How startup insurers captured Medicare Advantage marketshare

Startup health insurers grew their Medicare Advantage membership during the annual enrollment period, with some capturing market share from larger competitors like UnitedHealth Group, Humana and Cigna.

Among the larger insurtechs, Devoted Health increased its membership the most, nearly doubling its beneficiary base to 63,046 from the start of December to beginning of January, according to federal data. The majority of the company's growth and members came from Florida and Texas, states where more than 80% of Devoted's members reside. Devoted is the last of the large insurtechs to remain private and, after raising a Series D round late last year, represents the most valuable of the health insurer upstarts with a valuation of $12.7 billion.

Devoted's valuation is realistic and will likely grow in the coming years as the company remains private, said Dr. Bob Kocher, former chief medical officer of the startup who now serves as a board member. He credited the company's enrollment growth to word of mouth by providers, including those that work at clinics VillageMD and ChenMed.

He said the members represented a mix of individuals who just aged into Medicare, and those switching from other plans, although he was unsure which plans they were coming from.

"We try hard to have our benefits be very stable year-over-year," Kocher said. "So we don't tweak our benefits in ways that we think will drive short-term enrollment because we want our members to stay in the plan for a long time. We didn't make changes to benefits or underprice."

The startup did not see prevalent underpricing of products in the market — an issue that Alignment Healthcare, Humana and Cigna all said attributed to their more modest growth.

While Alignment grew membership 4.3% month-over-month to 89,719 members, the company missed its year-over-year expectation of 20% growth. Most of the company's new members came from private, fragmented managed care plans, and "taking share from other subscale competitors is less of a validation that its model is truly differentiated to outcompete established and scale competitors," according to an analyst report from Bank of America. The report said that 40% of Alignment's membership gains came from large insurers, an increase from 34% in 2021. Of the crop of young health insurer startups that have popped up recently, Alignment has been the only one able to generate a profit, although high COVID costs translated to a net loss of $45.8 million during its last quarter.

Alignment, Bright Health Group and other insurers with a heavy California presence all suffered from competitor SCAN Health Plan's aggressive benefit design during the annual enrollment period, said Ari Gottlieb, a principal at A2 Strategy Group. The not-for-profit player increased its Medicare Advantage membership 16.8% month-over-month to 258,028 enrollees and expanded this year outside California to Arizona and Nevada. "SCAN has been a consistent performer that has been a steady presence in the market," Gottlieb said. "They have new leadership that clearly has broad aspirations and ambitions, and has shown a willingness to get aggressive to actually execute on those."

Clover Health, likewise, grew its membership 18% during the period to 80,238 members. More than 90% of Clover's new members came from enrollees switching from UnitedHealth Group, Humana and CVS, according to the Bank of America report. The Medicare Advantage-focused insurer's enrollment growth is "somewhat validating its benefit design (although it has yet to do this profitably)," the report said. The majority of the company's enrollees are now concentrated in Georgia and New Jersey, both states with high rates of COVID-19 that translated into larger-than-expected medical costs, said President Andrew Toy.

"For us, it just comes down to, 'how much capital do we need to push through potential waves of COVID?'" Toy said. "Until it either becomes endemic, and then the government will adjust the program, or, hopefully knock on wood, that the vaccines get us into a good place after this wave."

The company has focused on a wide-network strategy, and argues that its AI-powered technology platform ensures quality patient care at any provider it visits. The company pays physicians an average of $200 per visit to use its tech, and more than 60,000 providers are part of its network.

He said one reason insurers may have struggled to capture new members this year is because the price of listing on online brokerage sites like eHealth has increased.

"The price for leads and growth in that sector has increased quite a lot," Toy said. "For any plan that's been heavily reliant on those channels, I think that resulted in that challenging year this year."

But the company's growth is likely due to aggressive benefits designs, Gottlieb said. He noted that small insurers such as Clever Care were also able to achieve exceptional growth during the annual enrollment period, but wondered about the sustainability of their business. During the first three quarters of 2021, Clever Care, a Medicare Advantage plan intended specifically for Asian-Americans, lost $12 million on less than 2,000 members, according to filings from the California Department of Managed Health Care. Gottlieb wondered if Clever Care and other plans would suffer the fate of Bright Health Group earlier this year–when Cigna swooped in to bail out the cash poor startup with $550 million. At the time, analysts said Cigna's investment in Bright signaled that the legacy insurer did not view the startup as a competitor.

"Health insurance is a vast consumer of capital, and you need to be able to support that," Gottlieb said. "If the capital markets are effectively closed for you, what do you do and how do you scale back thinking about the future? More rational behavior may, in some ways, benefit the larger players, which have the capital and time to wait it out."

CLARIFICATION AND CORRECTIONS: This story has been updated to clarify a comment that Devoted Health's growth is driven by providers' word of mouth. It has also corrects an inaccuracy introduced by a source regarding Devoted Health's partnerships.