Alignment Healthcare will expand into Texas and Florida, two of the nation’s most competitive and fastest-growing Medicare Advantage markets.
In addition to offering Medicare Advantage in those states during open enrollment this year, the company on Wednesday said it plans to extend its reach into more counties in Arizona, California, Nevada and North Carolina for the upcoming plan year, pending regulatory approval.
The expansion would represent Alignment’s greatest geographic growth in the insurtech’s nine-year history. It operates plans across 52 counties in six states, and the majority of Alignment Healthcare’s 94,200 members are located in its home base of California.
“We have to prove the portability of this model through growth, through profitability outside of California,” CEO John Kao said. “Once that happens, the stock will start matching the fundamentals of the company, which I just think are really good.”
While the company has fewer members and a smaller geographic footprint than Oscar Health, Clover Health and Bright Health Group, its stock price has been the most stable since each of the companies went public in 2021.
Alignment Healthcare’s stock traded around $11 per share Wednesday, down nearly 37% from its initial public offering price of $17.31 per share in March 2021.
“We’ve grown in a more controlled way,” Kao said. “Early on, we got a lot of pressure to grow at these crazy rates. That’s fine, but we have to get to profitability. Profitability matters.”
Alignment’s move to expand its footprint separates it from the other three insurtechs that have recently shrunk their businesses and sought additional capital.
In May, Oscar Health said it will exit the exchange business in Colorado and Arkansas next year after failing to gain marketshare. In April, Bright Healthcare announced it will end its exchange business in six states and close its employer health plan business in a push toward profitability. During first-quarter earnings calls, executives at both companies talked about the need to secure outside investment.
Clover Health could seek to raise another $300 million in outside funding, the company announced in a May filing with the U.S. Securities and Exchange Commission.
Alignment Healthcare does not have plans to raise outside capital and is not entertaining acquisition offers, Kao said.
The company plans to end 2022 with 99,000 members and revenue of $1.4 billion, according to its first-quarter earnings results. It is on track to operate in up to 16 states by 2026, Kao said.
“We’re not burning that much cash, we’re very protective of our balance sheet and we have more than enough cash to fund our growth initiatives,” Kao said. “Given the state of the capital markets now, raising capital could be pretty tough.”
The company narrowed its first-quarter loss to $36.4 million, from $52.6 million in 2021’s comparable period. Quarterly revenues grew 29.3% year-over-year to $345.5 million, and the company said it had $448.8 million in cash.
The Centers for Medicaid and Medicare Services’ 4.88% rate increase for Medicare Advantage plans in 2023 guarantees another competitive year for carriers aiming to gain marketshare through aggressive pricing and benefit design, Kao said. CMS expects the pay bump to increase Medicare Advantage insurers’ revenue by an average of 8.5% in 2023.
Last year, the company did not achieve themembership growth it expected. At the time, Kao attributed the miss to a crowded market dominated by insurers with unsustainably low prices. Cigna and Humana cited the same market dynamics as why they missed their 2022 membership goals.
This year, Alignment Healthcare has priced for these phenomenons in its bid, Kao said. Medicare Advantage carriers’ deadline for filing bids for the 2023 year were due to CMS by June 1.
“That was our bad, and we’re not going to make that same mistake again,” Kao said. “It’s going to be very competitive.”