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EXCLUSIVE-Cigna explores shedding Medicare Advantage business -sources

Credit: REUTERS/BRENDAN MCDERMID

By David Carnevali

NEW YORK, Nov 6 (Reuters) - U.S. health insurer Cigna Group CI.N is exploring the sale of its Medicare Advantage business, which provides additional benefits to those covered by federal health insurance, a move that would mark a reversal of its expansion in the sector, according to people familiar with the matter.

Cigna, which got into the Medicare Advantage business with its $3.8 billion acquisition of HealthSpring in 2011, would be backing away at a time the U.S. government is tightening its purse strings in reimbursing health insurers for their services should it go through with the move.

Cigna is working with an investment bank to evaluate options for its Medicare Advantage business, which could fetch several billions of dollars in a potential divestment, the sources said.

The 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, requesting anonymity because the matter is confidential.

A Cigna spokesperson said the company does not comment "on rumors or speculation" as a matter of policy.

Cigna generated 14% of its $135.7 billion revenue in 2022 from the Medicare Advantage business, which includes policies that supplement benefits provided by federal insurance as well as a prescription drug business. Those eligible have to already be covered by Medicare, a government program that mainly applies to those age 65 and over, or those with some disabilities.

The Bloomfield, Connecticut-based company said last week on its quarterlyearnings callthat it has expanded the geographic footprint of the business from 20% of those eligible for Medicare Advantage coverage in 2019 to more than 40%. It also disclosed its customer base had increased 13% year-to-date.

Cigna also said profit margins in Medicare Advantage in 2023 continue to be below its long-term target of 4% to 5%, which it expected to remain the case in 2024. The company blamed administrative expenses as it expanded the business, but also cited changes in the U.S. government's reimbursement model as weighing on the unit in its latest annual report.

Cigna has said it expects changes to the government's star rating system, which informs some of the reimbursement decisions, will lead to a decrease in the ratings of its Medicare Advantage business in payment-year 2024.

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 would create a near-term "overhang" on Medicare Advantage businesses, and that its exact impact would be hard to assess.

The vast majority of Cigna's revenue comes from its commercial platform serving large employers, and from its pharmacy benefits division, bolstered by a $52 billion purchase of Express Scripts in 2018.

(Reporting by David Carnevali in New York; Editing by Bill Berkrot)

((David.Carnevali@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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