Cigna to Buy MA Plans

CIGNA Corp. (CI - Analyst Report) announced its plans to purchase selected Medicare Advantage (“MA”) plans in the state of Texas and Arkansas. Cigna will buy the plans in three markets - Amarillo, Longview-Marshall and Texarkana - from Humana.

The transaction is subject to regulatory approvals and is expected to be complete by the end of 2012.

Humana got regulatory approval to buy Arcadian only on the condition that the former will divest Arcadian’s Medicare Advantage business in 51 counties in five states, namely, Arizona, Arkansas, Louisiana, Oklahoma and Texas. These divestitures were aimed at preventing monopoly in the states where the merging entities were the chief rivals before the acquisition, and hence, a union will virtually leave no competition.

While Cigna has bought Texas and Arkansas MA plans, other contenders for the remaining plans may be WellPoint Inc. (WLP - Analyst Report) and UnitedHealth Group Inc. (UNH - Analyst Report).

From the beginning of 2013, nearly 3,500 members, who will be affected by the divestiture, will be served by HealthSpring’s robust physician engagement model. HealthSpring is a subsidiary of Cigna, which works closely with doctors and provides quality health care to its members.

Cigna acquired HealthSpring in January this year to enter into the promising Seniors and Medicare Advantage market, a line of business in which it was virtually non-existent. The acquisition of more MA plans will strengthen Cigna’s presence in the MA market.

While HealthSpring already has a presence in the state of Texas, this acquisition will enable the company to enter Arkansas and its counties of Columbia, Hempstead, Howard, Lafayette, Little River, Miller, Nevada and Sevier.

In a separate development, Cigna issued a statement after the Supreme Court ruling on the Health Care Reform that upheld the individual mandate requiring all Americans to get an insurance cover and pay a penalty in case of non-compliance. Cigna said that it would strive to provide quality services to Americans by developing innovative customer rewards, industry-leading health and wellness initiatives, and Accountable Care Organizations. Cigna has also rolled out a 24x7 customer helpline to respond to customers queries regarding the Supreme Court ruling.

Cigna currently retains a Zacks # 2 Rank, which translates into a short-term Buy rating. We, however, maintain our long-term Neutral recommendation on its shares.