A lot of bets are being made in the healthcare marketplace around the macro trend of consumerization. The idea is that consumers are demanding convenience and control over their healthcare futures and will flock to any innovation designed to give them both.
But at a Silicon Valley event held recently at HP headquarters to discuss the future of health insurance with a number of different stakeholders, a debate arose between a venture capitalist and one startup. The question centered on whether that macro trend of consumers charting their own health destiny extends to the Byzantine world of insurance.
On one side was Michael Yang, managing partner at OMERS Ventures, the venture capital arm of OMERS, one of Canada’s largest pension funds, who is based in the Bay Area. He firmly believes that given the complexity of health insurance, consumers need advocates.
On the other side was Shawn Wagoner, co-founder of Minneapolis-based insurance startup Bind Benefits. He, equally firmly, believes that provided the right and trusted information, consumers can make prudent insurance-buying decisions that benefit them and lowers overall costs.
But before the debate points can be discussed, it’s important to understand what Bind is offering. The product is geared toward self-insured employers with more than 100 employees and gets rids of things that historically have defined the payer world: deductibles and co-insurance. Instead, the product covers what patients need when they need it. Consumers can buy a base layer of coverage and then can decide to upgrade their coverage if their health status changes – for example, when they need coverage for knee replacement, they can buy it and pay the extra amount for a defined period of time. Consumers are also steered toward making prudent decisions – for example information can be presented on how most back surgeries don’t yield positive outcomes while being expensive. Here’s how Wagoner describes the vision behind Bind:
The product we created eliminates things that we think actually are not very useful, valuable and don’t get the results we want. So we have eliminated deductibles and co-insurance layers from our product. So then everything has a price tag. When everything has a price tag, that actually means something and is certain, you actually can give people that information and allow them to tap into one of the superpowers of America, which is consumerism.
He explained that traditional health insurance companies seek to make everyone cover everyone’s risk all the time without taking into account that insurance typically is needed to cover high-cost, infrequent and unforeseen events. In other words, people buy insurance to get the peace of mind that comes from knowing that if they were to suffer an unexpected heart attack, they will be able to afford care. So Bind’s product covers routine, maintenance care and catastrophic events but for events that one can plan for such as surgery, people can buy it when necessary. Wagoner explained that there is a menu of 45 “plannable procedures” that people can tack onto their base insurance coverage once they decide to opt for that path.
“So we’ve introduced a new concept of coverage which is I can buy coverage for the things that I need on demand but I don’t have to saddle myself with the cost all the way through,” he said. “The positive is that I am able to give myself a pay raise when I go on Bind’s insurance.”
So whoever signs up for a new plannable procedure pays more than the plan member who isn’t scheduled for surgery and therefore doesn’t have to pay a higher premium for the ultimate risk that the insurance company/employer has that someone in the risk pool will need surgery.
“I can’t and detect and predict that I am going to get a heart attack, so we should probably pool our resources to help people pay for that when it happens,” Wagoner said. “What I can predict and think about whether or not I should have a $130,000 lumbar fusion that evidence would suggest is no better than a regimen of PT.”
Not surprisingly, Wagoner received a ton of questions from the audience. One was about what if people have tried cheaper options such as physical therapy or steroid injections and then ultimately have been forced to decide that back surgery is the only option left. Will they still be required to pay more?
Wagoner replied currently the route taken to surgery [whether as first option or as a last resort] is not taken into account when deciding premiums but that it may in the future. But he added that for certain therapeutics, Bind does take into account the individual’s health context. For instance, if a drug is judged cheaper by the insurance company but the patient finds that drug doesn’t work but another drug on the next, more expensive tier, works, then Bind won’t make the person pay more for that.
Another question came from a physician in the audience who was worried that he would be paid less given that Bind members pay a set amount for an office visit and what he bills for is higher than that.
“You get reimbursed for what you bill us and we are doing the math behind the scenes to determine what your value is,” Wagoner told the doctor. “The complexity that you are dealing with is what we are trying to take on. The vessel to bear the insurance complexity is the insurance company.”
Later, after a couple of other speakers weighed in, Yang, the venture capitalist from OMERS Ventures spoke about where the insurance world is headed and what he finds investment-worthy. Yang quickly zeroed in two things: the lack of trust that consumers feel toward their insurance company and the deep complexity of this world, thereby requiring someone to shepherd consumers along the way.
What I will say is that what I am investing in is top-layer solutions sold into the employer market. What’s in the minds of jumbo employers what tools are they looking for? I think they very much are looking to empower their employees but in a different way. There’s no literacy in the space so there’s a presumption that — all of you guys on stage have said — the consumer, the patient, the member, the employee is literate and therefore if you empower them they will make the right decision. I would actually say that they are not literate and what they need is managed services or curated set of hands that are going to take them there.
What’s more, Yang is not convinced that presenting consumers with a plethora of choices is the best way forward.
“You are almost better off by giving them one option or at most two and then kind of making sure they take advantage and maximize the programs and initiatives that have been deployed in the plan. I think the other thing … is the social determinants of health. That plays a lot into literacy. If you are fighting other fights, you are not even a healthcare consumer. You are not even at baseline 0 to participate in the great things that [startups] are offering.” Yang explained. ” A lot of my investment thesis is frankly navigation, advocacy, tech-enabled services because the payers and the providers have abdicated that space.”
Wagoner was shaking his head at this and later when asked to comment pushed back mightily at the notion that consumers are not literate.
“I definitely believe that we don’t have a literacy problem. None of you have a literacy problem. You have a really sh***y benefit that makes you illiterate when it comes to using your benefit,” Wagoner shot back.
But an audience member wasn’t going to have any of that.
“I am sorry I gotta interrupt here,” the man said. “There are many people who are old, who are mentally ill, who have cancer and they can’t self-advocate. You could give them the best plan possible and they can’t even read the paper. I mean you have to have an advocate. Yes, it helps to give us options, but to say that we are all literate — this isn’t a normal population. This is Silicon Valley at HP. Of course, everyone is literate but talk about the masses. They are the ones that need help.”
But Wagoner’s reply also made sense.
“I would say part of the masses is what you are describing but the masses I would argue have the ability to make decisions. Right now they are given a benefit product that is indecipherable. Indecipherable when you have elements like co-insurance and deductibles in place. Non-freaking-sense. Eliminate them. People understand prices. Elderly people understand prices.”
And then, Wagoner shared an interesting anecdote to show how wrong conventional wisdom is with respect to people’s ability to process insurance information. He talked about the first enrollment period for Bind when 10,000 people were switching to its platform and product — what he described as a “disruptive” event [meant in the common English sense of the word.] Bind’s product had a new formulary — a drug list for covered prescriptions under a health plan — and executives wanted to be sure that its call center could handle the deluge of calls given the number of people signing up.
So we went to our administrative partners and said we have to prepare for this. How are we going to prepare our call centers for what kind of volume? And they said based on our 15 years of experience you need to plan for 624 phone calls. So we staffed for 700 phone calls. Anyone want to guess how many phone calls we had? 24 phone calls. How many searches did we have digitally [where people] got their questions answered because they are literate if you give them the right information? 1,250 searches.
Boom. Mic drop.
Meanwhile, also from Minneapolis, another startup founder was offering some middle ground at the Nov. 14 event organized by Vator. Abir Sen, CEO of Gravie, wants employers to write a check for their employees and then get out of the way to get an advocate like Gravie help employees buy coverage. He also wants to rip up the traditional form of health insurance buying where the in-house benefits manager of a small or large employer has a cosy relationship with an insurance broker or benefits consultant and simply goes with the choices the latter recommends. He sees Gravie as a company that helps employers lower costs by moving them from a defined benefit like a pension to a defined contribution program like a 401(k) freeing employees to buy insurance from curated plans. Gravie’s marketplace offers plans from bigwigs like Unitedhealthcare and others as well as Gravie’s own insurance product. In effect, Gravie wants to step into the employer’s shoes and be the employee’s advocate because employers soon will not want to be playing that role, Sen said.
I don’t think any of us are saying that there shouldn’t be an advocate. I certainly don’t think so. But I would submit to you that I don’t think there is a choice. What I mean by that is healthcare inflation in this country is going to be 8 to 10%, could be more, over the next 15 years. GDP growth is 2-3 %. Those two curves are going to create a problem for every company in America. That is a real problem for small companies today — our customers — where we see people dropping coverage altogether because they cannot afford the floor that is needed but it’s going to happen to all the companies. It’s just a question of when.
Rules like the ICHRA that goes into effect January 1 is also a driving reason for employers to get out of the business of plan design, Sen explained. Through the Individual Coverage Health Reimbursement Arrangement, consumers can buy insurance and then have their premiums and medical expenses be reimbursed by the employers in lieu of being offered a group health plan.
“I think the world of tomorrow looks different than the world of today and the reason is that the employer is not going to be able to afford to be the aggregator of demand that it has been in the past,” Sen said. “Our premise is if the employer abdicates that role of aggregator of demand, then somebody needs to step in and we hope that will be us.”
Both Wagoner and Sen offer interesting visions of what the future of health insurance might look but the question is whether consumers will fully understand the risks they are adopting. Clearly, with the parallel from pension to 401(k), average people have taken on more risk vis-a-vis their retirement. Will they do the same when it comes to health as Gravie is proposing? Will consumers look at their health insurance and ramp up and down by adding a plannable procedure just like adding HBO during Game of Thrones and then canceling that channel once the show is over like Bind is suggesting?
These are questions that remain to be answered and Yang provides one more reason to be skeptical.
“I think it’s hard for a de novo venture-backed health insurance company to compete with the big guys over there [referring to speakers from Anthem and Sutter Health Aetna] because so much of the game is ultimately about scale,” Yang said.
[The event’s discussion on the future of health insurance by design deliberately stayed away from any conversation about Medicare for All, which would essentially make this discussion moot.]
