Silicon Valley startup launches
self-insurance option for smaller firms
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[August 12, 2014] By
Christina Farr
SAN FRANCISCO (Reuters) - The founders of
Collective Health, a Silicon Valley startup, say they can help employers
save money by self-insuring rather than paying premiums to a health
insurance company.
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Collective Health has developed software to help companies pay
workers' health costs directly. Collective Health describes its
"sweet spot" as companies with a few hundred or a few thousand
employees, typically in the tech sector.
"Insurance providers make money by overpricing risk and underpaying
care," said Collective Health's Chief Executive Officer Ali Diab,
whose previous company AdMob was acquired by Google Inc.
Self-insurance arrangements are increasingly commonplace among
larger employers, although it is difficult to know how many firms
have made the transition. In the wake of the Affordable Care Act,
self-insurance has also become an attractive option for mid-sized
companies.
Collective Health, which competes with actuarial consulting firms
such as Milliman, claims its differentiating factor is its focus on
user experience and design. Collective Health's three actuaries
assess how much companies are likely to save each year by switching
to a self-insurance model based on medical claims data.
Once Collective Health has transitioned the company to a
self-insurance model - at no additional cost, it claims - human
resources managers use a dashboard to track employees' health and
benefits. Coordinators can set up experiments to see if a new
benefit, like a healthy meal plan or standing desk option, is making
a difference on overall health and wellness.
Employers can work closely with Collective Health to set up flexible
plans and cover unusual benefits like fertility treatment or
acupuncture. Diab describes this as a competitive advantage in the
war for talent that is raging in Silicon Valley.
To alleviate huge costs from unexpected claims, employers sign up
for a special type of "stop loss" insurance. Collective Health says
it will help customers locate the optimal policy.
The self-insurance trend may be growing, but it is not without its
critics.
Advocates of self-funding such as Collective Health claim that
companies can save 20 to 25 percent. However, some experts have
warned that savings are typically far less.
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In addition, insurance regulators fear that commercial insurers and
the insurance exchange will be left with large numbers of older,
sicker people.
Young companies, flocking to self-insurance, are known for hiring
twentysomething, healthy employees. In Silicon Valley, recently
published diversity reports from firms such as Twitter Inc
demonstrate that employees are also disproportionately male.
Collective Health declined to name its customers.
Diab started the company in 2013 after he recovered from an
emergency surgery. Diab said he faced mountains of paperwork from
his insurance company, which had declined to pay for some of his
surgical and hospital charges.
He set up Collective Health alongside cofounder Rajaie Batniji, a
Stanford University-trained physician. The pair raised a first round
of funding from a handful of Silicon Valley venture firms, including
Founders Fund and the Social+Capital Partnership.
The company is currently enrolling companies for a coverage start
date of January 2015.
(Reporting by Christina Farr; Editing by Lisa Shumaker)
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