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Insuring Health

When covering health and biotech, it is easy to just focus on the technology. Gene editing, full organs grown in a lab, and GMOs, all carry the promise of revolutionary changes in our lives and economies.

But when it comes to our health, a crucial part is often insurance. By definition, sickness is a very personal issue, and good healthcare can cost way more than someone can afford to pay, especially if we are talking about advanced therapies or unexpected health issues.

This is why we have health insurance. It guarantees we will always access the best healthcare, and “averagize” the cost among the whole population, instead of letting the unlucky people that get sick suffer.

At least, that is the theory.

In practice, health insurance can be a very inefficient or complex topic. For example, multiple layers of regulations, public assistance and private coverage, premium, only partial coverage, etc… This complexity has long favored larger companies, able to control the market and impose their conditions.

But with the rise of more information advanced technologies, and more medical data, insurance in general, and health insurance in particular, is undergoing a revolution. And this led to the rise of the health “insurtech” sector.

Health Insurtech: A Promising And Still Young Sector

Most insurtech companies made their IPO in 2020 or 2021, amid the pandemic and the general enthusiasm of investors for health stocks. As a result, many of these have experienced a sharp decline in share price.

Still, the underlying idea is solid. Using better data analysis should help insurers figure out the real level of risk to offer better health coverage. And digital systems like cloud computing, smartphone apps, and digital ID should remove a lot of bureaucratic inefficiencies which are both costly and annoying for the end users.

As a whole, the sector is likely to become an integral part of the health insurance system, either through growth or increasing integration with legacy systems.

So many health insurtech companies are poised for a rebound or are turning into prime targets for acquisition by slower-moving and less tech-savvy large health insurance companies.

Overall, the insurtech market is expected to grow from $5.4B in 2022 to $ 161B in 2030, or an astonishing 52.7% CAGR, of which a significant section is health insurtech.

Source: Grand View Research

Top 5 Health Insurtech Stocks

GoHealth, Inc. (GOCO)

GoHealth is a Medicare-focused digital health company and a health insurance marketplace. So it is mostly focused on the growing 65+ year-old segment of the population.

It has more than 5 million Americans enrolled in its insurance offer and is partnered with 300+ health insurance carriers.

The company has also been established for a long time, since 2001, even though it IPOed only in July 2020.

The company sees its strength in solving the multiple problems of the Medicare enrollment system. Like poor explanations of the options, underutilized benefits, and overall poor customer satisfaction.

Source: GoHealth

The GoHealth solutions have allowed for a 20% improvement in client retention, as well as a 10% decrease in members’ complaints about their health plans.

Recently, the company has struggled with declining revenues in Q1 2023, with sales down by 11% year-to-year. The brighter side is increasing gross margins, increasing by 60%, and a reduction of costs by 23%.

The company is now focused on reaching profitability, as the investing environment has become more challenging, between a looming banking crisis and recession risks. It is expecting a better 2023, with growing revenues, EBITDA, and cash flow.

Source: GoHealth

Lastly, in May 2023, the company received an acquisition proposal from Centerbridge Partners and NVX Holdings. The company’s management has not yet expressed their opinion on the matter, but this could lead to the company being acquired.

Investors in GoHealth will be interested in its scale and its leading position in the growing segment of Medicare. They will need to pay attention to 2023’s developments, especially improving profitability and the possible acquisition of the company, which could equally provide a quick return, but also stop the story there as far as GoHealth as a publicly listed company goes.

Oscar Health, Inc. (OSCR)

Oscar Health was founded in 2012, to become the first digital healthcare with a fully integrated, full-stack technology healthcare platform.

It is operating in 20 US states and had more than 1 million members on March 2023. This represents an 80% membership growth year-to-year. The direct and assumed policy premiums have grown by 104%.

Source: Oscar Health

These results have translated into a rebound of the stock price, as until now investors doubted both growth and the ability of Oscar Health to collect enough premiums from their insurance policies. The company is planning to focus 2023 on expanding margins, reducing administration costs, and focusing on the most profitable market, which also includes exiting some, like Medicare Advantage in New York and Texas.

Due to its scale, Oscar Health is among the prime candidates for reaching profitability first in the health insurtech, together with GoHealth.

This means it will be favored by investors looking for exposure to the sector, but wary of too high losses and dependence on further capital raises.

Waterdrop Inc. (WDH)

Waterdrop is a Chinese company that IPOed in 2021 and has previously received $230M in investments from Tencent and reinsurer Swiss Re.

The company has 2 segments, a marketplace and medical crowdfunding.

The marketplace put Waterdrop as a middleman bringing together health and life insurance offers, often co-developed with the insurers. It also provides a technology layer of interface for claims, payments, data analysis, etc…

Medical crowdfunding is more of a non-profit and marketing initiative, allowing people to gather on a trusted platform to help others pay for their medical needs. A total of 426 million people donated to over 2.7 million patients in 2022.

Insurance is only a part of Waterdrop’s ambition. It is notably exploring opportunities in special medical services like overseas treatment, accident rescue, genetic screening, cancer screening, etc… It is also looking to use its patient data for the recruiting of relevant profiles for clinical trials, adding “high-value Contract Research Organization (the “CRO”) services along the value chain”.

Waterdrop generated $230M of revenues in Q4 2022, down 16% year-to-year. The company is operating cash flow positive and registered a net profit of $18.3M in Q4 2023.

Investors in Waterdrop will be interested in the mix of positive cash flow, untapped markets, and the sheer size of the still underdeveloped Chinese healthcare and insurance market. A return to growth will be needed in the post-Covid and post-lockdown environment, even if the company’s valuation means a relatively low P/E ratio.

Clover Health Investments, Corp. (CLOV)

The company is solely focused on Medicare, with a strategy to gather a large physician network. This allows Clover Health customers to be able to choose their physicians, and the company’s ultimate goal is to “work with almost any physician”.

To reach this objective, they are looking to make physicians better at identifying chronic diseases earlier, through the Clover Assistant software. This system has proved valuable in the early detection of diabetes and chronic kidney disease.

It works by bringing together previously siloed data, like a prescription by a patient’s cardiologist and hospital care, that might not be aware of each other. This software has been deployed in less than half of the US states so far.

Source: Clover Health

The company has almost doubled insurance revenues since 2020 and also created non-insurance revenues, reaching $2.4B in 2022.

Source: Clover Health

In Q1 2023, Clover Health saw revenues decline by 40%, driven by a decline in non-insurance revenues. The decline was driven by a re-focus on the profitability of the non-insurance through narrowing the selection of providers, with beneficiaries number falling from 172,416 to 53,616.

Investors in Clover Health will be encouraged by the growing insurance revenues and will need to consider the fallout of the one-time decline in non-insurance revenues. It is worth noticing that the operating expenses have fallen in line with the declining revenues and that the net loss for Q1 2023 of $72M is almost identical to the net loss in Q1 2022.

So overall, investors will go into Clover Health hoping for future profitability to increase, and that the current stock price reflects a discount compared to the underlying value of the business and its insurance segment growth.

Bright Health Group, Inc. (BHG)

Bright Health has been one of the health insurtech hardest hit by concerns about profitability and liquidity. The issue of SVB bank and overall worry about liquidity in the financial system has only compounded the issue.

Still, the company’s revenues from continuing business grew by 23% year-to-year in Q1 2023, reaching $756M in revenues, for a $95M net loss.

The company has been looking to sell its California Medicare Advantage business (Bright Health has 125,000+ Medicare Advantage members in California).

It is looking to recenter on its Consumer Care segment, providing treatment through its own and affiliated clinics. In Q1 2023, the company had 373,000 consumer care customers, down from 530,000 a year before. Earlier in 2023, this segment was expected to generate up to $1.6B-$1.8B in revenues for 2023.

Source: Bright Health 

Investors in Bright Health will count on 2 separate options to provide them value despite the current financial turmoil for the company.

First is a successful divestment of the Medicare segment, which could be attractive for larger, more established companies with the money to expand their business through this acquisition.

Secondly, the refocus solely on the consumer care segment and work on turning it profitable.

This is a high-risk stock, as acquisitions of distressed assets are always quite a gamble. Careful valuation calculation will be needed to judge if the decline in market capitalization is enough to justify that risk.