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Over the past few years, several hot insurance startups have risen to capitalize on the creation of the Affordable Care Act individual exchange market and, more recently, the Medicare Advantage (MA) market.
Business Insider Prime combed through four companies’ earnings for the first half of 2019 — Bright Health, Clover Health, Devoted Health, and Oscar Health — and below we break down some highlights:
- Bright Health’s membership more than doubled since the end of 2018, growing to cover over 62,000 lives by the end of Q2 2019 — the first step in a much larger expansion plan. Minneapolis-based Bright Health — which we pegged as startup to watch in 2019 —raked in over $200 million last December to help it double its geographic footprint: Bright plans to extend its reach from six states to twelve by 2020, with new regions including Florida and Illinois.
- Clover Health’s membership grew 26% to nearly 41,000 since EOY 2018, which could bring more prospective clinical trial participants to help fuel its forays into drug development. Clover’s Head of Therapeutics Cheng Zhang told us the company would start by researching conditions, such as ocular degeneration and Parkinson’s, that are more common with age. And since Clover covers 40,000 seniors, more cost-effective drugs could lead to lower costs of care and a new revenue stream. Drug development is a long and costly process, but if Clover can continue to extend its membership, that could be a plus for its long-term revenue outlooks as its business diversifies.
- Devoted Health’s early membership growth is outpacing projections that helped the buzzy insurtech reach a $1.2 billion valuation before it even started covering patients. Massachusetts-based Devoted covered a total of 3,256 people by the end of Q2 2019, up from the almost 2,500 members it claimed at the end of Q1 2019. Earlier this year, Business Insider Prime revealed internal documents from Devoted, in which the company told investors it planned to have 5,000 members by the end of 2019. If the company can maintain its 30% quarterly membership growth rate, it should surpass those estimates. We think it’s possible for the startup’s aggressive growth projections to pan out, but it’ll want to be equally aggressive at managing claims costs, which proved to be a drag on revenue last quarter: Devoted spent over $21 million on care despite only bringing in $18.6 million in premium revenue.
- Oscar Health’s membership growth fell drastically from 170% year-over-year (YoY) in 2018 to 8% YoY in Q1 2019, but it’s prepping to shore up those losses by moving into MA. The company lost an additional 10,000 members between Q1 and Q2 of 2019, leaving it with 247,000 total enrollees, but Oscar plans to expand into the MA market this year — looking to offer its plans in New York and Houston to start — which should help boost its numbers. The company recently signed a reinsurance deal with Berkshire Hathaway in preparation for the increased number of people it plans to cover in the near future — a deal Oscar likely hopes will help offset some of the potential pitfalls that come with entering a new market.
The bigger picture: Each insurtech is either currently operating in or planning to enter the MA space, which presents greater risk than the individual market as it predominantly serves seniors — making it more challenging as they face off against big-name payers boasting massive market shares.
The older age of and higher costs associated with MA enrollees could put a damper on insurance startups’ revenue. Many young insurance startups found their stride with tech-savvy millennials: For example, Oscar supplemented narrow coverage networks with more digital tools and lower-cost primary care visits that make sense for young people who stand to save on routine preventative care.
Other insurtechs like Devoted that have only ever sold MA plans may know the demographics better, but the risk remains the same. MA members are age 65 or older, and they tend to have greater clinical and social health risks than their traditional Medicare counterparts.
And while MA is expected to blow upover the next 10 years, these insurtechs face stiff competition from the same insurance giants they’re grappling with in other markets: Aetna, Humana, and UnitedHealthcare collectively snapped up nearly 70% of MA enrollees between 2014 and 2018.
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