Health insurtechs leaning on MA might be in trouble

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The needle hasn't moved much on newly eligible adults opting for Medicare Advantage (MA) plans over traditional Medicare: In 2016, 29% of adults opted into MA plans during their first eligible year, a 6-percentage-point increase from the 23% who selected MA during their first year of eligibility in 2011, according to a new Kaiser Family Foundation analysis.

Medicare Advantage Is a Stable and Growing MarketBusiness Insider Intelligence

For context, MA plans are private plans that US seniors can select in lieu of government-run Medicare. This news could dial back enthusiasm for the MA market's potential: Enrollment in MA plans has climbed in recent years, but the new analysis might indicate the Congressional Budget Office's current prediction that MA's set to account for nearly half of Medicare beneficiaries by 2029 is a stretch.

Here's what it means: News that newly eligible beneficiaries aren't flocking to MA as expected could rain on the parade of small entrants banking on MA enrollment as a growth pillar.

Newcomer insurers might hit a wall when trying to court new consumers. Lucrative MA plans have caught the attention of health insurtech startups eyeing the growing senior population. Since the lion's share of Medicare-eligible seniors are still leaning toward the traditional service over MA, these players could have a hard time winning beneficiaries' business, especially since insurer giants UnitedHealthcare, Humana, and Blue Cross Blue Shield have already swallowed up half of the MA market and could seem like a safer bet for consumers.

And powerful incumbents with a stranglehold on the market are impeding entrants from profiting off of MA: Most MA entrants have yet to witnessany growth.

The bigger picture: Health insurance entrants that are narrowly focused on MA should tweak their strategies.

Entrants shouldn't shy away from exploring MA, but insurtechs putting all their eggs in the MA basket might need to broaden their horizons.Even though seniors continue to settle for traditional Medicare from the start, we still think MA's poised for steady growth and is a smart investment for entrants: Enrollment overall has doubled in the last decade and is set to hit an all-time high of almost 23 million members in 2019.

But without a robust flow of newly eligible members, insurtechs following the model of startups Devoted Health and Clover Health - which focus solely on MA - might be setting themselves up for defeat. Players fixed on MA don't have a buffer like insurtechs just starting to dabble in MA plans: For example, Oscar Health and Bright Health deal with the broader insurance market and can lean on those efforts if capturing a sizable chunk of the MA market proves to be tricky.

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