Alignment Healthcare is aiming for $1 billion in revenue. CEO John Kao told us how it's taking on the red-hot Medicare Advantage market.

John Kao Alignment

Alignment Healthcare provides health-insurance plans and services designed to help coordinate care, focused on Americans over age 65.
The company is backed by private-equity firms Warburg Pincus and General Atlantic.
Since its founding in 2013, the company's grown to 61,000 members, with plans to make $800 million in revenue in 2019.
Here's how it plans to keep growing in the competitive Medicare Advantage market, where it faces rivals like Humana, CVS Health's Aetna, and UnitedHealth.
Visit BI Prime for more stories.

Health plan startups are vying for a foothold in the ultra-competitive market of selling insurance to seniors.

Competition for the 22 million Americans enrolled in Medicare Advantage plans, and the thousands signing up daily as they turn 65, is fierce.

Venture-backed startups Oscar Health, Devoted Health, Bright Health, and Clover Health have raised a combined $3 billion to use technology to build new kinds of health-insurance plans and go after Medicare Advantage members. Plus, insurers like UnitedHealth, Aetna and Humana are battling for members too.

Meanwhile, Alignment Healthcare, backed by the private-equity firms Warburg Pincus and General Atlantic, is massively expanding its operations for 2020. The company, founded in 2013, has roughly 61,000 Medicare Advantage members in California, North Carolina and Florida, and says it'll make about $800 million in revenue in 2019.

For 2020, Alignment is doubling the number of counties in which it'll operate, with plans to hit $1 billion in revenue. The company is counting on a partnership with the Sutter Health hospital system to fuel much of its growth.

How it got its start

John Kao founded Alignment in 2013, after a career in healthcare services. Kao says the company's approach to caring for seniors was inspired in part by a personal experience he had with caring for his mother.

In 2015, Kao got a call from his mom telling him to come over because she was having a heart attack. By the time he made the 15-minute drive, the paramedics were there to take her to the hospital. She spent six days in the hospital.

But the months that followed weren't as smooth.The hospital didn't communicate with his mother's other doctors, and instead, Kao had to act as his mother's caretaker, having conversations with her primary-care doctor and organizing visits from nurses while she was recovering.

It's what Kao is now trying to prevent from happening to other elderly people.

How it works

Alignment provides health-insurance plans and services designed to help coordinate healthcare for the Medicare Advantage market. When seniors in the US turn 65, they can choose to be part of either traditional Medicare or Medicare Advantage, which is operated through private insurers like Alignment and often provides additional healthcare benefits.

Alignment has raised a total of $240 million from investors. Most recently, in March 2017, it raised $115 million from the private-equity firm Warburg Pincus.

The company offers its own plans and works with other health insurers on their offerings.

In North Carolina, Alignment is working with FirstCarolinaCare, a health insurer that's part of the FirstHealth of the Carolinas healthcare network, and Humana. In Florida, it's working with Florida Blue.

In these instances, the insurers are the ones running the plans and receiving payments from the federal government. Alignment gets paid a percentage of their revenue to provide services like making sure patients are getting the right health services and showing up for appointments. The company also runs its own health clinics..

In California, where Alignment operates its own health plans, the company's finances are easiest to track. The state accounts for the bulk of the company's member, about 48,000 people.

Alignment generated a net gain of $3.7 million on $336 million in revenue in the first half of 2019 in California. The company spent roughly 86% of the premiums it took in on medical care.

Similar financial figures aren't available for North Carolina or Florida, where Alignment works with other health insurers. The company declined to provide its full financials to Business Insider.

Alignment Healthcare headquarters

Partnering with health systems

In 2020, Alignment is expanding in California by launching a co-branded health plan with Sutter Health, a health system in the northern part of the state.

The partnership with Sutter, Kao said, will be a part of how Alignment scales its business.

"I think a lot of the health systems out there over the last 5 years who have tried to get value based care realize it's not as easy as they thought," Kao said. "I expect our relationships, our partnerships, to continue as part of our growth strategy."

It's a strategy venture-backed companies like Oscar Health and Bright Health are exploring as well. In July, Oscar said it's creating a co-branded Medicare Advantage plan with Bronx-based Montefiore Health System. Bright typically partners with one health system in each market to help set up its insurance plan. For instance, in New York, it's working with Mount Sinai Health System. Bright typically offers its plans to individuals, families, and seniors.

For Sutter's part, the health system has been offering insurance plans since 2014. Sutter has set up its own commercial health plan and has a joint venture with health insurer Aetna.

When it came to Medicare, Phil Jackson, CEO of Sutter's health plan partnerships and products, said the health system decided to partner out.

Jackson told Business Insider the decision to work with Alignment in large part came from the company's focus in Medicare Advantage, its expertise in the California insurance market, and the approach it was taking to healthcare that went beyond what traditional insurers were doing — using analytics and perks like a card with money customers can spend on fod.

So far, Alignment has the biggest presence in Medicare Advantage of the newer startups that have attracted major funding. Bright has about 4,000 Medicare members, Clover had 40,989 and Devoted Health covered about 3,256 people.

When it comes to competing with the bigger insurance incumbents who have been viewing the Medicare Advantage space as a key pat of their companies' growth, Kao said he sees the space as not the same as just adding another insurance product to a portfolio.

"In my opinion it's an entirely different business," Kao said.

Join the conversation about this story »

NOW WATCH: What's leading to vaping-associated deaths and injuries, according to pulmonologists