Clover Health Struggles to Contain Medical Costs for MA Members

by Lauren Flynn Kelly

Of the newly public startup insurers that reported third-quarter 2021 earnings, all four posted higher (worse) medical loss ratios (MLRs) compared with the prior-year quarter — a direct result of higher COVID-related costs. The two insurers with a focus on Medicare Advantage, however, demonstrated wildly different experiences, with Clover Health Investments Corp.’s MLR clocking in at 102.5%, while Alignment Healthcare, Inc.’s 85.7% MLR was more in line with those of the larger, established insurers. 

Clover, Alignment See Vastly Different Results 

• Reporting quarterly earnings for the third time since going public in January, Clover recorded an MA MLR of 102.5%, an improvement over the 111.0% it recorded in the second quarter of 2021 but worse than the 86.7% it posted in the comparable 2020 quarter. 

• As was the case for many insurers, the year-over-year increase was largely due to COVID-related costs and increased utilization from deferred outpatient care. 
• Clover also posted a net loss of $34.5 million for the quarter, compared with net income of nearly $12.8 million in the year-ago quarter. 
• Meanwhile, Orange, Calif.-based Alignment Healthcare on Nov. 4 recorded a net loss of $45.8 million, compared with net income of $10.8 million in the prior-year quarter. Overall revenue, meanwhile, climbed 18% to $293.5 million, including health plan premium revenue growth of 14% to $278.8 million. 

Uncertainties Remain About Direct Contracting Participation 

• Although Clover’s total revenues of $427 million beat the Wall Street consensus estimate of $413 million and its MLR showed sequential improvement, the high “absolute percentage” still gave Citi analyst Ralph Giacobbe pause. “We have updated our model lowering our revenue estimates as we take a more conservative view of direct contracting enrollment, and raise our MLR to reflect initial guidance,” Giacobbe wrote on Nov. 9. 
• Reflecting a year-over-year increase of 153%, Clover’s overall revenue consisted of $204 million in MA premiums and $223 million in Direct Contracting revenue, referring to its participation as a Direct Contracting Entity serving the CMS Innovation Center’s Global and Professional Direct Contracting Model. While Direct Contracting enrollment is expected to remain relatively flat for 2021, the company said it expects those lives to “grow significantly” in 2022.
• The company reported a Direct Contracting margin of 102.4%, down from 111.8% in the second quarter, and said it expects the model’s financial performance to “improve as a result of a full ramp-up in a number of areas.” 

From Radar on Medicare Advantage