Cigna to sell Medicare business to HCSC for $3.3B

Cigna to sell Medicare business to HCSC for $3.3B Lauren Berryman

With this sale, Cigna is doubling down on its commercial insurance business and its pharmacy, care and benefits solutions branch.

Health company Cigna has entered into a definitive agreement to sell its Medicare Advantage, Supplemental Benefits, Medicare Part D and CareAllies businesses to Health Care Service Corporation (HCSC) for about $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 Cigna, will continue to provide pharmacy benefit services to the Medicare businesses when the transaction closes.

The transaction is expected to close in the first quarter of 2025, subject to the usual regulatory approvals. There is no financing condition.

WHAT'S THE IMPACT?

Cigna Group Chairman and CEO David Cordani said the move will help the organization drive value for stakeholders as well as enhance its ability to accelerate growth and investment in its services platform.

The decision, he said, is part of Cigna's portfolio management approach, which is geared toward allocating resources toward growing Evernorth Health Services and Cigna Healthcare.

"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," said Cordani. "We continue to see significant, meaningful growth opportunities for government services, including Medicare, in our Evernorth Health Services portfolio of businesses."

The transaction is expected to be accretive to the Cigna Group's adjusted earnings per share in 2025. Cigna also reaffirmed its 2024 outlook targeting consolidated adjusted income from operations on a per share basis of at least $28 for full-year 2024, and its long-term annual adjusted earnings per share growth target of 10 to 13%, while maintaining an attractive dividend.

Following the completion of the sale, the Cigna Group will strategically use proceeds from the transaction in alignment with its capital deployment priorities, with the majority of the proceeds allocated to share repurchases.

THE LARGER TREND

Exploring the sale of its Medicare Advantage business is one of the reasons Cigna had sought to merge with Humana – a merger that was called off in December.

A combination would have created a company with a value exceeding $140 billion, based on their market values.

Six years ago, regulators blocked other insurance merger deals. In 2017, after a federal judge blocked the deal, Aetna agreed to pay Humana $1 billion to walk away from a planned merger. That same year, another mega-merger deal for Anthem, now Elevance Health, to acquire Cigna for $48 billion was blocked.

ON THE RECORD

"HCSC is building on its commitment to lead and expand access to quality affordable care for people in all phases of their lives," said Maurice Smith, HCSC's CEO, president and vice chair. "This acquisition supplements our growth strategy in the large and growing Medicare marketplace and will bring many opportunities to HCSC and its members – including a wider range of product offerings, robust clinical programs, and a larger geographic reach. We look forward to offering our proven member and provider engagement model to even more people, and we are excited to welcome Cigna's Medicare and CareAllies teams with their demonstrated talent and expertise."