Data-Driven Health Insurance Provider Clover Health Raises Another $35M

When Sequoia Capitals Michael Dixon met Clover Health CEO Vivek Garipalli, he said he knew he wanted to invest. The catch: it took 18 months to convince him. But that finally happened, with the company today announcing a $35 million financing round led by Sequoia Capital.

Clover Health works by tracking inputs from a person’s medical history and determining who the highest-risk patients are. Those inputs come from insurance claims, and Clover Health then works with them to help them become healthier — like encourage them to take prescription medication or manage their chronic diseases. If successful, Clover Health can reduce its overall costs by reducing the rate of hospitalization, bringing in more revenue for the startup.

“We’re seeing so many opportunities for streamlining and improving these things,”CTO Kris Gale said. “Some of the core things haven’t been touched in so long, it’s interesting that once you build a health insurance company, you have a huge opportunity to go in and rethink those whole systems.”

The primary competition for Clover Health is larger medicare health insurance providers like United and Cigna, which the company is basically going after with a more data-driven approach. The company collects information like lab test and radiology results to get an overall profile of that person’s health, and then uses software to identify common issues. Clover Health can then intervene with social workers and nurse practitioners, which will in theory reduce the rate of hospitalization, Gale said.

When deciding on a new approach for changing the way Clover health processed insurance claims, Gale ran into the first of many problems: it was an antiquated technical process that hadn’t changed in a long time. That in of itself is a bit of a microcosm for the health insurance industry, Gale said, and part of the reason he and Garipalli started Clover Health.

One of the biggest headwinds as the company grows will be how regulation differs across different markets. Clover Health currently operates in New Jersey, but as it expands it will face new regulatory hurdles, as well as local competition. After Medicare open enrollment ended, Clover Health had around doubled its membership, and the service is expected to have around 15,000 members by January, Gale said.

In September it raised $100 million in a combination of debt and venture financing. That last round was led by First Round Capital — and it wasn’t clear what the split was between venture financing and debt. Gale said this current round was about getting Sequoia on board — and Dixon, who has extensive knowledge in the health care industry, he said.

Still, it was a very short period of time between its financing rounds. But the company will incur costs as it scales — it has to hire customer service representatives and also social workers to help work with its members. Having a level of quality can attract new members, who have largely remained on board with existing healthcare providers, and the growth will inevitably be more methodical than viral.

“We think the value proposition of using technology to reduce costs and save lives will result in a fundamentally better health insurance product for consumers,” Dixon said. “So we think that over time that will win the day, but this is not a market where you just put your product up online and people buy it. You have to go into the markets and fight it out with the local competition, and that will take time, but we’re okay with that.”