How Private Equity Gets Its Cut from Medicare Advantage

This report examines the role of private equity in the growing multibillion-dollar Medicare Advantage industry. With a rapidly aging population in the US, and therefore growing market for Medicare Advantage products, the MA sector has provided ample opportunity for investors seeking quick profits, be it through insurance plans, in-home health assessment companies, or brokerage and marketing firms. 

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Key Points

• Medicare Advantage (MA) is a growing, multibillion dollar industry. With a rapidly aging population in the US, and therefore growing market for Medicare Advantage products, the MA sector has provided ample opportunity for investors seeking quick profits, be it through insurance plans, in-home health assessment companies, or brokerage and marketing firms.
• Private equity firms have found value in investing in the Medicare Advantage sector, as evidenced by their deal activity in this space from 2016-2023.
• Deal activity within the Medicare Advantage ecosystem reached a high in 2021, potentially buoyed by industry-friendly regulatory rollbacks for Medicare Advantage marketing that were implemented by CMS under the Trump administration.
  • The majority of these investments have been in companies that operate within the senior insurance distribution market, such as insurance marketing and brokerage firms.
• Under the Biden administration, CMS has tightened Medicare marketing regulations, as well as proposed new rules regarding payment limits to brokers.
• Private equity dealmaking in Medicare Advantage has slowed since 2021, likely due to rising interest rates and the changing regulatory landscape. It remains to be seen how high interest rates and tightened regulations may slow down or even deter new investments over the next few years.
• While publicly traded mega-insurers appear to dominate the industry and bear much of the public and regulatory scrutiny around issues and scandals with Medicare Advantage, this report highlights how private equity-owned companies have been active participants within the Medicare Advantage ecosystem.
• Policymakers and regulators should continue to exercise vigilance over private equity’s presence in the Medicare Advantage arena due to the risks that often accompany private equity ownership in healthcare. These include increased consolidation that can create anticompetitive issues and drive-up healthcare costs, business practices that cross the line into Medicare and Medicaid fraud, and highly indebted portfolio companies that engage in cost-cutting to meet their debt obligations, often at the expense of patients and workers.

PESP proposes a number of private equity-specific policy solutions to help curb some of the common issues seen with PE investment in healthcare spaces. Recommendations include:

• Requiring private equity firms and other corporate owners to refrain from indebting newly acquired companies in order to pay shareholder dividends.
• Requiring joint liability for private equity owners and their portfolio companies
• Higher FTC and DoJ scrutiny of healthcare deals involving private equity firm owners, even if individual deals do not meet the typical threshold to trigger FTC review