Quiver Quantitative - Cigna (NYSE:CI) has made a strategic move in the healthcare sector by selling its Medicare business to Health Care Service Corporation (HCSC) for $3.3 billion. This significant transaction includes Cigna's Medicare Advantage, Medicare supplement, and Medicare drug plans, along with a unit called CareAllies. The divestiture represents a notable shift in Cigna's approach to the Medicare sector, a domain it had previously expanded with its $3.8-billion acquisition of HealthSpring in 2011. The sale marks Cigna's reorientation of its business focus, considering the vast majority of its revenue stems from its commercial business and pharmacy benefits division, significantly bolstered by the $52-billion purchase of Express Scripts (NASDAQ:ESRX) in 2018.
Health Care Service Corp, a licensee of Blue Cross Blue Shield insurance plans in five U.S. states, is set to gain a substantial foothold in the Medicare market with this acquisition. Employing over 27,000 people and serving 18.6 million members, Health Care Service Corp's expansion into Medicare services is poised to significantly enhance its presence in the healthcare insurance landscape. This acquisition aligns with the company's growth strategy, positioning it as a key player in government-backed health insurance for the elderly..
Market Overview: -Health Care Service acquires Cigna's Medicare arm in a $3.3 billion cash deal, consolidating market presence and reshaping strategies. -The sale encompasses Cigna's Medicare Advantage, supplement, and drug plans, along with CareAllies, a key physician network unit. -This move marks a significant shift for Cigna, which entered the Medicare sector through a 2011 acquisition but now shifts focus to its lucrative commercial and pharmacy segments.
Key Points: -HCSC, a not-for-profit Blue Cross Blue Shield operator, strengthens its position with the acquisition, adding 3.6 million Medicare members to its 18.6 million base. -The deal reflects Cigna's strategic pivot, prioritizing its core commercial business bolstered by the 2018 Express Scripts acquisition, and generating over 95% of revenue from non-Medicare sources. -Cigna's Medicare Advantage presence, representing just 4.4% of external customer revenue, was deemed less central to its overall growth trajectory.
Looking Ahead: -The rising importance of Medicare Advantage, offering managed care options for seniors, attracts continued industry interest and consolidation. -HCSC's acquisition further intensifies competition in the space, particularly in Cigna's core Northeast markets. -Investors will observe how Cigna utilizes the divestiture proceeds and whether it pursues additional acquisitions or share buybacks.
For Cigna, this deal represents a recalibration of its business strategy. The Medicare Advantage business accounted for just 4.4% of Cigna’s $179.4 billion revenue from external customers in 2022, serving 3.6 million Medicare members. This move indicates Cigna's intention to concentrate more on its core areas of commercial business and pharmacy benefits, where it has made substantial investments and seen significant growth in recent years.
The deal, expected to close in early 2025, reflects the dynamic nature of the healthcare industry, where strategic acquisitions and divestitures are pivotal in shaping companies' market positions. For Cigna, this sale is more than just a divestiture; it's a strategic realignment to focus on its most lucrative and growth-oriented sectors. Meanwhile, for Health Care Service Corp, the acquisition is a significant expansion into a growing segment of the healthcare market, marking a new chapter in its operational history.
This article was originally published on Quiver Quantitative