Cigna Group is selling its Medicare business to Health Care Service Corp. for $3.3 billion, the companies announced Wednesday.
The two insurance companies signed a definitive agreement through which Health Care Service Corp., will acquire Cigna’s Medicare Advantage, Medicare Supplemental Benefits, Medicare Part D and CareAllies businesses.
Cigna’s Medicare plans cover about 3.6 million members. It has about 597,00 Medicare Advantage members, and Health Care Service Corp., has less than 195,000 Medicare Advantage beneficiaries, according to the Centers for Medicare and Medicaid Services data released this month. CMS' enrollment numbers include Medicare Advantage with Medicare Part D, Medicare Medical Savings Accounts, and local and regional coordinated care plans.
Related: Cigna, HCSC in talks for Medicare Advantage deal: WSJ
The transaction is set to close in the first quarter of 2025, subject to customary closing conditions and regulatory approvals. Under the agreement, Cigna’s Evernorth Health Services will provide pharmacy benefits to the Medicare business for four years after the deal closes.
In a regulatory filing, Cigna said as a result of the planned sale, it will record an estimated fourth quarter pre-tax loss of $1.5 billion in net income. The loss will not affect adjusted income from operations during the fourth quarter.
Cigna said the sale will drive growth opportunities for Evernorth Health Services and Cigna Healthcare, and it will use most of the sale proceeds for share repurchases. Cigna is set to report its fourth-quarter and full-year earnings Friday.
"The agreement will enable The Cigna Group 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. 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," said Cigna CEO David Cordani in a news release.
The deal could also set the stage for Cigna to pursue an acquisition of Humana, as has been speculated.
The Wall Street Journal reported earlier this month that Cigna and HCSC were in exclusive talks for a Medicare deal following Cigna's rumored failed pursuit of Humana, the second-largest Medicare Advantage carrier.
"Ultimately, we think this will set the stage for [Cigna's] acquisition of [Humana]," Scott Fidel, a managing director at investment bank Stephens, wrote in a note to investors Wednesday.
“In a nutshell, it seems like [Cigna] wants optionality to ‘start over’ in Medicare at a time of its choosing, effectively abandoning the strategy that it started when it acquired HealthSpring in 2012 for effectively the same price,” Fidel wrote.
Cigna did not immediately respond to a request for comment. HCSC declined to make an executive available for an interview.
Health Care Service Corp., which owns Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, touted the deal as a way for it to further expand its Medicare footprint. The nonprofit insurer has been focused on growing its Medicare Advantage presence. It covered 1 million Medicare members, according to an August news release, and is offering Medicare Advantage plans in about 100 more counties this year.
“This acquisition supplements our growth strategy in the large and growing Medicare marketplace and will bring many opportunities to HCSC and its members,” Health Care Service Corp. President and CEO Maurice Smith said in the news release.
