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This is a guest post by Amy Radin. It is the second of a two-parter. (Thursday is always InsurTech day on Daily Fintech).

In my last post I outlined the four dimensions that are defining the opportunities for health Insurtech innovation: the health of the American people, marketplace trends, the role of regulation, and the players.

Incumbent health insurers are pursuing legacy tactics to compete in the ACA world: M&A (big deals either approved — Centene/Healthnet; facing regulator challenge – Aetna/Humana; or being reconsidered – Anthem/Cigna); increasing premiums (also see some of the latest news this week); and reevaluating participation in the public exchanges (notably, United Healthcare withdrew earlier this year).

Innovators addressing the root of user pain points can influence how plans are selected and health care is consumed. The levers are not easy to move. Success requires compliant ways of combining big data analytics and personalization with user-centric digital experiences.

The headline of a just-published New York Times article, Cost, Not Choice, Is Top Concern of Health Insurance Customers would seem to state the obvious. Yet insurers have expressed surprise at the policy mix and which plans are proving to be most popular. Carriers participating in the public exchanges report poorer actual performance than anticipated in premiums (lower) and claims (higher). Users are gravitating towards lower-cost plan options, and show a trend to self-select into higher-cost plans when they know a big health care expense looms.

This is not just an issue for incumbents. Oscar, among the most visible innovators in the US health insurance marketplace, reported a $105MM loss in 2015. Lack of scale is a challenge, but the company has also been impacted by the user decision-making dynamics affecting established carriers.

The results suggest (at least) three pain points:

# 1 People don’t see value because they don’t understand what they are buying.

• When people think something is too expensive, it is because either they cannot afford it (i.e., it really is too expensive) or the perception of value does not justify the price.
• Reportedly one in seven employees do not understand the benefits being offered by employers, of which health insurance is by far the biggest piece.

# 2 People are being held accountable for health decisions that they are not equipped to handle.

• Faced with a complex set of choices and opaque information, it is no surprise that many opt for the easy option: saving money now.

# 3 People don’t always make rational decisions.

• A basic primer in behavioral economics will tell you that:  (1) emotion, bias, and other limitations drive decisions, not rational analysis, and (2) people discount perceived upside relative to downside. There is not enough upside to pay more in the short term.

Players who manage to affect these behavioral drivers stand to gain.  Here are examples of companies working the issues.

Connecting disparate sources of data

PokitDok creates “APIs that power every health care transaction.” They aim to enable data connectivity across the silos that in today’s world require manual navigation. They define an ecosystem including Private Label Marketplaces, Insurance Connectivity, Payment Optimization and Identity Management. The company closed a $35MM B round last year. PokitDok is a pure technology play. Achieving their vision could be the “holy grail”: better economics and better patient experiences and outcomes without owning underwriting risk.

Helping employers

It hasn’t been lost on the startup world that 150MM employees purchase health care via employers, which is why many companies are focused on improving the benefits buying experience and promising to help employers lower costs. The ACA requires that all companies with more than 50 employees offer health insurance. This aspect of the regulation, coupled with the fact that health benefits expense has risen steadily, provides a specific and large innovation space.

Competitors include:

Lumity, who reported raising $14M last Fall, acting as an insurance broker. The company claims to be “the world’s first data-driven benefits platform for growing businesses” promising to simplify benefits selection for employers and employees.  Employees are asked to provide health data, which are compared with aggregate profiles using proprietary algorithms. The big question: Will employees see enough benefit to share potentially sensitive information?

Zenefits, recovering from widely publicized regulatory issues, has new leadership. The company acts a broker, and focuses on small businesses.

Collective Health is targeting a wide range of businesses via “ready-to-go,” “configurable,” and “advanced” solutions.  The employee experience components of the offering are aimed at helping users make better-informed decisions with less hassle.

SimplyInsured aggregates health insurance plan options for small businesses to make comparisons easier, and aims to automate processes presumably essential to creating a viable cost structure for serving this segment.

A number of established benefits consultants including Aon and Towers Watson (the latter via their acquisition of Liazon in 2013) offer larger employers private exchange capabilities – these include portals for employee benefits enrollment enabled by data analytics and a friendly user interface. They act as or engage brokers to create benefits plans tailored to employers’ goals. Such portals can be helpful to employees, and check a box for employers seeking to improve the benefits experience, not just reduce expenses.

Motivating people to adopt healthier habits

Vitality, reported on in an earlier post, is a cobranded platform offering deals and rewards designed to motivate people who take steps towards better health. Humana offers the HumanaVitality program, integrating Vitality’s rewards program into the insurance relationship. If people see near-term benefit to behavior change this could be a good use case upon which to build.

Facilitating patient payments to providers

Patientco is a “payments hub” supporting “every payment type,” “every payment method,” “every payment location.” Focus is on efficiently increasing revenue for providers, secondarily to improve the payments experience for patients. The company provides the ability to integrate its solution with other health technology solutions.

Providing better experience capabilities to carriers

Zipari is a customer experience and CRM platform providing a product suite including enrollment, billing, and a 360-view of members across engagement channels. The company targets is product line at insurers, both direct-to-consumer and group or employer channels.

The multiple miracles that would have to occur for a quick fix make it unlikely that we will see a simple, logical health insurance experience any time soon. We are relatively early in what is likely to be a long game. But, Insurtech innovators are demonstrating the capacity to go after the possibilities that data and technology offer to mitigate the pain.

Daily FinTech Advisers provides market development services to FinTech ScaleUps, Financial Institutions and Investors and operates the FinTech Genome P2P Knowledge Network.