published Tuesday, October 25th, 2011

Cigna agrees to buy insurer Healthspring in $3.8 billion deal

Staff File Photo
The Cigna building is in downtown Chattanooga across from Warehouse Row.
Staff File Photo The Cigna building is in downtown Chattanooga across from Warehouse Row.
Follow us on Twitter for the latest breaking news

Cigna Corp. will buy fellow health insurer HealthSpring Inc. in a $3.8 billion deal as it becomes the latest managed-care company to snap up a bigger share of the fast-growing Medicare Advantage market.

Cigna, which employs more than 1,300 workers at its two Chattanooga claims processing facillities, also said Monday it raised its earnings expectations for 2011.

Cigna's acquisition is the latest in a series of deals made by health insurers to expand their Medicare Advantage businesses, which are growing at a faster rate than commercial insurance as baby boomers become eligible for them. In addition, big insurers like Cigna have reported strong results in recent quarters, and analysts have speculated that companies would start exploring acquisitions.

Medicare Advantage plans are privately run versions of the government's Medicare program for people aged 65 and older and the disabled. They are subsidized by the government and offer basic Medicare coverage topped with extras or premiums lower than standard Medicare rates.

Earlier this year, WellPoint Inc. said it would acquire Medicare Advantage plan provider CareMore Health Group, and WellPoint officials noted that more than 1 million baby boomers will become eligible for Medicare every year until 2030 across the insurer's states.

Last year, HealthSpring spent $545 million to buy another Medicare Advantage plan operator, Bravo Health Inc. HealthSpring, based in Nashville, Tenn., has about 340,000 Medicare Advantage customers in 11 states. It also has a Medicare prescription drug business with more than 800,000 customers.

Cigna currently has only about 45,000 Medicare Advantage customers in Arizona, but CEO David Cordani told analysts the market is an attractive long-term growth opportunity.

"We now have the strength and capabilities, greater scale and an expanded talent pool to serve the fast-growing senior segment, and this combination expands our portfolio to cover a broader range of life and health stages and positions us to thrive in a rapidly evolving retail marketplace," Cordani said.

Consolidation among health insurers has been on hold the past few years as companies dealt with a tough economy and tried to avoid the regulatory spotlight while the federal government debated and then implemented the health care overhaul, Morningstar analyst Matthew Coffina said.

The overhaul aims to eventually cover millions of people, and it imposes new restrictions on insurers.

Coffina said he expects consolidation to pick up because growth helps insurers by spreading costs over a larger population, and it gives them better leverage when they negotiate rates with providers.

"This could be an early indication that that time has come," he said.

Nearly 12 million people are enrolled in Medicare Advantage plans, and that enrollment has grown 75 percent since 2006, according to the non-profit Kaiser Family Foundation.

Coffina said the Medicare Advantage market is growing more quickly than commercial insurance. But he also noted these plans will face reimbursement and profit margin pressure down the road because they are easy targets for government budget cuts.

The deal represents a 37 percent premium over the Friday closing price of $40.16 for HealthSpring shares.

The boards of directors for both companies have approved the deal, and it is expected to close in the first half of 2012. The deal also comes with a $115 million break-up fee.

Cigna said Monday it now expects 2011 adjusted earnings of $5.05 to $5.30 per share, which is up from its previous forecast of $4.95 to $5.25. The new forecast excludes any impact from the HealthSpring deal.

Analysts surveyed by FactSet expect, on average, earnings of $5.29 per share.

Connect with the Times Free Press on Facebook

Cigna *** Healthspring

* Revenues $21.6 billion * $4.39 billion

* Primary market Commercial business * Medicare Advantage

* Customers/members 66 million * 1.17 million

* Employees 30,600 * 3,200

* Headquarters Bloomfield, Conn. * Franklin, Tenn.

* CEO David Cordani * Herbert Fritch

* Local presence 1,350 employees * Local sales offices

* Stock price $45.34, up 64 cents * $53.71, up $13.55

Source: Company reports

about Associated Press...

The Associated Press

Comments do not represent the opinions of the Chattanooga Times Free Press, nor does it review every comment. Profanities, slurs and libelous remarks are prohibited. For more information you can view our Terms & Conditions and/or Ethics policy.
please login to post a comment

Other National Articles

videos »         

photos »         

e-edition »

advertisement
advertisement
400 East 11th St., Chattanooga, TN 37403
General Information (423) 756-6900
Copyright, Permissions, Terms & Conditions, Privacy Policy, Ethics policy - Copyright ©2014, Chattanooga Publishing Company, Inc. All rights reserved.
This document may not be reprinted without the express written permission of Chattanooga Publishing Company, Inc.