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Entrepreneurs set sights on self-insured market

By Healthcare Finance Staff

As more companies migrate to self-funding, insurers are trying to meet demand with better outsourced management and new stop loss products. But a few startups with radical ideas are trying to beat them, offering new services to capitalize on frustration with the status quo.

Rising healthcare costs have left employers scrambling over the past few decades. First there were HMOs and then high-deductible plans -- both with mixed results and a fair share of controversy -- and more recently with private exchanges and self-funding.

But self-funding and private exchanges are still uncertain in terms of their ability to control costs without simply shifting them to workers -- and some believe they don't go far enough, that employers need to completely rethink and redesign their health plans.

As the technologist-physician team who co-founded the new self-insurance company Collective Health put it: "we're building a complete solution to replace your employer health insurance."

Customizable benefits

The San Mateo, California-based Collective Health officially launched this month with venture capital backing, hoping to use software-guided self-funding services to bring employers and their workers a better, less expensive health plan experience.

The company's services are similar to the claims and network management typical of third party administrative services, along with risk analysis and benefits customization. But co-founders Ali Diab and Rajaie Batniji, MD, argue that their web-based platform uniquely enables organizations to customize their benefits and employees to find and compare providers and manage out-of-pocket spending, at a cost of $50 per worker per month.

Diab, the holder of multiple computer science patents and a former executive at a mobile advertising that was acquired by Google, co-founded the company with Batniji, a friend and Stanford-trained internist, after receiving abdominal surgery for a tangled intestine last year -- and suffering some of worst pains from health plan paperwork.

"My insurer claimed some of my surgical and hospital charges were experimental or the result of physician error, leaving me holding the bag for a shockingly large portion of the bill," Diab recounts on the Collective Health website.

Diab and Batniji say they decided to create their own health insurance service after pondering several questions, including "Why hasn't anyone taken full advantage of software technology to streamline how companies pay for healthcare?"

The modern "customer experience of interacting with your health insurer feels like entering a time warp back to 1980," they write on their website: "Since employers pay for most private health insurance, we believe the opportunity to fix private healthcare must start with forward-looking companies and their people."

Established, large insurers like Aetna and UnitedHealthcare have invested heavily in both consumer-facing technology and integrated self-insurance products, including for the growing small and mid-size group market. But Diab and Batniji believe they'll find clients who are frustrated with traditional health plans and want a new experience from a West Coast technology company -- and that eventually they'll attract more traditional employers that make up the bulk of the group insurance market.

Other startups, too, see the self-funded insurance business as ripe for disruption and are hoping to convince employers that they can give their employers more healthcare more affordably if they abandon old school insurers.

Direct contracting and self-funding

The Cary, N.C.-based company Physician Care Direct is selling what it has termed and trademarked as an "employer health ownership plan," an outsourcing service for employers "that facilitates purchasing primary care directly from local providers and coordinating additional coverage."

Physician Care Direct recently inked a deal with NextCare Holdings, the parent company of a multi-state urgent and primary care network, to offer primary care contracting services to small and large self-funded employers in greater Dallas -- pitching savings of as much as 30 percent.

Physician Care Direct's platform lets employers buy personalized primary care -- in this case via NextCare's 13 PrimaCare primary care clinics in Dallas-Fort Worth -- as well as specialty and hospital care.

"We're changing the way people pay for healthcare by offering a free market solution that keeps healthcare dollars and decisions where they belong -- between doctors and patients," boasts William B.J. Lawson, the co-founder and CEO of Physician Care Direct.

Contracting directly for primary care and offering more comprehensive primary care services to employees with little or no cost-sharing is "a common sense approach to a problem that's been needlessly complicated by insurance companies," argues Lawson.

Along with using expanded primary care to avoid downstream acute care costs, Lawson pitches the model as one that lets "underwriting profits flow back to the employer not their insurance company."

NextCare Holdings is Physician Care Direct's largest deal since Lawson got started.

To court employer clients, last year the company signed on three primary care clinics in Greater Seattle, including Qliance, a concierge primary care company with venture capital from Amazon's Jeff Bezos, Cambia Health Solutions. Lawson is also pitching the idea to hospitals and health systems, urging them to market their own private-label "employer health ownership plans" to area businesses.

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