After called-off merger, Humana, Cigna double down on Medicare strategies

After a called-off merger between Humana and Cigna, executives at both companies say they are focused on staying on their existing courses. 

Neither company has directly addressed the called-off merger, but they have each fielded questions from investors on the outlook for the future. Humana is sticking with Medicare Advantage, and Cigna is divesting its Medicare Advantage membership and focusing on providing health services to other MA plans. 

Cigna announced a $3.3 billion deal to sell its Medicare Advantage, Medicare supplement and Medicare Part D plans to Health Care Service Corp. Jan. 31. On a Feb. 2 call with investors, Cigna Group CEO David Cordani called the deal a win-win for both companies, and a "clarification of our strategy within our portfolio." 

"We concluded that our Medicare businesses, while large at about $12 billion in revenue, would require sustained investments and focus and capital, as well as dedicated resources, that were disproportionate with their size within the Cigna Group's portfolio," Mr. Cordani said. 

The company still sees MA as an attractive market, Mr. Cordani said, and will focus on serving Medicare Advantage plans and customers in its health service business, Evernorth. Cigna will provide health services through Evernorth to HCSC as part of the transaction. 

The divestiture could open the door to future mergers and acquisitions for Cigna, S&P analysts wrote Jan. 31. 

Mr. Cordani told investors the company evaluates potential deals on their strategic and financial attraction and seeks "high visibility in terms of value creation" for any potential mergers and acquisitions. 

Cigna's Medicare Advantage business, with around 595,000 members, is a small part of its 19 million total membership. Humana, the second largest Medicare Advantage insurer, has 5.9 million MA members, a larger share of its 16.9 million medical members. 

Humana reported a $541 million loss in the fourth quarter of 2023, as rising Medicare Advantage costs hurt margins in its largest business. 

On a Jan. 25 call, investors asked Humana executives if the company would see benefits from being part of a "larger and more diversified entity." 

Humana CEO Bruce Broussard told investors the company's board of directors is constantly reevaluating, but it believes its government-program-focused model is best for now. 

"We feel our ability to be best-in-class in the industry that we compete in is really where we drive towards. And I think you've seen that in multiple different levels, as I mentioned, quality to our relationships with our providers to just the ability to have an integrated model that serves one population," Mr. Broussard said. 

Last year, Humana announced plans to exit the commercial insurance business by the end of 2024. 

"We do believe today, being a specialty player in the fastest-growing part of the industry is the best value for the shareholders," Mr. Broussard said. 

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