Dive Brief:
- Cigna is in exclusive talks to sell its Medicare Advantage business to Chicago-based Health Care Service Corp. for between $3 billion and $4 billion, The Wall Street Journal reported on Wednesday.
- In December, Cigna was reportedly in talks to acquire Humana. However, the deal fell apart in part due investors’ reaction to the deal, according to a WSJ report.
- The insurer has been seeking a buyer since November, according to a Reuters report. Cigna said during its third quarter earnings call in November its MA margins were below long-term targets of 4% to 5%. In 2022, the plans’ premium revenue was 4.4% of the company's $180.5 billion in revenue.
Dive Insight:
The WSJ report, which cites sources familiar, follows months of speculation that Cigna was seeking to strategically divest from its MA business, which manages government health insurance for those aged 65 and older.
In December, the insurer reportedly entered talks to acquire Humana. However, Cigna’s stock price dropped 10% following the announcement, and the companies abandoned the merger, according to reporting by WSJ.
David Cordani, Cigna’s chief executive officer, said at the time that the company would continue pursuing bolt-on acquisitions and “value-enhancing divestitures.” The company also planned an additional $10 billion of stock buybacks.
Cigna’s MA sale to HCSC would enhance HCSC’s geographic footprint significantly.
HCSC is the parent company of Blue Cross Blue Shield plans in Illinois, Texas, New Mexico, Oklahoma and Montana, while Cigna offers Medicare plans in 29 states.
Cigna entered the MA space in 2012 when it acquired HealthSpring for $3.8 billion. Since then, its enrollment has grown to just shy of 600,000 Medicare Advantage members as of September, according to the WSJ.
Brian Evanko, Cigna’s chief financial officer, said on a third quarter earnings call in November that Cigna had grown its MA customers 13% year-to-date and expected enrollment to grow more in 2024. However, MA profit margins fell below Cigna’s long-term target margin range in 2023 due to administrative expenses. Evanko predicted profit margins would continue to under-perform in 2024.
Cigna’s competitors have a more dominant presence, according to the WSJ. UnitedHealth Group and Humana have 7.6 million and 5.9 million members, respectively.
