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Cigna Sells Medicare Businesses

In this iPMI Global Insights article, iPMI report author Ian Youngman, takes a look at news, that Cigna has sold its Medicare businesses. The reason is that while it has been been a huge source of growth for USA insurers earnings potential is shrinking.

  • Cigna is exiting a sector where is falling following regulatory changes and unfavourable cost trends.
  • Cigna has agreed to sell its Medicare business to Health Care Service Corporation for r $3.7 billion.
  • 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- all in the USA.
  • The companies 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.
  • Cigna CEO David Cordani “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 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.
  • In 2023, Cigna was among the fastest-expanding MA providers as it sought to catch up to market giants UnitedHealthcare and Humana.
  • But Cigna only has 2% of national market share and the insurer’s MA margins have been below its long-term target of 4% to 5%, costly because of administrative expanses related to expansion.
  • Cigna is facing the same problems as other insurers, including changes to payment rules that could lower payment to plans; stricter methodology for calculating quality ratings causing payers to lose out on lucrative bonuses; and seniors using more healthcare, driving up medical costs.
  • Cigna can now to accelerate investment in its health services and health benefits businesses.
  • Cigna’s health services arm Evernorth will provide pharmacy benefit services to the Medicare businesses for four years after the transaction closes.
  • The divestiture frees up Cigna to focus on its core business in employer-sponsored plans, which is expected to grow this year thanks to the U.S. economic recovery.
  • Cigna has also seen fast growth in its Affordable Care Act plans.
  • For individual and family plans, Cigna expects to double membership to 500,000 by 2025, and double its market to twenty states in the same time frame.
  • Cigna also projects it will double its ACA member base and the number of states where marketplace plans are offered by 2025.

Analysis

The Commonwealth Fund has just published a free and massively helpful study Medicare Advantage: A Policy Primer.

2024 Update

All the facts below are from that report:

  • Medicare Advantage plans are private health insurance plans paid by the federal government to provide Medicare-covered benefits as an alternative to Medicare.
  • In 2023, 49 percent of Medicare beneficiarieswere enrolled in Medicare Advantage plans. 
  • By 2025, these plans are projected to account for over half of total Medicare enrolment— 35.4 million beneficiaries,
  • The vast majority of plans (89% in 2024) also cover Part D prescription drug benefits.
  • Medicare has gaps in coverage-eyeglasses, hearing aids, basic dental care, or long-term care. It also requires cost sharing for most services.
  • Because of gaps, many people with traditional Medicare buy Medigap or Medicare Supplemental coverage as well as Part D prescription drug coverage.

About the Author

Ian Youngman is an independent writer and researcher specialising in insurance. He writes regularly for a variety of magazines, newsletters, and on-line services. He publishes a range of market reports, and undertakes research for companies. To read his latest report, International Health Insurance 2023, please click here, or visit the REPORTS section of iPMI Global.

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