Behind the Term Sheet: Sidecar Health is California’s Newest Billion Dollar Startup Radically Transforming Health Insurance
Earlier this year, we announced our investment leading the $20M Series B in Sidecar Health, a transformative health insurance company in the US.
Since then, the company has accelerated rapidly, and today is announcing a $125M round, led by Bond, Drive Capital and Menlo Ventures, with participation from Tiger, Greatpoint Ventures, and us at Cathay Innovation.
With this latest round of financing, Sidecar Health joins the highly coveted “unicorn” club (though while biased I prefer the term “billion-dollar Camel”) and is among a growing cadre of insurtech players looking to disrupt traditional insurance companies, including through fixing perverse customer incentives and automating costs. Lemonade has done this to rental insurance, Root in auto insurance and Hippo in Home. Each are multi-billion dollar businesses.
We wanted to take a moment to explain why we believe Sidecar Health has the potential to radically transform the health system in the US as a whole — making healthcare more affordable and accessible for all Americans — and why this is only the beginning.
The status quo is suboptimal to say the least.
The challenge is that our private healthcare system is not a market. It lacks transparency on everything, most of all price and the ultimate users and payers of health insurance — often individuals or corporations — don’t have the tools to negotiate prices or drive better and cheaper outcomes. Moreover, it is imbued with perverse incentives, and no rewards for finding better value or cheaper care. And worst of all, it’s highly exclusionary: about 30 million people are uninsured and far more are under-insured.
Sidecar Health reimagines this paradigm.
Sidecar Health offers cash-based insurance. For over 170,000 procedures, they offer a transparent reimbursement amount. They also offer a debit card to purchase care at the medical provider. The consumer’s responsibility is to shop around for the care they need — the same way they would for electronics or groceries — by calling around and understanding what the cash price is. To enable this, Sidecar Health provides a range of tools, including a map of providers and their prices (growing day by day) and a payment card. When customers pay, everything is adjudicated quickly and without the overcomplicated paperwork process, with the set reimbursement coming from the company and the balance (if any) from customers. Because the incentives for Sidecar Health and its customers are aligned, many customers even find care below the target reimbursement — and thus are rewarded for seeking the care they need and engaging in preventative care.
The holy grail.
By reinventing health insurance in this way, it is 40% more affordable. As a bonus, customers do not face network restrictions, since they can purchase healthcare anywhere they wish. And because of the incentive alignment, policies see sustainable loss rate performance.
Today, Sidecar Health targets the individual underinsured market, with an ACA or “Obamacare” offering coming in 2022. But the opportunity is vast. This model for healthcare delivery can (and should) be the standard across all segments in the market, including small groups, self-insured and perhaps even one day medicare.
While this latest round of financing is certainly an exciting milestone on the Sidecar Health journey, we are just at the beginning stages. Thanks to its innovative business model, technology and team, we’re confident in their potential to bring some much-needed disruption to the traditional US health insurance system which stands to have a massive impact on populations across the country. To do that, we’re excited to partner with the folks at Bond, Drive, Tiger and Menlo, and bring this vision into reality.
Much work to do in the meantime.