Private equity pays for Medicare brokers

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

Erick believes he got through his 12 rounds of chemotherapy as seamlessly as possible thanks to his Medigap plan and the guidance of his independent local broker. A Medicare Advantage plan could have included the headache of pre-authorizations, provider restrictions and out-of-pocket expenses, he said.

Without the broker’s guidance, Erick said he might have been lured by former New York Jets quarterback Joe Namath’s speech for privatized Medicare Advantage plans or the promises of influential investors to expand benefits. care.

Although his cancer left him around 18 months to live, Erick said he felt grateful for the incredible care his Medigap plan had helped him afford.

“Private equity-backed brokers might be a red flag and something I want to learn a bit more about, just because it adds another layer of potential profit motivation,” resident Erick said. of Cleveland and a retired chemical company executive.

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As positive as it is, Erick’s experience with an independent local broker is increasingly rare. As around 10,000 new people reach Medicare eligibility every day, a growing share of private equity and venture capital firms are betting on brokers who help seniors enroll in Medicare health plans . Medicare Advantage, in particular, has exploded in recent years, with the average consumer being faced with 39 Medicare Advantage plans to choose from this year. Insurers are banking on population growth and lucrative returns from the product, even as research from the Kaiser Family Foundation shows most individuals do not purchase coverage.

In the first five months of this year, deals with insurance brokers in the United States continued to peak from 2020, with 215 deals announced with a combined value of $24.6 billion, according to the PWC report on insurance transactions. While most deals focused on consolidating independent life and annuity insurers, investment in health insurance brokers is growing, according to the report.

Over the past three years, private equity investors have increasingly bet on health insurance brokers, attracted by a growing market that increasingly chooses Medicare Advantage over traditional Medicare, said Richard Kes, health partner at RSM. By 2025, half of all eligible beneficiaries should be enrolled in the privatized health program for the elderly, according to the Commonwealth Fund.

With federal regulators restricting brokerage commission rates and marketing operations, agents are largely left to competition based on the services they provide, leading some new operators to differentiate themselves by combining their browsing services with… other industries like home grocery, retail or pharmacy, Kes said. . Although these agents represent more plans than brokers hired to work with a single insurer, the financial incentives they face could accelerate adoption of Medicare Advantage, he said.

“One of the things I like about In-N-Out Burger is that there are two things on the menu. Do I want a cheeseburger or a burger?” Kes said. “While if you go to The Cheesecake Factory, the menu is crazy, I don’t even know what I want. There’s the challenge of providing lots of options.”

Like the life insurance and annuity industries, most private equity investors aim to connect and professionalize mom-and-pop brokers with technology to help them maximize their returns, said Gretchen Jacobson, Vice President of Medicare at the Commonwealth Fund. By consolidating into larger organizations, she said independent brokers may be able to negotiate additional payments from insurers, as well as offer new services to attract and retain enrollees.

In recent years, federal regulators have revised Medicare marketing guidelines to allow insurers to pay agents for scheduling an individual’s first doctor’s appointment, working with a clinician to ensure that all their medications are included in their formulary and other services, Jacobson said. These fees build on the commissions that brokers already receive for enrolling members in specific plans, which are tilted in favor of private operators.

According to a Commonwealth Fund report co-authored by Jacobson, agents may receive higher compensation for enrolling seniors in Medicare Advantage than in supplemental Medicare plans that combine Part A and Part A. B, creating financial incentives to recommend Medicare Advantage.

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

No store has been a more prolific investor in this space than Bain Capital Private Equity, RSM’s Kes said.

The private equity giant, whose co-founder is Sen. Mitt Romney (R-Utah), announced earlier this month that it was losing $150 million to launch a new health insurance brokerage firm dedicated to the Medicare Advantage market, named Enhance Health.

In addition to helping consumers navigate the dizzying landscape of Medicare, Enhance promises to be a “care navigation platform” that helps consumers redeem their benefits once they choose a plan.

“Bain has a real business focus, and when we see opportunities that don’t see large-scale assets matching those opportunities, we’re ready to deploy our resources and expertise to start businesses,” said Andrew Kaplan, director of Bain’s healthcare vertical. . “We call them large-scale startups, where we can deploy significant capital and expertise to go big in a space where we have a high degree of belief.”

By launching his own startup, Bain has bucked the traditional private equity investment strategy of funding established companies, and bypassed a number of other recent entrants to the Medicare brokerage space, including EasyHealth and Chapter. . As the digital agent space is relatively new, most companies in this category have only received seed or Series A investments.

EasyHealth, for example, raised a $135 million Series A round last week, for a platform that enrolls new Medicare customers and helps insurers collect member data through AI and visits to residence. The Beverly Hills, Calif.-based company has partnered with insurers like UnitedHealth Group, Humana and Bright Health Group to enroll “tens of thousands” of members since its March 2020 launch, CEO David Duel said.

The startup collects fees when its customers sign up for a health plan, as well as licenses for the clinical side of its business. EasyHealth ultimately aims to leverage its consumer buying experience to become either a full risk provider or a health insurer.

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

Its funding comes as seniors continue to defer care during the COVID-19 pandemic, with major Medicare Advantage insurers reporting that foregone care is impacting their bottom line and driving their operational strategies. By equipping insurers with technology to better capture safety and quality information, EasyHealth aims to help payers maximize their risk adjustment and patient experience returns. The provider’s method of partnering with insurers to conduct home health visits has been criticized for helping payers code patients’ conditions to get better reimbursement from the federal government.

“Our goal is to provide a comprehensive clinical profile to the health plan,” Duel said. “Ultimately what they decide to do with it is up to their discretion, in terms of the code. Our goal is to make sure they know about all the chronic conditions that are out there, and our view is that there is no loss knowing all the conditions. someone has done it. If you don’t know, how can you provide care?”

The New York-based chapter, meanwhile, raised $17 million in September, led by “Hillbilly Elegy” author JD Vance’s Narya Capital firm. At the time of the Series A announcement, investor Peter Thiel announced that he would join the company’s board of directors.

The company was co-founded by CEO Cobi Blumenfeld-Gantz, who previously worked for Thiel’s co-founded data company, Palantir. Palantir’s software provides the technological backbone allowing Chapter to aggregate data on each available Medicare plan to make personalized recommendations. Since its launch in March 2020, the company has advised “thousands” of Medicare enrollees and has partnered with around 50 insurers, including UnitedHealth Group, Blue Cross Blue Shield and Clover Health.

The chapter ultimately aims to evolve beyond a Medicare broker to help consumers understand their in-network benefits and proactively steer them to the least expensive site of care or service, such as recommending a pharmacy rather than ‘another one.

“Companies like ZocDoc are amazing,” Blumenfeld-Gantz said. “But they’re not widely used by people on Medicare.”

Like other brokers, Chapter collects fees from health insurers when a person signs up for a health plan. But the company differs from these agents in that it does not limit its recommendations to plans sold by insurers who pay commissions. The company pays its advisors the same regardless of the plans they enroll their clients in, Blumenfeld-Gantz said.

“People are rightly skeptical of Medicare counselors,” Blumenfeld-Gantz said. “The vast majority, if not all, of other Medicare advisors succumb to the same challenge of incentive misalignment. We’re the only ones who are truly aligned with our end users, and that’s saying a lot.”