Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesAccounting policy. Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws. Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation allowance is established to the extent this standard is not met. The deferred income tax provision generally represents the net change in deferred income tax assets and liabilities during the reporting period excluding adjustments to accumulated other comprehensive income or amounts recorded in connection with a business combination. The current income tax provision generally represents estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax positions. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions will be sustained is 50% or less. For uncertain positions that management believes are more likely than not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. The

liabilities for uncertain tax positions are classified as current when the position is expected to be settled within 12 months or the statute of limitation expires within 12 months.

Income taxes attributable to the Company’s foreign operations are generally provided using the respective foreign jurisdictions’ tax rate.

The liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives are supported by retaining overseas a significant portion of the earnings generated by our foreign operations. This strategy does not materially limit Cigna's ability to meet the Company's liquidity and capital needs in the United States. The Company generally does not intend to repatriate these earnings.

A.Income Tax Expense

The components of income taxes for the years ended December 31 were as follows:

(In millions)	2020		2019		2018
Current taxes
U.S. income taxes	$	2,128	$	1,476	$	804
Foreign income taxes	334		173		185
State income taxes	303		114		47
Total current taxes	2,765		1,763		1,036
Deferred taxes (benefits)
U.S. income taxes (benefits)	(217)		(236)		(75)
Foreign income taxes	11		16		8
State income tax (benefits)	(180)		(93)		(34)
Total deferred taxes (benefits)	(386)		(313)		(101)
Total income taxes	$	2,379	$	1,450	$	935

Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax rate for the following reasons:

	2020				2019				2018
(In millions)	$		%		$		%		$		%
Tax expense at nominal rate	$	2,282	21.0	%	$	1,380	21.0	%	$	752	21.0	%
Effect of U.S. tax reform legislation	—		—		—		—		(4)		(0.1)
Impact of sale of business	104		1.0		—		—		—		—
Effect of foreign earnings	(61)		(0.6)		24		0.4		74		2.1
Health insurance industry tax	93		0.9		—		—		78		2.2
State income tax (net of federal income tax benefit)	24		0.2		32		0.5		10		0.3
Other	(63)		(0.6)		14		0.2		25		0.6
Total income taxes	$	2,379	21.9	%	$	1,450	22.1	%	$	935	26.1	%

Consolidated pre-tax income from the Company’s foreign operations was approximately 14% of the Company’s pre-tax income in 2020, 12% in 2019 and 15% in 2018.

B.Deferred Income Taxes

Deferred income tax assets and liabilities as of December 31, were as follows:

(In millions)	2020		2019
Deferred tax assets
Employee and retiree benefit plans	$	477	$	511
Other insurance and contractholder liabilities	278		282
Loss carryforwards	177		260
Other accrued liabilities	358		183
Other	209		218
Deferred tax assets before valuation allowance	1,499		1,454
Valuation allowance for deferred tax assets	(207)		(196)
Deferred tax assets, net of valuation allowance	1,292		1,258
Deferred tax liabilities
Depreciation and amortization	660		630
Acquisition-related basis differences	8,989		9,386
Policy acquisition expenses	289		113
Unrealized appreciation on investments and foreign currency translation	171		223
Other	122		293
Total deferred tax liabilities	10,231		10,645
Net deferred income tax (liabilities) assets	$	(8,939)	$	(9,387)

Management believes that future results will be sufficient to realize a majority of the Company’s gross deferred tax assets. Valuation allowances are established against deferred tax assets when it is determined that it is more likely than not that the asset will not be recognized. Valuation allowances have been established against certain federal, state and foreign tax attributes. There are multiple expiration dates associated with these tax attributes.

C.Uncertain Tax Positions and Other Tax Matters

Reconciliations of unrecognized tax benefits for the years ended December 31 follow:

(In millions)	2020		2019		2018
Balance at January 1,	$	1,018	$	928	$	35
Increase due to prior year positions	128		68		40
Increase due to business combinations	—		—		860
Increase due to current year positions	88		29		6
Reduction related to settlements with taxing authorities	—		—		(1)
Reduction related to lapse of applicable statute of limitations	(24)		(7)		(12)
Balance at December 31,	$	1,210	$	1,018	$	928

Substantially all unrecognized tax benefits would impact shareholders’ net income if recognized.

The Company classifies net interest expense on uncertain tax positions as a component of income tax expense and in Accrued expenses and other liabilities on the balance sheet. In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was approximately $127 million as of December 31, 2020, $100 million as of December 31, 2019 and immaterial for 2018.

D.Other Tax Matters

The statute of limitations for Cigna's consolidated federal income tax returns through 2015 have closed. However, Cigna filed an amended return for the 2015 tax year, and it is being reviewed by the Internal Revenue Service (IRS). Additionally, the IRS has opened an examination of Cigna's 2017 return. It is expected that the IRS will add tax years 2016 and 2018 to the existing Cigna cycle. The IRS has examined Express Scripts’ tax returns for 2010 through 2012, for which there is a significant disputed tax matter, and is currently examining returns for 2013 through 2017. In addition, the Company has pending refund claims for various years.

The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at any given time. Generally, no further state or foreign audit activity is expected for tax years prior to 2012 for Cigna’s entities and 2006 for Express Scripts’ entities.