June 14, 2024

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Health Care Service Corp to buy Cigna Medicare Advantage plans

3 min read

Cigna is officially exiting the Medicare business, agreeing to sell all of its Medicare insurance plans to Health Care Service Corp., a large Blue Cross Blue Shield insurer, for $3.3 billion.

The deal includes Cigna’s 600,000 Medicare Advantage plan members, as well as all Medicare beneficiaries who have a Medicare prescription drug plan and Medigap plan through Cigna.

The sale marks the end of a tumultuous run for Cigna’s troubled business that insured older adults and people with disabilities. The health insurance giant primarily derives its revenue from selling health insurance and administrative services to employers, especially large ones, as well as its pharmacy benefit manager. But in 2012, it bought HealthSpring, a large Medicare Advantage plan, for $3.8 billion and now is selling it for less than that despite growing its Medicare Advantage enrollment by 75%.

Cigna has continued to be a small player within Medicare Advantage, a controversial taxpayer-funded program that has been a growth engine for the insurance industry and has been dominated by UnitedHealth Group, Humana, CVS Health’s Aetna, Elevance Health, and Kaiser Permanente.

Over the years, Cigna’s Medicare Advantage suffered from a plethora of quality and compliance problems that the federal government said posed a “serious threat to the health and safety of Medicare beneficiaries.” For example, its Medicare plans inappropriately denied care and prescription drugs, and the company did not explain to members why certain services were not covered. The government eventually banned Cigna from selling Medicare plans in 2016, and then lifted those sanctions a year and a half later.

Cigna’s Medicare Advantage plans also faced intense scrutiny from federal prosecutors after a whistleblower alleged the company falsified the diagnoses of its members to extract higher payments from the government. Cigna settled those allegations for $172 million last year.

Cigna was exploring a sale of its Medicare business in November as part of a bigger play to acquire Humana, although those deal talks have been abandoned for the time being. Health Care Service Corp. was rumored as a potential buyer in December.

With Cigna now walking away from Medicare, some Wall Street analysts and investors think Cigna could revive its deal with Humana. Scott Fidel, a health care analyst at the investment bank Stephens, said Cigna officially selling its Medicare insurance plans “will set the stage” for its takeover of Humana, according to a note he wrote to investors Wednesday.

For Health Care Service Corp., the deal will immediately grow its government footprint. The profitable Blue Cross Blue Shield insurer operates plans in Illinois, Montana, New Mexico, Oklahoma, and Texas, and currently has fewer than 220,000 Medicare Advantage members.

As part of the deal, Health Care Service Corp. has agreed to use Cigna’s pharmacy benefit manager for these Medicare plans. Cigna owns Express Scripts, one of the largest PBMs in the country, and houses it within a subsidiary called Evernorth.

Cigna will eat a $1.5 billion loss due to “asset write-offs and costs to sell” associated with the transaction, according to a regulatory filing. Cigna will use most of the money from the deal to buy back its stock.


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