(This story is from our new Health Tech newsletter. If you’d like to sign up, just click here.)
High medical costs ate away at the profits of big Medicare Advantage insurers CVS Health and Humana in the first quarter of 2024, but upstart insurer Alignment Health came away largely intact.
California-based Alignment, which primarily serves seniors enrolled in the private alternative to the traditional Medicare program, said its membership soared by more than 50% in the first three months of the year over the same time in 2023. Despite the influx of new members, Alignment managed to keep its members’ medical spending in check. Alignment’s shares jumped 26% on Friday after it reported its results Thursday evening.
Alignment CEO John Kao told Endpoints News that it all comes down to the insurer’s technology and its homegrown care delivery program that focuses on the sickest, costliest seniors. Early in the year, Alignment funneled its 55,000 new members through its platform that uses claims and other health and social data to identify high-risk, high-cost individuals, he said. Alignment’s care team got to work caring for the sickest members in their homes and virtually.
It helped Alignment cut the percentage of members who were admitted to the hospital in the first quarter over the same time last year. The insurer spent about 91% of its premiums on medical care, only slightly higher than the 90% it spent at the same time last year.
“We have an advantage over others, because others have not invested in the care delivery model around these really chronic individuals,” Kao said.
Winning in Medicare Advantage is getting harder
Rising medical costs are just one challenge most Medicare Advantage insurers are contending with. The federal government also made a slew of changes to the program that threaten to cut into plans’ revenue.
In March, CMS finalized Medicare Advantage payment rates for 2025 that insurers complain don’t cover their costs. The agency is also phasing in changes to the program’s risk adjustment model that will make it harder for insurers to exaggerate their members’ illnesses to fetch higher payments. At the same time, the government has made it harder for insurers to score high star ratings, a quality measure that directly impacts revenue.
Some insurers say they plan to raise premiums or reduce benefits to cope. Kao said Alignment is made for this iteration of Medicare Advantage.
“If you are now the low-cost provider with the highest quality and the best value for each beneficiary, you should be in a position to grow and win, which is what started happening with us in 2024,” he said.
Alignment, which went public in 2021, still hasn’t turned a profit. It reported a net loss of $46.6 million in the quarter. Kao said he believes the insurer can expand its margins in 2025 while still growing. That’s notable, because other young insurers have had to pump the brakes on growth to pursue a profit.
Some critics have also pointed out that because most of Alignment’s membership resides in California, it’s not clear whether the insurer can be successful in other areas. Kao said that while it’s a fair criticism, growing in its home state has allowed Alignment to strengthen its infrastructure and systems to get ready for big expansions.
“I want to be able to fund that from our own cash,” he said. “I don’t want to do that until we get to be EBITDA positive.”