Americans continue to spend more and more of their own money on health care.
The so-called out-of-pocket costs now exceed $470 billion a year, according to the federal government’s latest financial report. Expenditures are expected to continue to rise as high-deductible health plans and non-insurance providers become more prevalent.
While consumers aren’t necessarily excited about this trend, startup founders and their backers see a highly scalable opportunity. Over the past few years, hundreds of millions of dollars have been spent on companies working on things like health savings account platforms, care price comparison apps, and tools for employers to offer high-deductible plans.
Who is being funded? Using data from Crunchbase, he curated a sample list of 19 companies that are innovating to address the rise in out-of-pocket healthcare costs. In total, they have raised more than $500 million to date.
Looking at the list above, you can see that many of the fundraising efforts are skewed toward the early stages. However, given the seemingly low hurdles to improving the current situation and the large amounts of capital involved, exponential growth could be expected in the future.
As sector heavyweight Andreessen Horowitz writes in an article explaining the investment theme: The current situation is dire. The patient is unhappy. Providers are burned out. ”
The company’s investment strategy is based on the idea that as consumers pay more for healthcare, they are becoming more discerning in their healthcare experiences and are therefore “more likely to vote with their wallets.”
Key Themes: Access, Price Transparency, Alternative Plans
It’s also worth noting that more consumers have voting wallets. More than half (53.6%) of private sector workers will have high-deductible health insurance in 2022, according to a recent study. Additionally, enrollees typically use health savings accounts or flexible spending accounts to cover day-to-day medical expenses.
According to Colin Tobias, partner at SemperVirens Venture Capital, many recent startup investments are focused on making it easier to use HSAs and manage self-pay transactions. One of the companies he points to in this space is San Francisco-based PayZen, which offers medical payment plans to consumers. Another is First Dollar, which is developing tools to consolidate profits into one digital wallet.
Some are working on tools to help healthcare consumers find the best value for their money. Among the more heavily funded startups taking this approach is Turquoise Health, which allows consumers to compare prices for medical procedures from health care providers in their area. The San Diego company secured $30 million in Series B funding in January, bringing its total raised to date to more than $55 million.
Meanwhile, perhaps the most recent recipient of funding in terms of price transparency is Milu Health. Last month, the Illinois startup secured a $4.8 million seed round to build technology that analyzes medical records to find ways to save and improve healthcare costs.
Employers and ICHRA
The healthcare industry is notorious for coining acronyms, which brings us to the next popular investment theme: ICHRA (Individual Coverage Health Reimbursement Arrangements).
This allows employers to provide money to employees, rather than providing their own health insurance plans, and allow employees to use it to pay for their own insurance or cover out-of-pocket medical expenses. It’s an acronym for something. ICHRAs are becoming increasingly popular among employers, and startups are looking to take advantage of some of that growth.
Some of these startups have raised funding very recently. Berkeley, California-based Venteur, which provides AI-enabled tools to find the best uses for ICHRA funds, raised $7.6 million in seed financing in August. Thatch, which offers tools to choose the right insurance and debit cards for medical expenses, made $6 million in profits last year. StretchDollar, which targets small businesses that apply ICHRA to their employees, closed a $1.6 million pre-seed round in September.
get better
Overall, most of us don’t like paying out-of-pocket medical costs, but there are some encouraging takeaways from recent trend lines, especially if you’re already paying high premiums.
One is that in a world of high deductibles and high out-of-pocket costs, there are more tools available for employers to pay contributions and help employees get their coverage right. In addition to contributing to policy costs, the employer can also fund her FSA to cover out-of-pocket expenses.
Second, if AI-enabled tools work well and providers make price transparency a top priority, startups could help alleviate one of the biggest complaints about self-pay care: price anxiety. That means there is. Consumers really appreciate being able to know upfront how much a consultation, test, or procedure will cost before opening their wallet.
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Illustration: Dom Guzman
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