On August 14, 2018, Oscar Health announced that Google-parent Alphabet will invest $375 million into its expansion into the Medicare Advantage Health Plan Market. Unlike its larger and more established health insurance counterparts, Oscar Health, a New York startup, was created to capitalize on the expansion of individual insurance coverage under the Affordable Care Act (“ACA”). Oscar Health uses technological interfaces, data, and telemedicine to help improve the patient experience. Despite constant political attacks on the ACA, Oscar Health is gradually moving into more state markets as larger players are leaving the individual health insurance market. In 2018, Oscar Health filed insurance applications in six new state insurance markets.
In an interesting development, Oscar Health is now set to move into Medicare Advantage Plan (“MA Plans”) offerings in 2020.
Why Medicare Advantage
Medicare Advantage plans are offered by private insurance companies subject to certain standards established by the Centers for Medicare & Medicaid Services (“CMS”). While the Medicare Advantage health plans are responsible for meeting specified levels of benefits and service standards and receive premium funding from the government, they have a high degree of autonomy on how they administer the plans to cover enrolled Medicare beneficiaries. Medicare Advantage funding is risk adjusted for the health status of the enrollee and as a result, effective MA Plans are highly dependent upon real time data sharing. Medicare Advantage continues to grow with 33% of Medicare eligible beneficiaries currently enrolled in MA Plans. Significant opportunities exist for startup insurance companies, especially those like Oscar Health, which already possess sophisticated data analytics and coordinated care systems. Notably, on August 27, 2018, Clover Health announced that it is also launching Medicare Advantage plans in six new markets scheduled for 2019. Clover Health is a San Francisco based startup that uses data analytics and artificial intelligence to deliver health care. Currently, Clover Health provides services for 30,000 seniors and others eligible for Medicare in parts of Georgia, New Jersey, Pennsylvania and Texas.
Disfavored no more
Recent developments show that Medicare Advantage has more bipartisan support than the ACA Marketplace and is less susceptible to political intrigues. However, this was not always the case. Not too long ago, Medicare Advantage was considered a “privatization of Medicare” and insurance companies were accused of making a profit off of the Medicare Program. In February 2013, federal officials announced a 2.2% cut to Medicare Advantage reimbursement. The political attacks on Medicare Advantage were not well received by the Medicare Advantage enrolled seniors who vocally began to defend their beleaguered program. The patients began a campaign of communication to members of Congress, touting the benefits of engaged Medicare Advantage healthcare providers and health related initiatives such as fitness and nutrition counseling. This caught the skeptics between a rock and a hard place. Some Congressional Democrats have noted that they support killing the program but cannot because senior constituents love it. After significant grassroots lobbying, coalition building, and industry efforts, the proposed 2.2% reduction was transformed into a minor increase by April 2013. This turn-around was primarily due to patient and provider advocacy with thousands of seniors participating in letter writing campaigns to protect their Medicare Advantage Program. Medicare Advantage went from a political pariah to a bipartisan tolerated program within a few years.
Medicare Advantage is here to stay
Fast forward to 2018, Medicare Advantage is marketed as a plan that will provide more choices and lower premiums. The Trump Administration is providing greater flexibility to companies offering benefits in Medicare Advantage plans. Medicare Advantage is expanding beyond the retiree states of Florida, Arizona, and California with significant inroads in all fifty states. The growth has caught the eye of innovative healthcare investors and market consolidation has produced larger plans with stronger infrastructure. Alphabet’s investment in Medicare Advantage indicates that Alphabet believes that there is market in Medicare Advantage plans and that Oscar Health’s technology platform and data sophistication is perceived a competitive advantage. Only time will tell how successful Oscar Health and Clover Health will be in the Medicare Advantage marketplace. However, this investment is one indicator that despite the rhetoric around health care in America, Medicare Advantage is here to stay.