CIGNA PURCHASES HEALTHSPRING FOR $3.8 BILLION

The giant insurer Cigna is spending $3.8 billion to purchase HealthSpring, which operates a Medicare Advantage plan and Medicare drug prescription plans.

HealthSpring has more than 1.1 million customers, and Cigna primarily offers employer-based health insurance plans.

Cigna is paying $55 a share for HealthSpring, which reported $194.2 million in net income on $3.1 billion in revenue last year. That equals $10,000 per member of HealthSpring’s Medicare Advantage customers, which is roughly double the valuations of recent Medicare-based deals that Humana, UnitedHealth and WellPoint have made, according to The New York Times.

David Cordani, Cigna’s chief executive, said his company was attracted to HealthSpring by that company’s ability to merge a private insurance plan with traditional Medicare coverage. “It’s a fast-growing space, and the demographics are there,” Cordani told the Times.

Medicare Advantage plans usually have profit margins ranging from 3 percent to 5 percent, Reuters reports.