The transaction exits Cigna from a sector that’s been a huge source of growth for insurers but has seen its earnings potential shrink.
Cigna has agreed to sell its Medicare business to Health Care Service Corporation for roughly $3.7 billion, the health insurer announced Wednesday.
HCSC is acquiring Cigna’s Medicare Advantage, supplemental benefits and Medicare Part D plans, along with CareAllies, a division that helps providers transition to value-based care. In total, the plans cover 3.6 million people on Medicare.
The companies said they expect the deal — which includes $3.3 billion in cash and $400 million in capital Cigna expects to be freed up — to close in the first quarter of 2025, subject to regulatory approval.
The deal marks a major step forward in Medicare for Chicago-based HCSC, which operates employer, individual and family and Medicare and Medicaid plans in five states.
Meanwhile, Cigna is exiting a sector that’s historically proved a huge source of growth for insurers, but has seen its earnings potential shrink following regulatory changes and unfavorable cost trends.
“While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size within” Cigna’s portfolio, CEO David Cordani said in a statement.
Yet, the $3.7 billion price tag for Cigna’s businesses represents a decade-plus low water mark for a Medicare book of this size, even if it is currently losing money, TD Cowen analyst Gary Taylor wrote in a Wednesday note on the deal.
Cigna first entered MA in 2012 and has expanded its footprint for almost half a decade, attracted by the rising number of seniors electing for MA over traditional Medicare.
Coming into 2023, Cigna was among the fastest-expanding MA providers as it hustled to catch up to market giants like UnitedHealthcare and Humana. The payer had plans to expand further this year to offer plans to almost half of the total addressable market.
However, Cigna only held 2% of national market share last year, and the plans haven’t yielded the margins that Cigna expected. The insurer’s MA margins have been below its long-term target of 4% to 5%, mostly because of administrative expanses related to expansion, the insurer said during a third-quarter earnings call in November.