Business Environmental Analysis: Cigna & CAM Insurance

Market Domain: CAM Coverage Gap in Health Insurance

The industry selected for this analysis is healthcare — specifically medical health insurance plans. In seeking to evaluate an unmet need in the health insurance realm, it is useful to first offer a concise definition of health insurance. In basic terms, health insurance can be defined as "a contract that requires a health insurer to pay some or all of an insured person's health care costs in exchange for a premium" (HealthCare.gov, 2020). Among the things covered by health insurance are hospital and doctor visits, medical devices, and prescription drugs, among others. It therefore follows that health insurance does not necessarily provide cover for brand-new medical technologies, off-label drug use, complementary and alternative medicine (CAM), cosmetic and elective surgery, and similar services. However, this is precisely where significant opportunities lie for players in the industry, given that failure to provide coverage in these areas means that key market needs remain unmet.

Complementary and alternative medicine is rather popular in the United States. For instance, in a study assessing the prevalence of herbal medicine use among adults, more than a third of participants reported that they regularly used herbal supplements (Rashrash, Schommer, and Brown, 2017). In the words of the authors, "older age and higher education were associated with a higher use of herbal supplements" (Rashrash, Schommer, and Brown, 2017, p. 109). Herbal medicines are part of CAM. These findings are corroborated by Ventola (2010), who notes that approximately 40% of U.S. adults have at some point used CAM. Ventola (2010) describes CAM as "a group of diverse medical and health care systems, practices, and products that are not presently considered to be part of conventional medicine." One area that has seen widespread CAM utilization is cancer treatment. According to Halter (2018), while radiation and chemotherapy have high efficacy rates, "nearly 40 percent of Americans believe alternative medicine alone can stop the disease in its tracks."

To a large extent, most CAM treatments are not covered by health insurers, leaving a significant portion of CAM use without insurance coverage. According to Patricia and Coulter (2016), most CAM practitioners have legal standing as professionals and some are permitted to provide primary care; however, they are yet to be fully embraced by Medicare and private insurers. As Patricia and Coulter (2016) explain, "CAM practitioners cannot seek reimbursement from insurers for many services they are trained to perform and so cannot practice to the full extent of their capabilities, which for chiropractors might include giving full physical examinations or writing prescriptions." It should be noted that some health insurance plans do cover certain CAM services — such as chiropractic and acupuncture care — which are routinely used in the treatment of back pain and migraines, among other conditions. However, even when covered, significant restrictions often apply regarding the frequency of visits.

There is therefore a clear need that the insurance industry has not yet fully addressed: health insurance plans should cover a wider range of alternative care services, including dietary supplements, naturopathy, and homeopathy. Various studies indicate that a significant portion of the adult population actively uses CAM, and insurance companies could establish clear guidelines to streamline coverage — for instance, extending it to approaches with sufficient evidence of effectiveness in alleviating symptoms or illness. There is sound basis for alternative medicine to be considered alongside traditional healthcare in the context of health insurance.

Complementary and alternative medicine continues to be embraced by many individuals across the U.S. and in much of the world. Yet insurance coverage for alternative medicine remains limited — with some insurers expressly refusing coverage and others covering only select CAM procedures such as acupuncture and chiropractic care. Several factors have made health insurance companies wary of this market domain.

In the year 2000, the White House Commission on Complementary and Alternative Medicine Policy (WHCCAMP) was established to assess concerns surrounding the delivery and access to CAM across the nation (National Institutes of Health, 2020). Various stakeholder consultations were held, and one of the commission's key findings was that a primary reason most insurance companies avoided CAM was the lack of sufficient evidence for the effectiveness of those therapies. Players in the health insurance industry were "concerned that their limited dollars be spent on care that has been shown to be safe and effective" (National Institutes of Health, 2020).

Beyond effectiveness, safety is another concern. Unlike conventional medicine, there is no well-founded framework for assessing and evaluating the safety of CAM drugs and treatment approaches, which raises ethical considerations about supporting approaches that could have a net negative impact on patient wellbeing. Additionally, health insurance companies have cited the lack of established criteria for assessing the medical viability or necessity of CAM therapies (Synovitz and Larson, 2013). Conventional medicine has developed methodologies for determining the relevance of procedures — an important factor in insurance risk management — whereas CAM lacks a comparable framework of necessity assessment.

However, some health insurance companies do cover alternative and complementary therapies, and a significant enabling factor is patient demand. As Herman and Courter (2015) note, "the American Hospital Association survey of hospitals found that 49 percent of respondents indicated that patient demand was the primary motivation for offering CAM services" (p. 74). Furthermore, most healthcare institutions have begun embracing integrated care. Herman and Courter (2015) assert that "there is evidence that other therapeutic modalities, with different conceptual frameworks, are beginning to compete with this dominant [biomedical] model" (p. 102), and insurers are cognizant that CAM will claim a growing share of Western medicine going forward.

The factors described above have had a major influence on opportunities for innovation and change in the CAM insurance realm. Most directly, they have slowed the integration of conventional medicine with CAM, as players in the healthcare industry lack sufficient motivation and incentives to pursue this course. If health insurance plans were to actively cover CAM, those players would be more motivated to find ways of integrating conventional and CAM therapies.

These same factors have, however, inadvertently spurred research on the effectiveness of CAM therapies. As Hu, Li, Duan, and Arao (2013) point out, "for policy makers, practitioners, patients, and health care system managers to make informed decisions about the use of CAM therapies, they must have both access to and a means of evaluating the results of research on the topic." For instance, there has been increased research activity seeking to determine how effective CAM therapies are among hypertension patients (Hu, Li, Duan, and Arao, 2013).

The factors have also had an impact on the prevalence of CAM itself. Although CAM is popular, the lack of consensus on insurance coverage has kept a significant portion of the population from accessing it. For instance, CAM does not typically feature in group health insurance policies or employer-sponsored insurance, meaning that for the millions of employees who rely on group coverage, CAM therapies are simply not an option.

Competitive Readiness: SWOT Analysis of Cigna Corporation

Cigna Corporation is a global health services company offering insured and self-funded prescription drug, vision, behavioral health, dental, and medical benefit plans to individuals in healthcare benefit programs. The company is headquartered in Bloomfield, Connecticut, and is one of the leading companies in the healthcare insurance industry. The following SWOT analysis identifies potential sources of competitive advantage for the company's future sustainability.

Network size: Cigna has one of the strongest networks in the industry, including over 700 accountable care programs, over 500 hospitals, and over 175,000 mental and behavioral healthcare programs (Cigna, 2020). The company serves 17 million medical customers globally, 17 million dental customers, 22 million U.S. customers, over 67,000 contracted pharmacies, Medicare Advantage Plans in 16 states and Washington D.C., and Medicare Prescription Drug Plans in all 50 states (Cigna, 2020).

Comprehensive offerings: Cigna offers a full range of individual and group healthcare plans, making it a one-stop shop for insurance and healthcare plans and giving it a competitive edge (Vourman et al., 2013).

International coverage: Cigna has reported steady growth in its international coverage, currently serving 17 million global customers through a network of over 1.5 million healthcare providers. The company realizes international expansion through joint ventures with established subsidiaries in promising markets (Vourman et al., 2013).

Strategic acquisitions: Cigna has driven growth through significant acquisitions. Among the most notable is the acquisition of HealthSpring, a Medicare Advantage provider based in Nashville, which enhanced Cigna's competitiveness in the Medicare market by adding coverage in 11 additional states (Vourman et al., 2013).

High indebtedness: Cigna has reported a large increase in debt in recent years, at an average growth rate of 29 percent compared to 15 percent growth for equity capital (Vourman et al., 2013). This high debt-to-equity ratio places the company at a disadvantage relative to competitors such as Wellpoint and Aetna, and also affects its ability to obtain credit to finance future strategic acquisitions (Vourman et al., 2013).

Low Medicare exposure: The company has relatively low exposure to the Medicare market (Vourman et al., 2013). Before the 2012 acquisition of HealthSpring, Cigna's membership in the Medicare Advantage program was only 46,000. The HealthSpring acquisition increased managed care market coverage by 340,000 people, representing just 3 percent of that market (Vourman et al., 2013).

Ethical concerns surrounding private insurance: Cigna has been the subject of fraud investigations that pose a risk to its reputation. In one recent case, the company's management was under investigation for allegedly misleading shareholders about its compliance with Medicare regulations. Although the case was dismissed, it reflects negatively on the company's public image.

Difficulty integrating acquired firms: Although Cigna has made successful acquisitions, it has also struggled to integrate companies with different organizational cultures. For example, the company was unable to effectively integrate with the Memorial Hermann Health System, losing growth opportunities that would have yielded significant benefits.

Uninsured population: Estimates from the U.S. Census Bureau indicate that approximately 25.6 million people in the U.S. were uninsured as of 2018 (Berchick, Barnett, and Upton, 2018). This population presents a growth opportunity for Cigna, particularly given the provisions of the Affordable Care Act, which increase Medicaid eligibility and offer incentives for businesses that provide healthcare benefits.

Medicare managed care market: The aging population offers significant growth potential in Medicare, as the number of individuals aged over 65 is expected to increase by approximately 80 percent by 2030 (Vourman et al., 2013). The HealthSpring acquisition was a first step in expanding Cigna's Medicare presence.

Growth of Administrative Services Only (ASO) plans: The quest for low-cost insurance is driving more employers toward ASO plans, where the employer bears financial liability for employee claims up to a stop-loss point, with the managed care organization playing an administrative role (Vourman et al., 2013). The growing popularity of ASO plans offers a promising growth opportunity for Cigna.

Increasing demand for employer-sponsored insurance: Rising healthcare costs and changing demographics are driving employers and employees to search for products that are both flexible and cost-effective. Cigna is well-positioned to offer integrated, innovative solutions that can serve the needs of these stakeholders by customizing its wide product base (Vourman et al., 2013).

Emerging competitors: Cigna faces intense competition from large insurance companies, third-party administrators, PPOs, and HMOs (Vourman et al., 2013). A new group of competitors focused on delivering services through internet-based technologies is also emerging, posing a threat to future profitability.

PEST Analysis and Competitive Readiness Factors

Rising medical costs: The cost of healthcare is growing significantly, as are reimbursement rates to physicians and hospitals. Hospital mergers are becoming more common, implying higher buyer bargaining power, higher reimbursement rates, and reduced future profitability for insurers.

Affordable Care Act provisions: One ACA provision changes commercial health plans' medical loss ratios to 80 percent, requiring companies to return portions of premiums to customers if those funds are not spent on healthcare. Such provisions threaten the company's performance and profitability.

Negative public perception: Private insurance companies have faced criticism in recent years for taking advantage of already-strained insured citizens (Vourman et al., 2013). These negative perceptions place companies such as Cigna under the scrutiny of government agencies and force them to incur additional compliance costs, reducing profitability.

How well a company thrives in a competitive environment depends on how effectively it maximizes its strengths while mitigating weaknesses. From the SWOT analysis, two internal strengths stand out: first, the expansive network gives Cigna a cost advantage that smaller competitors cannot easily match, enabling the company to offer lower premium prices attractive to aging and uninsured populations; second, its comprehensive offerings make it a one-stop shop for insurance plans, positioning it well to meet the diverse needs of employers and employees.

On the weakness side, high indebtedness limits the company's borrowing ability and its capacity to take advantage of opportunities such as the large uninsured population and the growing popularity of ASO plans. There is a need for the company to improve its debt-to-equity ratio. Additionally, low Medicare exposure limits the company's ability to capitalize on the growing aging population; expanding Medicare coverage through further acquisitions of Medicare Advantage organizations would help diversify revenue streams.

Despite the identified weaknesses, Cigna is ready to compete in the industry environment. The company could leverage its vast network and scale economies to offer premiums at lower prices than smaller competitors can sustain, making it better positioned to appeal to low-income uninsured persons and the growing aging population. Cigna is well-known for its wide product offering, which translates to a heightened ability to customize plans to meet diverse customer needs. With its expansive network of hospitals and other healthcare organizations, the company has great potential to offer coverage for alternative medicine — such as dietary supplements, homeopathy, and naturopathy — to maximize health outcomes, particularly for the aging population.

PEST analysis is an important tool for evaluating the various macro-environmental factors that have an impact on an enterprise's operations. PEST is an acronym for Political, Economic, Social, and Technological factors. According to Partridge and Sinclair-Hunt (2005), PEST analysis enables companies to come to terms with the various "forces in the macro-environment that are affecting the business now and are likely to continue doing so in the future" (p. 77). The following section highlights the key PEST factors affecting Cigna Corporation's readiness to compete.

Policies and regulations: Cigna, like any other business enterprise, is bound by rules and regulations that govern its operations. Governments may formulate standards that impact essential health benefits and cost-sharing arrangements. Because Cigna operates in various jurisdictions, it must also ensure adherence to the laws of each host nation, some of which could affect the nature and conduct of its business operations.

Political stability: For companies that operate internationally, political stability is critically important. Instability — such as an aggressive government takeover or electoral fraud — could trigger violence and general unrest that disrupts business operations, particularly with respect to premium collection and policyholders' ability to make payments.

Taxation: Taxation directly affects the returns a business generates. An increase in taxation has the same practical effect as an increase in the cost of doing business. An unfavorable taxation regime would affect Cigna's bottom line and, in the worst case, could force the company to scale down operations or exit a market entirely.

Foreign policy: Because Cigna operates in multiple locations around the world, U.S. trade policy could affect its ability to operate across international borders. For instance, severe trade disputes or deteriorating diplomatic relations between the U.S. and a host country could lead that country to restrict the operations of U.S. corporations, including Cigna. Bilateral agreements establishing common markets or free trade areas typically facilitate cross-border business operations.

Unemployment rate: A high unemployment rate directly affects people's ability to pay insurance premiums, as most households lack the income needed to meet their needs. U.S. unemployment data at the time of writing indicated a rate of 7.9% in September — a slight decline from 8.4% the previous month (Saphir, 2020). With the U.S. being Cigna's largest market, this is a factor of significant relevance.

Business cycle stage: In the words of Samuelson (2010), the business cycle refers to "economy-wide fluctuations in production, trade, and general economic activity" (p. 79). During an expansion, Cigna would most likely perform well due to increased employment and GDP growth. During a contraction, however, Cigna's operations could be negatively impacted by declining employment and slowing economic activity.

Financial market efficiency: Insurance companies invest a significant portion of their holdings in financial markets — particularly stocks and bonds — creating a large float from collected premiums that is invested to generate additional income. Inefficiencies in financial markets would directly impact their investment income and bottom line.

Type of economic system: According to Samuelson (2010), economic systems include traditional, command, mixed, and market economies. Cigna's operations could be affected by the type of economic system in place in a given jurisdiction. For instance, in a command economy, the company's operations would likely be subject to stricter government control than in a market economy.

Demographics (age): According to Cantiello, Fottler, Oetjen, and Zhang (2015), age is one of the major factors influencing health insurance uptake. Young persons aged 18–24 are the least likely age group to embrace health insurance. As the authors note, "socioeconomic status, minority status, perceived health, perceived need, and perceived value are significant predictors of private health insurance coverage" (p. 77).

Prevailing attitudes: Attitudes — the predispositions people have toward a situation, person, or idea — shape decisions about purchasing health insurance. Predominantly negative attitudes toward health insurance would limit uptake and impact Cigna's market penetration.

Culture: Culture, defined as the social behaviors, customs, and ideals of persons within a given social setting, affects insurance uptake. Religion is part of culture. According to Eck (2011), there appears to be "a strong correlation between religious beliefs and risk preferences" (p. 42), and higher risk preferences correlate with lower insurance uptake.

Education levels: Higher education is associated with higher income and greater awareness of health insurance's value. Persons with higher education levels are more likely to understand the relevance of health insurance and the various policies available. Because Cigna operates in diverse jurisdictions with varying education levels, this is an important macro-environmental factor.