HCSC agrees to acquire Medicare businesses from Cigna

April 2024 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

April 2024 Issue

Health insurance company Health Care Service Corp (HCSC) has agreed to acquire Cigna’s Medicare business in an all cash $3.3bn deal.

The deal is expected to close early in 2025, subject to customary closing conditions, including regulatory approvals. Under the terms of the transaction, HCSC will acquire Cigna’s Medicare Advantage plans, Cigna supplemental benefits, Medicare Part D drug benefits and CareAllies, a business that helps medical care providers with various administrative services and contracting.

The deal is expected to be accretive to the Cigna Group’s adjusted earnings per share in 2025. Cigna also reaffirmed its 2024 outlook targeting consolidated adjusted income from operations on a per share basis of at least $28 for full-year 2024, and its long-term annual adjusted earnings per share growth target of 10 to 13 percent, while maintaining an attractive dividend.

Chicago-based HCSC operates Blue Cross and Blue Shield health insurance plans in Illinois, Texas, Oklahoma and New Mexico, with more than 18 million health plan enrolees across the country. The company is looking to expand its Medicare Advantage product offerings, which are minimal compared to other large health insurers. The deal is a significant step for HCSC, helping to grow the company from a regional to a national insurer.

The deal includes a four-year services agreement under which Evernorth Health Services, a subsidiary of The Cigna Group, will continue to provide pharmacy benefit services to the Medicare businesses, effective on closing of the transaction, the companies said.

“At HCSC, we have a long history of making it possible for people to achieve their best health, and we continue to drive innovations and improvements in health care,” said Maurice Smith, chief executive, president and vice chair of HCSC. “The acquisition will bring many opportunities to HCSC and its members — including a wider range of product offerings, robust clinical programs and a larger geographic reach. It builds on our commitment to expand access to quality, affordable care for people in all phases of their lives.

“We look forward to welcoming new members who will benefit from our proven community-first member and provider engagement model that values local relationships,” he continued. “We lead and operate with a deep sense of care and commitment that informs how we serve our members, engage in our communities and deliver differentiated value.”

“This acquisition accelerates our growth in an important market segment,” said Opella Ernest, president of HCSC Markets. “The way we do business is as important to us as what we do. We have a culture of compassion and focus on data-driven insights to help members achieve healthier outcomes. We are excited to have Cigna’s Medicare and CareAllies teams bring their proven talent and expertise to HCSC.”

“The agreement will enable Cigna to drive meaningful value for all our stakeholders, providing an enhanced ability to accelerate investment and growth in our services platform, while further deepening our commitment to our existing health benefits platform,” said David M. Cordani, chairman and chief executive of The Cigna Group. “In tandem, the transaction will position our Medicare businesses and CareAllies for additional growth as they continue to serve the needs of their customers as part of HCSC.”

HCSC said it has “more than 1 million Medicare members” with just 217,000 in Medicare Advantage plans as of January 2024, a company spokeswoman said.

Cigna had nearly 600,000 Medicare Advantage customers and another 468,000 people covered by its Medicare supplement and other policies, according to the company’s third quarter 2023 earnings report. The company acquired its Medicare sector in the $3.8bn acquisition of HealthSpring in 2011, although the majority of Cigna’s revenue stems from its commercial and pharmacy benefits divisions rather than from its Medicare business.

The Cigna Group’s 2023 revenue grew to $195.3bn, up 8 percent on $180.6bn in 2022. In the fourth quarter of 2023, Cigna’s revenue was up 12 percent, which the company said in an earnings call reflects strong growth at both Evernorth Health Services and Cigna Healthcare.

Richard Summerfield