Cigna invested $550 million to bail out a quasi-competitor on Tuesday.
The insurer’s investment in another insurer, Bright Health Group, continues Cigna’s trend of partnering with businesses that, on the surface, seem like they should be competitors. The company has also partnered with the Oscar insurtech to create a jointly-branded product for the small group market, and had partnered with Amazon to help deliver prescriptions to customers’ doors.
These partnerships with smaller insurers and tech companies help Cigna bridge blindspots in its insurance products and add new customers to its health services division, allowing it to better compete and mimic the strategy of larger insurers like UnitedHealth Group, said Rick Kes, a healthcare industry senior analyst at RSM.
“That’s got to be the strategy, how do we become better together?” Kes said. “The big elephant in the room are these large national plans, and they’re not going to partner with us. So, you know, maybe we beat them to the punch and partner with these up-and-coming organizations to try to win business away from United or Anthem.”
Cigna said it will explore ways its Evernorth health services division can create a customer out of Bright’s growing NeueHealth value-based clinic arm, which is often compared to UnitedHealth Group’s Optum subsidiary. At the same time, the insurer is developing Evernorth as a platform other health plan and provider customers can use to digitize their businesses, also along the lines of Optum, Kes said. Evernorth is by far the most profitable segment of Cigna.
“You have to look at what they’re doing and say, ‘Well, how do we replicate that or how do we compete against United? How do we get closer to the patient as we move from traditional fee-for-service revenue to value-based care?'” Kes said. “Insurance companies need to have that physician element to do all those things.”
Cigna’s cash will give Bright Health the money it needs to grow its clinical arm.
The investment also gives Cigna a foothold in the insurer if Bright Health’s finances continue to go downhill. The company’s valuation has fallen from $12 billion at its public offering in June to about $2.5 billion today. With the investment, Cigna now owns about 25% of the young company, neither of which responded to interview requests. The five-year-old startup aims to achieve profitability by 2024.
“They’re taking a bit of a hedge play by doing partnerships and investments in a startup health plans as an actual corporate strategy,” said Ari Gottlieb, a principal at A2 Strategy Group.
If Bright Health tanks, the investment puts Cigna first in line to acquire NeueHealth and its Medicare Advantage-based business, Gottlieb said. And if Bright Health rebounds, the insurer gets to add about 900,000 members to its health services division, he said. The company will presumably switch from the MedImpact pharmacy benefit manager to Cigna’s Express Scripts, he said. And the insurer is guaranteed a 5% annual return through the debt convertible financing deal.
“Cigna’s strategy is that these things are low risk,” Gottlieb said. “If they work, great. If they don’t, it’s a footnote.”
By partnering with Oscar and Bright Health Group, Cigna has indicated that it does not view these companies as direct competitors. Its partnership with Bright represents a way to add new clinical assets and turn Bright’s members into health service customers, and partnership with Oscar Health gives it a foothold in the small group, where it was not traditionally strong, Gottlieb said.
Cigna may not view these startups as competitors. But, to one another, Oscar and Bright Health certainly are. These companies will continue to all compete with one another in the individual exchange markets, where “there’s got to be quite a bit of alignment,” Kes said.
“You have two different competing interests within your investment strategy at Cigna, and so you kind of have to keep them both happy,” Kes said. “Obviously, you don’t go into these relationships without the intent of trying to grow it and make it meaningful. So, I think they’d have to really be careful around how they do that.”