Dive Brief:

• Cigna has completed the sale of its Medicare businesses to Health Care Service Corporation for a combined transaction value of $3.7 billion, the health insurers announced Wednesday.
• The deal gives HCSC Cigna’s Medicare Advantage, Medicare prescription drug and Medigap plans, along with CareAllies, a business that helps providers transition to value-based care. In total, it expands HCSC’s patients served from 22 million to 26.5 million, according to the company.
• As for Cigna, the deal allows the insurer to fully exit a business that’s borne the brunt of rising costs and refocus on its core employer-sponsored coverage. Cigna plans to use proceeds from the deal to repurchase shares and invest in its health services and health benefits businesses.

Dive Insight:

Cigna entered a definitive agreement to sell its Medicare businesses to HCSC in January 2024 for $3.3 billion in cash and $400 million in capital Cigna expected to be freed. The deal received some criticism for undervaluing Cigna’s Medicare lives.

The collective $3.7 billion price tag is a decade-plus low water mark for a Medicare book of its size, even if it is currently losing money, TD Cowen analyst Gary Taylor wrote in a note on the deal when it was announced.

Though the Connecticut-based insurer said in a recent securities filing that the initial $3.3 billion purchase price might increase at closing, given the Medicare businesses’ assets had grown over their liabilities, that doesn’t appear to have been the case. Cigna’s announcement on the deal close shared no new terms, and a spokesperson did not respond to a request for comment.

However, Cigna executives have said they’re creating a leaner and more focused organization by offloading Medicare, a division that was failing to reach long-term target margins.

Through the divestiture, Cigna is also removing itself from a notably turbulent market, with MA experiencing shifting regulations, lowering payment rates and rising medical costs that have pressured earnings for major carriers.

Cigna was also a relatively minor player in MA, holding about 2% market share with 697,000 members as of February.

And though Cigna will no longer offer Medicare coverage, the insurer has stressed that it’s not getting out of the market entirely. Cigna’s health services division Evernorth will continue to provide services like pharmacy benefits to other Medicare organizations, according to executives.

The deal is a significant step up for Chicago-based HCSC, a Blue Cross Blue Shield licensee that sells coverage in Illinois, Montana, New Mexico, Oklahoma and Texas. Onboarding Cigna’s assets quadruples HCSC’s MA membership and gives it access to plans in 25 additional states and Washington, D.C. — not to mention the Medicare Part D market nationwide, and the Medigap market in all but two states.

Cigna reportedly began shopping around for a buyer for its Medicare business late 2023, with HCSC emerging as the frontrunner in early 2024 after Cigna’s plans for a potential merger with rival insurer Humana fell through.

Cigna expects the deal to be accretive to its earnings this year.