How health plan start-ups are disrupting the industry

Traditional health plans are getting hit with significant financial losses. These losses are largely attributed to individual products sold on health insurance exchanges created under the Affordable Care Act. While some private insurers proposed substantial premium increases to cover losses, others withdrew from certain states, or left the market altogether Traditionally, private insurers focus on employers as their primary membership channel, whereas this market requires sales directly to the consumer.

While individual insurance existed for years, a boost in direct-to-consumer products, fueled by ACA, has spurred dozens of start-ups looking to change consumers’ experience with the healthcare system. Some barely survive, some thrive, and others have failed. Those that failed, or that barely survive – including consumer oriented and operated plans (CO-OPs) – also had large losses in this market. For many, premium prices did not cover claim costs, and scaling for these new private insurers was a challenge. 

However, a number of start-ups have emerged with thriving, solvent businesses. We took a closer look at these start-ups and found four key differentiating factors from traditional insurers:

1.  Focused marketing: It’s all in the way you pitch it

Instead of trying to be everything to every consumer, start-ups have focused marketing strategies. Most start-ups got their start with a specific member segment and used data to determine what benefit services these members need and how they want to consume those services. They built their go-to market strategies, surrounding members with an improved, all-around experience at a price and with benefits on-par with traditional insurers. This approach led to consumer-friendly, technology-enabled offerings, like the ability to easily get a person on the phone to explain benefits, insurance contract language that’s in in plain English, and easily accessible, transparent pricing information. Members can access network, claim, and out-of-pocket information easily and on their mobile devices. These tools proactively help members make informed care purchasing decisions. In addition, wellness perks – such as fitness trackers and free primary care – enable start-ups to attract certain demographics. These benefits are relatively inexpensive compared to complex care coordination and seem to work when focused on specific member populations.

These ideas are not new – many of the traditional insurers have tried, or currently have them, too. The key difference is that start-ups have focused on how to effectively market to a specific consumer segment through clear, concise messaging. Also, when they enroll these consumers, they pair products with convenient, technology-enabled services that foster ongoing member relationships.

Some examples:

• Canopy Health has been transparent about who its target member is: the young, healthy and tech-savvy. It also targets healthy individuals who may have forgone insurance altogether. Its pitch focuses on simplicity and was “created to serve individuals, not big companies.”
• Oscar Health is a prominent startup that also targets young, healthy consumers. Its minimalist webpage boasts of “smart, simple health insurance.” It identifies services important to its target audience – like free primary care, free generic prescriptions, and perks like activity trackers and gym membership reimbursement.
• Collective Health acts as a middle man between employer-sponsored health plans and their employees, and has found a niche in managing benefits and communication to members in a way that promotes transparency, and improves member experience.
• Bright Health’s motto, “The health insurance you deserve for the way you live,” implies that other insurance companies are not meeting the needs of its targeted population.

Unlike traditional insurers, start-ups deliver insurance to consumers in a more personal, less corporate-feeling way. These start-ups also market to a younger, healthier demographic, which is cost-advantageous since they don’t have influence to negotiate lower reimbursement in exchange for more membership. Members are not sold products with confusing coverage, or picked by a corporate HR manager. Coverage is designed with the consumer in mind, and start-ups are pitching this difference in a way young, healthy members see and are attracted to.

2. Redefining the role: Pushing traditional health plan boundaries

Some start-ups have expanded services beyond those of traditional insurers. Harken Health, an independent subsidiary of United Healthcare, provides services through a community wellness center, including primary care visits, social workers, health coaches, and mental health experts. These providers team to provide a holistic experience. Harken practices a preventive philosophy, spending twice as much on primary care as a traditional insurer.

Others are leveraging data to intervene on a clinical basis, an activity usually left for providers. Collective Health uses claims data, in real-time, to assess utilization trends. It takes the next step and uses data to communicate with members in a more personalized way. This encourages members to access care in more appropriate, less expensive settings, and reminds them to be proactive. The advantage of this approach is that health plans have access to more complete member data. Companies like Collective Health have developed technology to integrate that data from multiple sources, analyze it quickly, and proactively reach out to impact member behavior. 

Clover Health, a start-up in the Medicare Advantage market, also uses claims data to manage member care, utilization, and disease states. Because Clover Health covers seniors, it focuses more on chronic disease management. It builds clinically-based member profiles and segments its population based on health status. Clover’s clinical team is deployed to serve in a higher-touch capacity, helping members adhere to treatment plans that reduce hospital stays and ER visits. Care management for a chronically-ill population is not a new concept, but its success is in its execution. Clover focuses on a specific population, developing tools best suited to serve them, and obtaining the clinical expertise required to provide care management.

Others are focused on the managed Medicaid market – one that tends to have a higher cost population with multiple disease states and less ability to pay. When services are rendered, health plans like Molina Healthcare and Centene need to do things differently to be viable. They know the Medicaid population has greater care management needs, which are usually more expensive. They also know that their revenues are capped for the year, so they have a cultural bias toward managing cost. This is a good thing. They execute in a lean way and focus on their population’s unique needs. 

3. Managing narrower networks: Striking the price vs. access balance

Narrow networks have received significant attention by regulators following the passage of the ACA, but they’ve actually been used in various forms by private insurers for many years. Many traditional insurers use them to drive care to cost-effective providers. Recently, health insurance products with narrow networks gained popularity because they enable health plans to negotiate deeper discounts by steering more business to fewer providers. In turn, those health plans can lower their premiums, which is appealing to price-sensitive consumers. In contrast, insufficient access to specialty providers and a reduction in choice are viewed as drawbacks. Start-ups are striking a balance between making networks too restrictive for their target member population, and providing enough access for choice. This balance is determined by the needs and wants of each start-up’s population.

A number of factors make narrow networks effective for these start-ups. First, they target populations that value price over access. The young, healthy population has less care needs, which can be adequately serviced with fewer doctors and hospitals. The low-income member would rather see a doctor than see none at all. Secondly, provider consolidation increases the likelihood that a partnership with a single health system will provide an adequate network. Third, an exclusive partnership between a health plan and a health system lends well to value-based, risk-sharing arrangements where the health plan and the provider can more efficiently align on financial incentives. Further, because members are accessing care from a single source, data is shared, utilization trends are tracked, and patient care is managed within a closed system. Both parties have greater control and insight across the continuum of care. From the member’s perspective, this arrangement is also straight-forward; care is insured through the contracted health system, while care outside of it isn’t. If health plans can predict and control cost, they can offer lower premiums to members, an incentive for them to renew.

Some examples:

• Canopy Health Insurance argues that narrow networks are the ideal balance for the patient populations they serve, who are often young, healthy individuals and who value primary care services and emergency coverage for an affordable price.
• Bright Health, a start-up based in Denver, entered the market with an exclusive partnership with the largest health provider system in the state of Colorado – Centura Health.
• Oscar Health also adopted this network strategy by partnering with single health systems in its expansion west, signing Baptist Health System in Texas and Providence Health in Los Angeles.

4. Creative financial models: Dilute risk and create new revenue streams

Start-ups approach financials more creatively than traditional insurers in two main ways. First, they reinsure at a higher level than traditional insurers. This is what some employers do when they self-fund their employee benefits. Second, start-ups seek alternative revenue streams more aggressively by selling their administration capabilities.

Some examples:

• Canopy Health Insurance reduced its risk profile by entering into arrangements with reinsurers that take on risk of high-cost cases, commonly known as stop-loss. What’s different is Canopy is sharing a greater portion of its risk with reinsurers, 50-80 percent overall. In typical arrangements, reinsurers assume closer to 5-10 percent. This arrangement could reduce Canopy’s margins by paying a premium to the reinsurer, but it also could prove advantageous for start-ups with volatile risk pools.
• Collective Health has taken on a role as a third-party administrator, receiving a flat fee per employee from self-insured employers to manage employee benefits. It manages the members’ experience, without taking on any risk, and expanded its client base from employers to include insurers like Anthem and Blue Shield of CA.

Lessons learned

Many startups are trying to disrupt the industry. In fact, the success of just one could be the tipping point for how we buy, sell, and consume healthcare in America – but we don’t know which one that could be. One thing is certain: start-ups are proving that the key to successfully gaining and holding on to customers is to be customer-centric and data-driven.

What start-ups should learn from traditional insurers:

• Get set to manage. Start-ups have great ideas, bottomless energy, and pragmatic people. Yet, without organization to manage those great ideas, that energy can pull apart execution. Large insurers are set up in a way that helps them manage their customers, products, operations, and technology. Start-ups should focus relentlessly on operations that improve the member experience.
• Compromise to stay the course. With great ideas, there’s always grand vision for what role a start-up should play in an industry. However, not everyone involved will always be on board with every decision toward that vision. Large insurers compromise to make sure a single bad decision does not erase 100 good ones. Start-ups should understand that traditional insurers got to be so large by compromising for the greater good of the vision.

What traditional insurers should learn from start-ups:

• Know thy customer. Start-ups identify specific populations through effective use of information collected from claims data and the proliferation of connected technologies. Since health insurance is behind the curve when it comes to leveraging data, there’s an opportunity for insurers to take a page from the start-up playbook. Those in other industries that make best use of their consumer and customer data have been successful, time and time again.
• Go back to customer centricity. Traditional insurers should consider redesigning processes to be consumer-centric, where he or she can access clear, accurate, real-time information in a user-friendly way without calling the insurance company.