# Devoted Health Financial Model

Medicare Advantage (MA) health plan targeting seniors, combining a proprietary tech stack, tech-enabled care coordination ("Devoted Health Guides"), and an owned medical group to drive superior margins versus incumbents.

- Canonical: https://finamodel.com/startups/devoted-health
- Excel download: https://finamodel.com/startup-models/devoted-health.xlsx
- Category: InsurTech
- Model type: Insurance GWP
- Funding round: Series B
- Funding: $300M
- Founded: 2019
- Geography: US (county-level Medicare Advantage markets); 2019 market launch referenced.
- Customer: B2B2C

## About the company

Devoted Health is a Medicare Advantage plan for seniors, combining technology, care coordination, and an owned medical group. Its model aims to lower medical cost while improving service, quality ratings, and member retention.

Revenue comes primarily from CMS capitation payments based on county benchmarks, member risk scores, and STAR quality bonuses. The owned medical group provides a separate care-delivery revenue and margin component alongside the insurance plan.

The model is managed-care PMPM economics. Members, risk score, county rates, STAR bonus, medical-loss ratio, care costs, administration, and medical-group performance drive profit. Enrollment growth, clinical outcomes, and quality ratings are the critical variables.

## What's included

- 5-year monthly revenue build with stage-appropriate growth assumptions
- Full P&L, headcount plan, and operating-expense schedule
- Cash-flow statement, runway, and burn-rate tracking
- Valuation via exit multiple with a DCF cross-check
- Returns analysis with MOIC and IRR
- Unit economics including CAC, LTV, payback, and cohort retention

## Product & value proposition

- Medicare Advantage plan for seniors with a differentiated cost model:
  - Revenue formula: County benchmark × Plan risk score + STARS quality bonus.
  - Devoted Health Guides: tech-enabled care-coordination teams to reduce medical costs.
  - House-call medical group: owned clinical services that simultaneously lower total cost of care for the plan and generate revenue/margin for the medical group subsidiary.
  - New technology stack reducing admin costs vs. legacy competitors.
  - Lower churn via higher NPS → lower long-run sales costs.
- 4+ STARS rating yields a 5% CMS revenue uplift; 5 STARS allows year-round enrollment.

## Revenue model

- Revenue = (County benchmark × Plan risk score) + STARS quality bonus.
- Average risk score assumption: 1.28 (2019), declining to ~1.15–1.16 (2020–2023) as cohort matures.
- Revenue is recognised on a per-member-month (PMPM) basis from CMS capitation payments.
- Medical Group earns separate revenue and margin by delivering clinical services.
- STARS bonus (4+ stars → +5% revenue) is a meaningful upside lever.

## Traction & metrics

All figures from Slide 2 (draft financial projections; marked "Private & Confidential"):

**Enrollment**
| Year | Members | Member-months | YoY Growth |
| ----- | -------- | -------------- | ---------- |
| 2019 | 5,000 | 45,000 | - |
| 2020 | 15,750 | 154,500 | 243% |
| 2021 | 33,650 | 343,800 | 123% |
| 2022 | 64,358 | 667,890 | 94% |
| 2023 | 103,722 | 1,105,311 | 65% |

Average risk score: 1.28 (2019) → 1.16 (2020) → 1.15 (2022–23).

**Revenue ($000s)**
| Year | Revenue | YoY Growth |
| ----- | -------- | ---------- |
| 2019 | $52,870 | - |
| 2020 | $166,806 | 216% |
| 2021 | $370,351 | 122% |
| 2022 | $721,860 | 95% |
| 2023 | $1,193,144 | 65% |

**P&L ($000s)**
| Line | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| ----- | ----- | ----- | ----- | ----- | ----- | ----- |
| Medical Expense | - | 49,146 | 145,313 | 320,236 | 611,248 | 1,002,184 |
| % Revenue (MLR) | - | 93% | 87% | 86% | 85% | 84% |
| Admin Expense (ex S&M) | 24,020 | 32,601 | 36,505 | 43,078 | 54,144 | 71,845 |
| % Revenue | 61.7% | 21.9% | 11.6% | 7.5% | 6.0% | - |
| Sales & Marketing | 7,315 | 8,830 | 21,009 | 30,364 | 45,831 | 57,918 |
| % Revenue | - | 16.7% | 12.6% | 8.2% | 6.3% | 4.9% |
| Operating Income | (31,335) | (37,708) | (36,022) | (23,327) | 10,637 | 61,197 |
| % Revenue | - | 71.3% | 21.6% | 6.3% | 1.5% | 5.1% |
| R&D Expense | 3,000 | 5,763 | 10,008 | 16,666 | 28,874 | 41,760 |
| Taxes | 0 | 0 | 952 | 3,003 | 6,666 | 19,796 |
| Net Income | (34,335) | (43,471) | (46,982) | (42,996) | (24,904) | (360) |
| % Revenue | - | 82.2% | 28.2% | 11.6% | 3.4% | 0.0% |

**Cash & Reserve Requirements ($000s)**
|  | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|  | ----- | ----- | ----- | ----- | ----- | ----- |
| Cumul. cash used (pre-reserves) | (34,335) | (77,806) | (124,787) | (167,783) | (192,687) | (193,046) |
| Reserves | 10,000 | 14,000 | 34,802 | 52,769 | 98,236 | 147,398 |
| % Revenue | - | 26.5% | 20.9% | 14.2% | 13.6% | 12.4% |
| Cumul. cash used (incl. reserves) | (44,335) | (91,806) | (159,589) | (220,552) | (290,923) | (340,444) |

## Unit economics

From Slide 1 ("Devoted unit economics in 2023, targeted, draft") - Year 5 cohort vs. benchmarks:

| Metric | Year 5 Devoted Member | Year 5 Devoted Market | Industry Benchmark (Humana 2017) |
| ------- | --------------------- | --------------------- | --------------------------------- |
| Medical Expenses (MLR) | 78.9% | 82.8% | 84.1% |
| Admin Expenses | 6.4% | 9.8% | 11.0% |
| Operating Income margin | 14.6% | 7.5% | 5.0% |

- "Year 5 Member" = Year 5 for a member enrolled in 2019 (i.e., 2023 cohort-level view).
- Industry benchmark source: 2017 annual financials, Humana Medical Plan Inc., Medicare line of business.
- Operating income for Devoted is a blended figure earned across health plan + medical group units.

## Competition / moat

- Incumbents referenced only via benchmark: Humana Medical Plan (5.0% operating margin at industry-best).
- Devoted's stated moat: proprietary tech stack (lower admin), owned care coordination and medical group (lower MLR), STARS quality execution (higher revenue), and higher NPS (lower churn, lower long-run S&M cost).
- No explicit competitive landscape slide in the three available slides.

## Recommended financial model

- **Archetype + why:** Medicare Advantage GWP / Medical-Loss-Ratio (MLR) operating model - the core economics are capitation revenue driven by member count, risk score, and STARS rating; costs are primarily medical expense (MLR), admin, and S&M. This mirrors the standard managed-care P&L structure. The owned medical group adds a second revenue/margin stream that must be modelled separately and then consolidated. A 3-statement model (IS + BS + CF) is warranted given the significant upfront capital requirements and statutory reserve obligations shown in Slide 2.

- **Forecast horizon & granularity:** 2018–2023 (matching the deck's own 6-year projection); annual granularity for the base model. Monthly/quarterly detail for the cash-burn and reserve schedule given the regulatory capital-requirement nature of reserves.

- **Key drivers & assumptions:**
  - Member enrollment growth: 5,000 (2019) → 103,722 (2023); growth rates 243%/123%/94%/65%
  - Average risk score: 1.28 (2019) → 1.15–1.16 (2020–2023)
  - County benchmark PMPM (CMS rate): proxy from CMS published MA benchmark; ~$850–$950 PMPM national average, escalating ~3–5%/yr - needs actual county selection to pin down
  - STARS rating uplift: 4+ STARS = +5% revenue; model as a binary flag (achieved/not achieved) per year
  - MLR (medical expense % of revenue): 93% (2019) → 84% (2023)
  - Target Year-5 member-cohort MLR: 78.9% vs. 82.8% market and 84.1% industry
  - Admin expense % of revenue: 61.7% (2018, pre-revenue year) → 6.0% (2023); scale-driven reduction
  - Sales & Marketing % of revenue: 16.7% (2019) → 4.9% (2023); lower churn assumption drives decline
  - R&D % of revenue: 10.9% (2019) → 3.5% (2023)
  - Tax rate: ~35% effective rate implied by projections for 2022 ($3,003 on pre-tax income of ~$10.6K); calibrate to actuals
  - Statutory reserves % of revenue: ~26.5% (2019) → ~12.4% (2023)
  - Medical Group margin contribution: partially embedded in blended operating income; needs separate segment disclosure - model as incremental margin uplift vs. pure-health-plan MLR
  - CAC ($ per new member): derived from S&M spend / new member adds - e.g., 2020 new members ~10,750, S&M $21M → ~$1,950/member; confirm

- **Scenarios (Base / Bull / Bear - which variables flex):**
  - Base: enrollment and P&L per deck projections; STARS 4+ achieved from 2021
  - Bull: STARS 5 achieved (year-round enrollment, higher revenue uplift); MLR tracks to 78.9% Year-5 target faster; churn below 10%
  - Bear: STARS miss (no bonus, restricted enrollment windows); MLR stickier at 88–90% in early years; enrollment ramp 20% slower; county benchmark cuts by CMS

- **Required sheets / outputs:**
  1. Assumptions & Drivers (risk score, PMPM benchmark, STARS flag, growth rates, margin %s)
  2. Enrollment Schedule (members, member-months, new vs. retained vs. churned)
  3. Income Statement (Revenue, Medical Expense, Admin, S&M, R&D, Operating Income, Taxes, Net Income - annual 2018–2023 + 5-yr beyond if desired)
  4. Medical Group Segment P&L (separate revenue and margin, then consolidated)
  5. Cash Flow & Reserve Schedule (cumulative cash used pre/post reserves; statutory reserve calculation)
  6. Unit Economics Dashboard (PMPM revenue, MLR, admin ratio, S&M ratio, operating margin per cohort year)
  7. Scenario Toggle (Base / Bull / Bear)

## Frequently asked questions

### Is the Devoted Health financial model free?

Yes. The Devoted Health model is a free Excel download with live formulas.

### Can I change the assumptions?

Yes. The workbook is editable and its live formulas recalculate when assumptions change.