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Ask almost anyone, and they'll almost certainly be able to tell you a health insurance horror story, whether it was their own experience, or a friend or family member's.
For Andy Schoonover, his negative experience came when his daughter had a perforated eardrum: he was told she needed to have tubes in her ears or she was going to have long term hearing loss. Despite having signed up for health insurance through Healthcare.gov, getting a $1,200 a month plan with an $8,000 deductible, he still had to cover the entire cost of the 15 minute procedure himself.
"I was assuming my health insurance plan was going to pay for it. 30 days later, we found out that they weren't; they said it wasn't medically unnecessary and so they weren't going to pay for it. I went through two rounds of conflict resolution and they still weren't going to pay for it, so I wrote an $8,000 check to the local hospital," he told me.
"As you can imagine, I was pretty pissed. I called them and I said, 'I quit. I'm not going to pay $1,200 bucks a month if you guys aren't going to step up when my family needs it.' Especially when it has to do with your kids, so that was an extra level of being pissed."
That experience is what spurred him to found CrowdHealth, an alternative way for people to pay for their healthcare bills: the company uses a crowdfunding model to pay its users medical bills. Its customers to pool their money together so that CrowdHealth can negotiate directly with providers on their behalf, lowering the cost and paying the majority of the cost from the fund.
The Austin-based company officially launched earlier this week with $6 million in funding in a round led by Next Coast Ventures and Activate Venture Partners, along with individual investors and funding from Schoonover himself.
"I've been fortunate that I can write an $8,000 check, but 99% of the American population can't write an $8,000 check. And so, in fact, we have somewhere between 200,000 and 300,000 bankruptcies every year from people who have health insurance because of medical bills," he told me.
"If you're put into financial distress as a result of a medical bill, and you're paying for insurance every month, you don't actually have insurance. The whole point of insurance is to not put you into financial distress. So, we really founded CrowdHealth to help those folks who find themselves in high deductible health plans, and are looking for an alternative."
How CrowdHealth works
After signing up with CrowdHealth, users pay a flat monthly fee of up to $175 for those aged six to 54 (the price is $325 a month for seniors and $225 a month young children); after that, they pay $500 per health event.
When a user is going to the doctor, all they have to do is tell the company when they're going and who they're seeing; while wellness checks, such as a primary care physician, OBGYN, or pediatrician, are completely covered without any additional payment required, if the user needs a follow-up with a specialist, such as surgery, the company can negotiate directly with that hospital or provider prior to the operation, and get the price lowered. CrowdHealth will even pay the bill before the patient ever gets to the doctor's office.
CrowdHealth is currently operating in all 50 states, and can even help people when they're overseas.
"I put the story about my daughter up on LinkedIn and I had an ear nose and throat doctor in my area say, ‘I do those for about $1,600 bucks all day long.’ I was like, ‘Wow, I went to the hospital and I paid $8,000 when there was an ear nose and throat doctor that if I paid cash, would do it for $1,600 bucks.’ We have this friction of the health insurance plan that's really increasing costs," Schoonover told me.
"What we're doing as CrowdHealth is we're paying cash for all of our procedures and, as such, we're getting price discounts that are about 30 or 40% off of what health insurance plans pay for."
For example, Anthem Blue Cross Blue Shield is the big insurer in Cincinnati, Ohio, and they pay about $40,000 for a knee replacement. CrowdHealth, will move the procedure from a hospital to a surgery center, and get the price down to about $22,000 or $25,000, which means the company is saving up to $18,000, depending on the severity and what the health insurance plan would pay.
The company also saves money on emergency bills: the company was recently able to negotiate a $500,000 bill for a patient who had cardiac arrest down to $100,000, which was paid out over 20 months. That means that instead of having to pay $500,000 in one month, it became $5,000 over 20 months. If CrowdHealth has 2,000 members paying in, that's just $2.50 per month, per person.
"That's a big source of savings, not only are we renegotiating it down but you don't have to have this huge pool of capital on the back end to address some of these big catastrophic events, given the hospital's willingness to negotiate 99 out of 100 times," said Schoonover.
"That's how we work: we take a pretty aggressive negotiating stance with those ER bills and then we negotiate with the doctors up front for cash payments on the day of procedures, and that's where most of our healthcare expenses are going in those big procedures."
CrowdHealth members also benefit from dynamic pricing, meaning that their contribution every month: for most of its users, their maximum contribution will be $175 per month, which includes a $25 platform fee, and then $150 that goes into the contributions to the community. But, the amount per month could be lower than that, depending on what needs to be paid out to the community each month.
In total, the company estimates that an individual will save $3,000 to $4,000 a year rather than paying for insurance, and that a a family will save somewhere between $7,000 and $10,000.
An anti-health insurance company
The big question is, of course, how CrowdHealth is able to lower those prices, and why insurance companies don't do the same. According to Schoonover, the answer is that they aren't able to negotiate prices, and, more importantly, they don't want to.
For example, there are two hospital systems in Austin, Ascension Seton and St. Davids. If an insurance company lost those two partners, they would lose in that marketplace, so that network is really, really important to that health plan, which lowers their ability to negotiate.
"Most big cities have somewhere between two and three hospital systems. So, the United Healthcares of the world don't have a lot of negotiating power against the big hospital systems. Primary care physician rates have been negotiated down because the big insurance providers can negotiate those down since they're not affiliated with big hospital systems," he explained.
The second part of the problem is that the insurance companies don't have any incentive to lower prices; in fact, the opposite is true thanks to federal law that says that they can have a maximum profit of 15 to 20% of premiums. That means that, out of $1,000 of premiums, the insurance companies can only make $200 in profit. As a result, if prices are higher, they make more money.
This is partially why Schoonover emphasizes that CrowdHealth is definitely not an insurance company but is, instead, giving people tools to operate outside of the insurance system. In fact, he doesn't believe that the majority of people need health insurance at all.
"There's a segment of the population that probably does need insurance because they've got really expensive chronic conditions but, for most of us, 90% of us, we don't need health insurance. We can do this on our own, as long as we have a community of people in the background that will help us with some of those catastrophic events," he said.
CrowdHealth estimates that there are roughly 50 to 70 million people who would be good candidates for its service, as roughly 50% of Americans get their insurance through their employer and many other get it from the government. It's also a good option for people who have to get insurance through Healthcare.gov or who have a private plan, including people who work for small companies that can't afford to pay for their health insurance, as well as gig workers.
"We have 30 million folks in our country who are uninsured, and 70% of them say they are uninsured because of really high health care prices and they can't afford it. So, we're trying to give the uninsured another option."
Getting the word out
The new funding will be spent, in larger part, on marketing, helping make people aware that there's another way for them to receive care without needing to sign up for insurance. While the company doesn't disclose how many people it has on its platform, Schoonover would say that it needs 1,500 to be actuarially viable, which the company believes it will reach in about three or four weeks.
CrowdHealth will also use the funding to expand the platform with new features and technology: the plan is for everything is going to be app-based, so users will be able to go in and talk to a virtual doctor right on the app, they'll have access to a comprehensive set of doctor quality score data so they'll know how good a doctor is when compared to a doctor in the same specialty in their city, state or throughout the country. In addition, the company also wants to allow its users to submit their bills online.
"One of the headaches of the healthcare system is that you get these surprise bills in the mail. With our technology, you’ll be able to go in, you'll be able to take a picture of it. We, through optical character recognition on the back end, can figure out what it's for, what visit it was for. Is it correct? So, we do adjudication on the back end too. All of that is either built or being built, so that it will be all incorporated into this app."
Finally, it plans to use the funding to increase customer advocacy, so patients will have somebody there that you can talk to, to help them navigate that healthcare system, making the healthcare system friendly to the end user, less complex, and affordable.
The ultimate goal for the company is to change the way that healthcare is paid for.
"There's so many perverse incentives in the way that we currently do it, I'd really like to show the world that there's a model in which we could be a little bit more consumer directed in our healthcare choices and get the health insurance middleman out of the middle of that doctor-patient relationship. I'd like to give the power back to the docs to really direct that care as opposed to health insurance plans," said Schoonover.
"I think we can do that over the next four years; we have a goal of having 400,000 people signing up over the next five years. If we do that, we'll be saving our customers about $1 billion dollars a year, and that'll just be the start of something pretty special if we can get to that spot."
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