Health Care Service Corporation (HCSC) has entered into a definitive agreement to purchase Cigna’s Medicare Advantage, Medicare Supplemental Benefits, Medicare Part D, and CareAllies businesses for $3.3 billion. This strategic move is set to enhance HCSC’s capabilities and extend its reach in the Medicare market, which is experiencing growth due to an aging population.
Expansion of Services and Membership
The acquisition will significantly benefit HCSC’s current and future members by providing a broader range of product offerings and robust clinical programs. With Cigna’s Medicare plans serving 3.6 million members, HCSC will substantially increase its Medicare footprint. This includes nearly 600,000 members in Medicare Advantage plans, over 450,000 in Medicare Supplement plans, and 2.5 million with Medicare Part D.
Financial and Strategic Implications
HCSC, the largest customer-owned health insurer in the U.S., will grow its membership base, which currently stands at over 22 million people. The acquisition is expected to close early in 2025, subject to regulatory approvals and other customary closing conditions.
Cigna, on the other hand, anticipates that the sale will be accretive to its adjusted earnings per share in 2025 and has reaffirmed its financial outlook for 2024. The majority of the proceeds from the sale will be allocated to share repurchases, aligning with Cigna’s capital deployment priorities.
Impact on HCSC’s Financial Health
AM Best, a credit rating agency, expects HCSC to maintain its strongest level of risk adjusted capitalization post-acquisition. The transaction is projected to have a limited impact on HCSC’s overall balance sheet metrics, with financial leverage expected to remain within AM Best’s tolerances. This suggests a calculated and sustainable expansion strategy for HCSC.
Market Dynamics and Competitive Edge
The Medicare Advantage market’s growth is driven by the aging population, and HCSC’s increased scale and capabilities through this transaction could provide a competitive edge. Additionally, HCSC’s geographic diversification will be expanded, potentially leading to economies of scale and improved bargaining power with providers and suppliers.
Cigna’s Strategic Shift
Cigna is exiting a sector that has historically been a significant growth area for insurers. The company first entered the Medicare Advantage space in 2012 but has faced challenges, including regulatory changes and unfavourable cost trends. The sale allows Cigna to concentrate on its core business in employer-sponsored plans, which is expected to grow due to the U.S. economic recovery.
Long-term Services Agreement
As part of the deal, Cigna’s Evernorth Health Services will continue to provide pharmacy benefits to the Medicare business for four years after the deal closes. This ensures continuity of services for the Medicare members transitioning to HCSC.
Regulatory Considerations
The transaction is subject to regulatory approval, highlighting the importance of compliance with healthcare laws and regulations. The expected closure in the first quarter of 2025 indicates a long-term strategic vision and a thorough due diligence process.
Conclusion
HCSC’s acquisition of Cigna’s Medicare businesses and CareAllies represents a significant shift in the Medicare market landscape. It aligns with HCSC’s mission to expand access to quality, affordable care and strengthens its position in a growing segment. For Cigna, the divestiture allows a strategic focus on its core businesses and capital reallocation towards shareholder returns. The transaction’s success hinges on regulatory approval and the seamless integration of the new businesses into HCSC’s existing operations.
News Sources:
- https://www.prnewswire.com/news-releases/hcsc-agrees-to-acquire-medicare-businesses-and-careallies-from-cigna-302048781.html
- https://www.fiercehealthcare.com/payers/cigna-inks-deal-sell-medicare-business-hcsc-37b-deal
- https://www.globaldata.com/newsletter/details/hcsc-to-buy-cigna-s-medicare-businesses-and-careallies-for-3-7bn_51690/
- https://healthpayerintelligence.com/news/hcsc-announces-3.3b-cigna-medicare-business-acquisition