Private equity pays for medical insurance brokers

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

Erick believes that thanks to his Medigap program and the guidance of his local independent agent, he completed 12 rounds of chemotherapy as seamlessly as possible. He said that Medicare Advantage plans may include headaches such as prior authorization, provider restrictions, and out-of-pocket expenses.

Without the advice of an agent, Eric said he might be attracted by former New York Jets quarterback Jonamas’ privatized Medicare Advantage plan or influential investors’ commitment to expanded care.

Although his cancer left him estimated to have only 18 months to live, Eric said he was grateful for the incredible care that Medigap’s program helped him provide.

“Private equity-backed brokers may be a red flag, and I want to know more about it, just because it adds another layer of potential profit motives,” said Eric, a Cleveland resident and retired chemical company manager.

No matter how active, Eric has less and less experience working with independent local brokers. It is estimated that 10,000 newcomers are eligible for medical insurance every day, and more and more private equity firms and venture capitalists are betting on brokers who help seniors participate in medical insurance health plans. In particular, Medicare Advantage has exploded in recent years. This year, ordinary consumers are faced with 39 Medicare Advantage plans to choose from. Insurance companies are pinning their hopes on a growing population and generous product returns, even though research by the Caesars Family Foundation shows that most people will not set a price for insurance.

According to PwC’s insurance transaction insight report, in the first five months of this year, US insurance brokerage transactions continued the boom since 2020, with 215 announced transactions with a total value of 24.6 billion US dollars. According to the report, although most transactions focus on the integration of independent life and annuity carriers, investment in the health insurance brokerage business is growing.

RSM’s healthcare partner Richard Kes said that in the past three years, private equity investors have increasingly relied on health insurance company brokers because the market has increasingly chosen Medicare Advantage Instead of traditional Medicare. It is estimated that by 2025, half of all eligible beneficiaries will participate in a privatized medical program for the elderly. Commonwealth Fund.

Because federal regulators limit brokerage commission rates and marketing operations, agents can only compete based on the services they provide—resulting in some New operator Kes said that differentiation is achieved by combining navigation services with other industries such as household groceries, retail or pharmacies. He said that although these agents have more plans than representatives of brokers who are hired to work with the sole insurance company, the financial incentives they face may accelerate the adoption of Medicare Advantage.

“One of the reasons I like In-N-Out Burger is that there are two things on the menu. Do I want a cheeseburger or a hamburger?” Case said. “And if you go to The Cheesecake Factory, the menu is crazy, and I don’t even know what I want. Providing so many choices is a challenge.”

Commonwealth Fund Medical Insurance Vice President Gretchen Jacobson said that, like the life and annuity divisions, the goal of most private equity investors is to connect and specialize husband and wife brokerage companies with technology to help them maximize returns. She said that by merging into a larger organization, independent brokers may be able to negotiate additional payments with insurance companies and provide new services to attract and retain participants.

Jacobson said that in recent years, federal regulators have revised Medicare’s marketing guidelines to allow insurance companies to pay for agents who arrange an individual’s first medical visit and work with clinicians to ensure that all their drugs are included in their formulary and In other services. These fees are based on commissions received by brokers to include members in specific programs, which tend to be private operators.

According to a federal funds report co-authored by Jacobson and others, compared with the Medicare supplementary plan that is paired with Part A and Part B, agents can obtain higher compensation by including seniors in Medicare Advantage, thereby creating a way for recommending Medicare Advantage. Economic incentives.

“Ultimately, we want people to choose the insurance that best meets their needs,” Jacobson said. “Investors in brokerage firms want to maximize profits, which may not always be the best for beneficiaries.”

In this field, no store has more prolific investors than this Bain Capital Private Equity, Said Kes of RSM.

The co-founder of the private equity giant is Senator Mitt Romney (R-Utah). Earlier this month, it was announced that it would invest $150 million to launch a new health insurance broker dedicated to the advantageous market of medical insurance. The company, named Enhance Health.

In addition to helping consumers navigate the dazzling health insurance environment, Enhance also promises to become a “care navigation platform” to help consumers use their benefits after choosing a plan.

Andrew Kaplan, head of Bain Medical’s vertical industry, said: “Bain is truly focused on operations. When we see opportunities for assets of scale that correspond to these opportunities, we are willing to deploy our resources and expertise to Starting a company… “We call them scale start-ups, where we can deploy a lot of capital and expertise to grow and grow in a space where we have a high degree of conviction. ”

By launching its own start-up company, Bain has overturned the traditional investment strategy of private equity to fund mature companies and bypassed some other new entrants in the medical insurance brokerage field, including EasyHealth and Chapter. Since the digital agency field is relatively new, most companies in this category have only received seed investment or Series A financing.

Easy healthFor example, last week, a $135 million Series A round of financing was raised to recruit new Medicare customers and help insurance companies collect member data through artificial intelligence and home visits. Chief Executive David Duel said that since its establishment in March 2020, the Beverly Hills, California-based company has partnered with insurance companies such as UnitedHealth Group, Humana, and Bright Health Group to recruit “Tens of thousands” of members.

The start-up company earns fees when its clients join a health plan and obtains a license for its clinical business. The ultimate goal of EasyHealth is to use its consumers’ buying experience to become a full-risk provider or health insurance company.

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

Its funding comes from elderly people who continue to postpone care during the COVID-19 pandemic, and large Medicare Advantage insurance companies report that abandoned care is affecting their financial performance and driving their operational strategies. By equipping insurance companies with technology to better obtain safety and quality information, EasyHealth aims to help payers maximize risk and patient experience returns.Methods of cooperation between suppliers and insurance companies Conduct family health visits It has been criticized for helping the payer code the patient’s condition to get more reimbursement from the federal government.

“Our goal is to provide comprehensive clinical data for the health plan,” Duel said. “Ultimately, what they decide to do depends on how they code. Our goal is to ensure that they understand all the chronic diseases that exist. Our view is that there is no loss in understanding all the conditions. If you don’t know, you How can you provide care?

Meanwhile, New York-based Chapter raised $17 million in September, led by Narya Capital, the company of “Hillbilly Elegy” author JD Vance. When announcing the Series A financing, 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 Palantir, a data company co-founded by Thiel. Palantir’s software provides the technical backbone for Chapter, which can comb through the data of each available medical insurance plan to make personalized recommendations. Since its launch in March 2020, the company has provided advice to “thousands” of Medicare enrollees and has worked with approximately 50 insurance companies, including UnitedHealth Group, Blue Cross Blue Shield, and Clover Health.

Chapter’s ultimate goal is to go beyond medical insurance brokers to help consumers understand their in-network benefits and actively recommend them to the lowest-cost care or service website, such as recommending one pharmacy instead of another.

“A company like ZocDoc is amazing,” Blumenfeld-Gantz said. “But they are not widely used by people with medical insurance.”

Like other brokers, when a person joins a health plan, Chapter collects a fee from the health insurance company. But the company is different from these agents because its recommendations are not limited to plans sold by insurance companies that pay commissions. Blumenfeld-Gantz said that no matter what plan the consultant adopts, the company will pay the consultant the same compensation.

“People are right to be skeptical of health insurance consultants,” Blumenfeld-Gantz said. “The vast majority (if not all) of other medical insurance consultants face the same incentive dissonance challenge. We are the only ones who truly align with the end user, and that says it all.”

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