Health-insurance startups are gaining a bigger foothold in the lucrative Medicare Advantage market. They're still no match for established insurers.

  • Medicare Advantage enrollment is booming, and insurers are clamoring for a piece of the market.
  • An Insider analysis of federal data shows that health-insurer startups grew membership in 2021 over last year.
  • Even so, the private health-plan market for seniors continues to be dominated by three established insurers.
  • Visit Business Insider's homepage for more stories.

An explosion of enrollment in the lucrative, private health-plan market for seniors has attracted fierce competition among health insurers, and a handful of venture-backed startups are clamoring to make their mark.

That's easier said than done in a market dominated by massive, established insurers.

An Insider analysis of the latest federal data shows the startups, including Alignment Healthcare, Bright Health, Clover Health, Devoted Health, and Oscar Health, each grew their Medicare Advantage membership in 2021 over 2020.

Most of them grew by double and even triple digits on a percentage basis, and they managed to do so in the middle of a global pandemic.

Investors have poured billions into these startups to help them grow, betting they can take better care of patients with the use of technology. Clover went public in December, and Oscar has confidentially filed with the SEC for an IPO.

Still, the market for privatized Medicare plans continues to be ruled by UnitedHealthcare, Humana, and CVS Health, which owns insurer Aetna.

Those big insurers cover about 14.6 million people in Medicare Advantage combined — more than half of all people enrolled in the market, according to Insider's analysis of data from the Centers for Medicare and Medicaid Services.

The startups together cover roughly 240,000 members, or less than 1% of people in the private plans.

Their experience shows just how difficult it is for nascent companies to break into the crowded Medicare Advantage arena. None of them have cracked the 100,000-member mark.

The federal data Insider used reflects 2021 health-plan signups through December 4, 2020, so it doesn't capture the entire annual enrollment period for Medicare Advantage plans that runs from November 15 through December 7. We also excluded Medicare prescription drug plans from this analysis.

In some cases, insurers provided updated enrollment figures, which Insider included in this story.

Read more: Oscar Health has confidentially filed to go public. Here's a look at how the health insurer and rivals Clover and Bright have fared so far this year.

 

Medicare Advantage enrollment has soared over the last decade

Medicare Advantage is a private alternative to the traditional government-run Medicare program that provides health coverage to seniors over 65, as well as younger people with disabilities or certain health conditions.

Enrollment in private Medicare plans has ballooned over the last decade.

In 2021, more than 40% of people with Medicare are in Medicare Advantage plans that are paid fixed fees by the government to manage members' care. That's up from about 25% of all eligible people a decade ago.

Medicare Advantage enrollment was 26.6 million in January, an increase of roughly 9%, or nearly 2.3 million members, over the same time in 2020, according to federal data. Ten years ago, just 11.9 million people were enrolled in Advantage plans, according to the Kaiser Family Foundation.

The Medicare Advantage market has grown rapidly in part because more and more people are turning 65 every day and becoming eligible for the program. The plans also offer extra benefits, like dental coverage, telehealth and fitness programs, which are not available in traditional Medicare.

A downside is that Advantage members are limited to seeing doctors in their health plan's network, but that's a tradeoff people are increasingly willing to accept.

Industry experts say the boom in Medicare Advantage enrollment is unlikely to subside, even under a new federal administration. The Trump administration expanded Medicare Advantage by allowing new benefits, like telehealth and home-delivered meals. 

Tom Kornfield, a senior consultant at Avalere who was formerly vice president of Medicare policy at insurer trade group America's Health Insurance Plans, said Medicare Advantage has broad bipartisan support and he noted that the market grew under the Obama administration.

Read more: Venture-backed health insurers are all competing for customers in the red-hot Medicare Advantage market. Here's our first look at how Oscar, Devoted, and Bright stack up.

Of the upstarts, Alignment and Clover boast the most Advantage members

Alignment and Clover reported the most Medicare Advantage members among the five young companies Insider analyzed.

Alignment anticipates having close to 80,000 members in January once federal data is updated, CEO John Kao told Insider. But based on that data, Alignment's membership is up 30% compared with a year ago.

Kao said Alignment's expansion into eight new counties in 2020, five new counties this year, and its investment into its plans helped to drive the increase in its membership.

Nashville-based Clover, which just went public in a special-purpose acquisition company deal worth $3.7 billion, grew Advantage membership almost 23% to 64,461, according to CMS data.

Clover President Andrew Toy attributed the growth to the company's software, Clover Assistant, which he said allows it to offer affordable plans and a broad network of doctors. The technology arms primary care doctors with information about a patient's diagnoses and health history so doctors can make more informed decisions about treatment.

Clover's membership tracks with the expectations it laid out in an investor presentation last year.

The company plans to take part in Medicare's direct-contracting program, which is an experiment meant to lower Medicare costs. That could give it new members in the traditional Medicare program in addition to Medicare Advantage.

Read more: Clover Health laid out ambitious growth plans as part of its $3.7 billion deal, but they rely on an untested new Medicare experiment

Devoted and Bright grew fast thanks to deals and expansions

Minneapolis insurer Bright Health experienced the biggest increase in Advantage enrollment, owing to its acquisition of California health plan Brand New Day in 2020.

Bright's Advantage membership totaled 63,173 for January 2021, up from 5,332 at the same time a year ago. Nearly 57,000 of those members came from the Brand New Day deal.

A company spokeswoman said the growth was in line with expectations, and that Bright expects to see more people sign up throughout the first quarter and over the rest of the year.

Devoted Health, which sells private Medicare plans in four states, said its enrollment as of January 1 was 33,800, which is slightly higher than what the federal data shows. That's more than double the members it had a year ago.

Devoted sold plans in Florida and Texas in 2020, and expanded into two new states, including Arizona and Ohio, for 2021.

Meanwhile, Oscar's membership in private plans for seniors was 3,221.

That's more than double the people the New York insurer served last year, which was its first year in the market. A spokeswoman said the federal data doesn't provide the full picture of Oscar's sales cycle for the year, but she did not provide updated figures.

Breaking into the competitive Medicare Advantage market is tough

It's not easy for a startup to break into the Medicare Advantage market, which continues to be dominated by just a handful of big insurers.

Brad Piper, a principal and consulting actuary at Milliman, said startups face a few major challenges, the biggest being lack of name and brand recognition.

"If they are a brand new organization, nobody knows their name, and nobody's ever heard of them before, they just have an uphill battle especially compared to some of the larger chains that are almost household names," Piper said.

Other challenges include providing competitive benefits for seniors and building a robust network of doctors, he said.

Piper studied 28 Medicare Advantage startups over a five-year period and found that by the fifth year, about half of the companies still operating had enrolled at least 4,000 people and a quarter of them enrolled at least 10,000 people.

Meanwhile, the biggest insurers are in a league of their own. UnitedHealthcare's membership in the plans topped 7 million, an increase of 13.4% over a year ago.

Humana grew Advantage enrollment 8% to 4.7 million, while CVS enrollment jumped 8.5% to more than 2.7 million.

Kaiser Foundation Health Plan and Anthem had the fourth and fifth highest enrollment, respectively. 

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