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Hey Everyone,

Jillian here! With it being Open Enrollment period, I figured I’d talk a bit about a space that I’ve been excited about for several years and the pain points and opportunities around it: the intersection of healthcare and fintech.

This all starts with a personal story. In November 2018, I had hip surgery. In the year leading up to it, I worked with three hospitals/surgeons and my insurance to figure out what was the best in terms of care, cost, and coverage. Despite believing I had the full picture in terms of what insurance was and was not going to cover and how much was going to come out of pocket, I did not. I was told $750 total in terms of out-of-pocket, but I ended up paying a total of $2,500 across several confusing bills sent via physical mail for the next 12+ months.

There are a slew of reasons that the amount of out-of-pocket spend from consumers on medical expenses continues to grow. One is that employers have increasingly shifted toward a low premium high deductible health plan (HDHP). These are argued to lower overall healthcare costs and usually benefit younger, more healthy individuals. According to Kaiser, there’s a $45,000 opportunity cost of choosing preferred premium plans versus HDHP for the average family over a 30 year time period. However, while HDHPs save consumers more money upfront in terms of premiums, when healthcare costs do arise, they are on the hook for a greater share of those unaffordable costs. Unfortunately, unexpected healthcare costs are common, with 61% of consumers having been surprised by a medical bill.

In 2010, 24% of private industry workers were enrolled in high deductible health plans. As of 2021, that number increased to 51%. It’s expected to continue to grow as companies, especially small businesses, look for ways to save money. Unfortunately, this shift has also coincided with the continued rise in overall healthcare spend due to rising costs. Total out-of-pocket spend in the US grew by 10% in 2021 to reach $492B ($1,650 per person) and is expected to maintain that pace for the next 5 years.

Almost counter-intuitively, the growth of the digital health space actually worsens the problem of the overall cost. That’s because a portion of the added costs of investing in technology to better serve patients digitally and democratize access is being borne by the patient, with costs expected to rise 6.5% in 2022. On the direct-to-consumer side, consumers have benefited from increased access and more personalized care. However, DTC digital health have not necessarily been able to address the problem of rising costs and in fact are typically expensive alternatives. Often the DTC healthcare brands are more limited in terms of insurance acceptance, making them a bit more of a luxury and out of reach for many. While consumers are able to get the care and medicine they need more conveniently and often faster with companies like Hims or Maven, they often (especially when just starting out) do not accept insurance. The service’s cost is typically cheaper than if a consumer had to pay the full out-of-pocket themselves, but without the help of insurance, it can sometimes mean a much higher cost versus a co-pay.

Out of this, we’ve seen two major categories of companies trying to help combat the rise in healthcare spend.

Consumerization of HSA / FSA

Health Savings Accounts and Flexible Savings Accounts are not new, but they have become more popular as more employers move to high deductible health plans (you can often only use this if you have a high deductible). As of January 2021, AUM of HSAs reached over $87B across 31M accounts, and the contribution cap for these plans continues to rise as the government sees the reliance consumers have on these savings plans to manage their spending.

Startups have looked to seize this opportunity by creating a more consumer-friendly health wallet to improve the end-to-end experience from saving to investing to spending when it comes to health care dollars. Some companies in this space include Lively, (backed by B Capital, Costanoa, and YC) Starship (backed by Valar Ventures, Clocktower, and 500 Startups), First Dollar (backed by Next Coast Ventures and Meridian Street), and Aya Care (backed by Anthemis and Luge Capital). There are also companies such as Sika Health that are maximizing the usage of these saved dollars since they are often underutilized or even go unspent because some of these savings plans are structured as use it or lose it, meaning consumers lose hundreds of millions annually. The current experience for spending from one’s healthcare wallet is not always intuitive leaving a lot of opportunity to improve the consumer experience around where they spend their saved dollars as well as maximize the ease of spend.

Healthcare Financing

More companies are looking to help consumers and providers improve the payment experience with a key aspect of that revolving around the financing. This can be done via the provider (at the time of payment) or as a direct-to-consumer offering (e.g. as a benefit through one’s employer). With the excitement around Buy Now Pay Later, we are also seeing an increased number of companies looking to apply it to the healthcare industry.

Some of the companies focused on the point of payment and financing include Basis, PeachyPay (backed by Village Global), Paytient (backed by Inspired Capital, Box Group, and Lachy Groom), VioletPay (backed by Olive Ventures), and Walnut (backed by Afore Capital, Gradient, and 2048). There are also many others that have more vertical-specific focuses, such as pets, therapy, and other areas where insurance acceptance is more limited.

What's Next?

The challenges around the rising costs of healthcare are not going away. The lack of transparency and understanding of how insurance works, how billing works, and the different incentive structures further complicate the consumer’s financial relationship with healthcare. As digital healthcare continues to proliferate and the demand for a better consumer experience helps improve services, I expect to see even more innovation around the financial side of the healthcare industry. I think this is all still super early days given that this is the intersection of two heavily regulated industries. These businesses will take time to build, but they have the opportunity to be massive, both in valuation and impact.

Jillian is an investor at Cowboy Ventures in New York, where she loves getting to speak to and work with passionate individuals who are obsessed with the problems and inefficiencies that face our society. Prior to joining Cowboy, Jillian spent 5 years investing at Anthemis where she worked closely with companies ranging the spectrum of fintech such as Pipe, Maxwell, Matic, Nivelo, and Rally Rd (to name a few). She also led the launch of the Female Innovators Lab, Anthemis’ the venture studio in partnership with Barclays that supports female founders. Jillian also serves as the head of BLCK VC NYC, the NY arm of the BLCK VC, a non-profit with the goal of doubling the number of Black investors by 2024. She is an avid fan of the NYT crossword, running, swimming and most activities that involve the sun and a body of water.