Cigna May Sell Its Medicare Advantage Business

EP #70 Flatlining Podcast Recap

Last week Ron and Matt dissected interesting movements in the payer market, with Humana bowing out of the commercial market and going all in on Medicare Advantage, and Cigna possibly selling their Medicare Advantage arm. Matthew kicks off the discussion asking about why Humana would leave the commercial side of the business to focus exclusively on Medicare Advantage.

Ron provided some insight, that long-time listeners to the podcast will be familiar with, that insurance companies are for-profit entities, and they go where they think they can maximize the profits. He described insurance companies as being “involved in” versus “committed to” healthcare. He was, however, quick to point out that we all like to see our 401Ks increase in value, which means that if our portfolio has a Humana or Cigna in it, if they increase in value so do we.

Matthew noted that Humana’s third quarter profits were down about 30% year over year and asked Ron if this was the driver behind this latest move. Ron said it likely was and Matthew brought up the impact to providers when something like this happens and patients go from one carrier to another. He stated that it’s a good general rule for providers to keep their payer contracts near the same reimbursement rates. Ron agreed and explained that if you have patients in a case like this, that switch to a new payer with a lower reimbursement rate, it could mean a loss in revenue the provider did not see coming.

With the discussion solidly around Medicare Advantage, Matthew asked what makes it profitable for payers like Humana to focus completely on this product. Ron said, “It’s profitable, for now.” he said that government programs like Medicare were not always profitable, and if in the future they cease to be profitable, you will see payers exit the market as well. Ron explained how they got this way, “Insurance companies did a very good job of lobbying the government to create a structure that is very profitable for them.” Ron explained that a payer can make additional dollars if the patient’s condition is more severe or demonstrates what are perceived as improvements to quality. Ron compared it to having a decent base salary and then for certain milestones or situations there are bonus provisions involved.   

Since we are in the open enrollment period, Matthew and Ron dive into the discussion of advertising share activities across the payers and if we will start seeing more of this. Ron reminded us that Medicare Advantage is a one-to-one sale, not a group sale like an employer, so the sales techniques differ. He said Humana used to go to senior centers and skilled nursing facilities looking to sign up patients for their product. But the takeaway, as Ron points out, is that you would not see any advertising dollars being spent if Medicare Advantage programs weren’t profitable for the payers.

Matthew shifted gears and brought up that Cigna is going the other way, referencing a recent Reuters report that Cigna may be selling their Medicare Advantage business arm.  Ron gave us a bit of history on the troubled past of Cigna’s Medicare Advantage division, like the 2016 fine from the Center for Medicare & Medicaid Services (CMS) which hit Cigna with a $172 million dollar bill. This fine was for falsifying claims submissions to CMS. Cigna had to cease operating in the market for a period and make some reforms. Ron said that Cigna never seemed to be able to get this area of the business to function well. Matthew pointed out the recent drop in Cigna stock value and asked Ron why it would go down when Cigna was cutting a possibly poor-performing area of their business. Ron explained that the problem was more holistic and shared some indicators that all is not well at Cigna.  Some of those indicators were the ProPublica piece on Cigna’s denial of coverage practices that caught the attention of Congress, lawsuits over this practice, and some lingering litigation from a previous buyout attempt by Anthem that was denied by the Federal Trade Commission (FTC) due to market consolidation. That litigation, according to Ron, is accusing Cigna of undermining the buyout allegedly due to the Cigna CEO not wanting to be second in command of the new company.

So, who will buy Cigna’s Medicare Advantage arm? Ron and Matthew discuss some options and Ron predicts it will be a payer that is already a national player in the Medicare Advantage market, but also like the Anthem-Cigna deal, market consolidation will be a factor for it to go through. Ron described in layman's terms how the FTC looks at buyouts and mergers when it comes to market share, he explained the general idea behind the formula used but said that it is not just a black-and-white kind of thing. You will have to turn to the podcast to find out who Ron thinks it will be.

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