Cigna signage is pictured at a healthcare facility in Queens, New York, U.S., November 30, 2021. REUTERS/Andrew Kelly/File Photo License Rights Acquired
NEW YORK, Nov 6 (Reuters) – U.S. health insurer Cigna Group ( CI.N ) is exploring a sale of its Medicare Advantage business, which provides additional benefits to those covered by federal health insurance, a move that would mark a turnaround of its expansion into the sector, say insiders.
Cigna, which entered the Medicare Advantage business with its $3.8 billion acquisition of HealthSpring in 2011, will withdraw at a time when the U.S. government is tightening its purse strings in reimbursing health insurers for their services if it implements this move.
Cigna is working with an investment bank to evaluate options for its Medicare Advantage business, which could fetch several billion dollars in a potential sale, the sources said.
Discussions with interested parties, including other companies and private equity firms, are at an early stage and Cigna may decide to keep the business, the sources added, speaking on condition of anonymity because the matter is confidential.
A Cigna spokesman said the company does not comment on “rumors or speculation” as a matter of policy. Cigna shares rose as much as 1 percent to $314.06 after Reuters reported the talks, but gave back some of those gains and rose about 0.4 percent in midday trading.
Cigna generated 14% of its $135.7 billion in 2022 revenue from its Medicare Advantage business, which includes policies that supplement benefits provided by federal insurance, as well as its prescription drug business. Those who qualify must already be covered by Medicare, a government program that applies mainly to Americans age 65 and older or people with certain disabilities.
The Bloomfield, Connecticut-based company said last week during its quarterly earnings call that it has expanded the business’ geographic footprint from 20 percent of those eligible for Medicare Advantage coverage in 2019 to more than 40 percent. It also revealed that its customer base has increased by 13% since the beginning of the year.
Cigna also said Medicare Advantage profit margins in 2023 continued to be below the long-term target of 4% to 5%, which it expects to remain so in 2024. The company blamed administrative costs as it expanded the business, but also so cited changes in the US government’s reimbursement model as a burden on the unit in its latest annual report.
Cigna said it expects changes to the government’s star rating system, which informs some reimbursement decisions, will cause its Medicare Advantage business to downgrade in the 2024 payment year.
Goldman Sachs analysts said in an April note that the new reimbursement framework introduced by the U.S. Centers for Medicare & Medicaid Services earlier this year will create a short-term “overhang” on the Medicare Advantage business and that its exact impact will be difficult to assess.
Cigna said in September it would pay about $172 million to settle charges by U.S. prosecutors that it overcharged 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 Inspector General of the US Department of Health and Human Services.
Most of Cigna’s revenue comes from its merchant platform serving large employers and its pharmacy division, bolstered by its $52 billion purchase of Express Scripts in 2018.
Cigna reported third-quarter earnings last week that beat analysts’ expectations and raised its full-year profit forecast amid strong performance in its pharmacy benefits division and lower-than-expected insurance claims.
Reporting by David Carnevalli in New York; Editing by Bill Berkrot
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