NEW YORK, Nov 6 (Reuters) – U.S. health insurer Cigna Group ( CI.N ) is exploring a sale of its Medicare Advantage business, which provides additional benefits to those covered by federal health insurance. Expansion in the sector, according to people familiar with the matter.
Cigna, which entered the Medicare Advantage business in 2011 with its $3.8 billion purchase of HealthSpring, would be set back as the U.S. government tightens its purse strings to reimburse health insurers if it makes the move.
Cigna is working with an investment bank to evaluate options for its Medicare Advantage business, which could bring in several billion dollars in potential divestment, the sources said.
Discussions with stakeholders, including other companies and private equity firms, are at an early stage and Cigna may decide to keep the case, the sources added, requesting anonymity because the matter is confidential.
A Cigna spokeswoman said the company does not comment on “rumors or speculation” as a matter of policy. Cigna shares rose as much as 1% to $314.06 after the Reuters talks, but gave back some of those gains and were up about 0.4% in afternoon trading.
Cigna generated 14% of its $135.7 billion in 2022 revenue from its Medicare Advantage business, which includes policies that add benefits provided by the federal insurance and prescription drug business. Those who are eligible must already be covered by Medicare, the government program that applies mostly to Americans age 65 and older or those with some disabilities.
The Bloomfield, Connecticut-based company said on its quarterly earnings call last week that it expanded the business’ geographic footprint from 20% to 40% of those eligible for Medicare Advantage coverage in 2019. He also announced that the customer base increased by 13% during the year.
Cigna also said that its Medicare Advantage profit margin in 2023 continues to be below its long-term target of 4% to 5%, which it expects to remain the same in 2024. The company blamed administrative costs for expanding the business, while also citing it. Changes to the US government’s compensation model affect the unit in its latest annual report.
Cigna said it expects changes to the government’s star rating system, which informs some reimbursement decisions, to cause its Medicare Advantage business to downgrade in the 2024 payment year.
Goldman Sachs analysts said in an April note that the new reimbursement framework implemented earlier this year by the U.S. Centers for Medicare and Medicaid Services will create near-term “overflow” in Medicare Advantage businesses, and the exact impact is difficult to assess.
Cigna said in September it would pay about $172 million to settle charges by U.S. prosecutors that it overcharged its Medicare Advantage program by making it look sicker than it actually was. It also entered into a five-year compliance agreement with the Office of Inspector General of the US Department of Health and Human Services.
The vast majority of Cigna’s revenue comes from its commercial platform serving large employers and its pharmacy benefits division, bolstered by its $52 billion acquisition of Express Scripts in 2018.
Cigna last week reported third-quarter earnings that beat analysts’ expectations and raised its full-year profit forecast amid strong performance in its pharmacy benefit division and lower-than-expected insurance claims.
Reporting by David Carnevale in New York; Edited by Bill Berkrot
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