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.