Greenwood Village-based Great West Life & Annuity Inc. plans to sell off its health insurance business to a subsidiary of Philadelphia-based Cigna Corp. in a deal valued at $1.5 billion in cash, company officials said Tuesday.
With approval from federal regulators, the transaction could be complete within the first half of 2008, allowing the company to focus entirely on financial services, said Raymond L. McFeetors, president and chief executive of Great-West Life & Annuity and its Canada parent, Great-West Lifeco Inc.
“We’re basically a financial services company everywhere in the world,” he said.
With the sale of Great-West Healthcare, which makes up 7 percent of Great-West Lifeco’s $2 billion business, McFeetors said the company will focus on growing its financial services business in the U.S.
Under the agreement reached late Monday night, Cigna will pay approximately $1.5 billion in cash to Great-West Life & Annuity. Cigna also will invest about $400 million in additional capital toward supporting the acquired health care company.
Great-West Healthcare provides medical, dental, vision, life and disability coverage to 2.2 million members.
Great-West’s health care business has roughly 3,750 employees nationwide. Spokeswoman Lisa Gigax said Cigna will continue to operate out of Great-West Healthcare’s offices in Greenwood Village.
In the past month, about 110 employees were laid off, but Gigax said those layoffs were unrelated to the deal with Cigna. McFeetors said the layoffs were associated with declining membership.
McFeetors said that as a smaller company, Great-West Healthcare struggled to compete with other health insurers for discounts from hospitals and doctors.
“We were not able to compete everywhere,” he said. “That was a strategic disadvantage.”
Cigna officials said in a conference call Tuesday that Great-West Healthcare will provide a platform for growth, strengthen competitiveness by adding members and allow for Cigna to offer more differentiated products.
As of December 2006, Cigna had 27,100 employees worldwide, as well as a network of 5,000 hospitals and 9.4 million people covered by its health care insurance in the U.S.
Jim Hertel, publisher of Colorado Managed Care Newsletter, said Cigna gains by expanding its member base in Colorado.
Based on June 30 membership figures, the acquisition would give Cigna 487,560 members, placing it in fourth place among health insurers in the state after Anthem Blue Cross and Blue Shield, UnitedHealthcare and Aetna.
Hertel said it is not surprising that Great-West Lifeco is shedding its health care unit at a time that a health care reform movement is strong in the United States.
“Given the current state of the market, with so many national forces pushing for some form of health care reform, it didn’t surprise me that the corporate parent of Great-West Healthcare may have been entertaining offers for the acquisition of this small piece of their overall business,” Hertel said. “It makes perfect sense for a Canadian life insurance company to take this opportunity to sell a unit that could well be at its peak financial value.”
He said policyholders will probably not see any immediate changes to plans.
Karen Rouse: 303-954-1684 or krouse@denverpost.com
