Health insurance company Cigna recently announced plans to sell its Medicare Advantage, supplemental benefits, Medicare Part D, and CareAllies businesses to Health Care Service Corporation (HCSC) for $3.7 billion as was announced on Wednesday. This move, according to industry experts, could create an opportunity for Cigna to revisit its plans of acquiring Humana, a pursuit it shelved in December.
HCSC currently has nearly 180,000 Medicare Advantage (MA) members and is set to acquire nearly 600,000 more through this deal. The sale is projected to close in early 2025. Legal expert, Ari Gottlieb, principal of A2 Strategy Corp., argues that this divestment could smooth Cigna’s path to potentially acquiring Humana by reducing potential regulatory challenges, given that Humana’s core business revolves around Medicare Advantage. Humana has also recently shed its commercial business, a segment where Cigna has a significant presence.
Despite rumours of a merger circulating at the tail end of November, Cigna ultimately walked away from plans to merge with Humana due to disagreements over price according to Reuters. That being said, Gottlieb speculated that Humana’s recent financial troubles (they reported a $541 million loss in the fourth quarter of 2023 and their stocks have since dropped) could lower the company’s price expectations paving the way for renewed negotiations.
Furthermore, health sector analysts believe that this sale could set Cigna up for future acquisitions and in particular for the acquisition of Humana. In a recent blog post, S&P Global stated that the sale of Cigna’s MA business to HCSC makes way for future opportunities. Stephens Analyst Scott Fidel added that by mitigating the risk of MA as the market struggles, Cigna’s stocks would likely benefit, setting the stage for the potential acquisition of Humana.
There is also speculation that UnitedHealthcare, Humana and Anthem, who together control over 60% of Medicare Advantage lives, would be barred from acquiring the MA business from Cigna. Thus, the second largest national BCBS plan, HCSC, seems the logical choice.
Cigna and HCSC have entered into a four-year agreement through which Evernorth, Cigna’s pharmacy division, will continue providing pharmacy benefit services to the Medicare businesses. Cigna CEO David Cordani asserts this deal would render “meaningful value” to stakeholders and enable Cigna to grow its Evernorth Health Services business further by investing in other areas.