Insurtechs Are Pulling Back

MHE Publication, MHE January 2023, Volume 33, Issue 1

After some go-go years, Bright Health, Oscar and Clover Health are leaving some markets.

The bloom seems to be off the rose for several publicly traded insurtechs, which are pruning their market presence as they aim for profitability.

Late last year, Bright Health Group announced it would no longer offer Affordable Care Act (ACA)plans and slashed its Medicare Advantage (MA) business, so it will focus solely on California in 2023. Meanwhile, Oscar Health is giving up on the MA market, and Clover Health is scaling back its participation in a Medicaid program.

Although every company’s situation is different, these companies that view themselves as hybrids of insurance and technology companies — thus the “insurtechs” coinage — entered a “cutthroat, competitive marketplace without a clear sense of the type of strategy the current market leaders were using,” says Tom Cassels, M.P.P., president and CEO of Rock Health Advisory, a digital health strategy group.

The newcomers entered the ACA or MA markets believing “people would opt for the low-price option,” Cassels says. “The problem with underwriting with a new health plan is your losses mount with your wins.”

Although all three had competitive prices and a technology focus, all “shifted fairly quickly” to pursue other areas of business, notes Peter Manoogian, principal at ZS, a management consulting and technology firm. “There were a lot of distractions and diversions for these companies.”

Not so bright

Perhaps the most dramatic pullback comes from Bright Health, which was founded in 2015 by a group that included Bob Sheehy, a former CEO of health insurance giant UnitedHealthcare. Bright focused on the ACA and MA markets. The company, which is headquartered in suburban Minneapolis, went public in 2021 and brought in $924 million in its initial public offering.

In its 2021 earnings, Bright Health reported a loss of almost $1.2 billion, while its membership climbed to more than 1 million, compared with more than 200,000 in 2020. In December 2022, it received a a warning from the New York Stock Exchange that its shares could be delisted because they were trading at under a $1.

Bright announced last year that it was dropping out of the ACA market for 2023 and dramatically scaling back its MA presence to only offering Florida and California. Weeks later, Bright announced it was withdrawing from the Florida MA market.

In an October news release, Bright said it would focus on its “fully Aligned Care Model in partnership with aligned external payers and care providers (which) is a faster path to profitability, has greater predictability, and is more capital efficient.” Bright operates NeueHealth, which provides care to more than 500,000 value-based care patients at more than 3,000 clinics. On its website the company says it “align(s) providers, payers, and patients and give(s) them the technology, insights, and processes they need to work together more closely.”

Oscar leaving MA

Meanwhile, Oscar Health has left the MA market after struggling to sign up few policyholders. Instead, the company plans to focus on the ACA market, where it has found success.

The New York-based insurtech opened for business in 2012. Joshua Kushner — the brother of Jared Kushner, former President Donald Trump’s son-in-law — was one of the co-founders. The company went public in 2021, pulling in
$1.2 billion. Last year it recorded a net loss of $573 million, an increase of $166 million over the $407 million losses in 2020, and it served almost 600,000 members, an increase of almost 50% during that time.

In the company’s 2022 third-quarter earnings call, CEO Mario Schlosser said the focus for next year will be on profitability over growth. As part of that push, Oscar is pausing expansion of its +Oscar technology platform, which is designed to help healthcare clients improve growth, efficiency and engagement with members and patients. “We got to solve the question of, how do we sell +Oscar in a more effective and efficient way. And how do we implement +Oscar in a more effective and efficient way with third parties,” Schlosser said.

While withdrawing from the MA market, Schlosser said, “The individualized ACA market looks to us much more like the future of a competitive U.S. health care system than any other health insurance markets.” The company expects to have about 1 million members this year.

Not in clover

Clover Health, which was founded in 2014 and focuses on MA and Medicare markets, went public in 2021 in a $3.7 billion deal with the special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings Corp. III. It is one of six SPACs founded by billionaire Chamath Palihapitiya.

The company, headquartered in Franklin, Tennessee, reported a net loss of $588 million for 2021. In early 2022, CEO Vincent Garipalli made optimistic statements about health equity and Clover “enabling physicians to provide great healthcare to all, especially those in underserved communities.” But in the third quarter of 2022, Clover announced it was slashing its participation in CMS’ Accountable Care Organization Realizing Equity, Access and Community Health (ACO REACH) program by up to two-thirds in a bid to become profitable. As of early December, its stock price was one-fifth of what it was in early 2022.

Senior leaders from other insurers were hired to run these insurtechs. In Manoogian’s view, that leadership choice could lead to “individuals who want to make their mark and drive their own strategy.” That, he adds, could lead to diversifying business models in too short a period. Some larger issues are also affecting the newcomers, Manoogian says: “Because macro markets have become tighter, I think investors may be a little bit less patient.”

Insurtech is a relatively new coinage that may make these companies seem exciting. Cassels is not persuaded; he says he views them as “just unprofitable health plans that happen to have technology. They were not built to be tech companies.” He contends they have given their core business of health insurance short shrift, in order “to enter their side business, which is technology.”

Newcomers to health insurance may not anticipate some of the problems of being relatively small. For example, most health insurance companies outsource part of their claims process, but new plans “don’t have enough volume to get reasonable prices from outsourcers,” says Cassels.

That can lead to shortcomings in claims processing issues. In 2022, Bright Health was fined $1 million by the Colorado Division of Insurance for issues concerning paying provider claims, inaccurate processing consumer payments and failing to communicate with members.

There have also been complaints from providers and members about a lack of provider network adequacy, Manoogian says. Having “a lot of out-of-network encounters hurts Bright.”

But Manoogian says Oscar has a good partnership with Cigna to offer small group plans. “Scale is important to be able to compete against the entrenched.” Manoogian also says the ACA, which is in Oscar’s wheelhouse, “is here to stay,” particularly after Congress extended increased marketplace subsidies, the number of people enrolling in ACA plans has climbed and enrollment is expected to reach new highs for 2023.

Manoogian and Cassels are skeptical that the insurtechs will be acquisition targets any time soon.

“It wouldn’t be unreasonable to think these companies might spend more time trying to turn around their existing books of business to be more profitable and scalable,” says Manoogian.

Cassels sees the future differently: “Our bet is that they are going to need to have a completely different business model than the one they have today.”

Susan Ladika is an independent journalist in Tampa, Florida, who covers healthcare and business.