Cigna Corp. has spent the past eight months attempting to resolve the major problems found in its Medicare Advantage plans, but the health insurer does not expect those issues will be rectified by the time Medicare beneficiaries participate in annual enrollment this autumn, according to a regulatory filing released Tuesday.
Cigna and some financial analysts do not think the federal sanctions will hurt the company financially this year even though Cigna is prohibited from enrolling new Medicare Advantage members. Medicare's annual enrollment runs from Oct. 15 through Dec. 7. The muted financial effects likely stem from the CMS sparing Cigna from losing large sums of bonus payments.
However, Cigna has already spent $30 million trying to fix the issues. And as the Bloomfield, Conn.-based insurer has detailed in previous regulatory filings, if the sanctions persist deep into 2017, the impact to Cigna's Medicare customer base, revenue and cash flows “could be material.”
The CMS levied sanctions on Cigna this past January, which banned the company from marketing and selling its Medicare Advantage policies to new beneficiaries. Cigna, which the CMS said has had a “longstanding history of noncompliance,” had multiple problems that posed a “serious threat to the health and safety of Medicare beneficiaries,” according to the letter outlining the problems. For example, Cigna inappropriately denied medical care and prescription drugs to its Medicare members and kept members in the dark about why services were not covered.
Several other health plans have faced sanctions for deficiencies in their Medicare Advantage business. SummaCare, an insurer owned by Summa Health System in Akron, Ohio, was one of the quickest plans to resolve its issues, getting its sanctions lifted within eight months. However, most Medicare plans slapped with the punishment usually need a year to fix everything.
Immediate financial repercussions pop up, even though Cigna downplayed them Tuesday. For example, SummaCare's membership declined by almost 17% while it was under federal sanctions from 2014 to 2015.
Previously, Medicare Advantage plans that were hit with sanctions also had their star ratings lowered. But the CMS surreptitiously rescinded that policy in March, to the immediate benefit of Cigna.
Medicare Advantage has been a booming business for health insurers as more seniors and disabled people choose the managed-care version of Medicare. Even though the Affordable Care Act cut payments to Medicare Advantage insurers, the program's enrollment has exploded, giving companies access to huge sums of taxpayer-funded revenue.
Cigna recorded $6.14 billion in revenue from its Medicare business in 2015. It had 533,000 Medicare Advantage members as of June 30, keeping Cigna among the six largest Medicare Advantage companies.
Because of Cigna's update, Chris Rigg, a health insurance analyst at Susquehanna Financial Group, lowered his 2017 revenue projections for Cigna by $362 million “in order to take a more conservative stance.”
Cigna, which Anthem is attempting to acquire for roughly $53 billion even though the federal government is blocking the deal, did not make anyone available for this story. The company sent a statement that reiterated the information in its regulatory filing and said it “continues to address the matter in full partnership with CMS.”
