The hot new startups: health insurance companies

Electric scooters. Music video apps. Social networks.

That’s what you’re used to thinking when you hear the word ‘startup’. Recently, though, a much different kind of start-up has emerged.

Health insurance startups are charging onto the scene. Founded between 2012 and 2017 these startups are raising huge sums to fund rapid growth. Here’s a rundown:

  • Oscar: 2012, $1.3 billion raised, largely from Google-backed funds
  • Clover Health: 2013, $425 million raised, mostly from Greenoaks Capital
  • Devoted Health: 2017, $362 million raised, Andreessen Horowitz
  • Bright Health: 2015, $240 million raised, founded by UnitedHealth exec
  • Bind Health: 2016, $72.5 million raised, backed by UnitedHealth Group
  • Centivo: 2017, $32.4 million raised, mostly from Bain Capital Ventures

Oscar Health: Customer focused

Oscar is the most mature of the bunch. Depending on where you live, you may have seen their straightforward advertising campaigns. I’ve seen plenty in Southern California. Oscar’s sales pitch is that it’s simplifying health insurance and providing better customer service–including a free 24/7 hotline staffed by a doctor who can prescribe medicine over the phone.


Promotional material on Oscar’s website

Oscar now sells insurance in six states: New York, Ohio, Texas, New Jersey, Tennessee, and California. It sells plans in the individual insurance market, both on and off the exchanges created by the Obamacare law in 2010.

Its most recent round of investment puts it at a $3.2 billion valuation, despite losing $127 million on $229 million of revenue in 2017. The company claims its medical loss ratio will be about 85% in 2018, meaning it pays out $85 in claims for every $100 of premiums received. This positions it for profitability if its scale increases and overhead remains relatively constant.

Clover health: Medicare Advantage with advanced analytics

Clover health seems to be on a bumpier path so far. Clover’s plan was to apply predictive analytics to control costs. Along the way, it has played hardball with providers, leading to standoffs where providers directly billed patients, against agreements.

Still, the company, which sells Medicare Advantage plans, has announced plans to enter six new markets.

Earlier in 2018, the company had reported a medical loss ratio of 109%, which means the company is losing money on each average member, before accounting for overhead costs.

Devoted Health: Medicare Advantage with an emphasis on care

At first glance, Devoted Health seems very similar to Clover. It’s in the same market and also touts analytics as a way to control costs.

With startups, the difference is often made by the team rather than the business plan. In the case of Devoted, founders Todd and Ed Park are experienced entrepreneurs. The same duo was behind Athenahealth which was recently purchased for $5.7 billion. Devoted raised $300 million at a $1.8 billion valuation.


Promotional material on Devoted Health’s website

Beyond that, Devoted is not yet doing much to differentiate itself from other Medicare Advantage insurers, including Clover Health. Their website has some basic talking points about providing better care.

“We believe in quality over quantity” is one of their more interesting bullet points. This indicates perhaps Devoted will encourage its members to use fewer services to reduce costs.

Bright Health: The HMO reinvented

Both Bright Health and Bind are based in Minneapolis, Minnesota and their founders have roots at UnitedHealth Group, the country’s largest health insurer. Bright co-founders Kyle Rolfing and Tom Valdivia cut their entrepreneurial teeth with Definity Health, which was purchased by UnitedHealth in 2004 for $300 million. It was founded just six years earlier in 1998 with only $23 million in funding.

CEO of Bright Bob Sheehy is the former CEO of UnitedHealth. That is some major league insurance experience, but it remains to be seen how that Fortune 50 management will transfer to a scrappier startup context.

Bright Health is taking a ‘managed care’ approach by partnering with local health systems starting in three Tennessee markets. By partnering with one health system, they are hoping to simplify, eliminate expense while (hopefully) improving coordination and quality. They are offering plans on the individual and Medicare Advantage markets.

Bind Health: Short term health insurance

Bind Health’s founder, Tony Miller, is also an alum of Definity Health. Bind wants to simplify plans and clarify costs. They are planning a mobile app which will let members know the exact costs to them before any service is rendered. This would be a great step forward for cost transparency.

From Bloomberg:

Bind also offers what it calls on-demand insurance. Coverage for planned procedures such as knee surgery, tonsil removal or bariatric surgery must be purchased before the operation. That gives Bind a chance to push customers toward a menu of lower-cost alternatives or cheaper providers.

With this offering, Bind turns the notion of insurance on its head. Traditionally insurance is meant to pool risk amongst a random-ish set of the population. By allowing members to opt-in only when they need service, the risk in the insured pool becomes concentrated. Still there may be some benefits to this approach. By providing cost transparency and negotiated rates, perhaps Bind can fill an important niche.

Centivo: Employer plans with digital platforms

Last but not least is Centivo. Unlike the other insurers so far, they sell group plans to employers rather than individual plans. They are hoping to encourage members to go to free-of-charge primary-care appointments for most of their health needs rather than going to more expensive specialists.

From MobiHealthNews:

The backbone of this approach will be the company’s technology platform, which includes a patient engagement app as well as other tools to help providers and Centivo ensure high-quality care

Size of the opportunity

One of the striking things about this round of health insurance startups is the scale and speed of the investment. Savvy, deep-pocketed funds are putting hundreds of millions into young, unproven companies.

Devoted Health has raised over $300 million at about a year and a half in.

For context, Facebook, one of the fastest growing companies in the history of the world, did not raise its first hundred million until over 3 years in.

For what reasons are funds taking these risks? I can think of about 3.5 trillion reasons. The health care market is massive and it’s mostly served by legacy enterprises. Savvy investors believe this new round of companies can do a better job and they’re putting big money on the table.

What else is new

There is much else happening. BigTech is making moves in health, both on the product side and for their own employees.

Then there is the much-touted alliance between Amazon, JPMorgan and Berkshire Hathaway to streamline healthcare for their employees. While in this article I’ve focused on insurance companies, there are a raft of other healthcare startups to watch out for.

The verdict

Overall it appears to be a time of great opportunity for health innovation. It’s possible all these companies will fizzle out, but hopefully, some will succeed and change healthcare for the better.

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