Just a few years ago, a venture-backed health insurance startup set out to plant its flag in the crowded but lucrative health insurance business for seniors.
Although this battleground is currently dominated by failures, several young insurance companies have succeeded in increasing membership in this business known as Medicare Advantage.
Despite the numerous challenges facing the Medicare Advantage market, Devoted Health and Alignment Healthcare increased membership by more than half in February 2024 compared to a year ago, according to Business Insider’s analysis of the latest federal data. I was allowed to.
Still, Stevens’ analysis found that these insurers have yet to capture 1% of the total Medicare Advantage market, allowing them to grow and compete with long-dominated stalwarts like UnitedHealthcare and Humana. It highlights how difficult it is.
Some startups were reluctant to take on the challenge. Bright Health, which completely exited the insurance business this year, sold its Medicare Advantage plans in December. Oscar Health abandoned its senior business after years of failing to attract more than a few thousand customers. Meanwhile, Clover Health’s membership declined slightly as it aims to break even.
Challenging Medicare Advantage Market
Medicare Advantage is a private alternative to the traditional Medicare program that provides health insurance to people age 65 and older and people with disabilities.
This market is one of the fastest growing segments of the health insurance industry, with membership numbers more than doubling over the past decade. Incumbent insurance companies are investing heavily in Medicare Advantage, and venture capital firms are pouring billions into startups looking to get a piece of it. $400 billion The federal government spends money on this program every year.
But there are signs that the Medicare Advantage business is no longer the gold mine it once was.
Many insurance companies will find it difficult to make a profit as older adults receive more medical care than expected, increased competition, and the federal government gradually changes how insurers are paid. It has become. These changes are expected to lower the amount insurers pay out and are a response to the widespread practice among health plans of exaggerating policyholders’ illnesses to increase claims. Ta.
Some, including TD Cowen analyst Gary Taylor, It’s also questionable whether Medicare Advantage enrollment is nearing its peak, but membership is still growing for now. Approximately 33.7 million people enrolled in Medicare Advantage plans in 2023, an increase of approximately 7% from the previous year.
Emerging insurance companies struggle to gain market share
Mounting challenges haven’t slowed Devoted and Alignment’s growth. Devoted, a private insurance company backed by more than $2 billion in venture capital, had 203,000 members as of February 1, 2024, according to a Business Insider analysis of enrollment data from the Centers for Medicare and Medicaid. , an increase of 63% compared to February 2023. service.
Alignment, which went public in 2021, had approximately 156,000 members. The company said this was an increase of 44%. (Alignment said it provided revised numbers because federal data underestimated membership numbers in 2023.)
Stevens analyst Scott Fidel said younger insurers attract members by offering better benefits than other insurers. They were able to offer these additional benefits because they earned a high federal quality score and received a bonus from the federal government. Bonuses can fund benefits such as reduced co-pays, dental and vision insurance, and even transportation for members.
But it’s difficult to grow quickly without incurring high costs that make it difficult to turn a profit.Bright’s stunning failure — the result of rapid growth, rising costs, and technology problems — is a typical example. And while Alignment has said it expects to break even on an adjusted basis this year, it’s unclear whether it will be able to keep up with so many new members.
Clover also went public in 2021 and has been aggressively expanding its business for years with generous benefits, but it will hit the brakes before deducting interest and taxes and will finally become profitable in 2024. I expect it to be in 2018. Fidell said Clover has reduced the number of counties it sells its plans to this year and increased prescription drug cost sharing this year. Clover’s membership was about 79,000 in February, down 6% from a year ago.
After all, these young insurance companies that wanted to disrupt this boring industry were still small, and the disruption they did was limited. They are facing many things. Fidel said that to grow significantly in the insurance business, a huge amount of capital is needed.
Furthermore, a strategy that works in one market may not work in another. Most of Alignment’s growth is in California, while Clover’s membership is concentrated in New Jersey. Neither has been able to gain strong influence in other states across the country.
The biggest insurance companies remain untouchable. UnitedHealthcare, the nation’s top Medicare Advantage insurance company with more than a quarter of the national market share, has registered 9.5 million members, an increase of about 7% as of February. His Humana, the second largest, had 6.1 million members, an increase of about 9% year-over-year.
CVS Health, owner of insurance company Aetna, was the closest to the threat experienced by these large companies. CVS grew the fastest of any insurance company last year, adding about 700,000 members, an increase of 21%. Medicare Advantage has a total of approximately 4 million members.
