance. As it relates to the second quarter and specifically your point about what we’re seeing there, so far, things are broadly in line with expectations. So we would expect as we talked about with Cigna Healthcare, [Technical Difficulty] where we had intended stepping into the quarter. Our second quarter MLR guide is to be within the full year range, which is 81.7% to 82.5%. And so far, what we’re seeing is tracking to that expectation. And if you rewind the clock back in 2023, we had expected elevated utilization in ’23 and ’24, which we priced for guided for. And so we are seeing elevated cost trends across the portfolio, but in line with what we had priced and expected.
Nathan Rich
Okay. On utilization in the second quarter, any lines of businesses that have trended differently than expected? Maybe I’ll start there and then ask a follow-up.
Brian Evanko
Really no. Things have been broadly tracking to expectations. Our commercial employer book which is the lion’s share of Cigna Healthcare, again, we price for elevated trends. We’re seeing cost trends all in a little higher in ’24 than we saw in ’23. But the second quarter so far has been more a continuation of what transpired in the first quarter. And importantly, if you think about our Cigna Healthcare portfolio, we’re not in the Medicaid business. So some of the discussions on acuity levels and redeterminations kind of a non-issue for us. We’re not in the Medicaid business, and our Medicare business is relatively small. And as we prepared the bids for 2024, we did not chase growth in that business. So we were able to make sure that the pricing was calibrated to the expected medical cost utilization.
Nathan Rich
Okay. And I guess with a little more distance, I guess, from the change disruption, I think you had kind of — you’ve put some conservatism into the guidance for that. And I think specifically, maybe $200 million of claims that you may be expected to receive that you hadn’t received yet as of the time of the first quarter call, I guess can you talk about how those have maybe developed relative to expectations.
Brian Evanko
Yeah. So at the end of the first quarter, we had about $650 million of total reserve associated with the change disruption. To your point, only about $200 million of that was incurred but not reported estimates that we had prepared. The other $450 million or so was essentially claims that we received, but just hadn’t paid out yet. That $450 million, you can think of as essentially fully paid at this point. The $200 million, which is our estimate of the incurred but not reported, is gradually working its way through in the second quarter, and we would expect that we’ll have a full picture on that by the end of the second quarter. But no real surprises so far in terms of how that’s trended in the first couple of months into the quarter. I’d also note our operations, as a practical matter, are essentially back to normal now in terms of provider claims submissions and provider claims payments. So that was a disruptive event in the first quarter, but we’ve really worked through that from an operational standpoint now.
Nathan Rich
And I think within the employer book, you in the first quarter called out some elevated inpatient activity maybe offset by some favorable trends in outpatient. I guess as you think about, there’s been a lot of focus on inpatient trends and the growth numbers that we’ve kind of seen in some of the external data month-to-month. I guess, can you maybe just talk about what your expectations are for how that develops? And maybe also, if there’s any calls on the outpatient side just in terms of expectations over the balance of the year.
Brian Evanko
Yeah. We’ve expected for the full year that we’ll continue to see elevated inpatient activity throughout the entire 2024 calendar year. So first quarter was elevated. We’re seeing it continue into the second quarter and that’s our expectation for the balance of the year as well. The outpatient dynamic, we think, was a bit impacted by the changed health care disruption in terms of — we believe the activity was there, but not necessarily the claim submissions in the first quarter. So for the balance of the year, we’re expecting that kind of normalized level to persist in the second quarter, third quarter, fourth quarter. We continue to see mental health utilization at high levels, small part of the overall total cost of care pie but high cost trends in mental health, which we think is a good thing over time given the strong linkage to physical health in the long run. But those would be a few of the dynamics as you think about the texture of the year.
Nathan Rich
Okay. That’s helpful. Maybe I wanted to talk about the Cigna Healthcare segment. I guess maybe from a selling season standpoint, you’ve talked about like an uptick in RFPs expected this year. I guess are there any areas of — you think will be of greater importance to employers as you go through the selling season. And you’ve talked about for ’24 kind of not chasing price in a few instances. Can you maybe just talk about where pricing is today in the market, how you feel like Cigna is positioned relative to competitors in the commercial space.
Brian Evanko
Yeah. There’s a lot in that question. So maybe I’ll start with the last piece, and then I’ll bifurcate the different buying groups within Cigna Healthcare. So I’d say pricing is rational. It’s a very competitive market but it’s rational. So we’re seeing carriers priced for the elevated cost trends that I was talking about earlier across the different segments. So in that sense, a firm market, if you will, relative to the pricing environment. Now importantly, for Cigna Healthcare, we have different sized employers who have different needs. So we tend to talk about it in national accounts, we call our middle market and then we call our select segment. And each of those have different buying dynamics. So when we talk about RFPs being up that’s really a national accounts comment because we’re talking about January 2025 activity. The smaller employers really haven’t started their 2025 purchasing yet at this point in the year. But the RFPs being up is a function of national accounts specifically. To your point on what our employers are looking for, there’s a few themes that have tended to persist across the national accounts buyers as we enter the 2025 cycle. One would be there’s continued interest in more personalized solutions, whether that’s networks or whether that’s plan design. So things we’re introducing would be, for example, our Pathwell Specialty and our Pathwell Bone & Joint, which are site of care oriented network solutions, specifically for different types of conditions, in that case, Specialty Pharmacy injectables or musculoskeletal conditions. We’re also seeing more and more demand for mental health oriented capabilities. So we’re fortunately situated very well with our capabilities there whether that’s virtual mental health or face-to-face mental health engagements. We’re seeing a lot of interest from employers and care navigation capabilities, so often digitally enabled through a mobile phone. So there’s interest there from employers. And then we’re seeing a lot of larger employers looking to consolidate down from their point solutions that they’ve been testing over the years. So a lot of them will use a terminology point solution fatigue with us or maybe they’re not getting the ROI on some of the vended solutions, and so they’re looking for carriers like us and some of our competitors who have a more fulsome suite where we can integrate capabilities across the board. So all of that points to opportunity for us in the larger end of the market. Now over the long term, we expect to be maintaining our share in the larger end of the market, both national accounts and middle market, and we expect the Select segment to be where we get the outsized growth in the Cigna Healthcare portfolio. And for us, the Select segment is 50- to 500-sized employers where we would expect that business to be growing similar to what it’s done historically in the high-single digits annually and that’s less concentrated on January 1, so we see more intra-year growth. We’ll see growth within 2024 as we get July 1, October 1 and then as we head into ’25 with that business as well.
Nathan Rich
And I guess you plan to double revenue from that segment, I think, over five years. Maybe what’s the key to doing that? And where do you feel like you’re kind of differentiated in that segment of the market?
Brian Evanko
Yeah. So your memory is right over the next five years, we expect to double the select segment revenue. Today, we have about 7% market share nationally, if you look across a little bit less than that right now, 6% to 7% market share across the country, compare that to double-digit share that we have in the over 500-sized employers. So it just gives you a sense of the headroom that’s available to us. So one important lever is the cost competitiveness of the solutions. So one of the things we talked about at our Investor Day back in March was our footprint geographically in terms of where we’re cost competitive. It was about 30% of all the geographies five years ago, now it’s 60%. So we’ve doubled the footprint of what’s cost competitive, and we have upside from that 60% as we make more and more progress with unit cost and site-of-care strategies. So that’s one important driver. The second one is, we bring a level of agnostic funding arrangement choices to employers. So we don’t require a fully insured arrangement. So a lot of the employers in this segment are interested in a self-funded arrangement, but the incumbent might be a fully insured carrier. So we’re able to offer a self-funded arrangement and not have to worry about the dynamics within the company’s revenue changing around, et cetera. So that funding agnostic approach to the market has been really important and that goes alongside a consultative orientation to making sure we understand what the needs are of the employees and the dependence of that employer because the products are not a one-size-fits-all, even though it’s smaller employers, 50 to 500, there’s still a good amount of flexibility in the product offerings there.
Nathan Rich
And I guess do you — we’ve heard some payers talk about working maybe more closely [Technical Difficulty] the adoption of ICHRA. I mean do you feel like there’s much overlap with that — with the Select segment and the type of employer that may be interested in that type of arrangement as you think about the future competitiveness of that space?
Brian Evanko
Yeah. So our view of the ICHRA market is that there is some interest from some employers but likely in more of a niche context. So we think that the ICHRA market will develop into more of a niche market. And the reason we say that is the nature of ICHRA is, while it enables an employer to say that they’re offering health benefits, it’s a little bit of an outsourcing of the health benefit because it’s going to the individual exchange carriers, ultimately. And so the employers we serve, which again are predominantly 51-and-up employee size more often than not use health benefits as a talent attraction and retention tool as well as something to enable productivity, absence management and the ongoing health and well-being of the employees and their dependents. So most of the employers that are attracted to us, we don’t expect we’ll be interested in exploring ICHRAs. We do think for the under 50-sized employers, there’s likely to be some interest from some employers who want to be able to say, I have health benefits available to you but don’t necessarily feel as vested or invested in the health and well-being of the employees.
Nathan Rich
Right. And you’re not really participating in that under 50?
Brian Evanko
Not in any meaningful way. We have about 60,000 customers today, but a very, very small percentage of our total book.
Nathan Rich
And I guess, maybe kind of higher level. Can you talk about your outlook for just kind of US employment. There’s been a lot of focus on maybe a little bit of softness in the more recent payroll data. How do you — that plays out over the balance of ’24 and into 2025. I feel like your expectations for this year were for pretty modest assumptions for the employment environment. Can you maybe talk about what you see going forward?
Brian Evanko
Sure. Yes. I mean so far in our book of business, we’re not seeing any signs of fracturing in the employment base across the US. That said, we’re respectful of the fact that interest rates have been elevated for some time and the cumulative effect of that could eventually create some cracks in the US employment market. And so our outlook for the balance of the year, for example, embeds a little bit of softness in the overall enrollment levels under the expectation that the — again, the cumulative effect of interest rates and fiscal activity will lead to some level of disruption in the employment markets. So we’ve expected a little bit of enrollment pressure in the back half of the year from that dynamic, but it remains to be seen whether the economy has a soft landing or something that’s more significant.
Nathan Rich
Great. Maybe just one more on the exchange business and how you’re approaching that for 2025. I think you took some pricing actions this year. I don’t think you’re quite expected to be in your target margin range at the end of this year. Kind of what does that mean for how you approach the market in ’25? And could you also touch on long-term kind of where you kind of see the relative attractiveness of this market being just as a growth market?
Brian Evanko
Yeah, the individual exchange market in aggregate, we see as an important part of the US healthcare system for those individuals who don’t have access to an employer-sponsored plan or a government-sponsored coverage from Medicare, Medicaid, TRICARE, et cetera. So there’s a need there. We expect over time this is going to grow in our business at the clip of 10% to 15% per year on average. That’s embedded in our long-term guide off of the 2024 base. To your point, we did some repositioning from ’23 to ’24. With the benefit of hindsight, we realized a couple of our geographies needed adjustments to benefit design, product and pricing. So we took those actions. It’s resulted in some attrition here in 2024 in the membership base. So our membership is down about a third this year compared to where it was in ’23. Off that base, we expect to grow annually 10% to 15% on average. So part of that secular growth, so we expect the market will grow. Part of that is, today, we’re only in about a dozen states. So we see opportunity to go into more and more geographies over time with appropriate product solutions culminating in that sort of growth. Now importantly, this is about a $4 billion book for us today, so call it 2% of the company’s revenue. So it’s a small sliver of the overall company, but it’s an area that we do expect to see growth on a go-forward basis.
Nathan Rich
And I guess would you expect to see — it sounds like you expect to see growth in membership next year. You think you’re kind of pricing to achieve that as well as kind of further margin expansion to kind of get into your target range?
Brian Evanko
This year, we expect to be slightly below our target margins. Our target margins are 4% to 6%. So we expect to be slightly below that. Next year at the portfolio level, we would expect to be in that target margin range. Now we’re not done with all the pricing yet. There are different deadlines for different states. So the next two months, we’ll be finalizing all the pricing but we would expect to be in that range next year based on what we see now.
Nathan Rich
Okay. Maybe moving over to Evernorth. At the Analyst Day, you raised the growth outlook for specialty, I think, to 8% to 11%. The market, I think, it’s pretty well understood, the fundamentals remain pretty robust and attractive. I guess you also see opportunity to gain market share. Can you maybe talk about where you feel like there’s still opportunities that would allow you to grow above the market?
Brian Evanko
Sure. Yes. So the Specialty Pharmacy market, which to your point, we profiled in quite a bit of depth at our Investor Day is one of the company’s greatest strengths, but also greatest growth opportunities going forward. If you think about the way our company is comprised, the income breakdown about 40% Cigna Healthcare, about 30% Pharmacy Benefit services and then about 30% specialty and care services. That 30% that specialty and care services has been growing double digits, and we expect it to grow 8% to 12% on an annualized basis going forward. So that’s the piece that we wanted to profile at the Investor Day because it’s one that we’re really excited about. We’re also really proud of the business today already being scaled, $400 billion addressable market. The addressable market will grow high single-digits going forward, so lots of secular tailwind there. And we’re positioned as the leader in the Specialty Pharmacy space and all the capabilities that we’ve amassed over time. The brand Accredo is our brand for the Specialty Pharmacy. So we’re active with Express Scripts Pharmacy Benefit services clients. We also have a number of patients who come through other Pharmacy Benefit Managers. So 40% of the Accredo patients come through other PBMs. That’s a continued growth opportunity for us as well in the specialty space. But over time, the capabilities we’ve developed there and you should think of this business as essentially care delivery. This is high-touch, clinically intense, high-cost drugs that have temperature control requirements or they’re injectables that require physicians’ assistance. These are high-cost drugs. They’re not the ones you fill at the retail pharmacy down the street. So this business is clinically complex, high secular growth. We’re the leader in the space, and we’re prepared to capitalize on it going forward.
Nathan Rich
And I guess with biosimilars, how does that kind of fit into the growth and maybe more importantly, profit algorithm. And you’ve introduced for biosimilar HUMIRA as your dollar out-of-pocket cost option. You’re kind of — why have you chosen kind of that approach? I think you’re still kind of offering choice, some of your competitors maybe pushing more aggressively to drive conversion. Just what the level of uptake you’ve seen since you’ve launched that as an option and why that’s maybe like the right approach to take for the company?
Brian Evanko
Yeah. So one of the things that as a company we’re very passionate about is the drug innovation that’s transpiring and the opportunity to create value for our clients, for patients and ultimately for our shareholders as well. So over the next decade, we see a wave of drug innovation transpiring. So we’re feeling it right now with GLP-1s and everything that’s happening there. We’re feeling it right now with cell and gene therapies. We’re feeling it with Alzheimer’s drugs. We’re feeling it with, to your point, biosimilars and finally, the US starting to open the door to more biosimilar adoption. So the HUMIRA biosimilar, which I think was the core of your question, we’re introducing — in the next few weeks, we’ll have a $0 patient out-of-pocket available through Accredo, which is essentially us working directly with biosimilar manufacturers under our Quallent distribution arm, which we launched in 2021. And this is important because it allows us to have some predictability of supply over the biosimilars over time. It allows us to drive great affordability outcomes with $0 patient out-of-pocket, a lower net cost than what the plan sponsor will get from the reference drug, HUMIRA, as well as for us on a per script basis a greater income contribution since we’ll capture a piece of that shared savings that the plan sponsor is able to deliver. So over the back half of this year, we would expect some degree of share shift for the biosimilars given the $0 patient out-of-pocket that I was just making reference to. That’s embedded in our guidance for the year. That’s not 100% adoption, but some degree of shift to the biosimilars in the back half.
Nathan Rich
And HUMIRA, the reference product would still be on the formulary at parity, it’s just that it would come with a higher out-of-pocket cost or still be covered, I guess, I’m sorry.
Brian Evanko
We’ve chosen to co-prefer the biosimilars with HUMIRA for the time being to facilitate choice. A lot of our clients want the choice available and that’s a strategy we’ll continue to evaluate over time.
Nathan Rich
Okay. And I guess one of the other growth opportunities you highlighted at the Analyst Day was maybe growth into the drugs in the medical benefit space and how Accredo, maybe your Specialty business overall with CuraScript could play a bigger role. Could you maybe talk — it’s not an area where kind of the traditional PBM has it been involved historically. What do you see as the opportunity to maybe penetrate that space more deeply?
Brian Evanko
Yeah. We see great opportunities here, and I’ll try to be concise with my answer because it’s complicated. But the $400 billion Specialty Pharmacy market I made reference to, think of that as about 60% pharmacy and about 40% medical. So the 60%, meaning it’s under the pharmacy benefit, 40% typically under the medical benefit. So it could be an injectable that physician administers in their office that would be under the 40%. That’s the medical, which is where your question was geared toward. So we have a distribution business called CuraScript, which is essentially taking specialty pharmaceuticals and distributing them directly to physicians or to hospital systems. This has been a double-digit grower for us in recent years. It’s an over $10 billion business. And we see a tremendous future growth opportunity there in terms of distribution to physicians as well as to hospital systems. And so we’re investing in this space. We made investment in CarepathRx last year to facilitate growth in the health system services business specifically, but we see an opportunity there to increase our share because we only have about 5% market share on that 40% of the $400 billion, that’s under the medical benefit today. So a significant growth opportunity for us and that’s part of the 8% to 12% all-in specialty and care services income growth we expect over time.
Nathan Rich
Are there still Specialty Pharmacy assets where you think you could benefit from greater scale that you don’t have today. I’m thinking like things like infusion or areas like that, where there’s maybe an opportunity to continue to build those from a BD standpoint.
Brian Evanko
We feel like we have the vast majority of the capabilities we need, certainly, to grow with the commitments we’ve made, but even to capture maybe addressable market that we’re not fully in today. So there’s nothing I’d really point to explicitly. And we do have — we have 600 home infusion nurses across the country. So it’s not like we’re not doing that already. Your question, I realize is more of a scale question, but we do feel like given the fact that this is already a really big business, all the capabilities that we have in-house position us really well for the future.
Nathan Rich
Okay. Maybe moving over to capital deployment. I think you maybe talked more so at the Analyst Day about sort of a capital-light approach than you have in the past. I guess, can you maybe talk about — does that change the type of deals that the company kind of prefers to do in this environment and has your thinking changed around kind of the type of assets that are attractive to you?
Brian Evanko
Yeah. Just one slight edit. I think we were not intending to signal a different posture around asset light with our Investor Day. So for some time, we’ve said we don’t think we’re necessarily good owners of physical care delivery. And going forward, we continue to believe that’s the case. So we were not intending to signal a change in strategic direction in regards to asset light in the Investor Day. Now broadly speaking, when it comes to capital deployment, as I started this conversation, we continue to view the repurchase of our shares as a great use of our available capital because as long as we have a depressed multiple, we continue to see that as a very valuable way to deploy capital to shareholders. And so as I said, we intend to do at least $5 billion of share repurchase in the first half. The majority of the full year cash flow will go to — the discretionary cash flow will go to repurchase. And we expect to use the majority of the proceeds from our pending Medicare divestiture in 2025 also for share repurchase. Now broadly when you asked about inorganic activity, we continue to view inorganic activity through the lens of it needs to be strategically attractive for the company. It needs to be financially attractive from the standpoint of accretive EPS over time and exceeding return on capital hurdles, and it needs to have a high probability of course. And if all three of those criteria are not met, we will not pursue inorganic activity, and we don’t need to do M&A either. So when we talk about our EPS growth algorithm of 10% to 14% over time, we’re fully confident in our ability to do that with the way the company is comprised right now. So M&A would be an accelerant in the right circumstances or the right instance.
Nathan Rich
Has your — US government was one of the areas you kind of highlighted as a potential area of M&A. Has the strategic attractiveness to the point you just made around some of the government businesses like Medicare and Medicaid changed from your point of view? I think a lot of investors are sort of reevaluating what the five-year growth outlook looks like for markets like Medicare and Medicaid. I’d just be curious to get your perspective on that.
Brian Evanko
So right now, the government space is clearly going through a period of disruption, both Medicaid and Medicare. And we expect that’s likely to transpire over the course of the next couple of years, meaning it’s going to take a couple of years to work its way through. And whether it’s the Medicaid redeterminations and the net result on health status and acuity and rate matching; whether it’s in Medicare, the funding environment with where the rate notices have landed, whether it’s The stars methodology changes, whether it’s the risk adjustment model changes, all of that is going to take a few years to sort of sort its way through as it relates to those government markets. So for us, with our Medicare divestiture still working its way through, we’re through the DOJ clearance as we shared in our first quarter earnings release. So that’s a matter of just getting it across the finish line, which we expect to occur in the first quarter ’25. After that, we won’t have any Cigna Healthcare presence in Medicare or Medicaid. But our Evernorth business serves millions of lives in Medicare and Medicaid, and we’re really well positioned to do that. We’re thrilled with the Centene relationship that we’ve established and launched on January 1, but we also serve lives through other payers in the Evernorth business, and we see a significant growth opportunity there. And that contributes to our all-in 5% to 8% annual income growth expectation in the Evernorth segment, the government clients as well as all the commercial employer business that we serve there.
Nathan Rich
Okay. Great. I guess I wanted to go back to the comments on utilization. And I think for the second quarter, you kind of said you’re tracking in line with the annual guidance, which is what you had guided to. I think if we kind of look at history, it seems like it would — the typical seasonality would kind of put you towards the lower end of that annual range in the second quarter. Do you have any commentary at this point of just like where in the kind of annual range you would expect to land in the second quarter just based on that seasonality. Because like I said, I think the midpoint is a little bit higher than what we would typically see.
Brian Evanko
Yeah. The last couple of years, the seasonality for our medical care ratio has been less. It’s been a little flatter. So the first quarter and the second quarter have been flatter. But if you go back to pre-pandemic norms, we had more seasonality in the medical care ratio and that’s more of what we expect this year. So the step-up from 1Q to 2Q is partly a function of we expect the seasonality to be more like pre-pandemic norms. We also talked about in the first quarter release our individual exchange book has more bronze, which tends to have a steeper pattern of seasonality. And we had the benefit in the first quarter also of some net prior year development favorability, which kind of artificially lowers the first quarter. So all those factors taken together result in a little bit of the greater step-up or the slope in the MCR this year.
Nathan Rich
Okay. Makes sense. I wanted to ask a couple of questions on the PBM. I guess, one of the ones — the FTC kind of is planning to release its findings from their investigation into the PBM industry. I guess, I don’t know if you’ve heard or gotten any sense of update on timing around that. But I guess, maybe bigger picture, can you talk about how you see rebates and spreads, which you guys have talked about being 20% of Evernorth profit, what you see the trajectory for [Technical Difficulty] focus of FTC investigation and some of the [Technical Difficulty] how that trends over time.
Brian Evanko
Yes. On the former, the FTC review that’s underway. So we’ve supplied all of the documents that have been requested, complied with all the requests and have gotten some questions over the last several months kind of back and forth, some of them clarifications, some of them what is this number relative to that number that sort of thing. So we’ve gone through and answered those questions and have a constructive dialogue with the representatives from the FTC. Unclear exactly when or what will come out of this. So again, we just continue to comply as required. We’re confident that what the data will show is that our focus on lowest net cost generates value for our clients, for patients and ultimately for the healthcare system and that it’s an important check in balance on pharmaceutical pricing that the pharmacy benefit services industry plays. So we’re confident that, that’s the conclusion that will come out of this. Now to your point on the levers, rebates, et cetera, we’ve constructed the Evernorth business to be essentially agnostic to how clients want to pay us. So some of them want to pay us in the form of retained rebates. Others want to pay us purely administrative fees. So it’s just kind of a cost plus concept. Others want something more exotic with guarantees and different levers. So we’re agnostic to that. We can do any of those essentially a payment mechanism. So as long as the return we’re yielding for the risk we’re taking is appropriate, it doesn’t really matter to us how we get paid. Now to your point, about 20% of the income right now is in rebates and spread. We expect that percentage will trend down over time just with the way the market has unfolded. It was a little higher than that a few years ago. So it’s already been coming down naturally, and we would expect it to come down further kind of independent of what happens with regulation just because that’s the direction that our client preferences have gone.
Nathan Rich
And is there any meaningful difference in that 20% between the different lines of business like commercial, TRICARE, DoD and the other government businesses.
Brian Evanko
It’s lower in the government lines. That percentage is lower in the government lines. It’s a little bit higher in the commercial employer lines.
Nathan Rich
Okay. And then maybe just in the minute we have left. Government is negotiating prices on the Top 10 Part D drugs. I guess one of the questions we’ve gotten is, does that have any ramifications for the broader market, especially on the commercial side. I guess the thought being like does it give you guys an additional reference point to kind of point to on sort of like fair value for our product and as you think about kind of [Technical Difficulty] products and that list will grow over time obviously.
Brian Evanko
Yeah. [Technical Difficulty] needs to settle, if you will, on the implications of the IRA and drug pricing. But there’s an analog here in the way the medical services costs are set where, generally speaking, providers lose [Technical Difficulty] on Medicaid, breakeven on Medicare, make money on employer business. You could see dynamics start to transpire if drug prices [Technical Difficulty] where the manufacturers need them Medicare dynamics start to unfold. Whether that does or not, we don’t know. But we’re well positioned on behalf of our clients to make sure we’re negotiating the best possible lowest net cost on all the lines of business where we serve.
Nathan Rich
Yeah. Okay. Great. And then maybe just lastly, on the GLP-1 cost guarantee that you announced at the Analyst Day, maybe just what’s been the general feedback from clients since you’ve launched that product? And just kind of what you feel like kind of the uptake or interest will be there?
Brian Evanko
Yeah. As I was saying earlier, there’s this pharmaceutical wave happening right now and GLP-1s are right in the midst of that. So there’s a lot of interest from our employers in covering GLP-1s, but in a manner that is controlled and that they have confidence that there’s not going to be off-label or compounded usage of it. They want to understand what indications it’s being used for because GLP-1s were hatched for diabetes. Now they’ve moved into weight management. Now there’s — obviously, there’s other indications that are being explored. So employers want a bit of a controlled environment for all this. So the good thing about EnCircleRx is it gives them the controlled environment around weight management because we’re only covering the FDA-approved drugs. They have [Technical Difficulty] clinical thresholds. We have behavior modification programs through our Omada digital tools that wrap around this and the appetite has been there so far for discussions. We haven’t had a seismic uptick in the program, but we have right now over 1.5 million enrolled lives, we had over 1 million at the time we rolled the program out at Investor Day. So we’ve already seen some growth in the number of covered lives. And we expect, over time, the percentage of employers that are covering weight management likely ticks up, enabled by programs such as EnCircleRx.
Nathan Rich
Okay. Great. I think we’re just about out of time. Brian, thanks so much for joining. We really appreciate it.
Brian Evanko
Thank you, Nate. Covered a lot of ground there.
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