As Alignment Health expands, CEO predicts profitability is on the horizon

The top brass at Alignment Health expects the company to turn a profit this year in part because it now offers Medicare Advantage plans in Merced County, Calif., a move made on Jan. 1 that increased the insurtech’s membership by 44%, to about 155,000 enrollees.

If that happens, Alignment would be the first MA-focused insurtech to turn a profit, according to Ari Gottlieb, principal at A2 Strategy Group and a nationally known expert on the insurtech industry. 

“This reflects Alignment’s continued solid growth and progress toward building a profitable MA plan,” Gottlieb told Fierce Healthcare in an email. “The company is building on its successful legacy in California and entering new markets and has figured out how to do that while being financially sustainable.”

John Kao, Alignment’s CEO and founder, told Fierce Healthcare that there are several factors contributing to the company's success. For one, Alignment did not increase benefits for established members, he said, and new members will not be a cost drain. Plus, Alignment’s growth gives it operating leverage in terms of sales and administrative costs.

“Operating profits will be profitable this year,” Kao predicted. Alignment also expects to attain adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

John Kao
John Kao (Alignment Health)

Kao said the company wants to have between 162,000 and 164,000 members by the end of this year, which would be a 38% increase over Alignment’s 2023 year-end membership prediction.

“All these additional members have what we refer to as a cohort curve, which means they come in at a higher cost in the year in which we enroll them, but over the four to five years that they stay with us, the costs typically go down, because they get more familiar with our care model,” Kao said.

A report by the financial services company William Blair noted that MA plans have scaled back investments this year by not offering more ancillary and supplemental benefits because of a desire to maintain medical margins in light of regulatory changes to MA’s risk-adjustment model, and lower star ratings.

“Our bias was that Alignment, given the company’s consistent clinical performance and its proven ability to manage medical loss ratios, would be able to sustain investment in these ancillary offerings and remain an attractive plan for members, and we believe this strong membership performance suggests this proved to be the case,” the Blair report states.

Alignment's geographic footprint reaches 8.5 million Medicare-eligible adults across 53 markets in Arizona, California, Florida, Nevada, North Carolina, and Texas. The Centers for Medicare and Medicaid Services (CMS) gave Alignment a four-star rating for its California HMO, and U.S. News & World Report ranked its MA plan in North Carolina one of the best in the nation.

Kao cites good CMS star ratings as another reason the company’s poised to turn a profit in 2024. He notes that while for the most part consumers don’t pay close attention to star ratings for health plans, brokers and providers do. “And what’s really important is the higher your star rating, the more money CMS pays you,” Kao said. “If we have 4 stars or 4.5 stars out of a possible 5-star rating and somebody else has a 3- or 3.5-star rating, we have a pricing advantage over them.”

Alignment strives to deliver concierge-type benefits for MA enrollees such as transportation to providers, at-home care, and better access to food. “We have a care model that uses data to tell us who the really sick people are and then we take care of them with our teams for free at home. It’s a very capital-efficient and focused care model. That lowers costs.”

Alignment’s partnership with Instacart, unveiled last October, also began Jan. 1 and involves the delivery of nutritious foods in 13 counties that the insurtech serves. Alignment also is partnering with Walgreens in select counties.

“Alignment’s leadership has extensive experience in the health plan space, which likely differentiates the company from other emerging competitors that have chased growth at the expense of profitability,” Gottlieb said. “Alignment’s core California business is heavily delegated to risk-bearing providers so the performance should be relatively consistent; it is worth looking at the other states to see how Alignment performs as it seeks to expand beyond California to more of a scaled player.”

The Blair report applauds Alignment’s decision to not expand into new states this year, choosing instead to focus on its existing market share and strengthening ties with “external stakeholders.”

Kao told Fierce Healthcare that Alignment’s talking to some major provider networks, though he declined to disclose who. “Health systems have reached out to us and really want our help,” Kao said. “We’re going to be expanding with them as a kind of a preferred strategic partner, if you will, and that will help accelerate our growth. I can’t name names yet.”