The value-based insurance company SeeChange Health Insurance was recently approved to sell plans in Colorado and is aiming to expand in six other states within the next few years.
With about 18,000 members enrolled in small group plans in California and licenses to sell in 25 states, the company offers value-based health insurance and also has divisions offering administrative services for value-based benefits.
In Colorado, SeeChange Health Insurance will offer 14 preferred provider (PPO) plans, three compatible with health savings accounts (HSAs), available only to small businesses of 50 or fewer employees through licensed, independent brokers.
Alan Katz, SeeChange Health's EVP for Sales & Marketing, thinks the time is ripe for value-based insurers to enter the market.
Q: SeeChange Health is a pretty young company. How did it start?
A: We were founded in 2008 as an LLC with investment capital from the Silo investment group. It purchased an administrator with a long history in processing value-based benefits. We've since remained on that platform, SeeChange Health Solutions, which is a technology and administrative company, administering benefits for a million members. SeeChange Health Solutions provides the value-based administration for all of Medica and United Healthcare. And then in 2010 we bought assets from Central Benefit Life, from Ohio, which gave us licenses in 25 states as an insurance company, and we've renamed that SeeChange Health Insurance.
We began selling insurance in 2010. Last week we were approved for sale in Colorado. So we're selling small group in Colorado and California, and in California, we also sell the larger groups of 51 or more. We have about 18,000 members. We expect to hit 30,000 by January. We're selling at about the same rate as the HealthNets, the UnitedHealthcares, the Aetnas, those kind of players. We're not at the level of Blue Cross Blue Shield plan. That's the next tier. But for one year in the market, we're very happy with that. We're on plan with what we've committed to the investors.
As a new carrier we want to make sure we're not running before we can walk, so we launched in California, which is a big market and that allowed us prove the concept as well as fine-tune our product offerings. And yet it's big enough that you can build a critical mass here and become profitable just by being a California carrier, and now we're learning what it's like to be a multi-state carrier, by bringing in Colorado. We have another six states on the horizon for the next couple years.
Q: What makes SeeChange different from "the herd," as your ads say?
A: What makes us different is that, like every other plan out there, we're covering claims when someone's sick or injured, but what makes us different and unique is that all our plans are value-based benefit plan designs. All of them reward members for managing and improving their health. And it allows us to reduce costs and improve the quality of life of our members through early detection of serious chronic conditions. It's a 100 percent value-based benefit play, built from the ground up.
[See also: Value-based design tops AHIP, ANI discussion]
Q: Do you have a sense of what state insurance regulators think about value-based insurance?
A: They love it, for the same reason consumers do. They're delighted to get a new player into the market. They're used to dealing with the folks who are there, and it's the same people, who are offering the same kind of plans. We're bringing something new and we're a new choice.Most traditional health insurance plans only deal with people when they're sick, and it's really about managing the 8 percent of the population that generate the vast majority of claims, the 68 percent or 70 percent of claims. We do that as well, but we invest in early detection and we're going to do it in a very methodical and proven process, which is to offer substantial financial rewards for people who do some simple health steps.
We're not talking about the outcomes of those health actions, we're talking about the actions themselves. So if a member completes a health questionnaire, a biometric exam and has an age- and gender-specific preventive exam, we know that we're going to discover some serious chronic conditions. Identifying them at an early stage will be far-less costly to deal with and more importantly will help mitigate the impact on the person's quality of life.
Q: How do providers feel about VBID?
A: They love it. We're paying people to go see their doctor. The preventive exam is done by your own personal physician, so they're extremely supportive because we're driving business to them. Also, the hospitals like us because we're another player in the market, and for them it's all about negotiating with the big boys and the fact that we're around gives them an ounce more leverage, and they'll take whatever leverage is out there.
Q: What kind of employers choose value-based insurance?
A: It's really across the board. We are extremely strong in Silicon Valley. That is our strongest market. I think that people there are looking for and are comfortable with new kind of approaches. So an employer who's open to a new way of doing things is obviously an employer who's going to find what we offer appealing. But we have everything from landscapers to education institutes.
Most of our business is with small groups -- 2 to 50 employees -- so we're mostly dealing with their brokers. We talk to the employers a lot as well. When we first launched in California, of the two standard industry codes that were purchasing our product, the most were insurance agencies and doctors offices.
They weren't a majority of our sales, but they were the noticeable part of our sales. The reason is both of them get it. We're talking about healthy insurance, insurance that helps you stay healthy and if you are sick intervenes early enough to keep it from getting too serious or at least manages to keep it under control. And that is a huge difference from what brokers and doctors are used to seeing. So they got the message right away. And then they went off and sold it to high tech firms.
A nice confluence of a regulator and an employer who became a member of ours: Steve Poizner was the California insurance commissioner until two years ago, when he ran for governor [as a Republican primary candidate] and lost. He has returned to Silicon Valley to be an entrepreneur and his firm, Encore Career Institute [an online education company], is enrolled with SeeChange Health.
Q: Now how is SeeChange Health profitable?
A: The advantage we have is several-fold. One is we don't have a lot of legacy baggage to carry around. We don't have computer systems that we've inherited through acquisitions, so we're not trying to manage six or seven technology platforms. We don't have a lot of buildings. We don't have a lot of people; we're a relatively lean organization. We get our network through a partnership with Cigna. We work with a third party administrator, Lumus out of Pennsylvania, for the claims and billing services.
When I was at WellPoint and heading up their sales organization, I had several hundred people reporting to me. Here I have 20. We don't have the same administrative cost structure as others do. So we can afford even a higher loss ratio than our competitors and still earn our margin. We price correctly. We offer a limited number of plans. We don't have 40, 50, 60 variations. We have, depending on the state, we have five plan suites, with a high, medium and low in each of them. We have like 17 plans. It makes administration a lot easier. We do have a price advantage in some parts of the state, and we have a margin that we believe is fair and healthy for our growth. We can do that because we are new and healthcare reform only helps us with that.
Q: Are the plans you're going to offer in Colorado different from even standard value-based ones? You're going to be offering some health savings accounts.
A: In California as well, we offer only PPOs, but we offer a range of products. In California and Colorado, we offer three HSAs. We offer three classic plans, which have a deductible and coinsurance and then we 100 percent. We have five deluxe copay plans. In California we have a high deductible plan, called a select plan. There is a market niche in California that all the other carriers play and we wanted to be represented there. All of them are value-based benefits. There are two types of financial rewards we give to people who complete their health actions. One is called an HIA, a health incentive account, which are just like HRAs, but they're funded by us, the insurance company. When a member completes their health actions, we put $500 into their account. When their spouse or domestic partner completes their health actions, we put another $500 in. If chronic conditions are discovered and they maintain their diabetic activity that we recommend, or for other conditions, we put several hundred into their account, all of which can roll over year after year and be used to reduce their deductible. It basically can be used for anything that the IRS considers to be medical. Other of our plans, instead of giving them a cash reward, we lower their out of pocket exposure.
Q: States are going to be creating insurance exchanges in the next few years. Any interest in offering your plans on those exchanges?
A: Yes, and we've talked with some of the exchange people and they're intrigued by having us in their program. Healthcare reform, you know, it's a mixed bag. And leaving aside whether you support or oppose the individual mandate and the like, it's actually helpful for new entrance in many ways. First off, wellness is built into the PPACA as something that's encouraged and promoted. That helps our approach. Secondly, the exchanges are good for new players in the market. They put an unknown brand, like SeeChange Health, right alongside the BlueCross logo, the BlueShield logo, Cigna's tree, Aetna. We're only going to go into exchanges that make sense, so we're not going to just blindly sign up in the exchanges in the states we're in. But if they're appropriately designed and if they enable us to continue working with brokers and offer our differentiator, we'll sell both in and outside the exchanges.
Q: Some have said brokers are an endangered species. But they seem to be key to SeeChange Health's business.
A: I don't think they're an endangered species, especially in the small group market. They are under a lot more pressure in the individual market for a variety of reasons. In the small group market, using California as an example, most of the the carriers were already close to 80 percent [of revenues spent on medical claims] before healthcare reform [and the Medical Loss Ratio]. So that included commissions for the brokers. The fact is that health insurance, even after healthcare reform, is complicated and employers don't shop for it often, so they want expertise. It's expensive, so it's nothing you just want to just willy-nilly select. And it's very critical and important to people. It's their health. When you're an employer and you have the responsibility to select a health plan for your colleagues, you want to do it right. I believe that brokers play an extremely valuable role in that, and that there's room in the system even going forward for them. I think in California, which one would think might not be the most broker-friendly environment, the exchange is working very hard to carve out a role for them in the small group exchange. 100 percent of our sales are through independent brokers. We don't sell direct. We prefer not to. Brokers have proven themselves to be a very effective and efficient way to work with multiple small employers.