Well-being may be priceless, but nobody enjoys spending more money than they need to for essentials like health insurance. That's especially true when it comes to people who tend to use their health insurance quite a bit, like many Medicare patients. So it shouldn't be too surprising that there's a lucrative niche for businesses that specialize in keeping insurance costs low.

On that note, Clover Health (CLOV -1.86%) is a new favorite among traders on Reddit thanks to its low-cost approach to administering Medicare and Medicare Advantage plans for senior citizens. Given its rapidly growing regional coverage and expanding revenue, it's hard to see how Clover Health's next 12 months could be anything other than glowing.

A doctor holds a clipboard as she talks with two nurses at a hospital.

Image source: Getty Images.

What makes Clover tick

Clover Health administers Medicare Advantage plans as an insurer, and it recently started covering traditional Medicare plans as well. If you're not familiar with these programs, just think of Clover Health as providing private insurance services that include and expand on publicly available insurance plans for seniors. Using the trove of health data gathered from its covered patients, the company then offers insights to its in-network physicians in the form of its Clover Assistant software, which allegedly helps make clinical decisions that are both cost-effective and based on sound medical evidence.

In theory, when physicians get information that helps them reduce medical spending, Clover doesn't need to charge as much for its services. So far, the company's service claims to be 17% cheaper for patients than its nearest competitor. That's an especially important selling point, as many seniors may not have the resources to pay for expensive yet critical healthcare services that aren't covered under traditional Medicare. 

All that said, don't confuse being a low-cost operator with poor revenue potential. Clover's quarterly sales grew by 18% year over year in the first three months of 2021, leading it to reach $720.55 million in trailing 12-month revenue. If the company's expansion plans continue to pay off, this growth will probably accelerate quite soon.

Coming soon: more markets, more patients, and more revenue 

Over the next year, expect Clover Health to keep building out its telehealth platform, which it launched on short notice during the start of the pandemic. Before the end of 2021, it also plans to release new features that help patients adhere to their medications. But these additional features for patients probably aren't going to drive much new revenue in comparison to the expected 14% annual growth of the Medicare Advantage eligible population, which could reach 33 million people by 2025. 

Clover Health will likely continue to slowly steal market share from its major competitors as it has done stridently for each of the last few years. And its service will expand into new state and county-level markets, which should increase membership even faster. As if that weren't enough, it'll also deepen its penetration of the traditional Medicare market in its most established regions. All three of these trends will significantly strengthen its top line over time, and it may make early investors into millionaires eventually.

In fact, management expects that the membership base will grow by a whopping 30% by the end of this year, followed by 35% growth next year. Investors should expect revenue growth to accrue at a similarly rapid rate. At the same time, economies of scale will allow the company to drive down operating expenditures by a few percentage points, thereby increasing the amount of free cash flow that's available in the long run. However, that probably won't be enough to make Clover Health profitable by the end of 2022.

Politics may catalyze big stock movements before next year 

One of Clover's largest competitive advantages is its moat, which takes the form of regulatory and political structures that protect its business. That means any legislation to control healthcare costs in the U.S. entails great risk and also the chance of great reward. If there is any legislation that makes more people eligible for Medicare Advantage plans, the company's market will grow significantly, and its stock will likely get a substantial bump. Importantly, as of June 17, there's talk in Congress of legislation to expand Medicare coverage, so this isn't an idle concern. On the other hand, anything that mandates lower care costs for government-run insurance programs could put a permanent dent in Clover Health's margins.

Overall, investors should expect Clover Health to gain more momentum throughout the rest of 2021 and all of 2022. The three boons of an increasing market share, rising margins, and entry into new regional markets will power shareholder returns. As long as there's no unfavorable legislation, this company will be in a significantly stronger position in one year's time.