A closer look at Alignment Healthcare’s plan to reach a $3.5B valuation

Health insurance startup Alignment Healthcare aims to raise more than half a billion dollars through an initial public offering, according to an updated S-1 filed with the Securities and Exchange Commission on Thursday.

The Orange, Calif.-based Medicare Advantage insurtech and a group of stockholders aim to raise up to $516.8 million by selling 27.2 million shares for up to $19 each. The company is shooting for a valuation of up to $3.56 billion. It plans to trade on the Nasdaq Global Select Market under the symbol “ALHC.”

Its IPO follows recent public debuts by competitors Oscar Health, whose share price has since fallen 11%, and Clover Health, which went public through a special-purpose acquisition company, or SPAC, at the start of the year. Compared to Oscar and Clover, Alignment is known for its quieter, more heads-down approach to business.

These aren’t the only startups aiming to capitalize on managing care for the U.S.’ aging population. Devoted Health, Bright Health, Clever Care and more all also operate in the Medicare Advantage market. A Kaiser Family Foundation analysis in December 2020 found the gross profitability of Medicare Advantage has exceeded all other business lines for insurers. Alignment estimates the market could be worth $500 billion by 2025.

Founded in 2013, Alignment aims to differentiate itself from competitors through its connected care model, wherein it engages in value-based relationships with providers and implements its AI-powered platform to help physicians engage in preventative, proactive care for its members. The startup’s technology platform operates more than 150 AI models and 200 dashboards that physicians can use to crunch actionable advice for individual enrollees.

In addition to offering individual Advantage plans, Alignment acts as an administrator for some Medicare Advantage providers, like FirstCarolinaCare, and receives a cut of the insurer’s payments from CMS to run its Medicare Advantage program.

The startup is known for its ties to former CMS administrators Dr. Mark McClellan, who served in George W. Bush’s administration, and Andy Slavitt, who worked in Barack Obama’s administration.

Here are five things to know about the startup’s plans:

1. The company brought in $959.2 million in revenue in 2020, up 26.7% from $756.9 million in 2019. Of Alignment’s 2020 revenue, $873 million was premium dollars and $82 million was in capitated payments from other payers. Capitation payments are down from $124.6 million in 2019, which it seems is a deliberate move away from that for Alignment as two payer contracts that drive the majority of that capitation revenue have been terminated over the last two years. Alignment’s operating loss narrowed in 2020 to $22.9 million, down from $44.7 million in 2019.

2. The company sees an opportunity to grow by expanding into new markets and growing in its old. Alignment is available in 22 counties across California, Nevada and North Carolina. The company said its 81,500 members represent 3% of the market share where it’s active. In its most mature markets, the company holds up to 20% of the members. Over the last two years, Alignment said it has expanded in six to seven new markets annually. In the future, the startup plans to expand in higher-density population centers and adjacent counties.

3. The company boasts a member satisfaction rate, or net promoter score, of 66, which it said is higher than the industry average of 30 to 40 and is “comparable to celebrated consumer brands.” In its existing markets, more than 80% of its membership growth is due to individuals switching to Alignment from other Medicare Advantage plans. New members’ medical benefits ratio generally hovers between 85% to 90%, whereas members who have been with the company for at least five years boast an MBR of 70% to 75%.

4. The startup said it is evaluating a direct contracting relationship with CMS, set to begin April 1. If the company decides to move forward with the relationship, it expects to be assigned up to 2,000 members. Alignment said it also evaluating CMS’ geographic direct contracting model, which the federal agency could launch in 2022.

5. Alignment’s predictive analytics tools separate its patients into four clinical categories: healthy, healthy utilizer, pre-chronic and chronic. The startup says it partners with a network of providers to service its higher-risk or chronically ill enrollees, and its Care Anywhere program serves more than 4,000 high-risk members at their homes in-person or virtually. In 2019, just 9% of its members were categorized as chronically ill, yet these individuals accounted for more than 65% of the startup’s claims. To meet these members’ needs, Alignment launched a virtual-first plan this year and an expanded PPO in 2020. The startup also aims to address the social determinants of health through a variety of benefits, and believes it can drive growth by insourcing vision, dental, specialty pharmacy and other product lines over time.

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