The Redhot Healthplan Business For Seniors Is Finally Cooling Off

Health insurance giant Cigna is shedding its lucrative seniors business, which has fueled the insurance company's profits for years. This is a sign that the glory days of Medicare Advantage are coming to an end.

Last week, Cigna said it had reached an agreement to sell its Medicare Advantage plans to Insurer Health Care Services Corp. A $3.7 billion Illinois company. The deal has reportedly been under discussion for several weeks. Medicare Advantage is a private version of the federal program that provides health insurance to people age 65 and older.

Cigna's older accord isn't the greatest, but nothing to complain about. The company has 600,000 Medicare Advantage members and last year generated about $9 billion in premiums for Cigna out of $44 billion in all insurance plans.

However, in a call with analysts on February 2, Cigna CEO David Cardon said the business is not worth the money.

"While we view this market as an attractive growth market, the required capital, investment and resources are focused on the size of our portfolio, coupled with the continued strong regulatory environment, our decision was better to pursue this transaction," he said. .

Cigna's decision to divest its Medicare Advantage business reflects the range of challenges health insurers face in that market, from high medical costs to lower federal government payments, making the business viable. In addition, seniors appear to be joining Medicare Advantage at a faster rate than in previous years, raising questions about whether the enrollment market has reached its ceiling.

"The first wave of aging children has reached its peak and is slowing down," Kordani said Friday.

Medicare Advantage is getting harder.

Medicare Advantage has been the fastest growing segment of the health insurance industry as older Americans join the program and choose the plan over traditional Medicare. The plans include additional benefits not covered by traditional Medicare, such as prescription drugs, dental and eye services, and gym memberships. The downside is that private insurance companies limit the number of doctors a patient can see.

Medicare Advantage plans will cover about half of Medicare beneficiaries over the past decade — about 31 million people — by 2023, up from 29% of beneficiaries in 2013, according to the Kaiser Family Foundation.

The competition for share in this growing market is fierce. But now it is becoming difficult for companies to make big profits.

In addition to lowering premiums for Medicare Advantage policyholders, the federal government is making three years of technical changes to the system used to reimburse health insurance plans that will further reduce premiums for policyholders. Insurance companies, including Cigna, have faced investigations and legal trouble for rigging the system to get higher federal payouts.

In addition to these challenges, it will be difficult for insurance companies to contain rising health care costs as more seniors visit doctors or be hospitalized by 2023. In January, Himana, the second-largest Medicare Advantage insurer with 6 million members, cut its profit forecast because of those costs.

Some of these problems are temporary and insurance companies can fix them even though they can hurt the elderly. Gary Taylor, an equity analyst at TD Cowen, said insurers may cut benefits on health insurance plans to offset higher costs and lower costs.

However, one potentially permanent change is ending enrollment in Medicare Advantage. According to Taylor's forecast, market coverage has grown at 8-9 percent per year over the past decade, but will halve to about 4 percent by 2025 and beyond, significantly reducing insurers' revenue growth.

He said Medicare Advantage isn't going away and will continue to grow faster than other insurance markets, such as Medicaid or employment-based insurance. According to him, as enrollment growth slows down, insurers are looking to increase their profits instead of chasing more enrollees.

Cigna is struggling in the adult sector.

These issues contributed to Cigna's decision to end Medicare Advantage. But there may be other reasons.

In the year Cigna is said to be looking to sell its Medicare Advantage plans by the end of 2023, along with the second-largest Medicare Advantage insurer, Himana. Selling the plan may have helped ease antitrust scrutiny. However, Cigna-Himana talks broke down and Cigna asked for a sale.

Taylor said he believes Cigna can still reach a deal with Humana. But problems surrounding the Medicare Advantage market have made it easier for Cigna to spin that part of the business, he said.

"Cygna is not growing, it's losing money, and it's going to be harder and harder to make money in the next three years," Taylor said of Cigna's top business.

Dean Ungar, vice president of ratings firm Moody's Investors Service, said Cigna's small size compared to major players such as UnitedHealthcare and Himana hurts its scale-critical business.

Other smaller companies follow Cigna's lead and may go out of business if they can't control costs, he said, adding that the innovation and subsequent consolidation will be less likely for seniors.

"Eventually, you'll probably find other companies that want to leave if they can't do business," Angar said.

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