Venture capitalists have opened up the funding spigot into a budding health insurance startup that only enrolls seniors—reflecting a bet that new-age insurers will disrupt the Medicare program.
Clover Health, a company that sells Medicare Advantage products and uses data analytics to care for its members, raised $160 million from several investors. Greenoaks Capital, an investment firm based in San Francisco, led the funding round. Other participants included existing investors First Round Capital and Sequoia Capital, as well as a handful of new investors such as AME Cloud Ventures and Spark Capital.
Clover, launched four years ago in conjuction with a for-profit hospital company in New Jersey, has now raised $285 million. Venture capital firms have poured billions of dollars into health insurance companies and insurer-tech startups with the hope they can control costs better than other insurers, although they still have a lot to prove.
Clover declined to provide its valuation, but based on similar funding rounds from other health insurance startups such as Oscar Insurance Corp., Clover could be worth more than $1 billion. The health plan only operates in New Jersey right now, but the new funding round will allow it to expand to more states and scale its technology.
“This new capital provides us with the flexibility to bring our plans into new markets, as well as continue to build out our technology and data science capabilities and build an unmatchable member experience,” Clover Health CEO Vivek Garipalli said in a statement.
Garipalli previously told Modern Healthcare he hoped to expand to places such as Pennsylvania or Texas. Medicare Advantage, the private HMO version of traditional Medicare, enrolls more than 18 million seniors and disabled people, and it paid out more than $170 billion in taxpayer-funded, capitated revenue to health plans in 2015. UnitedHealth Group and Humana are the two largest private Medicare insurers, each covering more than 3 million people.
As of May 1, Clover had more than 16,700 Medicare Advantage members, a relatively small amount compared with larger peers. It sells a plan with no premium beyond regular Medicare premiums, and it also requires no copayments for primary-care visits and offers free generic drugs.
What makes Clover stand out, however, is the fact it does not charge members anything extra for going to out-of-network hospitals or doctors, and it routinely combs patient data to predict and manage members' illnesses and conditions before they get worse and costly. Nurse practitioners visit members' homes when needed. Clover executives believe those strategies, driven by technology, give them an edge over the larger legacy insurers.
“The really large companies, like an Aetna or a United, they're really insurance companies at their core,” Garipalli previously said. “They spend a lot of money on technology, but we all know there's a big difference between spending a lot of money on technology and being a technology company.”
But Garipalli added Clover is also different than startups like Oscar because his company has no intention of jumping into the Affordable Care Act exchanges or the employer business.
“I think (Oscar) is a great product for people with good incomes who don't use the system a lot,” Garipalli said. But because his company's population is 65 and older they are “using their insurance almost daily,” which gives Medicare insurers more opportunities to save and earn money.
“The utilization within the Medicare system is much higher than the commercial space,” he said. “By managing outcomes, you can actually drive a return on investment when you improve care.”