Why Cigna Group Stock Dived Today

Monday wasn't a very good day for health insurers, and if a day's not good for health insurers you can bet Cigna Group (NYSE: CI) stock took it on the chin.

The blow came from the highest levels of government, spooking investors and driving down the stock prices of numerous healthcare-institution stocks. Cigna's share price eroded by more than 5%, on a day when the S&P 500 index rose by over 3.2%.

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A talking-down from Trump

Big Healthcare as an industry was hit from two directions on Monday. The first blow came from President Trump, who in signing a new executive order denounced the pharmacy benefit managers (PBMs) that negotiate drug prices for insurers and other healthcare institutions.

Image source: Getty Images.

"We're going to totally cut out the famous middlemen," Trump said, referring to the PBMs. Prior to that remark, Trump's executive order mandated the pharmaceutical industry to lower its drug prices within 30 days.

Additionally, legislation drafted by the House of Representatives contains several measures that could change how the PBMs are compensated. Since both the House and the Senate are controlled by the Republican party, at the moment it seems likely that such a bill has a good chance of being passed into law.

Cigna operates one of the most impactful PBMs, Express Scripts. Other healthcare titans with PBMs under their wing also traded down on Monday, particularly CVS Healthcare (CVS Caremark) and UnitedHealth Group (Optum Rx).

PBMs on the hot seat

Fairly or otherwise, PBMs have been sharply criticized by many healthcare reform advocates for driving up drug prices for Americans. They remain juicy targets for reformers, and it's likely their business will be curtailed one way or another no matter the ultimate fate of that House bill.

Still, a company like Cigna is large and sprawling even without its PBM, so I don't see a weakened Express Scripts dragging down its owner all that much.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health and UnitedHealth Group. The Motley Fool has a disclosure policy.