Health insurer Cigna Group is reportedly in advanced discussions to sell its Medicare Advantage business to Health Care Service Corp (HCSC), a deal that could value the unit between $3 billion and $4 billion, according to a source familiar with the matter. The potential sale has sparked market interest and speculation, prompting a 2% dip in Cigna’s shares.
HCSC, a Blue Cross Blue Shield licensee functioning in five U.S. states, refrained from commenting on the rumors, as is customary. If the talks proceed smoothly, an official announcement of the deal is expected in the coming days.
The contemplated sale signals a potential shift in Cigna’s strategic approach to the Medicare Advantage segment, a domain where it administers government health insurance for individuals aged 65 and older. Reports in November had already indicated that Cigna was exploring the possibility of selling this business, reflecting a broader strategic evaluation within the company.
Cigna ventured into the Medicare Advantage space in 2011 with the acquisition of HealthSpring for $3.8 billion. However, the decision to potentially divest comes at a time when the U.S. government is tightening its budgetary allocations, including a reduction in reimbursement rates for health insurers early in 2023. The impact of this regulatory landscape may have factored into Cigna’s reassessment of its portfolio.
The core of Cigna’s revenue stream currently stems from its commercial business and pharmacy benefits division, which received a significant boost with the $52 billion acquisition of Express Scripts in 2018. In contrast, Cigna’s Medicare Advantage business contributed 4.4% to the company’s total revenue of $179.4 billion from external customers in 2022.
The potential sale to HCSC suggests a strategic realignment for Cigna, allowing the company to focus on its core revenue drivers and areas of expertise. While the company may be stepping away from Medicare Advantage, it remains well-positioned in other crucial segments, indicating a calculated approach to portfolio management.
The Wall Street Journal’s initial report on the near-deal between Cigna and HCSC has shed light on the ongoing negotiations. Notably, Health Care Service Corp faced competition from Elevance Health in the bid to acquire Cigna’s Medicare Advantage business, as reported by Bloomberg.
The broader industry implications of this potential deal revolve around the evolving landscape of health insurance and the strategic moves of major players. The dynamics of Medicare Advantage, a segment experiencing significant regulatory scrutiny and financial adjustments, underscore the need for adaptability within the industry.
As the talks progress and the potential deal materializes, the market will closely watch for official announcements, regulatory approvals, and subsequent strategic decisions by both Cigna and HCSC. This transaction could shape the trajectory of Cigna’s future growth strategy and influence industry perceptions of the Medicare Advantage landscape.
