Cigna shells out $3.8B to buy Medicare Advantage plan

Among all the acquisitions insurers are making to grow their Medicare business, Cigna has taken the biggest single move yet by spending $3.8 billion to purchase Medicare-based insurer HealthSpring.

The health insurer is betting on the value of Medicare Advantage plans, whose members bring in about three times more revenue than commercial members because they are older and have higher medical utilization rates. Medicare Advantage plans usually have profit margins ranging from 3 percent to 5 percent, Reuters reports.

By acquiring HealthSpring, which has more than 1.1 million customers enrolled in its Medicare Advantage and Medicare prescription drug plans, Cigna is gaining a huge opportunity to retain its current customers often signed through its employer-based coverage plans as they retire and shift to Medicare, according to the Dow Jones Newswires.

The deal is the largest that Cigna has ever struck, paying $55 a share for HealthSpring, which reported $194.2 million in net income on $3.1 billion in revenue last year. That's $10,000 per member of HealthSpring's Medicare Advantage customers, which is roughly double the valuations of recent Medicare-based deals that Humana, UnitedHealth, and WellPoint have made, according to the New York Times.

David Cordani, Cigna's chief exec, said the health insurer has long identified HealthSpring's ability to provide a private insurance plan with traditional Medicare coverage and additional services as an important area for growth. "It's a fast-growing space, and the demographics are there," Cordani told the Times.

To learn more:
- read the Reuters article
- see the New York Times article
- check out the Dow Jones Newswires article

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