The CMS has banned Cigna from offering new Medicare Advantage plans after taking issue with the way the insurer handled appeals, grievances and its drug formulary, according to regulatory filings.
The news comes as state and federal regulators scrutinize Cigna's $48 billion sale to Anthem. The deal would create the nation's largest insurer. The sanctions, which are not expected to affect current enrollees, took effect Thursday, according to a letter the CMS sent to Bloomfield-Conn.-based Cigna.
The insurer said in a Securities and Exchange Commission filing that it is working to resolve the issues and is fully cooperating with the CMS. The company is expected to release a statement on the issue on Friday.
Cigna held 3% of the MA market last year, according to the Kaiser Family Foundation. That represents about 502,000 enrollees.
In a note to investors, healthcare investment bank Leerink Partners said it estimated about 10% to 12% of Cigna's earnings come from MA plans.
The private Medicare program has been a boon for insurers the past several years, offering sizable volumes and steady profit margins. Some companies have said the growth in MA, spurred in part by the aging baby boomer population, will be fundamentally important to earnings growth in 2015 and beyond.
A JPMorgan investors' note Friday said it does not believe the MA sanctions on Cigna will affect the pending acquisition. It also points out that the suspension, which again affects only new enrollment, fortunately came after Cigna had already experienced a bump in membership before the open-enrollment period ended on Dec. 7. The note also states that Aetna lost 10% of its MA membership during a similar ban from April 2010 to June 2011.
Cigna's shares fell about 1% to $138.74 in morning trading.
Sterne Agee analyst Brian Wright said in a note to investors Friday that if the sanctions are lifted by the start of 2017, Cigna shareholders might see a drop of 2 cents a share.
If the sanctions extend though next year's open-enrollment period, shareholders could expect an impact of 33 cents a share on earnings, he said.
