Analysis of HCSC's acquisition of Cigna's Medicare Advantage Business

Health Care Service Corporation (#HCSC) has agreed to acquire Cigna Healthcare's #medicareadvantage (#MA) business for $3.7B.

Here's our brief assessment of what HCSC gains and what the road ahead will look like for them in the Medicare Advantage (#PartC) space.

•  HCSC gains ~600,000 MA lives enrolled in 1,146 Part C health plans across 27 markets (states)

•  Texas is currently the largest market in terms of Part C enrollment for both carriers

•  HCSC gains six new markets - excluding TX - where Cigna currently has at least 25,000 members enrolled in a Part C plan (AL, AZ, GA, FL, PA, and TN)

•  The incumbent market leaders in those six markets are UnitedHealthcare (AL, AZ, GA and TN), Humana (FL) and Aetna, a CVS Health Company (PA)

Given that the profit margin in full-risk #healthinsurance is about 2%, we declare Cigna as the clear winner. The good news for HCSC is that the majority of Cigna's #healthplans (~81%) are #hmo, which tend to be more profitable than #ppo plans. But HCSC faces an uphill battle in generating an #ROI on this deal.

What will Cigna do with the its increased cash position?

• Buy back more stocks? We don't believe so.

• Acquire another company to strengthen its vertical integration through Evernorth Health Services? That's what we're betting.