What I Wanted to Build: Can Corporations Bring Socialized Healthcare to the United States?

Last autumn, whatever is in the water in Silicon Valley finally reached threshold systemic concentration and I tried to launch a startup. It failed before it started for a number of reasons (but I learned a lot, blah blah...). In three months, I somehow convinced five super-talented people to work with me on this, interviewed for YC twice, and learned a ton about the complexity of the United States’ healthcare system.

While we are not currently able to build out the idea I envisaged for a multitude of reasons, I still think the broad concept is potentially viable and — if executed excellently — potentially beneficial. I won’t pursue this anytime soon, but perhaps someone better than myself will be inspired by the ideas here (or tell me I am full of it! I invite both outcomes).

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The One Liner:

Use software to optimize the distribution of employers’ health benefits budgets to their employees, and to simplify use of the plan’s benefits.

Important Trends & Stats

1. High deductible healthcare plans are on the rise (21.8M in 2018 from 1M in 2005)
2. People on high-deductible healthcare plans avoid necessary and cost-effective care due to the increased out-of-pocket cost.
3. The vast majority of US healthcare costs come from a small minority of very sick individuals.
4. 11% of US medical debt burden is held by 27 year olds — young, healthy people are disproportionately hurt by high medical costs
5. The average medical debt is $500. What is small fish to companies can make a big difference to peoples’ quality of life.
6. Full-coverage health insurance plans are being discouraged by the government — for example, the ACA’s cadillac tax (40%) on expensive health plans starting in 2020 (although this date keeps on being pushed back….). There is also a proposed “copper plan” which would expand access of high deductible plans.
7. US percentage of GDP spent on healthcare is just so obscenely high and rising. Also, we have the least cost-effective care (pay the most to get worse health outcomes)

The Multiple-Liner:

Generally speaking, plans with higher premiums have lower out-of-pocket costs for the patient.

Inverse correlation of a healthcare plan’s premium and its deductible.

Background

Approximately 70% of the United States population receives their health insurance via their employer or self-insures with a private healthcare provider. Employers generally pay 80%-90% of their employees’ premium (the monthly cost of health insurance, independent of the actual utilization of their health care plan). The lower the premium, the more money the employer saves. Generally, lower premium health insurance has higher deductibles attached. Deductibles are how much you the patient has to pay out of pocket before the health insurance kicks in. On cheap premium plans, these can be as high as $9,000 a year.

Employers like cheaper healthcare plans because they pay less per employee. They often choose to give some money over the premium to cover a portion of the deductible. This is preferable to employers because covering a portion of the deductible is not a fixed cost and can be done away with in a financial pinch. That is a lot less worrisome than buying all your employees top-tier health insurance and being stuck with these plans when things go sour.

Generally speaking, an employer will pay this portion of the premium and a portion of the deductible.

I wanted to optimize the distribution of the total healthcare budget of an employer (premium + deductible spend) to cover a larger portion of each employee’s healthcare needs with the same amount of money.

The downside of one-size-fits-all health benefits: it doesn’t meet the exact need of the individual employee.

Each employee gets roughly the same amount of health care benefits (full line), even though their need in any one year (dashed line) may be higher or lower. This is inefficient in the case of the over-fulfilled/insured employee, and damaging for the employee who has to shoulder the burden of healthcare costs.

I think there is an opportunity to help companies better allocate their health benefits budgets, saving them money while better meeting the needs of their employees.

Employees have different needs. Sally may become pregnant and Billy may break his leg skiing, while Joe may never leave the safety of his desk and Melissa may be a health nut who has never been sick a day in her life. We’re a heterogenous group.

In this mimicked socialized system, health nut Melissa’s underuse of her plan pays for the full coverage of Billy’s skiing accident. While Melissa is technically receiving less benefits from her employer, she is not being negatively impacted at all by this transient benefit lowering. The ‘social contract’ facilitated here means that Melissa knows that, if she drops a barbell on her toe next year, she will be covered by her fellow employee.

Some Pot Holes

• What is the distribution of healthy:sick in the average employee pool? Does the math actually work out here?
• What about employees who save their unused deductible contributions? Would they be willing to forgo this?
• Would an employee who moved from a company who uses this system to one who doesn’t be disadvantaged due to the lack of heath care savings?
• What happens if regulations make health savings accounts better than they are now? Would this obliterate the market we’re targeting?
• How can you prevent employers optimizing for hires who would be healthier (cheaper)?
• In line with that, how can you ensure that there is no sly discouragement of employees using the health benefits by the employer?
• What if everyone gets sick in the first quarter? Even if a start up has a set budget for health benefits, they may not be able to afford spending it all in a short period of time.

Mistakes I Made (some of many)

I made a number of mistakes in trying to build this out. Many were just amateurish, but I think these were the big enchiladas:

1 — I underestimated the complexity of the healthcare system.

2 — I underestimated the capital and experience necessary to play in this space.

3 — Team. From a high level, we had the necessary roles filled, but I failed to truly think out this process. It was so fun working with Vincent, Adam, Ekta, Parth, Rachel, and the rest of the team scraped together on this idea, there is no way in hell we could have built this. Someone more clever than I would have found a rockstar industry incumbent with a chip on her shoulder about the US healthcare system and pitched her to work on this and hopefully let us tag along for the ride.

4 — Went way too fast. One thing I probably had right was that the only way to have even a small chance of raising the capital needed to work on this was to get a strong social signal on our side ASAP, and I thought YC was the best signal that was reasonably within reach.
I decided I wanted to work on this problem about a month before the YC W2019 deadline, and optimized everything we did from that point for getting into YC. While I am so proud of how far we got (from me staring at a blackboard to the team sitting in front of Michael, Kat, and Kevin 1.5 months later) my strategy was a double-edged sword that cut us badly when we ended up not getting into YC.

Final Thoughts

I hate that this is even a somewhat plausible idea. The US healthcare system is atrocious and a betrayal to its people and productivity. At 18 years old, I personally had thousands of dollars of medical debt because I had the audacity to actually use my $600/month health plan. This is the rule, not the exception.

I don’t currently see a solution that doesn’t involve the creation of a single payer system, but to honest I don’t care what the solution is as long as it allows every American to access the high-quality care they need, regardless of their socioeconomic status.