Can Medicare save the insurtech market? – Tech Crunch

Insurtech companies have certainly fell out of favor over the past year. This Tweeter my friend Rick Zullo sent ahead of the recent tech spinoffs nicely sums up the market sentiment around the industry:

You can now buy $ROOT, $HIPO, $MILE, $CLOV, $OSCR and $LMND for the combined price of just over $5 billion. These companies have collectively raised >$10 billion. — Rick Zullo, February 23, 2022

How is it possible that a $5 trillion+ industry growing at over 6% can’t seem to attract investment capital? Have investors chosen the wrong business models or are there pockets within insurtech that have been overlooked?

Attempts to replace legacy insurance systems have had, at best, mixed results. Perhaps seeking to optimize, rather than replace, these legacy systems is the most defensible approach. Perhaps a roofing system put in place nearly 60 years ago presents the ideal scaffolding to build upon today.

Enter Medicare…

Health insurance is a formidable market, both in terms of people and dollars. About 11,000 people turn 65 every day in the United States, and Medicare spending is expected to reach $1.5 trillion by 2030. Private Medicare enrollment doubled from 2010 to 2020 and is expected to grow further. accelerate over the next 10 years.

Instead of directly competing with independent agents, there is a much greater opportunity to forge win-win alliances between startups and agents.

We’re not the first to realize the size of this market, so it must be an exciting space to invest in, right? Well, not quite.

GoHealth, a marketplace for Medicare plans, made a successful IPO in 2020, raising $914 million in a massively oversubscribed offering. Today, its market cap is just over $160 million on more than $800 million in annual revenue, and its chief financial officer quit abruptly earlier this year.

A historic player in the space since the late 90s, eHealth has also struggled – its stock is down more than 90% from its peak.

So why are we even discussing Medicare as an investment opportunity? We have distilled our point of view/thesis into six key factors:

High complexity creates acquisition opportunity

Purchasing Medicare is a complex choice with a plethora of inputs and downstream impacts. The average senior has to choose between 57 different diet options, and most can’t tell them apart.

About Kristina McManus

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