Private equity pays off for Medicare brokers

Six months after enrolling in a supplemental Medicare plan, Rob Eric was diagnosed with pancreatic cancer.

Eric believes he ran his 12 courses of chemotherapy as smoothly as possible thanks to his Medigap plan and the guidance of his local independent broker. The Medicare Advantage plan could include headaches of prior authorizations, provider restrictions and out-of-pocket expenses, he said.

Without the advice of a broker, Eric said he might have been tempted by former New York Jets quarterback Joe Namath’s proposal to privatize Medicare Advantage plans or by pledges from influential investors to expand services.

Although cancer has roughly 18 months left to live, Eric said he feels grateful for the incredible care his Medigap plan has helped him to provide.

“Private equity-backed brokers might be a red flag and something I’d like to know a little more about, simply because they add another layer of potential profit motive,” said Eric, a Cleveland resident and former chemical manager. companies.

As positive as it is, Eric’s experience with an independent local broker is becoming less and less common. An estimated 10,000 new people are eligible for Medicare every day, and a growing proportion of private equity firms and venture capitalists are relying on brokers to help seniors enroll in Medicare health plans. In particular, Medicare Advantage has skyrocketed in recent years, with the average consumer facing 39 Medicare Advantage plans to choose from this year. Insurers are betting on population growth and profitable product profits, even though research by the Kaiser Family Foundation shows that most people do not value in-store insurance coverage.

During the first five months of this year, deals with insurance brokers in the US have continued to pick up steam since 2020, with 215 announced deals totaling $ 24.6 billion, according to PWC’s report on insurance deals. While most deals have focused on merging independent life and annuity insurers, investments in health insurance brokerages are growing, the report said.

Over the past three years, private investors have increasingly relied on health insurance brokerage services attracted by a growing market that increasingly chooses Medicare Advantage over traditional Medicare, according to Richard Kees, RSM’s healthcare partner. By 2025, half of all eligible beneficiaries are expected to be enrolled in a privatized health care program for the elderly, according to data Commonwealth Foundation

Kees said that due to federal regulators limiting broker commission rates and marketing operations, agents are largely given the opportunity to compete based on the services they provide, forcing some new operators to differentiate by combining their navigation services with other industries such as home grocery, retail, or pharmacy. … While these agents present more plans than brokers hired to work with a single insurer, the financial incentives they face could speed up Medicare Advantage adoption, he said.

“One of the things I love about In-N-Out Burger is that there are two things on the menu. Do I want a cheeseburger or a hamburger? ” – said Kes. “If you go to the Cheesecake Factory, the menu is crazy, I don’t even know what I want. There is a problem – to provide many options. ”

Like the life insurance and annuity sectors, most private investors are focused on connecting and professionalizing family brokerages with technology to help them maximize their bottom line, according to Gretchen Jacobson, vice president of Medicare at the Commonwealth Foundation. According to her, by merging into larger organizations, independent brokerage companies will be able to negotiate additional payments with insurers, as well as offer new services to attract and retain participants.

Federal regulators have revised Medicare’s marketing guidelines in recent years to allow insurers to pay agents to schedule their first doctor’s visit, working with a clinician to make sure all of their medications are included in their formulary and other services, Jacobson said. These fees are based on commissions that brokers already receive for enrolling members in certain plans, which are biased in favor of private operators.

According to a Commonwealth Foundation report, co-authored by Jacobson, agents can get more reimbursement for older people participating in Medicare Advantage than Medicare add-on plans that combine with Part A and Part B, which creates financial incentives for Medicare Advantage recommendations.

“Ultimately, we want people to be able to choose the coverage that best suits their needs,” Jacobson said. “While investors in brokerage firms will want to maximize their profits, that may not always be what is best for the beneficiaries.”

No store has been a more productive investor in this space than Bain Capital Private Equity, according to RSM’s Kees.

The private equity giant, co-founded by Senator Mitt Romney of Rhode Utah, announced earlier this month that it is losing $ 150 million to open a new Medicare Advantage-focused health insurance brokerage called Enhance Health.

Enhance promises not only to help consumers navigate the dizzying Medicare landscape, but to become a “health care navigation platform” that helps consumers reap their benefits once they choose a plan.

“Bain has a real operational focus, and when we see opportunities that do not see scale assets that match those opportunities, we are ready to use our resources and expertise to build companies,” said Andrew Kaplan, head of the Bain Healthcare vertical. … “We call them big startups in which we can leverage significant capital and expertise to make great strides in an industry where we have a high degree of confidence.”

By launching its own startup, Bain rejected the traditional private equity investment strategy of financing existing ventures, and also bypassed a number of other recent Medicare brokerages, including EasyHealth and Chapter. Since the digital agent space is relatively new, most companies in this category have only received seed money or Series A rounds.

EasyHealthfor example, last week raised a $ 135 million Series A round for a platform that attracts new Medicare customers and also helps insurers collect data about their members through artificial intelligence and home visits. The Beverly Hills, California-based company has partnered with insurers such as UnitedHealth Group, Humana and Bright Health Group to enroll “tens of thousands” of members since its March 2020 launch, according to CEO David Duell.

The startup is rewarded when its clients sign up for a health insurance plan and also licenses the clinical part of its business. EasyHealth ultimately seeks to leverage its shopping experience to become either a full-risk provider or a health insurer.

“Insurance is our Trojan horse for healthcare,” Duel said.

Its funding comes as seniors continue to postpone treatment during the COVID-19 pandemic, and major Medicare Advantage insurers report that withdrawal from care affects their bottom line and determines their operational strategies. By equipping insurers with technologies to better collect safety and quality information, EasyHealth is committed to helping payers minimize risk and generate income from patient experiences. The provider’s method of partnering with insurers to conduct home visits to the doctor has been criticized for helping payers improve patients’ conditions in order to get more compensation from the federal government.

“Our goal is to provide the healthcare plan with a complete clinical profile,” Duel said. “Ultimately, what they decide to do about it is up to them in terms of how they code. Our goal is to make sure they know all the chronic conditions that exist, and we believe there is no loss in knowing all conditions. someone has. If you don’t know how can you help? ”

Meanwhile, in September, the New York subsidiary raised $ 17 million under the leadership of Narya Capital, author of “Hillbilly Elegy” J. D. Vance. During the Series A announcement, investor Peter Thiel announced that he would join the company’s board of directors.

The company is co-founded by CEO Kobe Blumenfeld-Ganz, who previously worked for Palantir, which is the co-founder of the data processing company. Palantir software provides the technology foundation for Chapter, allowing you to analyze data for each Medicare plan available and make personalized recommendations. Since its launch in March 2020, the company has consulted “thousands” of Medicare members and partnered with approximately 50 insurers, including UnitedHealth Group, Blue Cross Blue Shield and Clover Health.

Ultimately, Chapter strives to go beyond the Medicare broker to help consumers understand their in-network benefits and proactively refer them to a service or service center at the lowest cost, such as recommending one pharmacy over another.

“Companies like ZocDoc are amazing,” Blumenfeld-Ganz said. “But they are not widely used by Medicare participants.”

Like other brokers, Chapter earns fees from insurance companies when a person enrolls in a health insurance plan. But the company differs from these agents in that it does not limit its recommendations to plans sold by insurers that pay commissions. According to Blumenfeld-Ganz, the company pays its consultants the same regardless of which plans they bring clients into.

“People are rightly skeptical of Medicare counselors,” Blumenfeld-Ganz said. “The vast majority, if not all, of other Medicare counselors succumb to the same incentive mismatch problem. We’re the only ones who really agree with our end users and that says a lot. ”

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