On Monday, Cigna announced it had reached an agreement to purchase Tennessee-based HealthSpring for $3.8 billion in cash, a deal aimed at jumpstarting Cigna’s presence in the Medicare Advantage market.
With the acquisition, Cigna will add more than 340,000 members enrolled in MA plans across 11 states and Washington, D.C. as well as another 800,000 enrolled in HealthSpring’s Medicare Part D prescription drug plans.
“HealthSpring is a great fit with Cigna's growth plans to expand into the Seniors and Medicare segment through a premier business and trusted brand name,” said David M. Cordani, Cigna president and CEO in an conference call announcing the deal.
The purchase by Cigna looks to significantly bolster its presence in the Medicare insurance market. In 2010, the company generated less than $2 billion of its $21.25 billion in revenue in 2010. Adding the HealthSpring business would more than triple the revenue in the senior segment, as the company expects to see a dramatic increase in gross revenue this year to more than $5.4 billion in 2011 compared to $3.1 billion in 2010, according to analyst estimates compiled by Thomson Financial.
“We are thrilled to announce this transaction with Cigna,” said Herb Fritch, HealthSpring chairman and CEO in a press release announcing the deal. “The combination will also expand our ability to serve our physician partners and customers. Cigna recognizes the value in HealthSpring’s differentiated model of physician engagement, and shares our commitment to providing high quality, cost effective care to the members and communities we serve. We truly look forward to continuing and expanding upon this mission.”
The acquisition price was regarded by analysts as somewhat steep, as it equals an investment of more than $10,000 per Medicare member currently enrolled in a HealthSpring Plan. It is also marks somewhat of a departure for Cigna, who has not shown much interest in participating in the government market in the past and has focused most of its efforst on the self-insured market.
“Cigna hasn’t expressed a lot of interest recently in becoming bigger in government business, with their near universal focus on growing internationally,” said an investment note released by Citi after the announcement.
But the deal does mark a trend in the market as more insurers turn their eyes to Medicare plans in response to significant growth of the senior population as the Baby Boomer generation hits retirement age.
Other notable acquisitions in the past few months of Medicare plans include the June purchase of CareMore’s 54,000 members and 26 clinics by WellPoint and Humana’s acquisition of MD Care in California, which added 15,000 members to its MA portfolio.