CT-based health insurer Cigna to sell certain businesses for $3.7 billion [Hartford Courant]

Hartford Courant (CT)

Bloomfield-based Cigna Group said Wednesday it has agreed to sell certain businesses for about $3.7 billion, as the heath care giant pushes forward with a goal of building its other units, including its huge pharmacy-benefits manager, Express Scripts.

Cigna, which employs thousands in Connecticut, mostly in the Hartford area, agreed to sell its Medicare Advantage, Cigna Supplemental Benefits, Medicare Part D and CareAllies businesses to Chicago-based Health Care Services Corp. HCSC is the parent of Blue Cross Blue Shield plans in five states: Illinois, Montana, New Mexico, Oklahoma and Texas.

The majority of Cigna employees assigned to the Medicare businesses are located outside of Connecticut and are expected to retain their jobs, if the deal is approved by regulators. The transaction is expected to close in the first quarter of 2025.

The definitive agreement also provides that Cigna will retain a foothold in the Medicare business in the near future. Cigna’s Evernorth Health Services, which includes Express Scripts, will continue to provide pharmacy benefit services to the Medicare businesses for four years, beginning at the closing of the transaction.

Cigna had about 600,000 members enrolled in Medicare Advantage. The health insurer had approximately 450,000 in supplement plans, which beneficiaries purchase to fill gaps in the traditional government Medicare coverage, and 2.5 million with Medicare Part D drug plans.

The $3.7 billion transaction value includes a purchase price of $3.3 billion, plus $400 million in financial reserves that can be deployed now that the businesses are being sold.

On Wednesday, Cigna shares were valued at $302.19, up $3.31, or 1.1% in late morning trading on the New York Stock Exchange.

Analysts said Wednesday the sale was likely prompted by the need to improve the growth of both its managed care plans and its pharmacy benefits business. It is likely, the analysts said, that Cigna will look to bolster these businesses with acquisitions.

In a note to investors Wednesday, Lance Wilkes, a health care analyst at Bernstein in New York, said it is still possible that merger talks with rival Humana, Inc., which reportedly broke off two months ago, could heat up again, perhaps in a year.

“We expect ‘Plan A’ for (Cigna) is likely still an acquisition of (Humana), which is more achievable with multiples converging and as we get closer to the November election,” Wilkes wrote. Multiples are indicators of a stock’s value.

An acquisition of Humana by Cigna would significantly strengthen Cigna’s pharmacy benefit manager business.

Pharmacy benefit managers, or PBMs, manage private insurance clients and Medicaid and Medicare prescription plans and own retail and mail order pharmacies. PBMs exert control over which drugs are prescribed, which pharmacies patients may use and how much patients pay.

Some federal lawmakers and others have expressed concern about control of drug prices being too highly concentrated with large health care companies.

If an acquisition of Humana ultimately proves unattractive, other smaller purchases are certainly likely. Wilkes wrote.

Medicare lucrative

Medicare businesses, particularly Medicare Advantage, have been seen as a lucrative business for health insurers.

Medicare Advantage plans are sold by private companies who contract with the federal government to provide Medicare benefits and typically, extra coverage for vision, hearing, dental and preventative wellness programs.

But Medicare plans also have come under increasing profitability pressure for insurers with increased use by members.

“While we continue to believe the overall Medicare space is an attractive segment of the health care market, our Medicare businesses require sustained investment, focus and dedicated resources disproportionate to the size within The Cigna Group’s portfolio,” Cigna Group chairman and chief executive David Cordani said, in a statement.

“We continue to see significant, meaningful growth opportunities for government services, including Medicare, in our Evernorth Health Services portfolio of businesses.” Cordani said.

If the deal wins approvals, Cigna said it will use proceeds from the transaction for its strategic priorities, with the majority used for share repurchases.

Public companies typically repurchase their own shares to demonstrate confidence in the company’s prospects.

Kenneth R. Gosselin can be reached at [email protected].