He’d broken his foot and had to go to the doctor for an MRI that would have cost him $3,700, with a $1,500 deductible. Instead it cost just $600 in cash that day. He says that’s because he paid for it without going through his insurance provider. This is part of what gave him the idea for Collective Health, a new Founders Fund-backed employer health program launching today. It promises to take the paperwork and runaround out of health insurance.
Diab and co-cofounder Dr. Rajaie Batniji, a physician and political economist at Stanford University, paint Collective Health as a way to cut out the middleman (health insurance) and instead offer employers a less expensive, cloud-based, a la cart version of health care coverage for their workers. Employers can pick and choose which things they want covered for their employees. “We’re not building another health app or gadget. We’re building a complete solution to replace your employer provided health insurance,” says Diab.
Founders Fund led an undisclosed Series A to back the idea. Formation 8, the Social+Capital Partnership, and prominent angel investors including Scott Banister, Max Levchin, Jeremy Stoppelman and Amr Awadallah also added money in support.
The other part for the idea for Collective Health was first planted when Diab’s intestine suddenly twisted up on itself, cutting off the blood supply to about 10 feet of his intestine. “Nothing could have prevented or predicted this. It was just bad luck,” says Diab.
To have that happen is a scary and life threatening experience. And then, just as he was struggling to regain his strength, his health insurer didn’t want to pay his fees. Diab says he’d been paying for premium coverage for years in the event of something like this happening. Instead of the help he needed, he was left with papers up to his gut in legalese and medical insurance loop-de-loops he didn’t understand. It was either pay up or face legal action, ruined credit and further unnecessary hardship.
Diab’s story is not unique. Dr. Batniji has seen it over and over again while working in the medical field. “Patients are often left to advocate for themselves and trying to get a clear answer from your health insurance company about what’s driving costs is impossible,” says Dr. Batniji. According to NerdWallet, one in every 5 American adults are struggling to pay their medical bills, and three in five bankruptcies will be due to medical bills. And to add more insult to any possible injuries, over the last 10 years, the average premium for family coverage has increased 80 percent, according to ACA International. It was a 90 percent increase from 2008 to 2009, according to data provided from Wellpoint, Cigna and United Health (see chart below).
The problem, according to Diab and Dr. Batniji, is that even with Obamacare or employee sponsored health insurance, annual premiums are increasing. They say the costs are growing at an unsustainable rate for most small and midsize companies to handle. This, according to Diab, makes it hard to offer a good plan for employees. “While insurance is supposed to be a risk-sharing business, health insurance has increasingly become a middleman business devised to generate profit for the health insurers above all else. As a result, there is a fundamental disconnect between the incentives of traditional health insurance companies and people’s and organizations’ health insurance needs,” says Diab.
Diab and Dr. Batniji started asking questions like “Why have insurance premiums and deductibles risen so much faster than underlying health care costs over the past twenty years?” and “Why do we receive something in the mail after seeing the doctor that looks like a bill, but says ‘THIS IS NOT A BILL’ at the top?” “It’s like entering a time warp back to 1980,” Diab says. Several long bike rides and early morning coffees later, Dr. Batniji and Diab decided it was up to them to figure out a better way to fixing how Americans pay for health care.
The startup now employs 25 people in a San Mateo office and Collective Health is currently “renting” insurance services off of a certain network that it is not at liberty to name at this time. Payments processing is also in the works and Diab says it will eventually be like a square or pay pall software. Collective Health also adds in cost comparisons and which doctors are in your network. It also includes a data visualization element not currently offered by any health insurance provider. The data shows you how much you can expect to pay, above your premium. This, says Diab, better prepares someone for what it should cost than just mailing something that says “This is not a bill.”
“Accessing and paying for healthcare ought to be simple, transparent and feel good. That’s what we’re working towards at Collective Health,” says Diab.