The Bloomfield, Conn.-based health insurer Cigna announced on Jan. 31 that it had made a definitive agreement with the Chicago-based Health Care Service Corporation, which encompasses Blue Cross Blue Shield plans in five states, for HCSC to buy its Medicare businesses for $3.3 billion in cash, with a total transaction value of $3.7 billion.
A press release posted to PR Newswire early on Wednesday morning began thus: “Global health company The Cigna Group (NYSE: CI) today announced that it has entered into a definitive agreement whereby Health Care Service Corporation (HCSC) will acquire The Cigna Group's Medicare Advantage, Cigna Supplemental Benefits, Medicare Part D and CareAllies businesses, for a total transaction value of approximately $3.7 billion. As part of the transaction, The Cigna Group and HCSC have agreed to enter into a four-year services agreement under which Evernorth Health Services, a subsidiary of The Cigna Group, will continue to provide pharmacy benefit services to the Medicare businesses, effective on closing of the transaction. The transaction is expected to close in the first quarter of 2025, subject to receipt of applicable regulatory approvals and other customary closing conditions. There is no financing condition.”
The press release quoted David M. Cordani, chairman and CEO of The Cigna Group as stating that "The agreement will enable The Cigna Group to drive meaningful value for all our stakeholders, providing an enhanced ability to accelerate investment and growth in our services platform, while further deepening our commitment to our existing health benefits platform. In tandem, the transaction will position our Medicare businesses and CareAllies for additional growth as they continue to serve the needs of their customers as part of HCSC. This decision is aligned with our highly disciplined approach to managing our portfolio and allocating resources toward growth opportunities in our Evernorth Health Services and Cigna Healthcare portfolios,” Cordani said. “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 The Cigna Group's portfolio. We continue to see significant, meaningful growth opportunities for government services, including Medicare, in our Evernorth Health Services portfolio of businesses."
And in its press release posted to its corporate website on Wednesday morning, HCSC quoted Maurice Smith, its CEO, president, and vice chair, as stating that, “At HCSC, we have a long history of making it possible for people to achieve their best health, and we continue to drive innovations and improvements in health care. The acquisition will bring many opportunities to HCSC and its members — including a wider range of product offerings, robust clinical programs and a larger geographic reach. It builds on our commitment to expand access to quality, affordable care for people in all phases of their lives,” Smith said. “We look forward to welcoming new members who will benefit from our proven community-first member and provider engagement model that values local relationships. We lead and operate with a deep sense of care and commitment that informs how we serve our members, engage in our communities and deliver differentiated value.”
HCSC’s press release went on to note that “Health Care Service Corporation is the country’s largest customer-owned health insurer, serving more than 22 million people across the United States through health plans in Illinois, Montana, New Mexico, Oklahoma and Texas. HCSC provides coverage options for employers large and small, individuals and families, and Medicare and Medicaid plans. HCSC also offers related health care products and services such as pharmacy solutions, life and dental insurance, and health technology through a network of affiliates and subsidiaries.” And it quoted Opella Ernest, M.D., president of HCSC Markets, who said that “This acquisition accelerates our growth in an important market segment. The way we do business is as important to us as what we do. We have a culture of compassion and focus on data-driven insights to help members achieve healthier outcomes. We are excited to have Cigna’s Medicare and CareAllies teams bring their proven talent and expertise to HCSC,” Dr. Ernest said.
The sale consists of Cigna's Medicare lines, including Medicare Advantage, Medicare supplement and Medicare drug plans, as well as a unit called CareAllies that works with physician groups and other healthcare providers. As a staff-produced report in Reuters noted, “The divestiture marks a change in Cigna's strategy for the sector it had entered with its $3.8-billion acquisition of HealthSpring in 2011. Health Care Service holds a license to provide Blue Cross Blue Shield insurance plans in five U.S. states. It employs more than 27,000 people and 18.6 million members. The vast majority of Cigna's revenue comes from its commercial business and pharmacy benefits division, which it bolstered with the $52-billion purchase of Express Scripts in 2018. Cigna's Medicare Advantage business generated 4.4 percent of the company's $179.4 billion revenue from external customers in 2022. Its plans currently serve 3.6 million Medicare members.”
And The Wall Street Journal’s Anna Wilde Matthews noted in her report posted early Wednesday morning that, “Under the terms, HCSC would pay cash for Cigna’s Medicare lines, including Medicare Advantage, Medicare supplement and Medicare drug plans, as well as a unit called CareAllies that works with physician groups and other healthcare providers, the companies said Wednesday. The transaction involves a services agreement, under which HCSC will continue to use a Cigna subsidiary to handle drug benefits for the acquired units.” Matthews added in her report that “The Wall Street Journal had first reported that Cigna, one of the largest health insurers in the U.S. and owner of a major pharmacy-benefit manager, and HCSC, a big nonprofit health insurer, were nearing agreement. The deal would mark a major expansion for HCSC, which is the parent of Blue Cross Blue Shield plans in five states, including Illinois and Texas.” And she quoted HCSC chief executive Maurice Smith as saying that “We’ve been steadily growing our capabilities and diversifying our businesses while retaining our focus on local relationships.” Matthews added that “The sale of its Medicare Advantage business to HCSC leaves Cigna without a foothold in a sector that has long been a major growth engine for the health-insurance industry.”
Matthews added that “Cigna also said that the deal will enable it to free up $400 million in financial reserves that it can retain and deploy. As a result, it said the transaction would effectively be worth $3.7 billion. HCSC has about 217,000 Medicare Advantage members spread across its five Blue states, which include Montana, New Mexico and Oklahoma, in addition to Illinois and Texas. According to the companies, Cigna had about 600,000 members enrolled in Medicare Advantage, the private-insurance version of the federal program for the elderly and disabled. Cigna had approximately 450,000 in supplement plans, which beneficiaries purchase to fill gaps in the traditional government Medicare offering, and 2.5 million with Medicare Part D drug plans.” And, she noted, “The Medicare business is facing a major challenge, with members’ rising use of medical services increasing costs for insurers. Humana, the second-largest Medicare insurer, reported a steep loss for the fourth quarter and said its financial woes will extend into next year and potentially farther. The disclosure helped push down shares of the entire sector and took a bit of the shine off a business that has long been a Wall Street favorite.”