Medicare Advantage…Here Today, Here Tomorrow…

November 3, 2011
101 Views

CIGNA put a stake in the ground for the long term prospects of Medicare Advantage (M.A.) with its recent announcement that it would be acquiring HealthSpring for $3.8B (a 37% premium over its closing price prior to announcement).

CIGNA put a stake in the ground for the long term prospects of Medicare Advantage (M.A.) with its recent announcement that it would be acquiring HealthSpring for $3.8B (a 37% premium over its closing price prior to announcement).

HealthSpring primarily operates as a M.A. plan covering over 340K lives across 11 states (including over 800,000 Medicare Part D members).  CIGNA previously had a very limited presence in M.A. with ~44,000 lives entirely in Arizona.

CIGNA has been focused on diversifying its core US healthcare presence, so the move isn’t too much of a shocker, although many thought its approach would include international expansion versus a bold move into the government market.  It’s likely the HealthSpring business model was too alluring for CIGNA to pass on when you consider HealthSpring’s:

  • Tight integration with network physicians including a high level of capitation and risk sharing;
  • Strong leadership team lead by Herb Fritch whom possess the experience and know-how to operate a unique, physician-centric, coordinated care model; and
  • Consumer brand presence within the senior market.

There is a large opportunity for CIGNA to leverage and replicate HealthSpring’s coordinated care model across their commercial book of business to drive efficiencies and deliver better care.  Additionally, CIGNA will benefit from its ability to cross-sell HealthSpring into new markets.

CIGNA is not the only health plan making moves in the M.A. market – recent M&A activity within the sector over the past 18 months include:

HealthSpring was one of the few remaining M.A. plans with size and scale, and CIGNA’s move could prompt additional consolidation within the sector over the coming 12-18 months.  The list of targets with viable M.A. populations (100K+ lives) is becoming quite limited.  Some of these include Universal American and Wellcare, public M.A. plans with 100K+ lives; and XL Health, SCAN, Aveta and Universal Healthcare as examples of private M.A. plans with scale.

There have been recent headlines about increased pressure on reimbursement rates and minimum medical loss ratio (“MLR”) requirements posing a threat to the future of M.A.  My view, however, is that M.A. will not only survive, but thrive going forward and recent M&A activity would suggest the same.  Let me know what you think.

Judd Stevens

Judd Stevens is an associate at TripleTree covering the healthcare industry, specializing in the impacts and transformation of health plans in a post-reform world.  Follow Judd on Twitter or e-mail him at jstevens@triple-tree.com.

 

You may be interested

Care On The Road: How Telemedicine Can Reach Truck Drivers
Mobile Health
1 views
Mobile Health
1 views

Care On The Road: How Telemedicine Can Reach Truck Drivers

Larry Alton - August 21, 2017

Telemedicine is considered a powerful tool for individuals living in rural areas, far from adequate services or in need of…

Where Is The Balance? Pushing Back Against Consumer Health Tech
eHealth
3 views
eHealth
3 views

Where Is The Balance? Pushing Back Against Consumer Health Tech

Larry Alton - August 18, 2017

When Republican Congressman Jason Chaffetz glibly remarked that Americans struggling to afford insurance should choose between that and their smartphones,…

What to Look for in Patient Solutions Software
eHealth
365 views
eHealth
365 views

What to Look for in Patient Solutions Software

Robert Cordray - August 17, 2017

The medical sector is one area where technology has had a significant impact, largely by providing tools that simplify many…