Baby boomer 'peak' added to Cigna's decision to sell MA business
The baby boomer population, which has driven the growth of MA, is reaching its peak potential of profitability.
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Medicare Advantage is facing challenging times.
This is evidenced by the impact of higher than expected utilization on insurers' medical loss ratios and by Cigna's recent announcement of the sale of its MA business to Health Care Service Corporation for $3.7 billion.
"And while we continue to see the seniors market as an attractive growth market, we concluded that our Medicare businesses at large at about $12 billion in revenue [that] 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," Cigna CEO David Cordani said during Cigna's fourth quarter earnings call on Friday.
WHY THIS MATTERS
Analysts on the call kept returning to the question of the Medicare Advantage sale, with one commenting that Cigna was still the eighth largest MA plan in the country.
Cordani added this: "And then ultimately, as you know, the last comment I would make is the primary wave of the baby boomer aging has reached a peak and is slowing. It's still attractive, but that primary wave has reached its peak and is slowing somewhat. Take it as a whole, we see this as an expansion opportunity for Evernorth."
The baby boomer population, which has driven the growth in the senior citizen health insurance market, is reaching its peak potential of profitability. In six years, by 2030, all boomers -- those born between 1946 and 1964 -- will be 65 or older, according to the U.S. Census Bureau.
Cigna is focused on expansion of its pharmacy services business, Evernorth. After the expected closing of its Medicare Advantage business in 2025, Evernorth will continue to serve HCSC. Cigna's Medicare Advantage business will continue to be reported through Cigna Healthcare through 2024.
Cigna CFO Brian Evanko estimated $7 billion for Evernorth's full year 2024 adjusted earnings with Cigna Healthcare's full year 2024 adjusted earnings estimated to be at least $4.75 billion.
The Cigna Group's adjusted income from operations for the fourth quarter 2023 was $2 billion, compared with $1.5 billion for fourth quarter 2022.
Cigna's medical care ratio favorability was primarily driven by its commercial business. Viral costs in the quarter were lower than expected, with the combination of flu, COVID and RSV running below projections.
Cigna said that in 2024, it intended to use a majority of its discretionary cash flow for share repurchase. It anticipates repurchasing at least $5 billion within the first half of 2024.
On Monday, Cigna announced the commencement of tender offers for up to $2.25 billion in aggregate principal amount of outstanding notes.
THE LARGER TREND
Medicare Advantage profitability is on the decline, according to a new analysis by Moody's Investor Service.
The signs began around 2022, when MA earnings were 2% lower than in 2019 despite substantial membership and premium growth. UnitedHealth Group, Humana and Aetna, which together comprise more than half the MA market by membership, have fared better, generally maintaining margins. Newer entrants, with smaller market shares, have struggled.
MA performance remained under pressure in 2023 because of a significant spike in utilization for most of the companies, which Moody's expects would result in lower full-year MA earnings for insurers. Adding to that is lower reimbursement rates for the first time in years that are likely to remain weaker in 2025 and 2026, which is credit negative.
Email the writer: SMorse@himss.org
