Cigna is in advanced talks to sell its Medicare business in an about-face for the health-insurance giant, which had been expanding its footprint in the fast-growing sector.
Cigna, which has been running an auction for the business, known as Medicare Advantage, is now in exclusive talks to sell it to Health Care Service Corp. for between $3 billion and $4 billion, according to people familiar with the matter.
Should there be a deal, it would mark a major expansion for HCSC, a big nonprofit health insurer that is the parent of Blue Cross Blue Shield plans in five states including Texas and Illinois. HCSC has long been a powerful player in its home states, but the deal would give it a significant Medicare business and far broader reach. Cigna is offering Medicare plans in 29 states for 2024.
Cigna is proceeding with the potential sale even though its talks to acquire Medicare-focused insurer Humana broke off after investors reacted coolly to the possible megadeal. Cigna said that it plans an additional $10 billion of stock buybacks. It is also expected to focus on smaller, so-called bolt-on acquisitions.
Medicare Advantage, the private-insurer version of the federal benefit program for the elderly and disabled, is a major growth engine for the managed-care industry. About half of Medicare beneficiaries are enrolled in the plans, and the numbers are projected to keep growing as more baby boomers turn 65 and become eligible for the program.
Cigna had about 599,000 Medicare Advantage members at the end of September. The business had roughly $7.9 billion in revenue in 2022.
It is a sizable footprint, which Cigna has recently been expanding. But its scale lags well behind that of the leaders in the business: UnitedHealth Group with about 7.6 million members and Humana with 5.9 million, as of September.
Cigna has traditionally focused largely on administering health benefits for employers and a huge pharmacy-benefit manager as well as other health-services offerings under its Evernorth banner. In 2022, Medicare Advantage represented a small slice of Cigna’s total revenue of $180.5 billion.
In September, the Justice Department announced that Cigna agreed to pay $172 million and settle allegations of improper billing in its Medicare Advantage business.
During its third-quarter earnings call in November, Cigna said it had 13% growth in its Medicare Advantage book year-to-date and expected enrollment to grow more in 2024. The company said that between 2019 and 2023, it had expanded its geographic focus from areas that include about 20% of eligible customers to more than 40%, with plans to reach about 45% in 2024.
Cigna also said its margins in the business were below its long-term target of 4% to 5% and were likely to still be less than that in 2024.
Cigna’s Medicare Advantage business was largely built on its 2012 acquisition of HealthSpring, for approximately $3.8 billion.