One of the constant items I wrote about early in my first decade at Balloon-Juice was my profound lack of understanding of what OSCAR and other VC backed health insurers did differently than what my colleagues and former colleagues at a mid-sized integrated payer-provider besides lose lots of money and get good press for doing that.
Healthcare-Brew has a great story on the three big VC backed health insurers asking this question too and the quotes are brutal.
Melinda Durr, a principal in consultancy EY’s health sciences and wellness practice, told Healthcare Brew that insurtechs in general “didn’t understand the dynamics of the health insurance ecosystem.”
“I think they didn’t understand that they were in a risk management industry,” Durr said. “The business that they were in, they weren’t actually prepared to be successful in.”
Atul Pathiyal, director and president of the payer advisory services practice at healthcare consulting firm Chartis, said that insurtechs on the market today haven’t differentiated enough from incumbent health insurers to make a big splash in the market.
“A company that strives to be a disrupter needs to look really hard in the mirror and make sure it’s doing something different,” Pathiyal said.
Those are fighting words!
There was a massive investment in user experience and buying membership. This got a combination of folks who likely risk adjusted piss-poorly because they either never used services or were likely the “worried well” who had high utilization for a given risk score. The utilization frequently happens on mediocre contracts and voila, lots of money was lit on fire.
Chetan Murthy
Isn’t “I think they didn’t understand that they were in a risk management industry,” code for “they didn’t understand how brutal they needed to be in denying claims and shedding anybody with the least indication of being sick” ? Which …. well, is the same as “they didn’t understand that their sole imperative should be to free-ride on other companies” ??
Baud
So much incivility.
David Anderson
@Chetan Murthy: They did not understand risk adjustment. They did not understand pricing. They did not understand retention and churn. They did not understand provider contracting. They did not understand Health Insurance Company 101
Chetan Murthy
@David Anderson: In this time of Obamacare, sn’t “risk adjustment” and “retention and churn” code for “they didn’t understand how to offload expensive patients/enrollees, and keep the cheap ones” ?
What I mean is, if the assumption is that everybody will get covered and will get healthcare, then the aggregate cost is the same to the economy regardless of which companies insure which patients. So those two quoted factors are just about deciding which subset of the patients a company gets; if they choose wisely, they can get cheap ones and make bank. But that depends on other insurance companies getting the sicker ones, and losing profits.
That is to say, isn’t a lot of “Health Insurance Company 101” the same as “How to Free Ride” ?
[I do realize that “pricing” and “provider contracting” are different from that, and actually are not about free-riding]
dnfree
Part of an epidemic of people/companies who seem to think their extreme intelligence means they don’t have to actually know anything about the fields they desire to enter.
Anonymous at Work
@David Anderson: how dare you imply Peter Thiel is anything but a genius! He’ll challenge you to a duel, just not against him. He’ll be in a deep underground bunker for his safety.
Yeah, when it comes to “Disruptor Bros” I assume they’ll tie their man-parts to a heavy pules of money and then just drop down a deep hole
RevRick
This is what happens when you let people who “do their own research,” get their hands on a pile of money.
Marmot
@David Anderson: So — and I swear this is a serious question — how did they fool VCs into handing them money? It’s not like there’s a shortage of VCs already in healthcare, or at least adjacent.
I guess I might be asking “who are these people?” Were they freaking tech VCs once again failing to realize that their knowledge is not generalizable to other industries?
Marmot
@Chetan Murthy: I’m no expert, but the dynamics you’re describing are a better description of the pre-Obamacare world. That is, without “guaranteed issue.”
But a similar thing plays out in employer-sponsored health insurance. It’s crazy expensive for a medium-sized company to retain a bunch of employees in their 50s and 60s, so there’s a lot of invisible economic pressure on them to replace those folks with younger workers, even if they’re not as good.
Marmot
Damn it. Always a bridesmaid.