Longtime healthcare executive John Kao became disillusioned with large Medicare Advantage companies in the early 2010s, after his mother experienced a heart attack. Kao’s experience helping her recover showed him just how fragmented and reactive healthcare can be — even in the privatized Medicare program, which was meant to incentivize health plans to better coordinate the care of American seniors.
Kao established Alignment Healthcare in 2013, with the goal of creating an MA model laser-focused on clinical care by combining advanced data analytics with personalized attention, especially for seniors with multiple chronic conditions.
More than a decade later, Alignment is now a publicly traded company with members in Arizona, California, Nevada, North Carolina and Texas, and all of its MA plans rated four stars or higher by the CMS.
Those high quality ratings, which are tied to generous bonuses and competitive advantages in MA, along with consistently well-controlled medical costs have put Alignment in a comfortable operating position during a tricky time for the MA market, analysts say.
MA covers more than half of all Medicare seniors. But the program’s growth has slowed as large national carriers exit markets and scale back benefits to keep unexpectedly high medical costs from hitting their bottom line.
Alignment has taken the opposite tack. The payer swelled its membership more than 20% during the sign-up period for 2026 Medicare plans, hiking its enrollment from 230,000 people to almost 280,000 people. It’s a gamble, given new members — especially those that larger insurers may have wanted off their rolls — could saddle Alignment with unexpectedly high medical spending.
But Alignment isn’t worried, according to Kao — not about membership growth, not about medical utilization trends and not about the CMS’ proposal to hold MA rates basically flat next year, which has the rest of the industry up in arms.
Healthcare Dive caught up with Kao when Alignment’s leadership team was in Washington, D.C. last week. The CEO outlined how Alignment plans to capitalize on the current moment in MA, his thoughts on the 2027 advance notice, why scrutiny of bad actors is warranted and how the insurance upstart is trying to take MA back to its prelapsarian ideals.
Editor’s note: This interview has been edited for clarity and brevity.
HEALTHCARE DIVE: What differentiates Alignment from other MA insurers?
JOHN KAO: What we bring is hope that there is a model that can work and can scale and be consistent with the original intent of Medicare Advantage — that if you can provide higher quality, better access, better clinical outcomes at an affordable price, you should be advantaged in the marketplace to win.
In the last 15 years or so, that construct was compromised by the sector, where — it’s legal — but people have focused on financial engineering, where they push the boundaries of risk adjustment and coding. They transferred risk to globally capitated providers, and had an unusually high amount of denials — none of which will be tolerable or sustainable going forward.
So what we built is something that’s data-driven, clinically oriented and designed to identify who needs the care — running lab data, pharmacy data, encounter data and more through our algorithms to identify that 10% of members who drive 80% of the spend. And our thesis is, if you know who they are, you can intercede clinically as an extension of the primary care physician, so we don’t need to go and buy a bunch of doctor practices. You don’t need to consolidate. You make the existing community doctors better, by aligning financial and clinical incentives and helping take care of those high-need individuals in the home.
And unnecessary hospitalizations go down, which saves the overall system money. And when that happens in MA, you can be more aggressive on your bids and your product designs, which fosters growth. Literally everybody wins.
The Medicare enrollment period for 2026 was tumultuous, with large carriers losing hundreds of thousands if not more than a million members. Meanwhile, smaller companies like you, Devoted Health and SCAN Health Plan took the opportunity to expand. Is this growth durable? Are you at all concerned about the risk profile of your new members?
We could have grown at SCAN’s rate and maybe even at Devoted’s rate. We were very, very conscious not to do that. We were not going to grow at all costs. It was very disciplined, very durable growth. And I don’t think the large nationals are going to be growth-centric in 2027, and maybe not even 2028. And the SCANs, the Devoteds of the world, and other smaller folks — it remains to be seen what kind of cost pressures they’re experiencing. They may do fine, I don’t know. We chose not to go that route.
Heading into 2026 and 2027, the playing field is going to be more opportunistic for us, both in terms of taking share in our existing markets and in terms of expanding into new markets. So that’s kind of how we thought about it.
What are your expansion plans?
I think we’re going to be very well positioned for growth and margin expansion, and we’ll do it again responsibly. This year, we’ll probably enter one to two new states and probably four to five new markets within our existing geographic footprint.
About 80% of our growth comes from switchers. And we’re very, very strategic about that. We’ll let the large nationals migrate the fee-for-service Medicare members into Medicare Advantage, because they have the brand and the money to convert people. And then we just have a better mousetrap. And then our disenrollment rate is like 6% or something — people like us, and nobody really likes their health insurance plan.
So it’s not a matter of if we can scale, it’s how we scale. We have to do that from operating cash flow. We want to do that without compromising stars. We don’t want to be a risk adjustment inflation shop like others are.
What is Alignment seeing in terms of utilization trends in 2026 so far?
We’re on plan. I felt really good about 2025, which turned out well. And I feel even better about 2026 trends being as budgeted. I don’t see a problem with that. Part of that is we didn’t go crazy on growth like some of these other people did.
I’m curious your thoughts on how the largest MA insurers, which enjoy massive resources, have misread utilization trends so drastically at one point or another over the last few years.
One of the things we’ve learned is this notion of transparency, visibility and control that lead to durability. You’ve always got to get better, better, better and be transparent about problem identification. And one problem in our industry is data. So we built this unified data architecture where we have one single source of truth that gives us the ability to have visibility at a member level — molecular financial data, operational data and clinical data — and that in turn is aggregated to their networks, their counties, their states, and that gives us the visibility.
Once we have a problem, we know about it. We go through market reviews every single day. And if you ask our CFO, “Where are the potential hot spots for utilization?” He’ll be able to pinpoint where. And we’re not immune to it. We had a hot spot in Santa Clara last year. But we were able to fix it within 45 days because we actually knew there was a problem.
If you ask any of our competitors — anybody else — “Where are your utilization problems? And what are you doing about it?” Most people, I would say, don’t have any idea.
You talk about Alignment like it’s a totally different beast than most other MA plans.
They don’t have the visibility or the boots on the ground or the control, which is why a lot of them just globally capitated into these value-based providers. That whole mechanism is significantly compromised because of [the Biden administration’s update to the risk adjustment model] V28 — there’s not enough money in the supply chain. It works when people are coding everything up and revenue is going up, but with V28 they just stopped the gaming associated with the coding. Revenues came down.
What’s worse, you have people who are buying the practices and incentivizing the doctors to do the coding. The whole thing is perverted.
So your care-at-home program, Care Anywhere — you don’t own those doctors?
Those we employ. But all they do is they work, they take care of that 10% of members who are polychronic. We employ them because we have to make sure quality control is something we don’t compromise on.
To your point, though, there’s a lot of scrutiny around MA payers owning physicians. Is this a significant profit driver for Alignment?
No, it’s pure. It’s all cost. It’s 100% cost. It represents like 3% of our premium, but it’s a cost that we think is worth the investment because it positively impacts stars and lowers unnecessary hospitalizations. And beneficiaries love it.
And it goes back to your question — I don’t think the big guys think clinically. They actually prefer to globally capitate a lot of this, or they use unit costs to grind down the providers, or they do prior authorization — again, none of which is acceptable. Those practices enhance this trust deficit in the sector.
Pivoting to 2027 MA payment rates. You’ve told investors that you’re not worried about the rates, regardless of where they end up. Why not, and are you still lobbying for higher rates regardless?
We told Chris [Klomp, Medicare director], “Don’t throw the baby out with the bath water here.” I think even if you increase rates to 2%, 3%, 4%, net trend is still at 6%, 7%. So increasing rates is the right thing for the industry.
As it relates to just Alignment, in fact, if you’re still at a flat-ish rate, because we have such an advantage on costs while preserving star ratings and quality — everyone else is going to have to significantly reduce benefits for 2027, while we’d be able to reduce it less or even stay flat. And that would fuel our membership growth for another year and be an opportunity for us.
But factor in the objectives that I think the administration and CMS has — to ensure program integrity, first and foremost, and re-establish trust with the sector.
The second thing is political — the midterms. It’s not a non-factor. If you keep flat rates, I think that’s going to be a problem.
And thirdly, from an actuarial point of view, when they talk about the effective growth rate — subtracting the skin substitutes from the effective growth rate, and then there’s a little bit of a double dip in terms of how they affected the calibration of the risk adjustment formula. Plus they’re going to get additional data coming in from the second half of last year.
So I think those things working together will naturally push the rates up. And historically, if you compare historical advance rate notices to final rate notices, sometimes it’s a pretty meaningful gap.
If you were a betting man, where would you guess the final rate will end up?
I have no more information than you do. I would guess it’s going to be 4%. Others would say 2% to 3% — that’s where a lot of the guesses are. But they’re just guesses.
The CMS has made a point that the number that came out was not a policy-driven outcome. It’s really just pure actuarial data, but it was new datasets. And we said the same thing to them as we’ve said to the analysts and we said to you, which is: The right thing is to have a bigger number. If it’s less, it would actually be a good thing for us. But for the sector, these numbers did come out low.
What are your thoughts on the other big proposal in the advance notice, to remove codes from chart reviews unassociated with actual medical care from risk adjustment?
We think of risk adjustment as an extension of the care plan for the member. Some people — not everybody — some people think of it as revenue cycle management, which really is just philosophically and morally wrong. So delinking chart reviews is the right thing to do.
The principle is just so simple. If you get paid more, you have to make sure you correlate the care to the patient, and that was the gap that was missing.
Do you feel there’s anything Alignment could be doing better?
I'm not going to be happy until we get all the plans in five stars. I mean that kind of seriously. You know, we’ve got three of the five — they’re five stars.
What’s holding up this goal?
The reason we’re able to get five stars outside of California is we’re engaging with the physicians correctly. In California, you have another layer of administrative intermediary called an independent physician association. We have some very, very high performing IPAs. We also have more than we should in terms of not-so-good performance. Those were the ones that are compromising us on certain measures within stars. If we had resolved that we would get to five stars.
How confident are you that these contracts will reach five stars in the next ratings cycle?
That’s the goal. I can’t comment on how confident we are on that.
