Cigna Considers Selling Medicare Advantage Business
Cigna Evaluates Options for Medicare Advantage Business
U.S. health insurer Cigna Group is reportedly exploring the possibility of selling its Medicare Advantage business, which offers extra benefits to individuals covered by federal health insurance. This potential move would mark a departure from Cigna’s previous expansion in this sector, reflecting a shift in the company’s strategy. The decision comes at a time when the U.S. government is tightening its reimbursement policies for health insurers. Cigna has engaged an investment bank to assess the various options for its Medicare Advantage business, which could potentially result in a divestment worth billions of dollars.
Early Stage Discussions with Interested Parties
The discussions with potential buyers, including other companies and private equity firms, are still in the early stages. It is important to note that Cigna may ultimately choose to retain the business. The sources requesting anonymity due to the confidential nature of the matter have revealed that the sale of the Medicare Advantage business could generate significant interest in the market.
Importance of Medicare Advantage Business for Cigna
Cigna’s Medicare Advantage business accounted for 14% of its $135.7 billion revenue in 2022. This segment includes policies that complement the benefits provided by federal insurance, as well as a prescription drug business. However, the profit margins for Cigna’s Medicare Advantage business have not met its long-term target of 4% to 5%. The company attributes this shortfall to administrative expenses associated with its expansion in this area and changes in the U.S. government’s reimbursement model.
Challenges and Uncertainties in the Medicare Advantage Market
Cigna has acknowledged that profit margins in Medicare Advantage are expected to remain below target in 2023 and 2024. The introduction of a new reimbursement framework by the U.S. Centers for Medicare & Medicaid Services has created uncertainty in the market. The exact impact of this framework on Medicare Advantage businesses is difficult to assess. Additionally, Cigna expects changes to the government’s star rating system, which influences reimbursement decisions, to result in decreased ratings for its Medicare Advantage business in 2024.
Cigna’s Diversified Revenue Streams
While the Medicare Advantage business is an important revenue source for Cigna, it represents a smaller portion compared to its commercial platform serving large employers and its pharmacy benefits division. Cigna strengthened its pharmacy benefits division with the acquisition of Express Scripts for $52 billion in 2018. The majority of Cigna’s revenue is derived from these areas.
In conclusion, Cigna’s consideration of selling its Medicare Advantage business reflects the changing landscape of the healthcare industry and the challenges faced by health insurers. The decision will depend on various factors, including market conditions and potential buyer interest. Cigna continues to evaluate its options and remains focused on delivering high-quality healthcare services to its customers.
