February 22, 2019

Next Gen Payers: à la carte health insurance

Chandana Fitzgerald

We don’t really trust our health insurance.

Few people trust their health insurance company. Few people really understand what their health plan gives them access to and what it excludes. The numbers are unsurprising.

Revive Health 2017 Survey: Industry trust in health plans
Revive Health 2017 Survey: Consumers’ trust of hospitals, physicians and insurers

I wouldn’t be wrong in saying all we want as consumers is this: no more insurance jargon that we cannot comprehend or finish reading, clear explanation of benefits in plain English, access to all of this information and insurance benefits very simply when we need it. The loss is not only to the consumer. Our distrust and lack of understanding costs health plans big money.

On average, health insurers and employers spend $26 more on administration for every consumer with low healthcare system literacy. That translates to $4.8 billion annually in administrative cost across the United States. Compare this to the $1.4 billion each year in administrative costs for consumers with high healthcare system literacy.

Some good guys heard us.

Lines are blurring between industry players with companies engaging in cross consolidation. Big tech are becoming insurers, consolidation through M&A is creating new insurance companies, a bunch of new ‘digital’ insurance companies are springing up, the smart incumbents in health insurance are partnering with these new digital guys so they’re not lagging behind. We’ve seen so much activity in M&A and new business models that we outlined in our blog on the frenetic M&A activity in healthcare a few weeks ago.

But Why Change? Why Become Digital?

What does a good next gen payer look like?

Consumer Experience is Key: Our friends Lee Shapiro and Robert Garber from 7 Wire Ventures believe that the biggest differentiator that separates ex-gen from next-gen in the health insurance market is consumer experience. It should be the biggest priority, in their opinion, so we can ensure better quality of services and price transparency resulting in trust among members.

Who are the Next Gen Payers?

Bind: They offer an à la carte model at a low cost, low premium. Bind is cool because it’s like any other eCommerce offering, but in health insurance - you can pick and choose based on your needs or lifestyle. There are some core offerings such as  preventive care, primary and specialty care, urgent, emergency and hospital care, pharmacy.  This comes with optional add-ons. Add-ons are modules for the consumer to choose from -  knee replacement or back surgery that they have planned in a certain year so this should not affect their premium during other years. There are no deductibles or restrictions on pre-existing conditions.

Bind mentions that it is not an insurance company, as its programs are employer-sponsored, self-insured health plans. It relies on UnitedHealthcare’s networks, as well as its data and analytics capabilities.

Bright Health: The company starts by developing a single, exclusive partnership in each market/ local community with a leading health system - Care Partner Health Plans. They also offer both IFP (Individual and Family Plans) and MA (Medicare Advantage) plans. They help customers understand what plans are best for them, if they qualify for government healthcare subsidies, and based on that, select a plan easily via their website, call center, broker partners and through government websites as well as public health insurance exchanges. As of today, they’ve raised a whopping $440 million in equity financing. The future is looking bright for these guys and us!

Collective Health: Collective Health intends to cut out the middleman, and improve employers’ offerings to their employees. Think of them as a cooler third party administrator that leverages technology to make health insurance more customer friendly. They charge a flat fee per employee, per month and offer a SaaS platform from which employers can manage health plans for self- insured employees Collective also analyzes claims data in real time to identify trends in health care costs, and to identify patient populations at risk of certain diseases.

How will the incumbents react?

The existing health insurance behemoths have reacted in a few different ways to the rising tide of insurance ‘disruptors’.

Partner with them: This is really a win-win scenario for all - the next gen payer, the big payer, the consumer. The next gen payer has little risk as they are just enhancing the medium by which consumers are being given access to low cost plans of their choosing, the big payer wins over its customers because now it is listening to them, and making the process of insurance procurement and use simpler, the consumer gets both the above. Collective Health has partnered with BCBS California and Anthem use their network of healthcare providers. Bind is powered by UnitedHealthcare’s proprietary networks, and this may eventually mean an acquisition? United already have invested in Bind. Oscar, another new player, is partnering with Humana in Tennessee to offer small group insurance as a 50-50 partnership.

Build their own: An approach some of the larger corps may take is to bring these capabilities in-house. Build their own platforms that allow them to be more consumer-centric, and offer greater freedoms and variation in choosing health insurance. In 2018, Cigna launched its voice control technology “Answers by Cigna” for Amazon Alexa to help people understand their health plans better, and ask questions about it. Humana has built a software using AI tools from Cogito Corp to detect conversational cues, to coach call-center agents and supervisors, in real-time, when calls with customers are going awry - definitely next gen!

What’s Next?

If the direction the likes of Oscar, Iora and others have taken is any indication, these insurers will soon also begin to offer primary care services, telemedicine services, physician/ pharmacist engagement, all as part of their ‘menu’. Despite the obvious convenience factor, we question the scalability and lack of expertise in expanding into such services.

Expect to also see the partnerships these companies have with large insurers go broader to include hospitals, retail pharmacies, and other healthcare organisations because their model transcends dependency on just the insurer. But is that biting more than they can chew? Large corps in healthcare have a legacy for a reason - the expertise is not easy to duplicate or imbibe.

But, all is not rosy.  New entrants may face challenges from consumers who are fearful of losing the ‘safety net’ of their decades old relationship with their insurer. The roll-out has begun, but we have yet to see how on-demand health insurance will impact insurers, providers, and consumers alike. There will also be geographical expansion barriers - becoming a nationwide default provider overnight is simply not going to happen.

And, as is the case with most digital health start-ups, startup insurers have to prove that they are worth their valuation - there is potential to show huge revenue growth, but underlying profitability for companies that actually have viable businesses is limited through market forces and regulatory requirements.

With thanks to Chris Burns for his input.

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