Oscar, Clover, Bright Health clock high MLRs in Q3

Insurtechs medical loss ratios are at a level that if they were patient temperatures, they’d be diagnosed with fevers.

Newly-public insurtechs Oscar Health, Clover Health and Bright Health Group all clocked in near triple-digit medical loss ratios during the third quarter ended Sept. 30, with only Alignment Healthcare effectively managing its members’ medical spend.

Insurers must spend at least 85% of their premiums on patient care, and can pocket the rest for administrative expenses and profit, meaning every insurer strives to hit an MLR as close to 85% as possible.

Oscar, Clover and Bright Health’s failure to manage member healthcare spend indicates a fundamental misunderstanding of the insurance industry or flawed business model, since they faced the same macroeconomic trends as other insurers that better controlled costs, said Ari Gottlieb, a principal at Chicago-based A2 Strategy Group consultancy.

“Fundamentally, the core business model is that they go into new markets, they underprice their business, it’s a commodity business, they underprice it to win membership to show the Street growth and then it falls apart over the course of the year,” Gottlieb said.

He added: “They’re underpricing, and with plans with higher deductibles, utilization ramps up over the course of the year.”

Below is a breakdown of each insurtech’s financial performance, with companies listed in descending order for how much they spent on patients’ medical expenses compared with the premiums collected.

1. Bright Health Group’s MLR reached 103%, thanks to an increase in COVID-19-related claims and a failure to accurately measure the risk of new enrollees gained during the special enrollment period. Minneapolis-based Bright Health, which offers individual, small group and Medicare Advantage plans, generated $1 billion in revenue during the quarter, up 206.3% from $727 million earned during the same period last year. The company’s revenue increase can be attributed primarily to premiums collected from new members, which nearly quadrupled year-over-year to 890,899 total enrollees. Meanwhile, the insurtech’s net loss increased 400.7% year-over-year to $296.7 million. Bright Health was started by former UnitedHealth Group executives in 2016.

2. Clover Health’s MLR came in at 102.5%. Nashville, Tennessee-based Clover, which operates Medicare Advantage plans, generated $427.2 million in revenue during the quarter, up 153% from $169 million reported during the same time last year. The company’s revenue is almost evenly generated through Medicare Advantage premiums and the Direct Contracting, a federal program where insurers manage the risk of traditional Medicare enrollees set to expire at the end of the year. Clover’s net loss, meanwhile, widened to $34.5 million, compared with net income of $12.8 million reported during the third quarter of 2020. Clover Health went public through a $3.7 billion special-purpose acquisition company deal earlier this year, banked by serial investor and social media personality Chamath Palihapitiya.

3. Oscar Health’s MLR measured 99.7%. New York-based Oscar, which offers individual, small group and Medicare Advantage plans, generated $443.9 million in revenue, up 336.4% from $101.7 million during the same period last year. Much of the company’s revenue can be driven from premiums gained from new individual and small group members—its total enrollees grew 41.4% year-over-year to 594,284. As membership grew, so did medical costs. Oscar’s net loss widened to $212.7 million, up from $79.1 million reported during the same time in 2020. Oscar was co-founded by Josh Kushner in 2012 and aims to reach profitability in 2023.

4. Alignment Healthcare hit an MLR of 85.7%. Orange, California-based Alignment, which offers Medicare Advantage plans, increased revenue 18% year-over-year to $293.5 million. The company’s membership likewise grew 86,000, up 29% from the same period in 2020. An increase in COVID-19-related testing and treatment translated into a net loss of $45.8 million during the third quarter, compared with net income of $10.8 million reported during the same period last year. Alignment was founded by former insurance and technology executive John Kao in 2013.

“I don’t think there’s anything interesting about Alignment and I think that’s a compliment,” Gottlieb said. “These are folks who know how to run a health plan, and will continue to execute.”