Starting Up The Health Insurance Technology Revolution

The fast-paced, glorified technology startup scene feels worlds apart from the health insurance industry, which is generally a traditional and paper-based field.  The forms, complicated rules, and intense regulatory requirements make insurance a hard sell for innovators looking to slide into a new business venture.  To the average entrepreneur, the industry looks too complicated for disruption – best left to the agent experts who can decipher the complexities of health insurance.

Finding the best insurance solution has generally been the sole responsibility of agents with years of industry experience.  Recently, though, a few companies have stepped into the ring to address the challenges presented by health insurance on a larger scale.   These pioneers are taking steps to tackle big issues, and may end up changing the way we view health insurance in the long run.  We spoke with the co-founders of some of these companies, as well as agents within the industry, to find out if and how these changes are impacting the current business model.

Zenefits is one of the companies at the helm of these efforts.  Zenefits has the prestige of being a Y-Combinator alum, and has landed squarely in the middle of a startup scene usually reserved for social media companies and app developers.  The company’s mission is to automate the management of health and payroll services for small businesses, removing a lot of the frustrations associated with paperwork, enrollment forms, and organizational tasks.  Zenefits helps startups bring these services online, for free.  But don’t mistake the “free” part as a bad business move – Zenefits is paid a commission by insurance companies each time  their system is used to open a new plan.  Additionally, Zenefits will position itself now as an authority on dealing with the nuances of Obamacare, making it the go-to resource as companies adapt to new regulations in the coming years.

Zenefits CEO Parker Conrad told us, “We in the insurance industry need to ask ourselves why is it that our services are the biggest headache for small businesses, and how we can fix it.  A lot of the answers lie in technology.  With really good technology, we can solve or eliminate the administrative burdens of PPACA, reporting payroll to the federal government, and other challenges, by taking them on for our clients.”

Zenefits operates on the assumption that as time goes on, the health insurance industry will become more tech-enabled.  Says Conrad, “That’s the direction that the industry is going.  I’m hoping that Zenefits is going to be a big part of that, but I think that in ten years, every insurance broker is going to be first and foremost a technology company.”  If Conrad is correct about this model being the wave of the future, non-tech enabled companies and brokers would face severe business challenges.

Another Y-Combinator company, SimplyInsured, has built an online health insurance manager and quote engine for small business, which aims to explain discrepancies in various health insurance plans, and help small business identify hidden costs, savings, and best choices.  The company’s algorithm analyzes thousands of insurance policies to discover the actual numbers and costs, so that customers don’t have to do the work of parsing through pages of documents and complex contracts.

According to SimplyInsured’s co-founder, Vivek Shah, there is a huge unmet need for efficient insurance software.  He told us, “Until recently, there has been no place to buy health insurance 100% online, without getting brokers involved and complicating the process.  We developed a 100% online platform, so that customers never have to touch paper or fax, start to finish, in order to get complete health insurance for themselves and all of their employees.”  The company has also developed a cost estimator – for any plan, it will show the estimated cost of a laundry list of services, from an annual checkup to an x-ray to more in-depth surgeries and hospital visits.

Shah told us that he decided to start the company after discovering how complicated it was to answer one very simple question: “How much will it cost when I go to the doctor?”   Shah told us, “Health insurance plans are written like legal contracts – but most of us don’t understand legal contracts.  There’s no standardization.  People understand numbers.  I realized how much of a difference it would make to people with ongoing health issues, or people with children who are sick and have running costs, to know that Plan A will cost x amount of dollars out-of-pocket, Plan B will cost y amount of dollars out-of-pocket.  The side-by-side comparison makes deciding on health insurance options clearer and easier.”

Maxwell Health is also innovating the process of buying health insurance for small businesses.  The company does work with brokers by licensing its SaaS platform, thus rendering brokers and agents a vital part of the company’s business model.  Maxwell integrates into the existing benefits and payroll services inside of a small business, creating a seamless takeover of a company’s administrative tasks.  The company raised $2 millionin Series A funding in August 2013, which will go toward adding new service features, increasing outreach, and building out distribution.

While Maxwell Health provides similar services to Zenefits and SimplyInsured, the company differentiates itself by offering incentives to employees to exercise and eat better, just like many large companies do for its employees.  In addition, Maxwell provides a concierge service that helps to answer questions, take care of bills, and solve insurance disputes for companies.  Maxwell is currently licensed to do business in 24 states, though it is reportedly looking to expand its services.

The company’s CEO and co-founder, Veer Gidwaney, told us, “We believe that solving health care in America is about spending more wisely and staying healthy, so our technology and service platform helps small businesses do just that. We recognize that the real opportunity for innovation is fixing what employees face on a daily basis – when they have to make choices about doctors, how to deal with a claim they don’t understand, how to make healthier choices – Maxwell helps answer those questions.”

Some existing insurance agents have found that new technology in the industry has impacted their business.  Insurance agent Tony Nefouse told us, “Companies like e-Health Insurance, Go Health, and others have had a big impact on online marketing costs.”  According to another agent, Bob Vineyard, e-Health Insurance survived because they were one of the first, if not the first, national insurance agency to pour money into promotion and branding.  He noted, “They marketed themselves as a resource and ‘shopping service’ which led to endorsements by consumer groups.  Their approach turned them into the Amazon of insurance marketing.”

While some brokers and agents may find new technologies a threat to their livelihood, many are supportive.  Charles Peeler, a longtime insurance agent and owner of Peeler Insurance, spoke to us about the role that brokers play within the insurance industry.  He noted, “Only 1 out of 100 people do insurance applications without agent involvement.  Sites like e-Health insurance bank on the client doing business without any agent involvement, while I can say to my clients, ‘Kinda hot today, isn’t it?’ or ‘Can you believe Governor Perry appointed that guy to the University of Texas board?’”

Vineyard told us, “These companies appeal to a certain segment of the market that wants to take care of this stuff themselves, which is not my target market.  My business model is automated to an extent, but also involves a lot of hands-on interaction, which most individuals need.”  He noted that new health insurance technologies had not negatively impacted his business at all.

We envision an ideal future in which agents and new technology startups may work together to help consumers find their best options through the most efficient means possible.  However overly-ambitious solving the broken parts of health insurance may be, we believe that technical tools will assist traditional brokers in delivering better services. Thanks to technology and innovation, we may just be on our way toward injecting some new life into the industry.