I recently had the pleasure of reading Walter Isaacson’s authorized biography of Apple Computer founder Steve Jobs.
Jobs, who founded Apple with Stephen Wozniak and Ronald Wayne in 1976, began his career as a seemingly contradictory blend of hippie truth-seeker and tech-savvy hothead. This was in stark contrast to IBM, where employees were only allowed to wear blue or white dress shirts with their neckties. About mid-way through the first chapter it hit me. The health insurance industry needs a pioneer like Steve Jobs.
Back in 1976 there were no iPods, iPhones, or iPads. Heck, there wasn’t even an Internet. In fact, there were no PCs. Sure, there were some computers — the giant room- size variety then found at universities, big companies, and the Pentagon. But these mainframe computers had limitations that parallel our current Healthcare system.
- Health insurance is a closed system that does not allow for innovation or customization.
- Health insurance is controlled by a handful of companies that have a relative oligopoly on the system.
- The government is the largest user of healthcare services, much like the mainframe systems in the 1970s.
- There are enormous technical and financial barriers to entry into the health insurance business.
- The delivery of healthcare services is fragmented, mirroring the early days when hardware, software and programming were controlled by competing entities.
When Jobs decided to take on IBM from his parent’s garage in 1976, IBM reported net income of $14.4 million and had 288,647 employees. IBM was already No. 7 on the Fortune 500 list of America’s largest companies. In comparison, Apple had two employees, both named Steve. Jobs saw an opening for a more nimble, creative and innovative company and a new open architecture operating system.
The conventional wisdom holds that business consolidation leads to a lack of competition. The current health insurance market is oligopolistic and trending towards monopolistic. We are on a collision course with some form of single-payer, government-run health system to serve as a competitor to the private insurance market. So you’d have to be “crazy” to enter into this business or at least as crazy as Steve Jobs. In the mid-1990s Steve Jobs decided to take on IBM. His iconic ad, “The Crazy Ones” boldly pronounced that “the ones who are crazy enough to think that they can change the world, are the ones who do.”
In the spirit of Steve Jobs, there are three healthcare companies that just might take the banner of the crazy ones into the next generation of healthcare. Enter Lemonade, the first U.S.-based startup to propose a sharing economy alternative to traditional health insurance. An “open architecture” platform. Yes, Lemonade is a silly name. I bet IBM thought “Apple” was silly in 1976. The goal of Lemonade is to reinvent insurance in ways not available to the legacy insurance carriers. And, to turn the process of shopping for insurance from a “lemon” into “lemonade.” So far, they've raised $13 million in initial funding.
Another entrant, Oscar Health Insurance, received a massive cash injection from one of the biggest and most conservative investors in the U.S. The mutual fund giant Fidelity led a $400 million investment in the tech-savvy insurance start-up. The cash injection raises the value of Oscar to $2.7 billion. Funding of the company prior to the Fidelity deal was provided by Google Capital. “We are going after one of the largest markets in the U.S., one that is 20% of GDP,” says Oscar founder Josh Kushner. “We have the capital, the brand, the technology to have tremendous impact on the industry.”
And lastly, Clover Health, an upstart health insurance company, just raised $160 million in new funding, making the round one of the largest for the burgeoning healthcare technology sector. This brings Clover’s total funding to $285 million. Clover is trying to use data analysis and preventative care to improve healthcare and create private versions of Medicare at a lower cost. The company’s technology is supposed to recognize when patients need medical treatment and then intervene in their care to save money for both the patient and the insurance company.
So if you’re a benefits professional there are a couple of trends to watch out for in the future. First, there is big (smart) money following healthcare start-ups like Lemonade, Oscar and Clover. This means that there will be more “crazy ones” coming soon. That’s good news.
Second, competition breeds innovation. Keep an eye on the big four health insurance companies. As Apple raised the bar for IBM, conventional wisdom says that these start-ups will raise the bar for the big four.
Third, consider looking at these and other new entrants as “slice-offerings” for your population.
And last, as Americans nearing our greatest national holiday, let’s celebrate and encourage the visionaries, the crazy ones, that make this country great.
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