Orlando Harmon
The Medicare Advantage market is highly concentrated among a small number of firms, with UnitedHealthcare and Humana accounting for nearly half of all Medicare Advantage enrollees nationwide. However, startup insurers have been making inroads into this market, with Devoted Health, Alignment Healthcare, Clover Health and Bright Health covering a combined 350,000 MA members. Despite their growth, these startups have not captured a significant market share, with the biggest insurers remaining untouchable. This is due to a variety of factors, including the high costs of running a healthcare business, competition, and changes in the way the federal government pays insurers.
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What You'll Learn
Startups struggle to compete with established insurers
Startups in the Medicare Advantage market face significant challenges when competing with established insurers. Despite the market's rapid growth, with membership more than doubling over the last decade, startups have struggled to capture a significant market share. As of 2024, insurers like UnitedHealthcare and Humana, the two biggest insurers, continue to dominate the market, with UnitedHealthcare alone holding over a quarter of the national market share. This dynamic is further exacerbated by the presence of other large insurers like CVS Health, which also compete aggressively for market dominance.
One of the critical challenges for startups is the financial burden associated with the industry. Health insurance requires substantial capital to sustain operations, and established insurers have a distinct advantage in this regard. Their scale and existing customer base provide them with greater financial stability and access to resources. Startups, on the other hand, often struggle to secure sufficient funding and may find themselves at a competitive disadvantage, as evidenced by Bright Health's exit from the insurance business.
Additionally, established insurers have the benefit of brand recognition and customer loyalty. Customers tend to stick with well-known insurers that have a long-standing presence in the market. This loyalty can be challenging for startups to overcome, especially when trying to attract customers away from their existing plans. Established insurers can also leverage their experience and market knowledge to adapt their strategies, ensuring they remain competitive.
The Medicare Advantage market also presents unique challenges due to its complex nature. Factors such as geographic targeting, urbanicity, Medicare payment rate variations, and historical market penetration play a significant role in enrollment trends. Established insurers have a deeper understanding of these dynamics and can more effectively target specific areas or demographics. Startups, without the same level of experience and data, may find it more difficult to navigate these complexities and develop successful growth strategies.
Furthermore, the Medicare Advantage market has become increasingly competitive, with insurers offering special benefits to attract customers. This heightened competition can make it even more challenging for startups to differentiate themselves and gain a foothold. Established insurers can leverage their size and resources to offer attractive benefits packages that may be harder for startups to match without compromising their financial stability.
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Small insurers are achieving growth but may not be sustainable
While small startup insurers have been able to capture Medicare Advantage market share, their growth may not be sustainable. For instance, small insurers like Clever Care achieved exceptional growth during the annual enrollment period, but their sustainability is questionable. During the first three quarters of 2021, Clever Care lost $12 million with less than 2,000 members. This raises concerns about the financial viability of such small insurers.
Similarly, Alignment Healthcare, another startup, grew its membership by 4.3% month-over-month to 89,719 members, yet it missed its year-over-year growth expectation of 20%. Despite their growth, these startups have not captured a significant market share. As of 2024, Alignment Healthcare and Devoted Health, two prominent startups, still had a negligible share of the market dominated by giants like UnitedHealthcare and Humana.
The challenges facing small insurers are significant. Firstly, Medicare Advantage is a highly concentrated market, with six insurers controlling almost 75% of the market. Secondly, established insurers have greater financial resources, making it difficult for startups to compete. Additionally, the federal government's changes to insurer payments may impact smaller companies more severely. Seniors' increasing medical needs and rising competition further complicate profitability.
While small insurers have demonstrated growth, their long-term sustainability is uncertain. The market dynamics and the dominance of a few large players create significant obstacles for startups. To survive, small insurers must develop sustainable strategies, differentiate themselves, and effectively manage their capital to avoid the fate of struggling peers.
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The market is highly concentrated among a few large firms
The Medicare Advantage market is highly concentrated among a few large, established firms. UnitedHealthcare, the country's top Medicare Advantage insurer, controls over a quarter of the national market share. In 2024, the company enrolled 9.5 million members, an increase of about 7% from the previous year. This equates to nearly half (47%) of all Medicare Advantage enrollees nationwide, with UnitedHealthcare and Humana dominating the market.
Humana, the second-largest insurer, had 6.1 million members in 2024, an increase of about 9% year-on-year. CVS Health, which acquired Aetna in 2018, has also made significant gains, doubling its market share from 6% in 2010 to 12% in 2024. This growth has come at the expense of smaller firms, whose market share has decreased over the same period.
The dominance of these large insurers is further emphasised when considering geographic reach. In 29% of US counties, UnitedHealthcare and Humana account for at least 75% of Medicare Advantage enrollment. This concentration is not limited to these two firms, as seven insurers cover nearly 70% of all Medicare Advantage enrollees, leaving new entrants struggling to gain market share.
The market concentration is also reflected in the financial performance of these firms. The federal government pays MA plans over $1,000 per member per month, translating to substantial revenue for large insurers. For example, UnitedHealthcare's 9.5 million members could generate over $11 billion in annual revenue from the federal government alone.
While startup insurers have entered the market, they have struggled to capture significant market share. Despite growth in membership, startups like Alignment Healthcare and Devoted Health have less than 1% of the total Medicare Advantage market. The market's dynamics, with a few large firms dominating, present significant challenges for new entrants trying to compete with established companies.
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Geographic expansion is a strategy used by big insurers
For example, Centene, one of the largest Medicare Advantage insurers, expanded its presence to 327 new counties and three new states in a single year. This geographic expansion strategy contributed to a significant increase in their Medicare Advantage enrollment, with a 12.9% growth rate and 1.2 million additional beneficiaries.
Another example of successful geographic expansion is SCAN Health Plan, a non-profit insurer that expanded outside of California into Arizona and Nevada. This move allowed them to increase their Medicare Advantage membership by 16.8% month-over-month, resulting in a total of 258,028 enrollees.
While geographic expansion is a useful strategy for big insurers, it is important to note that it is not the sole means they employ to increase their Medicare Advantage enrollment. Other factors, such as pricing, benefits, and service, also play a significant role in attracting enrollees. Additionally, the Medicare Advantage market is highly concentrated among a small number of firms, such as UnitedHealthcare and Humana, dominating the market and making it challenging for startups to gain a significant market share.
In conclusion, geographic expansion is a strategic tool used by large insurers to enhance their presence and attract more enrollees in the competitive Medicare Advantage market. However, it is just one aspect of their overall growth strategy, and market share can also be influenced by pricing, benefits, and the dominance of established firms.
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Competition drives insurers to offer special benefits
The Medicare Advantage market is highly concentrated among a small number of firms, with UnitedHealthcare and Humana accounting for nearly half (47%) of all Medicare Advantage enrollees nationwide. Six health insurers control almost 75% of the market. Startups like Alignment Healthcare and Devoted Health have struggled to capture a significant market share, with less than 1% of the total market.
In the face of such stiff competition from established insurers, startups have had to differentiate themselves to attract customers. Devoted Health, for example, nearly doubled its beneficiary base from December to January by focusing on recommendations from providers. Clover Health, on the other hand, attributes its growth to its broad networks.
Competition among insurers has also driven them to offer special benefits to attract customers. For example, SCAN Health Plan's aggressive benefit design during the annual enrollment period helped it increase its Medicare Advantage membership by 16.8% month-over-month to 258,028 enrollees.
In addition to startups, established insurers like Blue Cross and Blue Shield plans have also been increasing their investment in Medicare Advantage over the past five years. During open enrollment, Blue Cross and Blue Shield of North Carolina grew its membership by 14.4% to nearly 82,000 members.
Medicare Advantage is a lucrative market, with the federal government paying plans more than $1,000 every month, on average, for every person they cover. However, there are signs that the business is becoming more challenging, with insurers facing increased competition and changes in the way the federal government pays them.
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Frequently asked questions
Startups like Alignment, Devoted, Clover, and Bright Health have increased their Medicare Advantage membership by offering stable year-over-year benefits and broad networks. They have also benefited from the federal government's high payments to MA plans and the overall growth of the Medicare Advantage industry.
Startups face competition from established insurers like UnitedHealthcare and Humana, which hold significant market share. They also struggle with sustainability due to high costs and the challenge of scaling their business. Additionally, the Medicare Advantage market is becoming less profitable as seniors require more medical care, competition increases, and the federal government phases in changes to insurer payments.
Alignment Healthcare and Devoted Health have been the most successful startups in growing their Medicare Advantage membership. Devoted Health nearly doubled its beneficiary base from December 2021 to January 2022, and Alignment Healthcare grew its membership by 4.3% month-over-month to 89,719 members. However, both companies still have a small market share compared to larger insurers.
