Cigna Offloads Medicare Business to HCSC: Financial Focus or Market Retreat?

Cigna has officially closed the sale of its Medicare Advantage, Part D, and Medigap businesses to Health Care Service Corporation (HCSC) for $3.3 billion in cash and an estimated $400 million in released capital. The divestiture, first announced in January 2024, marks a significant strategic shift for the Connecticut-based insurer, effectively exiting it from the increasingly complex and volatile Medicare market.

Though Cigna had initially hinted at a potential increase in the final purchase price based on asset-to-liability ratios, no such adjustment was announced at close. Analysts have since debated whether the $3.7 billion valuation undervalues the Medicare book, especially given its size: approximately 697,000 covered lives and a presence in 25 states and Washington, D.C.

Medicare Offload or Financial Recalibration?

Cigna executives have described the divestiture as part of a broader strategic effort to focus on core assets and boost earnings. The Medicare unit had struggled to meet margin expectations and was increasingly viewed as a drag on financial performance. In 2023, Medicare Advantage (MA) plans across the industry were squeezed by declining reimbursement rates and surging medical loss ratios.

In a recent SEC filing, Cigna indicated the proceeds from the sale would contribute to a leaner, more targeted organization built around its Evernorth health services segment, which includes pharmacy benefit management (PBM), care coordination, and analytics.

HCSC’s Expansion Play

For Chicago-based HCSC—a Blue Cross Blue Shield licensee operating in five states—the acquisition quadruples its Medicare Advantage enrollment and significantly expands its geographic and product reach. HCSC will now offer Part D coverage nationwide and Medigap plans in nearly every state.

Industry observers see the move as a scale play, enabling HCSC to spread administrative costs, boost star ratings through a larger data pool, and better compete with MA giants like UnitedHealth Group and Elevance Health.

Why Medicare Is No Longer a Safe Bet

While MA was once the fastest-growing line of business in the commercial insurance space, it has come under pressure from regulators and lawmakers. The Biden administration implemented lower reimbursement benchmarks and increased audits in 2023 and 2024. Medical cost trends, particularly post-pandemic utilization spikes, have also eroded profitability.

Gary Taylor, a TD Cowen analyst, noted that the Cigna deal represents one of the lowest valuations for a Medicare book of its size in over a decade. “There’s no longer a guarantee that scaling MA leads to better margins or valuation multiples,” Taylor wrote in a January 2024 investor note.

Downsizing to Compete Upstream

Cigna’s retreat from Medicare should not be interpreted as an exit from the senior market entirely. Its Evernorth division will continue to provide PBM and analytics services to other MA plans. However, the sale raises questions about whether large insurers are starting to rethink their exposure to segments with declining regulatory favorability and increasing operational complexity.

Meanwhile, Cigna is expected to use proceeds from the sale to repurchase stock and potentially reinvest in higher-margin service lines. The move follows a failed attempt in late 2023 to merge with Humana, another major Medicare insurer.

Industry Implications

The deal reinforces a broader trend in healthcare: a growing bifurcation between insurers doubling down on full-risk Medicare businesses and those pivoting toward higher-margin service adjacencies. With operating pressures mounting, even legacy players like Cigna are finding that scale in Medicare is no longer a guarantee of success.

As interest in value-based care models grows, the organizations best positioned for long-term success may not be those with the most members, but those that understand where margin and clinical impact still align.