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Cigna will sell Medicare unit to HCSC for $3.7B

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Illustration: Annelise Capossela/Axios

Cigna agreed to sell its Medicare business to Health Care Service Corp. (HCSC) in a deal valued at $3.7 billion.

Why it matters: The transaction frees up cash for Cigna to be acquisitive in other areas, such as its health services arm Evernorth.

Details: HCSC will pay cash for Cigna's Medicare lines, including Medicare Advantage, Medicare supplement and Medicare drug plans, as well as a unit called CareAllies, which works with physician groups.

  • The companies expect the deal to close in early 2025 if antitrust authorities and other regulators sign off.
  • Per the transaction agreement, HCSC will use Evernorth, which comprises pharmacy benefit manager Express Scripts, to handle drug benefits for the acquired units.

Catch up quick: The deal would mark a major expansion for HCSC, which is the parent of Blue Cross Blue Shield plans in five states, including Illinois and Texas.

The big picture: Having one of the largest patient populations in the U.S. and growing, Medicare has traditionally been a growth engine for most companies.

Yes, but: Health insurers are feeling the pain as patients are getting treated at higher rates than expected.

  • In a Q3 earnings call last November, Cigna said margins in the business remained below its long-term target of 4% to 5% and were likely to still be less than that this year.
  • "While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size within the Cigna Group's portfolio," Cigna CEO David Cordani said in a statement today.

What's next: Sponsor-backed health care services companies looking for a strategic price tag may find a buyer in Cigna.

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