Ladies and gentlemen, thank you for standing by for Cigna's Fourth Quarter 2018 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 queue to ask questions at that time. [Operator Instructions] 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 Mr. Will McDowell. Please go ahead, Mr. McDowell.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. With me this morning are; David Cordani, our President and Chief Executive Officer; and Eric Palmer, Cigna's Chief Financial Officer. In our remarks today, David and Eric will cover a number of topics including Cigna's full-year 2018 financial results, as well as our financial outlook for 2019. As noted in our earnings release when describing our financial results, Cigna uses certain financial measures, adjusted income from operations and adjusted revenues with 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 cigna.com. We use the term labeled Adjusted Income from Operations and Earnings Per Share on this same basis as our principle measures of financial performance. In our remarks today we will be making some forward-looking statements, including statements regarding our outlook for 2019 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. Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. First I remind you that we recently announced changes in our segment reporting. These changes were made to align with the company's organizational structure following the completion of the combination with Express Scripts on December 20, 2018. In connection with this change, Cigna's results are…

Thanks Will. Good morning everyone and thank you for joining our call today. I'll begin my comments with highlight from our exceptional 2018 financial results with Cigna delivering substantial revenue and earnings growth across our businesses. I will also review how our combination with Express Scripts further strengthens the affordability of our programs, expands choice for those who we serve. Then I'll offer initial insights into our exceptional expectations for 2019 before Eric addresses our full-year 2018 financial results and 2019 outlook in more detail. Eric and I will take your questions after which I'll wrap up our call with a few closing comments. Let's dive in to review some of our performance highlights from last year where we delivered strong revenue and earnings growth. Our full-year consolidated adjusted revenue increased by 15% to $48 billion and we reported full-year adjusted income from operations of $3.6 billion or $14.22 per share representing a per share increase of 36%. These results were driven by substantial growth in contributions across each of our businesses including strong retention levels, the continued expansion and deepening of our customer and client relationships, and solid new growth across our portfolio. Cigna also delivered industry-leading medical cost trend for the sixth consecutive year. Our sustained market-leading performance will further be strengthened as we integrate and leverage the core capabilities of Express Scripts. Express Scripts concluded 2018 with continued strong performance and delivered its lowest commercial pharmacy trend on record of 0.4% details of which will be provided next week in our annual Drug Trend Report. Express Scripts also achieved better than 98% client retention for 2019 all while continuing to invest in innovations to benefit customers, patients, clients, as well as healthcare providers. Overall Cigna delivered very strong results in 2018 with growth across our portfolio of…

Thanks, David. Good morning everyone. In my remarks today I will review Cigna's 2018 results and provide our outlook for 2019. Key consolidated financial highlights for 2018 include adjusted revenue growth of 15% to $48 billion, earnings growth of 33% to $3.6 billion after-tax, earnings per share growth of 36% to $14.22, and continued strong operating cash flow. These results reflect the underlying strength of our business and provide us with considerable momentum as we drive growth and advance our integration priorities in 2019. Regarding our segments, I'll first comment on Integrated Medical. 2018 revenues grew 13% to $33 billion, driven by commercial customer growth and expansion of specialty relationships, as well as premium growth reflecting underlying cost trends. We ended 2018 with $17 million global medical customers driven by an organic increase of $584,000 lives led by growth in our select, middle-market and government segments. As we completed our eighth consecutive year of organic medical customer growth, we continue to grow in both risk and ASO funding arrangements with a highly consultative approach that aligns affordable solutions with the needs of our customers and clients. Full-year earnings grew 20% to $3.5 billion on a pretax basis reflecting growth in medical customers and specialty relationships, continued effective medical cost management, and favorability in our U.S. individual business. Turning to medical costs, for our total U.S. commercial book of business full-year medical cost trend for 2018 was 3.6%. We are pleased to have delivered industry-leading medical cost trend results for a sixth consecutive year and we are focused on further expanding our capabilities to improve health outcomes and medical cost performance which drives increased value for customers and clients as they continue to confront challenges with the affordability of healthcare. Our combination with Express Scripts accelerates our ability to create that…

Thank you. [Operator Instructions] The first question comes from Ralph Giacobbe with Citi. You may ask your question.

Thanks, good morning. Just hoping you could help with the bridge or the underlying assumptions a bit more within the guidance. I know you mentioned the jumping off point being closer to 1372. I think in the past you talked about sort of high single digit growth in the legacy Cigna business. Even if we use 7% that's kind of 1465 and I think at the time of the deal you said core Express would be mid teens accretive, which I think is at least $2 dollars sort of in incremental and would sort of suggest above the high end of guidance. So just hoping you could maybe help with where that's off or if something has changed from your initial view and just the assumption in underlying core performance between the segments? Thanks.

It's David, good morning. Let me frame and offer for Eric to add on to my framing. First, big picture for 2019, our outlook is in line with our planned expectations broadly speaking and puts us on the trajectory to deliver on our 2021 commitment of $20 to $21 of EPS. Two, I appreciate you walking through the bridge. You take the core portfolio, the core legacy Cigna portfolio is performing well and will continue to perform well. We step into 2019 with strong performance within Express Scripts from that standpoint, not to grapple with you on the math, but you are about right, it is about $2 going back to the announcement. I would just point you to one additional data point, Eric emphasized and highlighted the fact that within our assumption for 2019 right now is approximately $200 million before tax of temporally stranded overhead tied to the early termination that's temporary. We will eradicate that through three mechanisms; one, execution of EBI which remains on track, but there'll be some temporary dislocation; two, additional leverage from organic growth; and three, the significant capacity leverage that will be created as we utilize Express Scripts for the Cigna volumes over the near term future. So when you pull all that together we are on track both delivering an outstanding result in 2019 of 17% to 20% of EPS growth even including that stranded overhead. Eric, anything I missed?

I think those are the major headlines David. Thanks.

Thank you, Mr. Giacobbe. The next question comes from A.J. Rice with Credit Suisse. Your line is open.

Thanks, and thanks for all the comments around guidance. I guess you guys are the first guys to have a conference call since the HHS release last night, so I'll probably ask you about that since that's a top, the main topic for a lot of us. Can you – there is a lot of aspects to that. I guess I would just ask you broadly, do you see any particular challenges there, opportunities or what would the key open questions from that proposal be? And then always the question, I know HHS is saying they don't have the regulatory authority to implement anything in the commercial market, but if this goes forward, do you think we'll maintain a 2-Tier system where the Medicare Part D will have its one set, and the commercial market will stay pretty much as it is, any thoughts around those or sense will be helpful?

A.J. good morning it’s David. So just appreciate the questions. Stepping back we are 100% committed to providing affordable, high quality health and wellbeing services to our customers, patients and clients in the U.S. and across the globe. A key driving force behind our strategic combination with Express Scripts is to further improve on affordability and we built off our strength with another year of outstanding medical cost trend in the Cigna business portfolio of 3.6% six years in a row and just a phenomenal result in the Express Scripts portfolio at 0.4% pharmacy trend. The headline number one is, the proposed rebate rule will not have a meaningful impact on our growth or earnings trajectory. Specifically, as you noted, the proposed rule as will be evaluated over the next 60 days applies to Medicare Advantage and PDP. The mechanisms that exist in terms of the way rates are built up for Medicare Advantage as well as PDP largely by design, flow and respect, the rebates and pass through the way the rates are billed. So we don't see a major implication [ph] to that business portfolio. And then inferred in your comment, it does not apply to the commercial marketplace. We do see some opportunities in the proposed rule as articulated. For example, it provides a mechanism to even further accelerate value based care programs with the pharmaceutical manufacturers. You'll recall from the day we announced our proposed combination on March 8th we talked about that as an important initiative that we passionately believe in. This will provide some further accelerant to that, as well as potentially open up some additional chassis to work with pharmaceutical manufacturers to get better alignment. But big picture, we do not see it having a material effect on the business portfolios configured and are on track to deliver the 17% to 20% EPS growth in 2019.

Okay, great. Thanks a lot.

Thank you, Mr. Rice. The next question comes from Josh Raskin with Nephron Research. Your line is open.

Hi, thanks good morning. First one is just a clarification, are you guys saying that Express is indeed $2 accretive in 2019 as part of the guidance and then the rest is legacy core with the $200 million of stranded? And then my real question is, just the combined company and sort of when do you come to market with that pitch? And I know you guys have been laying the foundation for that integrated approach, but when does sort of that broker/consultants education begin, when does the large employer group starting to hear that and when do you think that actually starts resonating, how do we start thinking about changes in direction around membership growth especially on the on the U.S. commercial side?

Hey Josh, it’s Eric, I'll take the first part of the question. I think to the nearest dollar, $2 is probably the right number that’s actually a little bit less than that, so we think of it in the $1.50 to $2 range in terms of the accretion from the Express Scripts acquisition for next year. David I'll let you take the other portion of the question.

Josh, first specific to the go-to-market proposition, important to note that each portfolio and each platform is performing well and growing well. We're delighted that we're able to step into 2019 with very strong growth within the ESI portfolio and another year of strong organic growth within the Cigna portfolio. Additionally, important to highlight as it relates to growth as we look even to 2020 within our organization growth starts with outstanding retention, deepening of relationships in addition of new business relationships. Within the Express Scripts portfolio they'll be a lower percentage of their business that's out the bid for 2020 than was for 2019 and you recall a phenomenal retention result for 2019. Think about that as about 30% less business out today for 2020 versus 2019. The early look in that has the health plan part of the portfolio which is the earlier part of the portfolio, that is up for renewal in terms of the decision making process and we're pretty well through that process with all of them clients thus far making decisions renewing and no known losses from that standpoint, so strong platform. We'll step forward through 2019 and 2020 with evolve value propositions to answer the core of your question. Interactions are starting to take place with the broker and consulting community and that will happen in a phased mechanism. There will not be a singular new product offering that is pushed on the market, rather additional capabilities that will offer more choice, both through the legacy of the Cigna distribution model, as well as through the Express Script distribution model, so strong foundation an early look at outstanding retention, stepping into 2020 within the Express portfolio already today and then emerging momentum around expanding choice as we sit here in 2019 with building momentum to 2020.

Thanks.

Thank you, Mr. Raskin. The next question comes from Gary Taylor with J.P. Morgan. You may ask your question.

Hi, good morning. I just had a question around the new Healthcare Services segment, the guidance of $5.05 billion to $5.2 billion, can you tell us what growth that would represent year-over-year, what legacy Cigna PBM plus Express would represent essentially because might sort of back of the envelope looks like that would be flat to down slightly, but there is obviously some disclosure we don't quite have?

It’s Eric. A number of moving pieces in there, so probably not constructive to walk through all of the different kind of ins and outs and dynamics there. Fundamentally, we've got growth reflected in terms of the operations that make up the Health Services segment as well as the Integrated Medical segments there is good growth in both, but really not able to kind of pull the pieces apart on the call today.

And Gary, it’s David. I just want to add on and maybe we'll ask Will and team to followup with you afterward. As the new business segments are configured you may recall and I know it's all net new is, a portion of the Cigna pharmacy business for example has moved into the Health Service business, the mail order aspect et cetera, however the integrated aspects of the pharmacy business remain in the Integrated Health portfolio. So we could take that offline with you and follow up to walk through the pieces, but at the end of the day there's solid organic growth in both of those portfolios driven by our retention and expansion relationships and the net new business adds.

Thank you.

Thank you, Mr. Taylor. The next question comes from Justin Lake with Wolfe Research. You may ask your question.

Thanks, good morning. I just wanted to clean up the $200 million commentary and then I had a question. So to be perfectly clear, you're saying that 2019 is carrying this overhead reduction of this $200 million. Is that the total number of lost overhead contribution from Anthem or is there going to be more in 2020?

Justin it's Eric. So I think of the $200 million as the amount stranded in 2019 associated with the transitional time at about $0.40 earnings per share. Ultimately, as that business transitions we will hit those costs out of the system. We're on track for our $20 to $21 in 2021. The final exact timing will play out in terms of cost coming out this year versus next year as the Anthem works through their transition plan and such. But again, think of that as the amount we've estimated for this year that we will absorb and that will need to come out of the system as we go into 2021.

Okay and to be clear that's a drag on the services business. So even though it might look like there's not much growth there that would be $200 million that you didn't expect to have this year. And is that also a drag versus the accretion number given you probably didn't expect to have that as well because of the timing, should you track those dollars off the accretion that $2 of accretion?

That's correct on all fronts, So think about that as almost entirely within the Health Services segment and think about that as in the short term a drag on the cost. It is temporary and we still are on track for our long term expectations there.

Okay and then if I could just sneak in my question on rebates, Express historically put out a number of $400 million. I know you don't think it all goes away with commercial and all, but can you give us an update there, worst case scenario, if rebates go away where do you think that would be in any comment, CVS put out some discussion on rebate guarantees being affected by inflation, anything there that you see as a headwind for 2019, those two things would be helpful? Thanks.

Justin, it's David, good morning. You’ve effectively put in about four questions. Let me try to wrap a couple of them together. First, specific to the commercial side of the equation as noted previously, the rebate rules articulated and proposed does not affect the commercial market. As you go back, you're correct. Let's go back and use the numbers that we put out. First, for Express Scripts about 95% of all rebates, discounts, et cetera are passed back. Second, per prior conversation about 50% of all clients within Express Scripts opt for today full pass through rebate models. That covers importantly about two-thirds of the volume. So there's a little disproportionality of that. The net of that is we have multiple funding mechanisms already in hand today and align payment models that work for clients across the commercial health plan and government agency sector that work for them and work for us to get levels of alignment and we'll continue to evolve those over time. Specific to the rebate guarantees, you'll note that we did not call that out as a headwind, stepping back our industry broadly speaking has guarantees as a part of it. Whether that's in the formal nature of a guarantee cost offering, a discount guarantee, a rebate guarantee, a trend guarantee or otherwise and both legacy organizations have a great track record of effectively gaining alignment and managing those on a go forward basis. Lastly, I would just add that Express Scripts had some visibility into the decelerating trend environment as such took appropriate actions with their services contracts. So again, we have not called that out as a headwind.

Thanks.

Thank you, Mr. Lake. The next question comes from Kevin Fischbeck with Bank of America Merrill Lynch. You may ask your question.

Great, thanks. I wanted to go to the cash flow guidance that you guys are providing here. The numbers that you've been giving generally speaking have kind of excluded Anthem as a client, does that $6.2 billion number include any cash flow that you'd be earning from Anthem acquisition clients this year or it is excluding that? And then just trying to think about this number as kind of a base to think about next year, is there anything one-time in this number or is this a good number to think about for 2020 cash flow available for the parent if we just add earnings growth per se to that?

Kevin its Eric. And so overall think about the $6.2 billion figure that I referenced as all in. So it is comprehensive for the enterprise in terms of capital generated. There will be - the rate and pace of achieving our synergies, the rate and pace of capital investments and the rate and pace of our debt repayment will be the main things that will go into - that come to mind in terms of the kind of the top tier impacts. But we would expect to have in excess of $6 billion for each of the next couple of years available in this framework.

Okay, so even though Anthem goes away, earnings growth kind of makes up for that and the $6 billion a starting point before all the other uses of cash.

Right, Kevin.

All right, great. Thanks.

Thank you, Mr. Fischbeck. The next question comes from Steven Valiquette with Barclays. You may ask your question.

Great, thanks. Good morning David and Eric. So I guess from me just another quick question here on the early Anthem PBM transition. I guess other than the stranded cost that you alluded to, I just want to hear your view hopefully confirmatory that there really should not be any other unexpected consequences in 2019 for the remaining PBM business that Cigna-Express related to things like either let's say less purchasing power or lower rebate collections or something like that because of the early Anthem transition. Thanks.

Steve, good morning it’s David. No, there will not be any impact. We - from the day of the announcement we excluded transitioning clients from all aspects of how we looked at the combination, the business, the outlook, et cetera, but there are no other impacts that you need to be concerned about.

Okay and just a quick MLR question here on the guidance 80.5 to 81 could you just remind us again how that compares year-over-year on an apples-to-apples basis when adjusting for the half to the 78.9% you just posted in 2018, is that essentially flat when you do the adjustment or is it a little higher or a little lower, I just want a little more color there as well. Thanks.

Yes, Steve it's Eric. So in terms of the moving pieces with the MLR, I think the industry fee suspension, this is the single biggest piece, the other changes I would call out would be more also factors we've already talked about. So industry fee suspension is the single biggest piece. We've talked about the normalization of our individual plans, margin and then the absence of prior year development in our outlook. Those would be the pieces that would account for the movement from this year into our guidance for next year.

Got it. Okay, great thanks.

Thank you, Mr. Valiquette. The next question comes from Steve Tanal with Goldman Sachs. You may ask your question.

Good morning guys. Thanks for the question. Just had two sort of topics I wanted to touch, one is just thinking about the long term earnings growth algorithm or target, the 10% to 13% you guys used to put out there, how are you thinking about that now? And then secondly, just to round out kind of the discussion on the earlier transition of Anthem, I guess could you kind of just give us what the new level of year one accretion assumed in the low and high end of the guidance provided is now? And how comfortable are you that those costs are truly temporary? And I guess just separately, like why was an earlier transition of Anthem business not sort of contemplated in the initial accretion targets provided given the change of control provision in the contract?

Steve it’s David. First, relative to your broader or big picture question, first by way of background, we've delivered approximately 15% EPS CAGR since 2009, so take 2009 the initiation of our strategy to 2018, we've been above the high end of the articulated 10% to 13% range. Over the next three years, the next chapter of our strategic horizon, we are on track again to deliver 15% EPS accretion on average over the next three years and we look forward to refreshing our long term outlook as we go forward. So we'll have an excess of a decade of 15% EPS growth out performing our long term targets. As it relates to the latter part of your question, all along we understood that we had transitioning clients and we excluded transitioning clients from our EPS outlook, our accretion outlook, et cetera. No one could predict the rate pace and timing of terminations. The termination is an early termination. It creates a temporary dislocation as Eric articulated of approximately $0.40 of EPS or $200 million before tax. Even with that, we're able to deliver 17% to 20% EPS CAGR year-over-year off of a tremendous base in 2018 and we did anticipate it. Hence EVI initiatives are underway, but we're taking those in a paced fashion and we will deliver on the EVI initiatives as well as tremendous organic growth. So those costs will be eradicated. There was just a temporary dislocation that takes place in 2019 and even with that we're able to deliver the 17% to 20% EPS growth.

Thanks and so just with that, I guess it sounds like maybe you're still guiding to double-digit accretion ex the $0.40 or at the midpoint of guidance or any color on that part?

The way I would think about it Stephen is, we've discussed before, the core accretion fundamentals of the combination remain intact. Hence, we're on target for about $20 to $21 and the core fundamentals of the Cigna business portfolio remain intact. As Eric referenced in the prior question that was asked, if you take the accretion that would have been inferred and date of announcement of mid teens of about a $1.90 you're back off about $0.40 for the temporary dislocation of overhead and you want to back into a build up you're about right there in 2019 and even with that we're delivering to 17% to 20% EPS growth rate. Thanks.

Perfect, thank you.

Thank you Mr. Tanal. The next question comes from Zach Sopcak with Morgan Stanley. You may ask your question.

Hey, thanks for the question. So I want to ask about the other transition with your members shifting from OptumRx. Two questions, one is there - how straightforward of a transition is that and is there anything in that process that you're concerned about in terms of the member experience? And two, like I understand it's not going to impact 2019 earnings, but is it at all a significant contributor to that 15%-ish CAGR to get to your 2021 target range? Thank you.

Zach, good morning it's David. So stepping back I'll remind you, today we own and operate our own PBM and successfully done so for many years. We also implemented a successful strategy five, six years ago to break it into modules and to partner with others to perform some of those modules for us, initially Catamaran that transitioned to Optum and it's worked quite well and successfully with Optum as a good constructive partner. Earlier this year we announced an aligned plan and timeframe with Optum in terms of our shared view in terms of an orderly transition that will take place. That positions us in a way to have a very disciplined orderly transition of those services and relationships and there's a good track record of transitioning services to them and transitioning services back to us within their respective modules and that will take place over the next approximate two-year horizon. It will create some significant volume uptake for Express Scripts which is a positive. One way you could think about that is the Cigna volumes on today's basis when internalized within Express Scripts make up order of magnitude $75.00 maybe a little higher 75% of the loss volumes from Anthem. So it is quite significant, but it will take place on a ratable basis over the next couple of years. And again, we have a successful track record of in a very disciplined basis of transitioning services to and from other providers. I hope that helps.

Thank you, Mr. Sopcak. The next question comes from Peter Costa with Wells Fargo Securities. You may ask your question.

So along that line David, can you explain, have you accelerated the Optum timing of bringing that business in-house relative to Anthem choosing to go early away from you and when did Anthem notify you of their decision to go early?

Yes, good morning. The answer to your question is no. We had a very orderly and disciplined process laid out and we have a very successful and growing captive PBM. We have a very successful strategy approach that we've been executing within the captive PBM and a very strong partnership relationship with Optum around shared value delivery. We laid out in a very orderly timeline that allows for a disciplined two-year transition putting our customers front and center and the coordination services with our physician partners. So that timeline and the strategy around that is commensurate what we believed was appropriate and highly aligned with our service provider partner.

And then when did Anthem notify you of their decision and should I assume that 75% of the $0.40 of stranded overhead goes away with just from Optum coming in-house?

I'm not going to get into dates and timing. I think Peter, to the second part of your statement a way to think about the overhead that we articulated before, there are three mechanisms to dispatch of that and it will be removed. First and foremost a very disciplined EVI plan that was laid out and is being executed on an orderly basis; two, good organic growth and then we start 2019 with good organic growth in the Express Scripts portfolio; and third, the very disciplined leverage of the Cigna volumes within the portfolio. All of that will contribute to and the EVI program was put in place to actually take out the cost structure, so we see some additive opportunities as we look to the future from the sustained organic growth and the leverage of the Cigna capabilities.

Thank you, Mr. Costa. The next question comes from David McDonald with SunTrust. You may ask your question.

Yes, good morning. David, just one quick question, you now have a meaningfully scaled mail order business. I was wondering if there is an opportunity to potentially sell additional products or services through that channel over time, and now that you have deepened the combination of pharmacy and medical, is there also an opportunity to expand and further leverage some of the incremental clinical horsepower Express brings, things like Evercore therapeutic resource centers, et cetera?

David, good morning. So to your first question, I appreciate it tremendously and Express Scripts is built in has a proven track record of having a pretty phenomenal mail order fulfillment capability, so it's a service capability that’s aided by quite innovative technologies, patents, et cetera. And we will on a disciplined fashion continue to look at how that core capability that you come back to, potentially could be used and leveraged for other services that benefit customers, patients or clients on a go forward basis and I appreciate the call out. Specific to the clinical integration and clinical leverage, absolutely, absolutely. A core part of what both organizations got excited about from early conversations was the shared leverage. I articulated in the prepared remarks a little bit between leverage around the Accredo capabilities relative to the deep clinical excellence they have coupled with the Home Health coordination services that exist and bringing some of that together. Secondly, from a data set standpoint, the ability to enrich insights for practicing clinicians to more comprehensively understand the life or health needs of patients, and as you articulate within the core Evercore capabilities, there are tremendous opportunities where we are on a focus basis already working through additional step function improvements in the clinical capabilities of the combined Corporation which going back to benefiting our customers and clients and further improving affordability and clinical quality. So yes to both points and we couldn't be more excited on the early traction on the second point already.

Thank you, Mr. MacDonald. The next question comes from Scott Fidel with Stephens. You may ask your question.

Hi, thanks. Good morning. I had a question just on, I know you are not giving specific earnings guidance anymore for International Group Insurance, so just interested if you can give us maybe some more qualitative or directional commentary on how you're thinking about earnings trends for those two segments in 2019?

Hey Scott, it's Eric. Thanks for that. A couple of headlines that come to mind for me there, so first of all will continue to have good growth momentum in both businesses. We would expect that we will continue to grow in both and the differentiated return to work platform with regard to the disability business continues to services well and again continues to be a growth chassis for us. In the International Markets business, again continue to grow that platform as well. We closed on November 30, on our acquisition of OnePath Life in New Zealand and this is an example of the continued expansion of the International Markets platform and chassis and so continue to move that forward as well, but overall, really no changes to the underlying growth story and the momentum that we've gotten into those businesses.

Thank you, Mr. Fidel. The next question comes from Matthew Borsch with BMO Capital Markets. You may ask your question.

Maybe just if I can ask a question this way on the rebates relative to the draft rule understanding the commercial payers are not immediately into or not impacted by this rule, but if so, so if rebates were to disappear entirely in theory what would be the earnings impact at this point for commercial as well?

Hi, good morning, it is David. We don't have a theoretical EPS answer to the theoretical action you articulate. Stepping back in an attempt to be helpful again about 95% of all discounts and rebates within the Express Scripts portfolio pass-through and shared about 50% of all clients opt for today full pass-through rebate relationships and that equates to - because of the scale of those clients it equates about two-thirds of the volumes and previously indicated Express Scripts retains about $400 million, that's a before tax number. I would add the reason why I think your question is unanswerable is the model continues to evolve. So the evolution of value based contracts and our share direction in terms of continuing to move toward and more comprehensively toward total cost, total value relationships with our clients, whether they are commercial clients, health plan clients or governmental agencies, is the direction that Express Scripts was on. It's the direction of the Cigna, has been on and it's the direction that the combined corporation goes forward on. So those tools and levers continue to evolve and you will see us continue to move away from trying to perceive maximize a single lever as opposed to maximize the overall value which is total cost and total qualities go forward.

Thank you, Mr. Borsch. The next question comes from Charles Rhyee with Cowen. You may ask your question.

Yes, hey thanks for taking the question. I wanted to ask, you obviously reaffirmed the 2021 target of $20 to $21 a share, I just wanted to put that into context with your previously kind of guided synergy target about $600 million. And then if we think about now with the transitioning of Anthem a little bit early, when we think about that number 2021 in relation to the guidance and then you obviously outlined some sort of growth opportunities and optimizing the medical and pharmacy side of it. What pieces contribute that trajectory towards a 2021? And I guess what I'm really asking is, can you start to kind of quantify for us a little bit, sort of sizing what you think these other opportunities are in relation to the 600 because if I recall correctly that $600 million was largely an overhead kind of a synergy target. Thanks.

Charles it’s Eric. I'll start with a couple of the pieces and maybe ask David to give some more overall color and commentary. So at a Macro level we continue to be on track with the synergies as assumed and as we discussed back in 2018 and as we disclosed in last quarter last year, the synergies that we put out and that were quantified there, primarily reflect the administrative costs and we had expected that those would occur over multiple years over the first four years of the transaction. We're generating $112 million of pretax administrative synergies for 2019 and that builds to $600 million in 2022. You're correct that we expect to generate meaningful additional improvements, in the pharmacy and medical costs, through the combination both through the clinical combinations and some of the other items as David discussed today. Those benefits will primarily in order to the benefit of our customers and client. As it is again, in terms of the synergy pieces those are the pieces you should think about and we are on track and consistent with how we teed up the transaction initially. David will give some additional color here.

Yes, and so just bridge, when you think about today to 2021 we try to articulate there's three major building blocks to get to the $20 to $21 per share. The underlying base performance of both assets, the synergies that Eric just made reference to and you articulated the $600 million before tax synergies and the impact to the P&L of the de-leveraging which were already on board for the de-leveraging path, that's the basic cross-walk between 2018 and 2021. Additional opportunities above and beyond that which we've said are not built into the accretion model are further leverage and enhancements of the growth chassis of the portfolio as we go forward and identify additional opportunities for growth, whether it's net new growth or further deepening of relationships, anything beyond what the core businesses are performing is excluded from that today as well as potential additional value at a shareholder level versus passing back to the customer and clients from the leverage of Express Scripts for the transition of the Cigna portfolio into the Express Scripts portfolio. So the basic cross-walk is base performance, synergies and de-leveraging to get us from 2018 to 2021.

Thank you, Mr. Rhyee. The next question comes from Ana Gupte with SVB Leerink. You may ask your question.

Hey thanks, good morning. Can I follow up on the – just the question just now, on the Express synergies more on a near term basis both administrative and medical, can you talk about on the administrative side is there anything you can do to accelerate the schedule you had provided in the S4 or in today's guidance and how much of it is potentially even going to retain your business in the July renewal season or 11/2020 season given Anthem is now talking about $3 billion in savings much sooner, Optum is 250 and 300 and PMPY savings just from Rx? And then to followup on David your commentary around the power of Express and Cigna together, when will we see proof of concept on that combined business as far as medical costs trend or medical loss ratio impact or you know accelerated share gains and growth?

Ana, good morning, it’s David. Let me try on the points to be responsive here. Specifically as Eric has articulated a couple times there's a $112 million of synergies show the synergies we signed up for in 2019, so a step towards the $600 million. You'll note we're being very disciplined. We are making sure that the expenses come out in an orderly basis. We may outpace that, but the business plan and the guidance we've articulated doesn't assume that and with that and with the transitioning client impact, et cetera, we're delivering 17% to 20% of EPS growth. Specifically as it relates to the medical and pharmacy cost synergies and value creation, that will unfold throughout 2019 and 2020 and benefit our clients and customers on a client or customer basis depending on the products, programs and services they have. And I would note that we have very good growth and outstanding retention in all of our business portfolios stepping into 2019. We're going to have another good growth year and I articulated an early glimpse to Express Scripts renewals for 2020 which are tracking very, very favorably right now. As it relates to proof of concept, you should not think about Cigna coming back to you with a net new proof of concept of something De novo we are seeking to build that doesn't exist today as a concept to roll out in the marketplace, rather we are systematically further enhancing the value propositions for our commercial clients, for health plan clients, for governmental agency clients and offering more choice which will unfold in 2019 and 2020 with expanded capabilities and further clinical integration and effective use of data. At our Investor Day we will seek to bring some of those to life with both words, examples, and challenge ourselves to give some tangibility even in terms of some of the supporting technologies and workflows, but it is not a net new concept. The capabilities unfold pretty rapidly throughout 2019 and we will expand additional choice for the benefit of clients and customers as we step into 2020.

Thank you, Ms. Gupte. The next question comes from Frank Morgan with RBC Capital Markets. You may ask your question.

Good morning. Thanks for the color on the Anthem-Optum swap of businesses as 75% of that volume could be recovered. But when I think about it from a profitability standpoint, how should you be thinking about the profitability on the Anthem book loss versus the savings you'll realize by bringing that back in-house? That's number one. And then number two, was just one of the headwinds you're calling up for the year was the outperformance you saw last year in the Integrated Medical segment, I think mainly the individual segment, is there anything specifically that you would like to call out as to why that should revert or it just simply conservatism? Thank you.

Good morning, it's David. On your first question I would ask you not to think about the profitability of those two components. Step away from it. We've excluded the transitioning clients from all aspects of our conversation from the day we announced the proposed combination and the earnings impact of that from an EPS standpoint have been excluded. We have in 2019 this temporary dislocation of overhead that from a full transparency basis we will walk through laid out $200 million before tax and that will be removed from the system in a pretty expeditious fashion and we have multiple levers to address that. But I would ask you not to think about profitability of the Cigna portfolio versus the Anthem portfolio because they're not comparables from that standpoint. As it relates to the individual market, you are correct. We articulated in our third quarter call the fact that, we're quite pleased with the performance of the individual portfolio of businesses. We expected to be profitable in 2018, it is. It has outpaced the high end of our strategic margin threshold and for 2019 planning purposes we believe it's prudent when you look at that program and the design of that program to plan for margins that are more in line with our strategic margin trajectory which is somewhere between 4% and 6% before tax and for 2019 and we've planned for it to be at the higher end of the range which we think is a more sustainable indication of what that portfolio programs. There is nothing systematic beyond in terms of dislocation in that marketplace. We just believed it was appropriate to plan for in view that that marketplace runs in a 4% to 6% before tax margin versus a significant margin that was delivered above and beyond that in 2018.

Thank you. Mr. Morgan. The final question comes from David Windley with Jefferies. You may ask your question.

Hi, thank you. Good morning, thanks for squeezing me in. David, the Disability business has been on a journey to kind of evolve process and bring margins back up to normal levels and then the score calls out some unfavorable claims. Are those things at all related, do any actions need to be taken relative to the unfavorable disability claims? And then one last clarification on the $200 million, if you were as you have said excluding Anthem from all the results, were those $200 million allocated to that exclusion and now they become real or another way to think about it, weren't those $200 million stranded from the very beginning because of the assumption that Anthem would be excluded?

Yes David, it's Eric. So maybe I'll take second one first on that. Really just thinking about the $200 million just kind of a timing matter right, so the cost that would have been allocated to the contract they would have been gone away for all the reasons David described earlier in the Q&A session here. I'm thinking about it as timing just because of the earlier transition now that those costs won't be able to be allocated to the volumes that would be going away through there, but think about it that way. On a group wise and disability, we've talked in a number of different calls over time about the variability that can happen on any one line quarter by quarter or things along those lines, but we didn’t call out anything particularly, systemic or anything along those lines, but just that we had favorable life insurance experience and a little bit unfavorable disability experience in the quarter here.

Thank you, Mr. Windley. And now we will turn the call back to David Cordani for closing remarks.

Thank you. To wrap up our call I'd just like to highlight some key points from our discussion. Cigna delivered substantial earnings and revenue growth across our businesses in 2018. We are committed to broadening our approach to integration which focuses on coordination of services around the individual and their whole person health needs both body and mind. This approach also further expands choice, so access is available anytime anywhere based on our customers and patients needs and preferences. We have a well positioned portfolio of businesses with multiple paths for sustained growth in 2019 and beyond. For 2019 we expect revenue growth, attractive EPS growth, and strong free cash flows, which position us to deliver 15% average annual EPS growth over the next three years and put us on target to deliver our $20 to $21 EPS target for 2021. We thank you for joining our call today and we look forward to our future conversations.

Ladies and gentlemen, this concludes Cigna’s fourth quarter 2018 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 toll free 866-453-2340 or toll 203-369-1229. No pass code is required. Thank you for participating. We will now disconnect.