After almost three months, The Cigna Group has struck a deal to sell off its Medicare Advantage business to Health Care Service Corp. for $3.7 billion in cash.

This includes its Medicare Advantage, Medicare supplement, Medicare drug plans, and CareAllies unit, which was formed in 2016 to assist providers in transitioning their workflows from fee-per-service to value-based care models. The deal also includes a four-year services agreement under which Cigna subsidiary Evernorth Health Services will continue providing pharmacy benefit services to the Medicare businesses following the completion of the transaction.

According to David Cordani, chairman and chief executive officer of the Cigna Group, the company will be able to focus on allocating resources to grow its Evernorth Health Services and Cigna Healthcare portfolios while positioning the Medicare businesses and CareAllies unit for better growth opportunities under HCSC.

“While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size within the Cigna Group's portfolio. We continue to see significant, meaningful growth opportunities for government services, including Medicare, in our Evernorth Health Services portfolio of businesses,” said Cordani in a statement.

Reports of a sale started in November, with Cigna reportedly looking to unload the business due to changes in the U.S. reimbursement model, and because it anticipated decreases in 2024 business' rating due to changes in the government’s star rating system, which affects certain reimbursement decisions.

The Medicare Advantage business made up 4.4% of the company’s $179.4 billion revenue from external customers in 2022, far below the majority made by its commercial business and pharmacy benefits division. The sale is expected to be accretive to its adjusted earnings per share in 2025. Once finished, it will allocate the majority of the proceeds to share repurchase and other capital deployment priorities.

Cigna has had a stake in the Medicare Advantage market since 2011 when it acquired HealthSpring for $3.8 billion. In its Q3 2023 earnings call, it said it expanded the geographic footprint for the business from 20% to 40% in 2019 and saw its customer base rise 13% year-over-year. Still, profit margins for the division were below its 4% to 5% target and were expected to continue this way in 2024 due to administrative expenses for expanding it.

Talks between Signa and HCSC were reported to be taking place in early January. A Blue Cross Blue Shield licensee, HCSC has over 27,000 employees who manage plans for more than 18.6 million members in Illinois, Montana, New Mexico, Oklahoma, and Texas.

Maurice Smith, HCSC's CEO, president, and vice chair, says the sale will aid its growth strategy in the Medicare marketplace and “bring many opportunities to HCSC and its members, including a wider range of product offerings, robust clinical programs, and a larger geographic reach.

In addition to the sale, Cigna said its 2024 outlook for consolidated adjusted income from operations on a per share basis was at least $28 for the full year, and that it is aiming to grow its long-term annual adjusted earnings per share by 10% to 13%, while still maintaining an attractive dividend. It will disclose more details in its Q4 earnings report on February 2.

The transaction has no financing conditions but is subject to regulatory approvals and other customary closing conditions.

It is expected to be completed in the first quarter of 2025.