Tuesday, September 22, 2015

Can Slick Trump Sick?

Health insurance is getting some love from investors, and not only the money going to the increasing consolidation of the industry giants.  CB Insights says $1.4b of venture capital has gone to the insurance tech space since the beginning of 2014, with health insurance-related investments getting more than all other insurance sectors combined.

A lot of that money is going to companies that make it easier to deal with health insurance, but some is going to start-ups -- like Oscar, Clover Health, and Zoom+ -- that actually hope to reinvent the nitty-gritty, often grimy business of providing health insurance (or, as Wired put it, at least make it "suck less").

As some of the health co-ops are finding, though, it's not so easy to break into health insurance.

Oscar, of course, has long been a media darling.  Last April they raised $145 million in a funding round that effectively valued them at $1.5b, and Google just put in another $32 million that ups that valuation to $1.75b.  All this for a company that only has 40,000 members, is offered only in New York/New Jersey (with plans to expand to California and Texas), and which in 2014 lost $28 million on $57 million in revenue.  But never mind all that; they've got a nice website.

That's not really fair, of course.  They've focused on using technology to improve the customer experience, are ahead of the industry curve on use of technology like fitness trackers and telehealth, and are working to use data to match patients with the best physicians for their conditions.  Still, as CEO Mario Schlosser admitted last year to Fortune, in wake of member complaints about ineffective communication as to how the health plan actually worked, "The healthcare system is astoundingly complex."

Oh, really?

Clover Health, which just raised $100 million in a funding round through some impressive lead investors, has a somewhat different strategy.  It focuses on the Medicare population, putting their primary emphasis on using data to improve patient outcomes.

Clover uses their algorithms to identify high-risk patients, sends nurse practitioners to their homes to develop personalized care plans, and continually loops in new data to update patient profiles.  The key is integrating data from disparate sources -- e.g., medical records, lab tests, even contacts with members -- to create an overall patient profile, then identify and fill any gaps.

As CEO Vivek Garipalli told TechCrunch, "You imagine a Medicare patient goes to a primary doctor’s office, goes to a cardiologist, goes to a hospital, there is no quarterback for that data.  No one has the time or the data to guide that patient and coordinate all those interactions and make sure each provider gets the right info at the right time.”  This is the elusive goal of interoperability and of patient-centered teams, but Clover thinks they've cracked that challenge.

So far Clover (headquartered in San Francisco) is only available in six New Jersey counties, but they claim to have 50% fewer hospital admissions and 34% fewer readmissions than the average for Medicare patients in those counties.  Most of their competitors would claim to have similar efforts for high-risk patients, so we'll have to see if their model scales.

Then there is Zoom+, or, rather, "Zoom+ Performance Health Insurance."  It is the outgrowth of ZoomCare, a network of retail clinics in Portland (OR).    Zoom+ claims to be "the nation’s first health insurance system built from the ground up to enhance human performance," and thinks of itself as "Kaiser 4.0."


Zoom+ has focused heavily on the user experience, wanting "health care to be more like visiting an Apple store," according to Fast Company Design's profile of them.  CEO Dave Sanders says: "Health care is one of the largest household spending categories other than a car or food.  For that kind of investment, it needs to be a life-enhancing platform, not just a commodity or a utility. Oh, and by the way, when you’re really sick, it’s got your back too."

The five design principles that guide Zoom are:

  1. Credibility begins with aesthetics
  2. Define "anti-requirements"
  3. Vertically integrate
  4. Build trust with savvy partnerships
  5. Accentuate the positive
By comparison, you don't get the feeling that, say, Anthem focuses a lot on aesthetics.

Zoom+ features not just cool retail centers but also mobile capabilities, a Personal Performance Path, and a Zoom+ Guru, among other services.  It is not your mother's health insurance, and right now can't be yours either unless you happen to live in Portland.

I'm all for reinventing health insurance.  I'm all for making the customer experience much, much better in health insurance and in health care generally.  But I do worry that some of these upstarts may be taking advantage -- perhaps inadvertently -- of one of the underlying problems with health insurance: risk selection beats execution.

Here's why: About 5% of the population incurs about 50% of the overall costs.  If the overall cost in a population is $6,000 per person, as it is for employer coverage, then those 5% average $60,000 each, while the remaining 95% average a little under $3,200.  It doesn't take too much of a change in the make-up of a population to dramatically skew its costs:
Company A thus gets a 17% cost advantage over Company B if it can just slightly lower the percentage of the really sick people who enroll in it.  That can offset a lot of administrative efficiencies, provider contracting advantages, or population health management efforts. 

Of course, under ACA, health insurers can't overtly practice risk selection.  They can't medically underwrite, can't cancel coverage, and have to take all-comers.  They can't even blatantly market to healthy people.  ACA also has provisions to risk adjust between health insurers, but they are at best imperfect

Health insurers can, however, market features that are more likely to appeal to younger, healthier customers, like snazzy websites, fitness trackers, or training advice.  None of those are only of interest to "healthy" people, but, as the chart above suggests, it doesn't take much of a shift in the risk profile to have noticeable impacts on costs.   

Health insurance needs more consumer-focused technology, more effective use of data, and more focus on promoting health instead of reacting to sickness.  However, I'm not getting too excited until I see a health insurer that does away with provider networks, refuses to be complicit in outlandish provider charges, and offers a plan of benefits that consumers can actually understand.  

Until then, we may just be putting new colors on the old chassis.


  1. Hi Kim very interesting article, have a look at www.treatufair.com a new UK business which is intent on changing to improve the way that insurers in the UK assess risk for people with long term medical conditions to deliver better outcomes for consumers. We have developed our own technology and medical screening approach which enables us to individually rate customers based on their clinical status. Whilst we have started with travel insurance by consumer demand, our technology is agile and configurable for other insurance products which you will see from our site. UK today, global tomorrow, who knows. :-) Kind Regards Stephanie Murdoch CEO

  2. Kim read your article with interest. Have a look at our website treatufair.com

    We have recently launched in the UK and specialize in the design and delivery of insurance products tailored for people who have or are affected by long term medical conditions. Whilst not directly associated with medical insurance per se what we do is relevant to your article. We have created our own clinical underwriting insurance platform and medical screening methodology which enables us to individually assess and underwrite risk. We actively working with clinical experts and medical charities to improve our understanding of clinical conditions to produce fairer outcomes for consumers, our methodology for people with diabetes for instance offers discounts as a reward for those who actively manage their condition well. When you stop thinking insurance and start thinking consumer engaged risk management it starts to get interesting!

    Our system is web based and provides consumers the opportunity to quote and buy online or if they prefer over the phone. We have started with travel insurance due to consumer demand but as you will see from our site we have ambitions to extend across other insurance product lines. Having agile technology and being smart in the way that data is used is certainly key for us and hopefully to our success. UK today, global tomorrow who knows!

  3. Great perspective. You might be interested in the anti-network via an open, transparent medical network -- http://www.forbes.com/sites/davechase/2015/11/11/the-silver-bullet-to-solving-healthcares-most-vexing-problem/

  4. Dave - I enjoyed your article as well, as I have some of your other posts. I think we may share a perspective, that provider networks are an outdated approach that d not serve patients/members/consumers well. See also: http://kimbellardblog.blogspot.com/2015/05/not-one-penny-more.html and http://kimbellardblog.blogspot.com/2014/08/provider-networkshow-quaint.html

  5. Read this with great interest. I recently took a course on healthcare management, and what struck me immediately was that, if we were going to "reform" anything, it would have to be the provider network system. It's nice to see someone who has more experience researching the topic appears to be thinking similarly.