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Where we share our weekly news debriefs and discussions with industry experts. These are lo-fi recordings aimed at giving our readers more opportunities to engage with our analysis and a view into some of the conversations that shape it.
Martin: I need to read a quick disclaimer
before we welcome on our next guest.
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Welcome to the show.
Patrick: Hey guys.
Thanks for having us.
Martin: So Medis happened last
week, big broker conference.
You also, uh, recently published a
report on the, the brokerage market.
Could you talk to us a little bit
about p pe activity, basically in,
in the brokerage, uh, the brokerage
space, and what were the lessons
learned from these sort of last wave of
activity into, to where we are today?
Patrick: Activity in the space
really started off, I'd say like in
the, you know, the 2017 18 period.
Um, so had private equity firms investing
in Medicare Advantage brokerages.
Medicare Advantage was continuing to,
uh, to increase as far as enrollments go.
I think they were probably getting
to like 20 million members,
um, eclipsing that amount.
And then something happened in 2018,
2019, there was a change in accounting
practices, uh, called 6 0 6 accounting.
And effectively it sounds kind of,
um, you know, esoteric, uh, or,
you know, just, uh, uh, you know,
kind of very niche of the space.
But it had a really dramatic impact on
how these Medicare Advantage brokers
accounted for the revenue and ebitda.
And effectively what it said was that
once you place a policy, you need to
recognize today when the policy is
placed, uh, the expected future cash
commissions, you're going to collect
over the lifetime value of that policy.
So that concept, lifetime value
became very, very important in
the Medicare advantage space.
So you could see how with certain
assumptions you assume a life of a
policy is three years, four years,
five years can have pretty dramatic
effects on the revenue and ebitda you're
recognizing when a policy is placed.
So in 2019, this, uh, accounting
policy was implemented.
Medicare Advantage was
growing very rapidly.
So you had the MCOs looking to acquire a
lot of members aggressively, and they were
using these Medicare Advantage brokers
as a conduit to access those members.
About half or maybe more of all
members get their Medicare Advantage
policy through a broker as opposed
to going direct through a an MCL.
So with this accounting change,
um, and the superficial increase
in in revenue and ebitda.
Both private investors, private equity
firms, and public markets for a period
of time from 2019 to 2021, were valuing
these businesses off of their gap EBITDA
as opposed to their actual cash ebitda.
So you had situations like GoHealth that
was negative cash flow, negative like
cash ebitda, but had a positive EBITDA
of, I don't know, a hundred million, 150
million, 200 million, something like that.
So for a couple years, uh, these
companies were valued off of that type
of revenue in ebitda and therefore, uh,
private equity firms were aggressively
investing in these businesses.
And these companies built their model,
not predicated on long-term cash
flows, but predicated on what the
market was rewarding companies for,
which was gap, ebitda gap revenue.
Hmm.
Patrick: So you had a flurry
of deals getting done in
the 2019 through 21 period.
You had GoHealth go public
at a pretty wild valuation.
I think it topped out around nine or 10
billion market cap after it went from.
Uh, it went from, uh, Norwest Equity
Partners to Center Bridge in 2019 and
then Center Bridge, uh, explored both
the sale and IPO and ended up IPOing
that business at the 10 billion valuation
after they'd acquired it for 1.5
billion.
You had, uh, CD and R sell
transact to Willis Group.
They bought that for
a few hundred million.
They sold it to Willis Group,
the big broker for about 1.5
billion, and then a host of other
private equity backed deals and public
deals, uh, during that time period.
So that really characterized the 19
through 2021 time period, and you had
a big shift in the marketplace starting
in 21, 2022, which we can talk about
as well, but most of the private equity
and certain all the public activity was
happening during that 2018 or 2021 period.
Kevin: One of the other things we were
talking about coming, Medicarians the, um,
the big annual gathering of, of brokers
in the market, uh, I think was, it was
last week, if I'm correct, timing wise.
That's correct.
Trying to keep my days straight here.
So, um, stepping back, it's, it's
obviously been a tumultuous few years
in the Medicare Advantage market.
As I was reading the white paper, there
was this interesting sentiment, uh, that
I, I saw through it, of it, it could
actually be a good time for brokers to
lean into that disruption, um, to become
more of an indispensable partner for
Medicare Advantage organizations as they
think about attracting, retaining members.
Um, and that dynamic,
creating a new opportunity for
brokerages to win in the market.
Uh, I, I'd be curious, um, assuming I
got that sentiment right, feel free to
amend it if I missed anything in there.
Patrick: So, as I kinda laid out,
like the PE activity, the public
activity back in 19 to 21 really
predicated on volume-based enrollments.
So volume today, not focused
on long-term member retention.
I'll hand it up to Rebecca to kind
of cover the current status of MA
brokers that is very different from
what was happening in 19 through
21 during all that activity.
But Rebecca, why don't you go ahead.
Rebecca: You know, in terms of what
we heard out at Medicarians, we spoke
with, um, small brokerages, very large
players, you know, tech platforms, lead
generators, the, the whole ecosystem.
It was a really tough, a EP is
sort of the, the headline, right?
I mean, uh, you know, we heard groups
that came in 20, 30% plus, uh, south
of, of where they expected revenue, uh,
to hit because of some of the actions
that carriers took, um, over this a EP.
Um, so, you know, it was, it was
an interesting conference in the
sense that, you know, everyone
there obviously believes in the long
term, uh, you know, tailwinds and,
and value of insurance distribution
and, and Medicare, US included.
Uh, but, uh, but there have been some,
some challenges to kind of break down
what, what happened, what folks have seen.
Um, you know, for the last
two years you've had carriers.
Pulling, uh, plans from specific
markets, specific plans from specific
markets, and in some cases pulling
out of, of a market entirely.
What happens, uh, when one
carrier pulls out is that those
members go to other plans.
The plans don't know what
they're inheriting, they don't
know what the risk scores are.
Uh, they sometimes don't want that risk.
They get nervous.
Um, they may pull plans or they may
decommission, or they just take on members
that they, they may or may not be able
to manage, uh, and price effectively.
So, uh, lots of, of churn in the market.
Um, you saw Humana, uh, and United, uh,
and a number of other carriers, um, cut
commissions on a large number of plans.
Humana terminated, um, roughly a
third of their call center contracts.
Um, there were regions where just
sort of through a domino effect
of carriers, uh, uh, making plans
non-commissionable, there was effectively
no, no commission available for plans
in a, you know, given, uh, small area.
So it was kind of a roulette depending
on where, where you were concentrated,
um, as to, to what the, uh, effect was.
Now, ironically, and this is what we
sort of push on in the report, uh, all of
this churn means that brokers are more.
More valuable to carriers than ever if
they're doing their job in the right way.
Right?
Because, uh, carriers need, uh,
high quality, long-term membership.
They need, uh, meaning they need folks in
the right plans for their medical needs.
Uh, they need, uh, a an upfront view
as soon as possible of the member,
what their, um, what their health needs
are, what their, what their profile
is, what their, uh, risk looks like.
And they need to engage the member and
get the member into the right, you know,
programs and, and care management, um,
as soon as possible and not take nine
months as it often does for them to sort
of work through the carrier systems.
Um, so, so we are, we can, we can talk
about this more in a second, but we are
seeing, seeing, uh, brokers both, um,
kind of like, kind of try to right the
ship as there's a, there's a lot of,
uh, of choppy waters out there right
now, but also kind of leaning into,
uh, member engagement and quality and
compliance as, as differentiators, uh, as
carriers become more and more selective
in, uh, in their broker relationships.
Martin: I'd be curious to double click
on what do those capabilities look
like that are gonna distinguish the
brokers of the future, the successful
brokers of the future from I, I guess
what you would call the older model.
Patrick: Yeah, so I'd say there's
a, there's a pretty, um, pretty
dramatic juxtaposition between like
the brokers of six or seven years ago.
They're really predicated on,
on really volume above all else.
I mean, they were rewarded for volume.
They were not rewarded for retention.
They were not rewarded for
acquiring the specific members in
specific geographies that carriers
were, you know, were looking for.
So I think the best brokers today, the
ones that we have seen successfully
navigate what's been a, a very tough,
like, you know, three or four years
now, you had the accounting change,
then the reverberations from that.
You had the post COVID, uh, dramatic ramp
up in utilization at the healthcare plans.
And then with that, uh, them pulling
back as Rebecca just covered.
So, and then, you know,
marketing dollars have decreased.
Plans have been decommissioned.
It's been a very challenging space,
um, over the last like couple of years.
But there are successful
brokers out there.
There are ones that have
navigated this very choppy
water, uh, done like pretty well.
And what we're seeing from those are,
um, heavy investment in technology.
Oftentimes, uh, the top brokers
out there are generating most,
if not all of their own leads.
So they generate their own leads.
They use technology to do that.
They track the overall cost of
the leads and how effective of
policies that those leads produce.
Not just like did they submit.
Do they place?
Do they make it through
rapid dis-enrollment?
And then what's their
longer term retention?
So looking at the overall quality of
a policy over a long period of time,
and the leads that produce that.
They focus on long-term member retentions.
They're constantly
engaging with the members.
They submit a policy.
There's certain times in the policy
life cycle where they're reaching out
to that member and they're practically
engaging with them to keep that
member from churning on the plan.
Or even if they do churn, they retain
that member as part of their brokerage
and they place them in a different
plan, more solutions to the health plan.
So member engagement, benefit
activation, that's become really
important, not just in becoming a more
valuable intermediary for the MCO,
the carrier and the member, but also
too, it allows the broker to further
monetize that member and to generate,
you know, cash revenue off cycle.
So now just getting the commission
dollars when a policy like places,
but also like monetizing that member
in several different ways that
happens to make them stickier for
both the member and for the carrier.
We've also seen this push
for product diversification.
So oftentimes these brokers would
only be focused on Medicare Advantage.
We're now seeing care, uh, brokers
focus more on MedSup, other types of
ancillary solutions, um, that this
particular member base is looking
for basic wealth solutions, life
insurance, final expense, which is
basically a form of life insurance.
Um, other types of ancillary products
pushing outside of Medicare in the
senior audience into a CA as well.
So be more of like a holistic individual
health insurance broker, uh, in other
ways to monetize that member throughout
their entire life cycle and throughout
the year as well too, so that they don't
have to be such a seasonal business of
hiring a bunch of agents for a EP and
then, you know, churning them, firing
them, riffing them as like the a EP
period ends, volume, like goes down.
Um, Rebecca, what would you add to that?
Rebecca: Yeah, I just echo
the point on diversification.
We heard that over and over again.
Uh, uh, lot, lots of buzz
around final expense.
That seems like a, a pretty
frothy, um, theme right now.
Um, CS NP and dsnp, um, uh, another,
you know, sort of product, uh, variation
that, that folks are leaning into
and one that you can, uh, enroll in,
uh, on more of a year-round basis.
Um, so, uh, definitely heard,
heard that theme repeated.
Patrick: One other thing I'd add is
just this overall view on technology.
So AI is of course, like it's a
buzz in every part of healthcare,
I'm sure other industries too.
Um, I think we've seen the early stage
deployment of artificial intelligence,
um, particularly around like kind of basic
things like qualifying someone, are they
eligible for Medicare Advantage or not.
There's a couple key questions that
even in like an AI chat, chat bot
can answer before they hand them
off to an agent for enrollment.
So I think we've seen AI
successfully deployed there.
AI is successfully deployed in, uh, making
the agents more productive to a degree.
I think we're pretty early innings of
this and I think that, you know, the
best brokers out there are gonna be the
ones that, um, really reduce the cost
of, of a lead, you know, per policy.
And then also to use AI for
better member retention.
Because the only way to really
win out on this game is like.
You need to place people
cheaper or policies cheaper.
You need to make the
agents more productive.
The human agent is probably not gonna
go away anytime soon, but you need to
make him or her much more productive.
And then, um, focusing on long-term
member retention is really the only way
to get a steady stream of cash flow.
So those are all kind of key parts of
the future of the ma brokerage tale.
Kevin: Maybe last question for you on my
side, I'd be curious, one of the things
we hear about the brokerage market, it's,
it's perceived as one of these middlemen
who, who at times doesn't always play the,
the, the highest value role that it could
in the market and perhaps gets a negative
perception as a re as as a result of that.
A lot of what I hear you all describing
is kind of shifting that mindset to
we are the trusted partner for health
plans upfront for helping enroll members
in, um, get them signed up, get those
first interactions out of the way.
I, I'd be curious, how
often is it discussed?
Was it much of a topic out there of that
role of the broker, how brokers could be
viewed in a more positive light and kind
of this future instantiation of ma with
more lifetime value of members and less
churn and all that kind of fun stuff?
Rebecca: Yeah, I mean it's,
um, it's a key question, right?
And I think that the industry.
Um, having gone through the, uh, little
rollercoaster that it has over the past,
um, uh, you know, 5, 6, 7 years, um,
has really come to a place of actually
aligning, uh, the economic incentives,
uh, uh, in the industry with that
sort of quality and value add, right?
It, it, the, the, the time period that
Patrick was describing at the top, uh,
where you had, you know, sort of, uh,
6 0 6 gap, gap revenue and, and EBITDA
being the, the sort of, the thing
that broke straight it off of, um, uh,
you know, tended to incentivize, just
acquire as many members as as possible,
uh, as quickly as possible, right?
And, and, and that's shifted now.
Um, so, so I think you have that,
you also have AI kind of pushing
the industry toward, uh, thinking
critically about value add.
Um, you know, uh, it, CMS has been pretty,
uh, pretty open about its interest in AI
enabling insurance distribution, right?
There's an RFI that came out in
February around that, uh, various
public comments have been made.
Um, I don't think anyone sees,
uh, a near term future in which.
CMS has its own team of AI agents selling
Medicare Advantage, uh, autonomously.
Um, hopefully not.
Um, but, but there is discussion
around, well, what, you know, if if
brokers don't add value, then, then
the carrier really just wants to cut
out that expense and is gonna in-house
as much as possible and AI enable it.
And yes, carriers are slow with
technology, but like, you know, there
are vendors and, and so it, it, it just
kind of puts a finer point on, uh, the
value, uh, uh, of the broker as a, a
very targeted, uh, uh, marketing engine.
Um, a very efficient marketing engine.
Uh, and the real first human contact
that an enrollment has, right?
Where they're on the phone for 90
minutes plus in the first enrollment
call, uh, go to your medicine cabinet,
read me the labels on the, on the jars,
um, type of engagement with the senior.
So, um, if you're doing that work
right, um, that's invaluable for a plan.
Alli: Yeah.
Rebecca: Uh, and you know, I think
that the industry's push now is to,
uh, to double down on that, to sort of
stay focused on that quality, um, as
there's a continued noise in the market
and then start to measure outcomes.
We call this out in the report,
but that's really something
that, that we haven't gotten to.
Um, brokers are doing this
value add work, no one's figured
out how to sort of quantify.
Okay.
And so what to the plans
in a systematic way.
And I think that's the next
step that we need to get to.
Patrick: I think the days of like the,
uh, the boiler room approach, um, I
think those are, those are over now.
Part of that's like a legacy of, you
know, some of the larger players,
I guess we won't name names here,
uh, really focused on volume.
You saw like the Joe Namath,
like TV ads, things like that.
Um, high volume, you know, agents that
turn like very quickly was overall
just like a, a very negative cycle.
Um, you taught to some of these like top
tier brokers out there, the groups that
Rebecca and I, you know, spent a lot
of time with, sat down with the medics.
Um, you may be surprised at
just how advanced they are
from a technology perspective.
Process perspective.
Yeah.
There's still like a direct consumer
angle like to this, but it is,
um, it is a pretty important like
sale like to the, to the senior
or to someone who's on, you know,
disability and qualified for Medicare.
It's an hour, 90 minute conversation.
It's a very important decision
that this person is making as well.
You really need like a
qualified human to do that.
And I think we are continuing to move
away from like the old perception of
boiler room, kind of smile and dial
chop shop, like type like brokers into
much more like sophisticated technology
driven, highly scaled, you know,
engaged both the member and the carrier
level and adding value to both sides.
I think you'll see like the top
brokers like continue to evolve
like with that model there.
We will get away from the days of having
this like boiler room type perception for
the, for the brokerage industry because
the best players out there like just
do not operate in that manner anymore.
Um, so we think we're finally kind of
breaking free from that perception.
Martin: We really appreciate the
overview, the update from Medicarians.
Where can people who wanna learn
more about this space find the
report that you all put together?
Rebecca: Uh, we can share a
link to our website, um, and
you can download it there.
Martin: Great.
Uh, well, we'll link to
that in the show notes.
Thank you both so much
for your time today.
Really appreciate it.
Um, and excited to have you back soon.
Kevin: Good seeing you both.