Cigna expands with Great-West health deal

The company gains ground in the small-group market and Western states with the $1.5 billion purchase.

By Emily Berry, AMNews staff. Dec. 17, 2007.

With its largest acquisition, Cigna is joining other health plans in expanding its presence in niche markets.

Cigna announced in late November it would buy Great-West Life & Annuity Insurance Co.'s health care business for $1.5 billion in cash plus a $400 million investment commitment to boost the business. That adds 1.5 million members to Cigna's network, assuming the company gets the approval of state and federal regulators.

Cigna says it covers about 47 million lives under its medical, dental, behavioral, vision and drug benefit programs.

Great-West is known for helping businesses as small as 20 employees self-insure their health benefits, Cigna spokesman Joe Mondy said.

"In addition to the geographic expansion, that's a particular growth opportunity [for Cigna]," he said.

Cigna executives told analysts during a conference call reviewing the deal that the purchase would mean expansion in the small-group-health area, and also strengthen its presence in some key markets.

Winnipeg, Manitoba-based Great-West Lifeco, the parent company of the U.S. units, is one of Canada's largest insurers, but analysts said it did not gain enough traction in the U.S. health care market to compete with the largest American health plans. Great-West Healthcare has its greatest membership in California, Colorado, Florida, Illinois and Texas, though it has a relatively small market share even in those states.

But there is concern that the deal, the latest in a string of large health plans buying regional or specialty health insurers, will diminish competition. For example, where 10 or 15 years ago, there were easily 20 health plans for a small business in Denver to choose from, there are many fewer now, said David Kikumoto, chief executive officer of Denver Management Advisors, a consulting and insurance brokerage firm.