Medicare Advantage (MA) payer Alignment Healthcare is raising its full-year guidance across the board after its first-ever profitable quarter as a public corporation, the insurer announced Wednesday.
Alignment, an upstart in the health insurance field, secured a quarterly net income of $15.7 million, days after industry leader UnitedHealthcare announced intent to leave certain MA markets and other health plans announce wobbly earnings.
The financial results highlight a paradigm shift in delivering care and offering insurance, CEO John Kao told Fierce Healthcare in an interview Thursday.
Traditional insurers use, in his words, “financial engineering” to generate strong performance, in the form of coding, global capitation and prior authorizations. Alignment’s model puts extra emphasis on identifying the seniors who need the costliest care to decrease hospitalizations, not financially relying on risk adjustment reimbursement from the federal government and a “maniacal” attention to the stars rating program.
“And, by the way, we’re only two-thirds of the way through the V28 risk adjustment model phase-in and everyone’s blowing up,” he said, referencing an ongoing regulatory shift imposed on payers. “What do you think is going to happen when the final phase-in hits next year? We’re the contrarians, if you will, to the incumbents.”
The company is opting to improve its full-year outlook for membership, revenue, adjusted gross profit and adjusted EBITDA after surpassing the high end of its guidance for the second quarter.
Notably, the insurer also beat the high end of its adjusted EBITDA guidance of $60 million after just two quarters. So far, Alignment has recorded $66.1 million in adjusted EBITDA.
The stark overperformance is rooted in its Alignment’s Virtual Applications (AVA) tech platform used by the company’s Care Anywhere program to fill care coordination gaps and improve preventive treatment for polychronic individuals, said Kao.
“What we did was we partnered more with our downstream delegate medical groups and our independent physician associations such that we are doing more of the clinical work along with them,” he said. “That’s allowed us to get even better outcomes from a clinical quality point of view.”
The insurer also earned payments from the Centers for Medicare & Medicaid Services due to upsized growth in 2024, boosting the company’s incremental gross profit by an extra $14 million.
Alignment crossed the $1 billion quarterly revenue threshold in the second quarter, a 49% improvement year over year. The insurer can also claim 223,700 members, a 27% increase over this time last year, and its medical benefits ratio was 86.7%.
Part of Alignment’s success compared to other insurers is its lack of exposure in the Medicaid and Affordable Care Act exchange businesses, said analysts with William Blair. While the company’s stock had dipped 26% in the last three months, those struggles are likely a result of skepticism surrounding the environment impacting other lines of business and payers—not an indictment on MA or Alignment specifically.
“Moreover, with Alignment, we continue to see a differentiated model that is humming on all cylinders, balancing strong growth with medical cost management, investments in care delivery and the member experience, and operating expense discipline,” a note following the earnings call read.
Now, the insurer hopes to achieve up to $3.91 billion in revenue in 2025 and have 229,000 to 234,000 members. Its estimated adjusted EBITDA is $69 million to $83 million.
“I'd say the other thing we did was the investments that we've made in AI and in core system automation are beginning to pay off in the form of increased operating leverage, and we're getting big enough in size,” explained Kao, noting the company’s selling, general and administrative expenses were 8.8% for the quarter.
Kao said Alignment has explored the potential of agentic AI. While it’s unlikely they become a “bleeding edge” player, he foresees the company being a “very, very fast follower.”
Earlier this month, a judge ruled partially in favor of the company in a star ratings lawsuit, boosting the scores of select plans. Bids for the upcoming year 2026 were modified.
“Since its initial phase-in in 2024, and along with star ratings declines across the industry, large incumbent MCOs have lost share in MA for the first time since 2014,” Kao said during the earnings call.
Alignment is eyeing opportunities to expand membership and enter new markets in 2027 as the company finds its footing. As early as next year, Kao wants to invest in scaling and advertising the insurer’s brand.
“That’s the piece that we’re kind of underplaying … we can blow this thing out throughout the country,” he said. “That’s where it gets super exciting, because I think every single senior in this country deserves to get the kind of care we offer relative to their alternatives.”