Not that I’m expert on how the Health Insurance companies
work, or how to partner with them, or how to get them to invest on you, despite
the fact that we did all those things at EveryMove (actually, Russell is the
one who did most of the work there), but I’ve got enough exposure to them and at
startups trying to partner with them to see a pattern. The pattern is simple:
an awesome startup creates a product that actually works, and it would help
insurance companies save millions or increase revenue or profits, so for this
eager entrepreneur is a no brainer: “If health insurer A would partner with me,
they can add a couple million dollars to their bottom line and I could make a
boatload of money”. Yeah, it doesn't work like that.
A couple of weeks ago I’ve got an email from an eager
entrepreneur asking to “pick my brain” on how to partner with a health
insurance company. She has a great product with a great solution for a real
problem, but I had to tell them they would be probably spending a lot of energy on an unlikely outcome. I sent an
email to her (see below). She isn't in a competitive space at all, so I wasn’t
trying to dodge the introduction, I was just trying to be helpful and point her
to a better direction to get to her destination.
Here is the “anonimized” (Kelly is a pseudo-name) version of
the email I sent her:
Hi Kelly, interesting product you
have.
I'd love to help you, but I think
that I'm not the right person to help you and I think that going to insurance
companies will be a bad strategy on the beginning.
Let me start by saying that my
primary relation to health insurance companies is around the member engagement,
marketing and actuarial teams. All my knowledge would not apply to things like [your-product]
which would fall into their clinical / product divisions. I know a health
insurer from the outside looks like just a big company, but like any big
company each division is fairly independent and just because you work with one
division doesn't mean much to the other.
Second, health insurance companies
have hundreds of problems. I'm fairly familiar with their biggest concerns from
a strategic / executive level, and I can tell you saving money on [costly problem]
is not one of them. They invest most of their energy, besides running their
existing business, in figuring out how to save
money with chronic diseases (high blood pressure, diabetes, etc.), how to improve outcomes for treatments and how to
get their members to be healthier over a
longer period of time.
Let me give you one example. A
company that I know of created a [big health problem] program that was
incredibly effective. They spent years going after the insurance companies
because they thought that it would help them save money. They got nowhere. It
takes 2-4 years of hard data for an insurance company to believe this kind of solution and after that it's many other hurdles for each division
of the company to understand and buy into the solution. So this company decided
to abandon that strategy and go direct to HR departments of large employers.
They were incredibly successful because the [big health problem] program
worked, it was seen as an HR benefit inside of the company (instead of a
benefit of the health plan), and they were acquired for a hefty sum.
Just to give you an idea, if a
health insurance would partner with you, it would cost them millions of
dollars. It would impact the marketing team, their customer support team, their
sales team, their IT team, their member engagement team, their actuarial team,
the benefits and product team, the group plan team, the regulation and approval
team, and on and on. Then there is how much they would pay directly to you. So,
if you charge them $250,000 on year 1, the total cost to them would be that
plus the internal costs, which could be a couple million dollars. Let's say the
total cost is $1 million.
Would they save at least that amount? Actually, even
if they save $1.25 million is not a break-even because they have a much bigger
problem to solve so the opportunity cost would be immense for them. They have
other initiatives they will invest $2M and save $10M, and then there is another
initiative, and another one, and another one. By the time they get to yours,
well.... they wouldn't get to yours.
And I know a dozen or so companies
who tried to go after the health insurance companies and, almost without
exception, they spent 9-18 months of their energy and got nowhere. Most of the
companies just disappear, but a few go after the Employer / HR and make it big.
Here's what I would do if I were
you. Find a big self-insured employer and figure out how to do a pilot with
their HR department. Self-insured companies are the ones that pay for nearly 100% of
the health costs of their members, versus the insurance company. Usually the
insurance company put their name and administers it, but it's the employer who
is paying for (almost) everything.
There are
many employers who really look after their employee. I would go after Google,
Facebook, Yahoo, Microsoft, and any company that has a [product demographic]
base and pitch this as a benefit to "attract more [product demographic] to
the your company and save money".
I hope this helps.
-Marcelo
-Marcelo
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