Monday, October 14, 2013

Fwd: qotd: There's gold in the Obamacare chaos, but for whom?

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-------- Original Message --------
Subject: qotd: There's gold in the Obamacare chaos, but for whom?
Date: Mon, 14 Oct 2013 10:22:43 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Venture Valkyrie
October 6, 2013
Here Come the Exchanges…And an Opportunity to Turn Chaos Into Gold
By Lisa Suennen

The new health instance exchanges (HIXs) create a direct relationship
between consumers and health insurers in a way that has never existed
before, and with that comes the need to fundamentally disrupt
traditional methods of delivering health insurance products. Not since
the advent of employer-paid health insurance after World War II or the
start of the Medicare program in 1966 has there been such a broad-scale
opportunity for health system transformation. There are few markets that
are mandated by law to include virtually every single American man,
woman and child, making the opportunity particularly juicy to investors.
For those entrepreneurs who figure out how to transfer the secret sauce
from cheeseburgers that impair health to insurance-related products and
services that improve it, the next few years offer an opportunity to
turn market confusion into gold.

Among the biggest opportunities are investments in technologies and
services that power the new healthcare exchanges. Venture-backed
companies, such as, have emerged to provide the various
state-sponsored exchanges with the back-end technology that enable
comparison-shopping, financial transactions and enrollment support
essential to operating the HIX marketplaces.

But while state and federal healthcare insurance exchanges are the main
topic of conversation this week, much of the real action has and will
continue to take place in private exchanges serving the large and small
employer market, particularly as employers do the math and figure out it
may be in their financial best interest to end their role as benefit
plan intermediaries.

Private HIXs: The Big Innovation Opportunity

There are important differences between public and private exchanges
that make the investment opportunity particularly good on the private
side. Most importantly, private exchanges can more broadly customize and
personalize the products offered, as well as the consumer experience
itself. And this is key, because for the very first time, health
insurance companies are being forced to sell directly to the consumer
marketplace when they have previously sold almost exclusively to
businesses. This fundamental change in orientation opens up an
increasing demand for innovation to help health insurers shift their
gaze from the group to the individual.

The first great investment opportunity afforded by the changing
healthcare marketplace has been in the private HIXs themselves. One of
the first healthcare exchanges to receive venture funding was Extend
Health in 2007, well before anyone had ever heard of the Affordable Care
Act. Psilos Group, the investment firm where I work, was the lead
investor in Extend Health, which is currently serving hundreds of
thousands corporate retirees at companies like General Motors, GE, IBM,
and FedEx.

When Psilos invested in Extend Health, the company was one of the only
private exchanges in the country. Last year, we realized more than a 10x
return when Towers Watson acquired Extend Health for $435 million. Aon
Hewitt, another large health benefits administration company, acquired
Senior Educators, a competing venture-backed private exchange,
delivering a 3x-5x return to the company's investors. Towers' and Aon's
new business units are prime examples of how private healthcare
insurance exchanges will radically reshape the way Americans shop for
healthcare insurance. We have seen a large wave of private HIX companies
and related technology-enablers follow their footsteps through venture
capital's doors.

Educating the Consumer

Unfortunately, the HIXs are far more mysterious to consumers than should
be the case. As a result, the HIXs also need new products and services
that help educate and engage consumers of all types, whether they are
from underserved populations or being dropped from their Blue Chip
employer's Cadillac health plan. In a post-reform environment, there
will be an even greater need for educational tools and "plain-English"
translation of medical and insurance information to help consumers make
good choices and manage their new-found clinical and financial
accountability, as well as customer service capabilities when they fall
short of the mark. Each of these areas is ripe for innovation and

Filling the Toolbox

As HIXs become an increasingly common way for people to buy insurance,
they will require a whole new array of capabilities to respond to
consumer demands. Consumer decision-support and personalization tools
are necessary to help millions of new customers select the best plan and
take best advantage of its features. The HIXs need everything from call
centers to enrollment, shopping and financial software–to serve tens of
millions of people efficiently.

There is also an increasing need for financial services products that
help people pay their insurance premiums, especially those who do not
have credit cards or bank accounts or who live paycheck to paycheck.
Some may not get adequate subsidies or have consistent-enough regular
income to pay the new required monthly premiums exactly on schedule and
those people will need special credit facilities. For those enrolled in
high deductible health plans, which now serve more than 1/3 of the U.S.
insured population according to the Kaiser Family Foundation, there will
be further demand for financial products to manage the different buckets
of money that come into play as healthcare services are utilized.

Let's Not Forget the Care Itself

A companion investment opportunity is consumer-facing engagement
technologies and services that help people make better self-triage
decisions about where and when to get care in oder to maximize the value
of their chosen health plan. For instance, a consumer might save money
and time by using a nursing hotline for self-triage in non-critical
situation or telemedicine services when the only locally available
alternatives are high cost and hard to access. New products that
encourage compliance with medication regimens or allow people to be
treated at home instead of in the hospital are also gaining currency and
investment interest from the venture capital community.

Turning Chaos Into Gold

While much of the U.S. populace sees chaos as they watch Obamacare
unfold, the investment community sees opportunity to prosper. Times of
massive system transformation, such as we are in today, pave the way for
new market entrants and disruptive technologies a la Clayton
Christensen's stories about other industries that have endured dramatic
change. The HIX and associated products and services that are catalyzed
by their existence may just be the NetFlix to the old insurance model's
Blockbuster. In a world where such disruptive innovation might also
bring about a healthier populace, it is a fine time to be an investor
who can do well by doing good.

(Lisa Suennen is a co-founder and Managing Member of Psilos Group, a
healthcare-focused venture capital firm with approximately $600 million
under management.)

Comment: Only in America do we have an outrageously priced health care
system that, by design, brings more gold to our venture capitalists and
other one-percenters, while creating greater financial barriers for
those who actually need health care. Instead of a public national health
program which would have worked well for the people, our politicians
insisted on leaving control in the private sector. The private sector
will always go for the gold and leave everyone else behind.

Lisa Suennen is correct that we need disruptive innovation, but she
totally misses the goal. It is the private insurance industry that needs
disruption, but not to heap more gold on the investors, but rather to
improve affordability and access to health care for all of us. The
private insurers are doing the opposite - shifting more costs onto our
backs while using narrower networks to further limit our access. Let's
disrupt them!

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