Clover Health SPAC plans and growth projections for Medicare

  • The Social Capital SPAC led by billionaire Chamath Palihapitiya is acquiring Clover Health in a $3.7 billion deal that’ll take the health insurance company public. 
  • In 2021, Palihapitiya projects the company will grow its membership roughly five times what it was this year.
  • Clover Health president and chief technology officer Andrew Toy said that projected growth largely comes from the potential participation in a new Medicare program that’s yet to be finalized. 
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Social Capital’s Chamath Palihapitiya is looking to acquire the health insurance company Clover Health via a SPAC. 

The special-purpose acquisition company Social Capital Hedosophia Holdings Corp. III will merge with Clover in a $3.7 billion transaction that’s slated to close in 2021, the companies said in a statement.

Clover offers private health-insurance plans for seniors, a product called Medicare Advantage. Competition is fierce for the more than 24 million Americans enrolled in Medicare Advantage plans, and for the thousands signing up daily as they turn 65. Startups like Clover are facing off against industry giants like UnitedHealthcare, Humana, and Aetna.

In a tweet Tuesday, Palihapitiya laid out his expectations of growth for Clover. By 2021, Clover’s membership is projected to be 273,000 people, roughly five times what it was at the middle of this year. Clover. That in turn would lead to revenue of $880 million, roughly double the company’s 2019 figures. Bloomberg News first reported that Clover was in talks to go public via the SPAC earlier on Tuesday.

The rapid expansion contrasts with the slower growth Clover has seen over the past few years.

Clover enrolled 39,400 members in 2019, 10,000 more than the year before. It signed on 54,400 people this year, according to Business Insider’s reporting. As of the end of June, Clover’s Medicare Advantage plans had 56,816 members.

A large part of that projected growth will come from Clover’s plan to participate in Medicare’s direct contracting program. The new program is a test to find new ways to lower costs for the federal Medicare program, drawing in part from lessons learned through Medicare Advantage, in which insurers apply to participate.

In an investor presentation, Clover said that it has already agreed to care for 200,000 seniors through the direct contracting program next year, and it expects that will grow to 450,000 by 2023. By contrast, it estimates it will cover 139,000 Medicare Advantage members that year.

Clover Health growth projection

The growth projections Clover Health shared with investors

Clover Health

The program hasn’t finalized which insurers it’s working with, said Clover Health president and chief technology officer Andrew Toy, but it’s anticipated to launch in 2021. 

Should Clover officially take part in the direct contracting program, it’d be an “efficient” way for the insurer to manage more Medicare members, Toy said. 

“We’re very enthusiastic about that, and we think there’s a lot of potential,” Toy said. He declined to discuss further details until the program and Clover’s participation in it is finalized. 

Read more: Venture-backed health insurers are all competing for customers in the red-hot Medicare Advantage market. Here’s our first look at how Oscar, Devoted, and Bright stack up.

Clover is one of a handful of startups shaking up the Medicare Advantage market

2020 is shaping up to be a pivotal year for health insurance startups. 

In May, Oscar Health raised $225 million from investors including Alphabet and General Catalyst. The insurer is gearing up for a 2021 initial public offering, Axios reported. Bright Health in September said it raised an additional $500 million from investors including Tiger Global Management and T. Rowe Price Associates. 

Over the years, Clover has raked in $925 million in funding from investors, including a $500 million round in January 2019.

Clover had a net gain of $34.7 million through the second quarter of 2020 as medical expenses significantly dropped during the pandemic.

Clover brought in $334 million in revenue from its 56,816 members, while recording $266.3 million in medical expenses in the first six months of the year. It spent 79.7% of the premiums it took in on medical expenses. 

It’s a stark difference from the company’s second half of 2019, when the company posted a net loss of $16.3 million and spent about 94% of its premium revenues on members’ medical expenses. 

Clover got its start selling Medicare Advantage plans in New Jersey. In 2021, it plans to operate in Pennsylvania, Texas, Georgia, South Carolina, Arizona, Tennessee, and Mississippi.

Read more: Bright Health just raised $500 million and Oscar Health is reportedly eyeing an IPO. Here’s a look at how the hot health insurance startups have fared this year.

Clover in October announced plans to sell insurance plans alongside Walmart in Georgia. Walmart over the past year has been diving deeper into healthcare, such as through the expansion of its health centers, an effort that got its start in Georgia.

The timing worked well, Toy said, as Clover expanded its reach into Georgia, as did the two companies interest in providing convenience and affordability in healthcare.  

“What really connected us together was a vision of ‘make healthcare affordable,'” Toy said. 

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