EXCLUSIVE: Cigna Investigates Medicare Advantage Business – Sources Shedding

NEW YORK, Nov. 6, 2011 (FBC) — US health insurer Cigna Group ( CI.N ) is exploring the sale of its Medicare Advantage business, which manages government health insurance for people age 65 and older. It shows the sale of health insurance to people. Expansion in the sector, according to people familiar with the matter.

In the year Cigna, which entered the Medicare Advantage business by acquiring HealthSpring for $3.8 billion in 2011, would be set back as the U.S. government tightens the purse strings that pay health insurers for their services if it goes through.

Cigna is working with an investment bank to evaluate options for its Medicare Advantage business, which could raise several billion dollars, the sources said.

Discussions with interested parties, including other companies and private equity firms, are at an early stage and Cigna may decide to continue the business, the sources added, speaking on condition of anonymity because the matter is confidential.

A Cigna spokeswoman said the company does not comment on “rumor or speculation” as a matter of policy. Cigna shares rose as much as 1% to $314.06 after Reuters reported the talks, but gave back some gains and were up 0.4% in midday trading.

Cigna’s Medicare Advantage business was launched in 2010 It generated 4.4% of the company’s $179.4 billion revenue in 2022. Those who qualify must be covered by Medicare, a government program primarily for Americans 65 and older or with certain disabilities.

The Bloomfield, Connecticut-based company said on its quarterly earnings call last week that it expanded its business’ geographic footprint to more than 40 percent from 20 percent of those eligible for Medicare Advantage coverage in 2019. It also announced that its customer base has grown by 13 percent year-on-year.

Cigna also said that profit margins on Medicare Advantage will remain below its long-term target of 4% to 5% in 2023, which is expected to continue in 2024. The company blamed administrative costs as it expanded its business, but noted. In its new annual report, the US government’s return model changes as it weighs on the unit.

Cigna said it expects changes to the government’s star rating system, which informs some reimbursement decisions, to lower its Medicare Advantage business in the 2024 payment year.

Goldman Sachs analysts said in an April note that the new reimbursement framework proposed by the U.S. Centers for Medicare and Medicaid Services earlier this year would create recent “excesses” on Medicare Advantage businesses, and that the actual impact would be difficult to assess.

Cigna said in September it would pay about $172 million to settle charges from U.S. prosecutors that it overbilled the Medicare Advantage program by making patients appear sicker than they actually were. It also entered into a five-year compliance agreement with the Office of the Inspector General of the US Department of Health and Human Services.

Most of Cigna’s revenue comes from its commercial platform, which serves large employers, and its pharmacy benefits division, thanks to its $52 billion acquisition of Express Scripts in 2018.

Cigna last week beat analysts’ estimates for third-quarter earnings and raised its full-year profit forecast on the back of weaker-than-expected pharmacy benefits and insurance claims.

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