(Story updated at 5:15 p.m. ET)
Stock prices for Anthem and Cigna Corp. climbed in Thursday morning trading following the news that the CMS has pardoned Cigna's Medicare Advantage plans from large cuts to its bonus payments.
By 10:30 a.m. ET, Anthem's stock had risen 3.8% and Cigna's had risen nearly 2%. Anthem is pursuing a $54 billion takeover of Cigna, and is awaiting federal and state approvals.
Shares of Anthem closed Thursday at $137.81, up 2.4%, or $3.27 on the day. Cigna's stock price rose 1.5%, or $2.04, to finish at $142.13. That equaled a $527 million increase in Cigna's market capitalization.
The market surge for the two health insurers comes just after a major shift in the Medicare Advantage program. The CMS rescinded a policy that reduced the star ratings of private Medicare plans facing sanctions. Highly rated Medicare Advantage insurers that were sanctioned, and therefore got tagged with fewer stars, also lost lucrative bonuses tied to those higher ratings.
But starting March 8, and lasting until at least the end of 2017, that policy is no more. Cigna's Medicare plans were sanctioned in January for an array of problems, and that would have cost Cigna anywhere from $180 million to as much as $350 million in taxpayer-funded bonus money next year if the sanctions weren't lifted by March 31, according to financial analysts.
The quiet reversal stunned many observers, raising questions about whether the federal government gift-wrapped a favorable change for Cigna, the sixth-largest Medicare Advantage insurer in the country by enrollment.
The CMS could have made the change in its final Medicare Advantage policy notice on April 4, but instead decided to roll back the policy “prior to the deadline for making adjustments to a contract's star ratings based on its sanction status as of March 31,” the agency said.
The CMS also said it made the change after receiving several comments from various stakeholders.
