Cigna shares little moved by Medicare settlement; Hippo hits new low

The Cigna Group's stock remained relatively steady following news that the managed care insurer settled a lawsuit with the US Department of Justice over its Medicare Advantage adjustment practices.

Cigna's share price stood at $285.35 at the close of trading on Oct. 5, down slightly from $290.32 on the day prior to the Sept. 28 announcement.

The 1.74% decline in value puts the insurer largely in-line with peers such as Humana Inc., which saw a 1.64% drop, and Molina Healthcare Inc., which saw its stock slip 1.80% during the same period. The S&P 500 lost 0.97% during the same period, while the S&P 500 US Insurance index fell 1.04%.

Cigna on Sept. 29 said it agreed pay $172 million to settle allegations that it submitted false or inaccurate Medicare Advantage diagnostic codes to increase its reimbursements. Additionally, Cigna will enter into a five-year corporate integrity agreement with the Office of Inspector General of the US Department of Health and Human Services.

The DOJ claimed that Cigna filed false patient diagnosis codes to artificially inflate the payments it received for providing insurance coverage to its Medicare Advantage customers. Additionally, the DOJ said Cigna failed to withdraw the inaccurate diagnosis data, failed to repay the Centers for Medicare & Medicaid Services (CMS) and falsely certified in writing to the CMS that the data was accurate and truthful.

The settlement put to rest allegations brought by a whistleblower under the False Claims Act, which led to an investigation of the insurer's past risk adjustment submissions, some dating back more than a decade, according to a statement issued by Cigna.

The agreements "fully resolve long-running legal matters," said Chris DeRosa, president of Cigna's US government business, in a statement. "We are pleased to move beyond industry-wide legal disputes related to past risk adjustment practices."

Cigna did not respond to a request for comment.

Following the news, Stephens analysts Scott Fidel and Raj Kumar maintained Cigna's "overweight" rating, citing in part the insurer's recently successful Medicare program audit with the CMS.

Hippo hits new low

Hippo Holdings Inc.'s stock value hit a 52-week low following a pause and restart of its underwriting services and an investor letter claiming the company is producing "abysmal financial results."

Hippo's stock closed at $7.22 a share on Oct. 4, down from $20.39 at its highest point during the last year of trading. The insurance technology company has faced difficulties in 2023, a year which has seen it and fellow insurtechs struggle amid a changing, difficult market.

The latest decline follows the Sept. 14 release of a letter to Hippo's board by Bradley Radoff and Etude Capital LLC, two of Hippo's 10 largest shareholders, calling for a strategic review.

"Since becoming a publicly traded entity in early 2021, Hippo has generated abysmal financial results and operated in an unsustainable manner," the letter read. "Hippo is now a micro-cap stock that trades at a roughly 50% discount to book value."

Hippo did not respond to a request for comment.

The impact on Hippo's stock price is definitely going to cool the desire for other insurtechs to go public, said Kaenan Hertz, managing partner for Insurtech Advisors LLC.

"What's happening now is that these insurtechs that want to be 'carrier-lite' are going to have a really difficult time," Hertz said. "It's going to be difficult to get reinsurance capacity and capacity is going to be significantly more expensive."

The difficult insurtech space is further complicated by the damage done by Vesttoo Ltd.'s letter-of-credit scandal, Hertz said.

Insurers affected by the Vesttoo scandal include Porch Group Inc., the stock of which has declined by more than 40% since its insurance carrier, Homeowners of America Insurance Co., got swept up in the scandal.

Vesttoo has been forced to find much more expensive reinsurance capital due to the scandal, Hertz said, pointing to the Sept. 27 announcement that Porch initiated a cash investment of $57 million to Homeowners of America Insurance Co. (HOA) in exchange for both a $49 million surplus note from HOA and the acquisition of HOA's rights to potential claims stemming from the fraud connected to Vesttoo.

Porch did not respond to a request for comment.

"That's not a small amount of money, so think of that as [Porch] trying to stabilize something that's quite unstable," Hertz said. "I think only time will tell if that was ... enough capital."