Cigna Corp. and SCAN Health Plan agreed to an alliance Tuesday in which both health insurers will provide retiree Medicare Advantage benefits to California employers.
Each company will remain independent. Insurers may view these types of loose partnerships more favorably as a way to get a piece of growing markets like Medicare without having to overpay in a full acquisition.
The deal allows both insurers to scratch each others' backs, said Gene Rapisardi, president of Cigna's Southern California and Nevada operations. Cigna, along with many other insurance companies, wants to continue expanding in the Medicare Advantage space, which is SCAN's primary focus. The government proposed cutting baseline Medicare rates to private insurers for 2016, but many expect that will turn to a positive rate when final figures are released April 6.
For SCAN, a not-for-profit plan based in Long Beach, Calif., the partnership gives it much broader access to the profitable commercial segment. “They're in commercial and not Medicare Advantage (in California), and we're in Medicare Advantage and not commercial,” SCAN Health Plan CEO Chris Wing said in an interview. “This just fits like a beautiful puzzle coming together.”
Bloomfield, Conn.-based Cigna covers 496,000 Advantage members, according to March figures from the CMS, making it the sixth-largest Medicare Advantage company by membership. Cigna's membership exploded by a factor of 14 with the acquisition of HealthSpring in 2012.
But Cigna is still a relatively small fish in the ocean. Its share represents only 2.9% of the 17.3 million Medicare Advantage beneficiaries. Competitors UnitedHealth Group and Humana each have more than 3 million Advantage members.
Rapisardi declined to give an estimate of how many people are expected to enroll in the so-called employer group waiver plans, which will go into effect next January. Cigna has 1 million commercial members in California. SCAN, which settled allegations of inflating Medicare risk scores in 2012, covers 170,000 Medicare and dual-eligible members.
About 2.5 million of all Medicare Advantage enrollees are in group-based plans, according to the Kaiser Family Foundation. The number reflects an 8% growth rate per year between 2008 and 2013.
Employer-based Medicare Advantage plans are most common among large companies, which are more likely to offer retiree benefits. For insurers, it's a good market to corner because people who have employer-sponsored insurance are generally healthier and less costly than those without it, said Jon Kaplan, senior partner at Boston Consulting Group who leads the firm's payer practice.
It also gives commercial-centric companies such as Cigna an opportunity to capture the healthier, aging employer crowd instead of losing them to traditional Medicare or a different Advantage insurer.
“Medicare Advantage has been growing, and the business model, even with the rate cuts, has been pretty strong,” Kaplan said.
Wing said SCAN was not up for sale, nor did Cigna want to buy them. Although many large investor-owned insurers have cash to spend and want to expand their Medicare and Medicaid products, there are few willing sellers. Plans targeted for acquisitions consequently have high prices, like the $1.25 billion that Blue Shield of California paid for Care1st Health Plan.
It's also more difficult for for-profit insurers to buy not-for-profit health plans because they have to go through more red tape. “It's not just a stock transaction,” Kaplan said. “It takes a lot of work to acquire a not-for-profit.”
