How Silicon Valley is Disrupting the Health Insurance Market

With 2017 poised to be the “Year of Fintech,” the piece of financial technology what many are waiting for is better health insurance.  As a financial gamble of sorts, health insurance aims to balance the collective risk of individuals in order to allow for optimal coverage in the case of harm.

However, the largest problem insurance companies currently face is that a low-risk person who is less likely to need insurance will only pay a low premium, while a high-risk person who will likely need insurance more is willing to pay a higher premium.  Yet, if the goal is to balance the risks of low and high risk individuals without knowing which is which, how can you charge a high enough premium to cover claims, while still keeping low risk individuals in the system?

This dilemma of optimal pricing to keep prices low and benefits high the main barrier of introducing simple and effective health insurance.  Furthermore, questions of informing patients of coverage, increasing awareness of patient risk-level, ease of use for filing claims, and being inclusive of options while also simplifying the selection to only top-tier care are some of the big issues insurance needs to solve for customers.

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Silicon Valley has been attempting to combat this market and disrupt the means in which people receive health insurance, but the major player, Oscar Health, has been hitting some road bumps.  These are the ways in which tech aims to improve the health insurance market and what the likelihood is for a better and simpler health insurance system.

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  1. Simple Fee Structure

Lemonade is a tech-oriented insurance platform for home and renter’s insurance, which boasts simple quotes within minutes.  Utilizing artificial intelligence, Lemonade lets consumers message their system with key information and get a price starting at $5 per month for renters and $25 per month for home owners.

One of the largest complaints for health insurance is how arbitrary and volatile pricing can be.  After all what could justify huge swings of hundreds of dollars per month in pricing each year?  While Lemonade is in a different vertical of the insurance industry, their current success is an indicator that artificial intelligence may help solve this major flaw of pricing with all insurance in the near future.

With respect to Oscar Health and health insurance, their pricing is currently just about average if not slightly above average.  What Oscar identifies as two of their largest bottlenecks on pricing are the difference between fee-for-service and fee-for-quality insurance and the scale of their network.

Since insurance is a game of balancing high and low risk individuals, the size of a company’s patient network directly lowers costs.  As Oscar has fewer members than other larger networks, they aim to compensate for this as well as reduce managerial costs via having a smaller and more exclusive coverage network encompassing only the highest quality providers.  In this way patients have a lower fee-for-quality even if the fee-for-service is slightly above average.

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  1. Coverage Quality

Most people would rather keep their current medical provider even if they knew the care was of inferior quality.  While this might not make sense, what it reveals is that there is a drastic problem with people not understanding whether doctors are providing quality care or not.

This means two things for health insurance, firstly, how can technology better inform patients of what is good and bad quality care and secondly, is it better to create a health insurance service network with unlimited options for patients or only high-quality care?  Oscar’s solution for this is two-fold.

As many critics of Oscar will say, they do not have higher quality health care, but have higher quality marketing of coverage.  This role of introducing a better user interface to more efficiently inform customers about service offerings is the ultimate focus of Oscar.  They want you to understand your insurance.

After executing the improved user interface, Oscar at least claims to only have the highest quality doctors.  This is perhaps one of the hardest things to explain however.  What makes one doctor better than another and how do you explain to patients that their primary care physician who has seen them for decades is not actually taking good care of them?

While Oscar claims to have solved the quality question, until they effectively explain these conclusions, this reality is uncertain.

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  1. Improved Patient Identification

The best hope for improved and cheaper health insurance is incorporating data analysis and machine learning to allow for companies to accurately separate high and low risk individuals.  Simply put, if an insurance network knew who had high blood pressure, they could more efficiently price insurance for the risk of heart attacks.

One of the largest issues here is that this data is hard to get and there can usually be problems with discrimination.  However, what many individuals do not know, is that most insurance companies already offer rewards if you opt-in to wearing health trackers, such as a FitBit, and further rewards for meeting daily step-counts and health goals.

These wearable solutions to provide more in-depth knowledge for insurance companies and incentives for individuals to be healthier seems to have high potential for improving risk analysis, lowering the impact of size of network on pricing, and overall improving the wellbeing of consumers.

Furthermore, this is wear Oscar truly shines, since a sizeable number of its network uses wearables and health incentive programs due to the improved user interface and program marketing.  Despite a majority of insurance companies having these options, who would ever know when your insurance plan is a few hundred pages of text.

Improved service offerings need to be paired with ease of use and an intuitive interface for assessing offerings and coverage.  No matter how much data analysis can improve the insurance industry, Oscar’s ability to get users to give their data is one of its most valuable assets presently.

Insurance is a complex world with many factors going into underwriting and evaluating the risk of network members.  In order to properly evaluate this risk, offer the optimal premium for every member, and improve health coverage, Oscar Health is taking a unique approach of an improved user interface and prioritizing good quality coverage.  However, only time will tell if this Silicon Valley company will overcome the massive barrier of entry that is health insurance network size.

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