3 things about Clover’s health that smart investors know

Would you like to invest in a relatively new company that is entering a highly contested and highly regulated market, an already dense market with established competitors? If you are the type of investor who immediately responds “Yes!” “, You are in the right place.

Born from a recent merger with an ad hoc acquisition company (SPAC), Health Clover (NASDAQ: CLOV) aims to disrupt the Medicare Advantage plan market by reducing healthcare costs and providing better value to patients. Even if health insurers are not common in your portfolio, this title may be worth a look. But there are quite a few moving parts with Clover, so it’s important to understand some things about the business that smart investors know.

1. It’s a store of memes

Regardless of its long-term merits, Clover Health is popular action on retail platforms like Reddit. This means that the stock can often be volatile, seemingly without explanation. It also means that the leadership will have access to an enthusiastic audience of evangelists, which could be helpful.

But don’t assume that being a memes store makes Clover Health a Wrong Stock. On the contrary, this dedicated community watching from the bleachers could end up holding the stock as other investors dump it, such as after a bad earnings report.

Plus, memes are free advertising. While it doesn’t necessarily make a big difference in results today, it could be a long-term boon.

While management is particularly competent and ambitious in its dealings with retail investors, there is also the possibility (for now, remotely) of enlisting retail investors as small lobbyists for legislative causes that could benefit. to the company – for example, changing the age requirements for Medicare eligibility. While small shareholders might not be interested in writing to their members of Congress on a regular day, if they own Clover stock, they would have a financial incentive to do so, and a nudge from management could do all. the difference.

2. New legislation could present a major threat – or an opportunity

Clover Health competes in the highly regulated industry of Medicare Advantage administrators. Because Medicare is a public health insurance program provided by the US government, it makes sense that the company’s exposure to legislative risk is high. If Congress passed a law banning private extensions of Medicare benefits, Clover would be finished.

This is unlikely to happen, but even tiny changes in relevant laws could be very disruptive to shareholders. On the positive side, some of these adjustments have the potential to be overwhelmingly positive. Right now, Progressive Democrats argue that the Medicare age of eligibility should be reduced from 65 to 60 as part of the ongoing infrastructure bill, which would massively increase the size of the addressable market for Clover Health.

And, since young people have fewer health issues, they might be less expensive to cover, which could help support higher profit margins.

But if standard publicly-provided Medicare plans are mandated to cover some of the services that only Medicare Advantage plans currently cover, it could eat away at the company’s market share. Details matter, then, and every new health care law could raise issues.

3. The business model may need to change significantly

For Clover Health to be successful, two groups of people must want to work with it: Medicare patients and clinicians. the plan provides, and clinicians are reimbursed by Clover Health when they actually provide these services. But first, doctors must agree to join the network and agree to its plans.

Clover’s goal is to offer less expensive coverage than its competitors while reimbursing healthcare workers faster and helping them reduce healthcare costs. It further plans to reimburse suppliers at double the industry standard rate. To explain how it will achieve this, management cites the company’s Clover Assistant software platform, which it says uses all kinds of sophisticated technology to deliver on its cost-cutting promises to physicians.

If Assistant Clover can’t deliver when it comes to reducing the cost of care, the business will be in serious trouble. It is one thing to be more generous with refunds during the initial growth phase, when it is essential to bring more suppliers into the network. But over time, that might not be sustainable, especially with less money coming from each customer than you might expect with a competitor.

Thus, the business model may have to change significantly in the long term, which is likely to be a major event for shareholders.