After years of preparation and hundreds of millions of dollars in investments, a quartet of health insurance startups entered the public markets in 2021—and so far just one is trading above the price of its initial public offering.
Of the insurtechs that went public this year, only Alignment Healthcare's stock has exceeded its IPO price, despite the company being the smallest of the young insurers in the field. Share prices of Oscar Health have dipped 44% since its IPO in March and Clover Health's stock has fallen about 41% since it went public via special-purpose acquisition company (or SPAC) at the start of the year. Bright Health Group also fell short in its public offering in late June, although its shares have held steady since.
"Clearly their performances differentiated. What's the difference? I think the difference is that Alignment is being run by people who know how to run health plans," said Ari Gottlieb, a principal at A2 Strategy Group. "They understand local markets, they're picking the right markets and they're going in with a value proposition that's resonating with consumers. They're also being targeted in their [operating] investment, which Clover and Oscar are not."
Alignment Healthcare raised $391 million on a valuation of about $3.3 billion, and its share price rose 26% since its public debut in March. Compared to Oscar and Clover, Alignment is known for its quieter, more heads-down approach to business. The startup is also known for counting former CMS administrators Dr. Mark McClellan, who served in George W. Bush's administration, and Andy Slavitt, who worked in Barack Obama's administration, as board members.
Although the company is not yet profitable, CEO John Kao said Alignment's use of technology and provider partnerships to manage its 83,100 Medicare Advantage enrollees' health offers a sustainable growth model that differentiates itself from other health insurers, new and old.
"In the next year or so, I think the wheat will separate from the chaff and the rebuilt performers will continue to perform well, and I think the market will reward that," Kao said. "The people that went out glitzy are going to get hammered. It's just the way it goes."
Kao founded Alignment Healthcare in 2013 after watching his brother, who has a disability, struggle to navigate the healthcare system. That early life experiences led Kao to pursue a career in healthcare, and he eventually went on to work at the CareMore Medical Enterprises integrated delivery system, PacifiCare Health Systems, the software company TriZetta Group and more. Kao knew from these experiences that the healthcare system is disjointed.
But after witnessing the lack of care management after his mother had a heart attack, that reality hit home, leading to the creation of Alignment Healthcare, which aims to align payer and provider to serve senior members' needs, he said.
"I would prefer that we not be classified in that insurtech categorization. I would rather put us in a classification of a 'payvidor,'" Kao said. "While we believe technology is important, we don't think technology by itself will solve the problems. I think it's an important enabler combined with the right clinicians working in the right model."
The company's predictive analytics system, named AVA, crunches data on members' lab use, prescriptions, social determinants of health and other information to categorize them as "healthy," "healthy utilizer," "pre-chronic" or "chronic." The startup then partners with a provider network that serves its higher-risk or chronically ill enrollees. These clinicians conduct in-person home or virtual visits through the company's Care Anywhere program at least once a week, Kao said.
Alignment's Care Anywhere program has more than 4,000 members who, despite representing just 20% of its membership, account for 80% of the company's medical expenses, Kao said. By identifying which members may need closer attention, Alignment is able to better manage their care, resulting in better patient outcomes and lower costs, he said.
The company shares savings with network providers through value-based contracts. Savings generated by Alignment-owned clinics are invested into benefit structures designed for specific racial, ethnic or socioeconomic groups. That practice has helped the company achieve an Net Promoter Score score of 66 based on market research of patients' opinions, which is far above traditional insurers' member satisfaction rates.
Alignment Healthcare personalizes these plans by adding benefits that target social determinants of health, like a pre-paid debit card some HMO enrollees can use to buy health and grocery products or to install a home security system. In California, the company created a benefit package called Harmony for Asian-American policyholders. Beginning with that population was natural, Kao said, because he was born in Taiwan and has a personal interest in the wellbeing of Asian-Americans.
"We're moving toward personalized care, more curated products that are designed to meet each individual's needs," he said. "Whereas, I think everybody else still is: 'Here's the five products and you just generally fit into.' They have a red, yellow, green product, or literally gold, silver, platinum. But that's not tailored enough to our members."
Alignment's strategy to develop population-based health plans reflects a growing trend across the health insurance industry.
Main Street Health aims to use technology to build integrated care systems for rural residents. Similar to Alignment Healthcare, insurtech startup Clever Care raised $26 million in funding to create a health plan for Asian-American Medicare Advantage members in California. There's plenty of room for growth, Kao said.
"We've competed with United, Humana and Anthem," Kao said. "They are really tough competitors and we're still growing at 30% a year."
Going forward, Kao said the insurtech plans to unveil more health plans targeted at groups, like Hispanic and Black enrollees. The company is also looking for provider partners outside its primary market of California to create co-branded products. Under this arrangement, clinicians share the financial risk and manage members using Alignment's technology platform. The company's partnership with Sutter Health helped it nab 12,000 members, for example, Kao said.
Alignment Healthcare is also participating in CMS' Direct Contracting payment model, where it manages the health of traditional Medicare enrollees and keeps any money it saves the government.