Dive Brief:
- Private equity deals in Medicare Advantage have declined since 2021, likely due to high interest rates and a stricter regulatory environment, according to a report published Tuesday by the Private Equity Stakeholder Project.
- There was a spike in PE investment between 2019 and 2021, with a dip in 2020, possibly due to the COVID-19 pandemic, according to the analysis. More than half of the deals during that period involved insurance brokerage and marketing firms.
- But there were 66% fewer MA deals last year compared with 2022, and 79% fewer deals than in 2021, according to the report.
Dive Insight:
MA, where private insurers contract with the government to manage Medicare benefits for seniors, has become an increasingly popular option for beneficiaries. The plans often offer additional benefits like dental coverage or gym stipends, and can be lucrative products for insurers.
Private equity firms have made a number of investments in the space over the past seven years, according to the Private Equity Stakeholder Project, a watchdog group that scrutinizes private equity investment.
Overall, the report tracked 80 private equity-backed growth investments, leveraged buyouts and add-on acquisitions — where a firm acquires a company through one of its existing platforms — in the sector between 2016 and 2023.
Marketing and brokerage firms are some of the primary opportunities for private equity deals in MA, according to the report. Since 2016, the majority of private equity investments in MA have been in marketing and brokerage companies.
The insurance market is already highly concentrated, so investors look for companies that could support the MA sector — like marketing companies, IT firms, data analysis companies or primary care providers that contract with the plans.
The regulatory landscape was “relatively friendlier” under the Trump administration, which could affect private equity dealmaking, according to report author Mary Bugbee.
The CMS has cracked down on deceptive marketing practices for MA plans last year after a spike in complaints about aggressive tactics, including false or misleading information or repeated sales calls.
The agency also recently proposed a rule that would limit extra payments for brokers, which the CMS said could stop them from steering seniors to coverage based on excess payments, and level the field between small and large plans.
