Consumer / Employer, Payers

Cigna MA Sale to HCSC Could Still Clear Way for Humana Acquisition, Expert Says

Despite Cigna and Humana ditching their pursuits to combine in December, one industry expert believes there’s still a chance after Cigna announced its plan to sell its Medicare Advantage business to Health Care Service Corp.

Cigna plans to sell its Medicare Advantage, supplemental benefits, Medicare Part D and CareAllies businesses to Health Care Service Corporation (HCSC) for $3.7 billion, the companies announced Wednesday. One expert still thinks the HCSC deal could lead to Cigna acquiring Humana, despite Cigna ditching this pursuit in December.

Cigna’s MA sale to HCSC is expected to close in early 2025. HCSC has nearly 180,000 MA members and would acquire nearly 600,000 from Cigna through the deal. HCSC is a licensee of the Blue Cross and Blue Shield Association for Illinois, Montana, New Mexico, Oklahoma and Texas.

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Getting rid of its MA business makes it less likely that Cigna would face regulatory challenges if it were to combine with Humana, which is mostly known for its MA business, according to Ari Gottlieb, principal of A2 Strategy Corp. Humana, meanwhile, recently shed its commercial business, which Cigna has a large footprint in. This could further support the deal in getting approved.

Rumors about Cigna and Humana combining circulated at the end of November only to be abandoned weeks later due to disagreements on price, according to Reuters. However, Humana recently reported a $541 million loss in the fourth quarter of 2023, and its stock has since dropped.

“Humana has really gotten [crushed] in the past couple of weeks with their disastrous earnings and forecasts,” Gottlieb said in an interview. “Reportedly the deal fell apart over price. … Maybe [Humana’s] price expectations come down.” 

In a Wednesday blog post, S&P Global also predicted that Cigna’s sale of its MA business to HCSC opens up opportunities for future acquisitions, with analyst Francesca Mannarino stating that Cigna’s MA segment “just didn’t have that scale relative to where they needed to be and the margins didn’t line up. So divesting this business could potentially set themselves up for future opportunity.”

The blog post also cited Stephens Analyst Scott Fidel, who said Cigna’s stock will likely benefit from the reduced risk of MA as the market struggles. The sale to HCSC could “set the stage” for Cigna to acquire Humana.

Another industry expert told MedCity News that the Cigna/HCSC deal makes sense, and also hinted toward some possible activity with Humana.

“The fact that UnitedHealthcare, Humana and Anthem control over 60% of Medicare Advantage lives would automatically exclude them as an acquirer,” said Hal Andrews, president and CEO of Trilliant Health, in an email. “In that context, HCSC is the logical buyer given that it is the second largest national BCBS plan and has minimal MA market share. Historically, Cigna has been a savvy and dispassionate investor, and I would assume that they believe they can realize a higher return on investment by using proceeds from selling its MA business to invest in other areas. And, given that hindsight is 20/15, the abandonment of the Humana transaction looks differently in light of Humana’s fourth quarter results.”

Andrews added that Cigna’s sale price to HCSC is interesting given that it’s less than what Cigna paid for the MA business in 2011 at $3.8 billion. However, Gottlieb argued that the price actually adds up.

“There likely isn’t a lot of capital accompanying this business. They’re not buying legal entities, they’re buying members,” he said.

According to David Cordani, chairman and CEO of The Cigna Group, the deal will “drive meaningful value” to stakeholders and allow the company to grow its Evernorth Health Services business. Cigna and HCSC have entered into a four-year agreement in which Evernorth will continue to provide pharmacy benefit services to the Medicare businesses.

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

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