Market Disruption is Coming to the Benefits Business and at it will Come from the Outside Not In

According to a report released by the Department of Health and Human Services on October 26^th health insurance premiums for 2016 will increase an average of 7.5%. This is in a market where inflation and interest rates are close to zero. It is no secret that the cost of health care is one of the biggest issues impacting the U.S. economy in the coming decade. With a $19 trillion deficit the cost of health care is a problem that is waiting for, and desperately needing, a solution. And if solutions don’t come then the solutions may be imposed on the industry as we have seen with Obamacare. Hillary Clinton, if elected, would certainly try to finish the job. Just last week she included health insurance companies and pharmaceutical companies on her short list of enemies along with the NRA and Republicans. Back in 1993 when Bill Clinton was pushing his health care plan Hillary, when asked what insurance brokers would do if the Government took over health care responded, “They can get another job”. The industry has a target on its back and the target is getting bigger. I think changes are coming. But it won’t be the government taking action this time. While some see the target on their backs others see the same target as an opportunity.

The opportunity to fix the health care cost problem in the U.S. is no secret. According to CB Insights “$14 billion of venture capital has gone to the insurance tech space since the beginning of 2014, with health insurance-related investments getting more than all other insurance sectors combined”. I have personally spoken to several Venture Capital firms who are studying the market looking to invest in companies that will disrupt the status quo of the current health care industry along with the employee benefits distribution business. Yes, there are many companies looking to put the current providers out of business. It is often easier for outsiders to disrupt the markets instead of the insiders. A taxi company did not create UBER, Blockbuster did not create Netflix, and Barnes and Nobles did not create Amazon. It may be because the current market leaders would have to step back before moving forward. It would be a very bold move to disrupt your own business model, often at a huge expense, based on the chance that your new idea would eventually pay greater dividends than the present model.

Those in the health insurance business know that it is the underlying costs of health care that drive health insurance costs. The outsiders do too. You can eliminate the insurance companies but not reduce health care costs to any significant degree. So these changes that I am referring to will attack the costs of health care. This will trickle down to benefits brokers because the majority of a benefits broker’s revenue is selling health insurance. These outsiders may or may not see the broker as a valuable resource in their future world.

While some benefits brokers are trying to be a part of this coming change, for the most part they are going to be spectators. Firms like Zenefits, Gusto, and Namely are disrupting benefits distribution by offering technology and other HR type services with benefits advisory services, and some brokers are pushing Private Exchanges like they are some new form of health insurance, but neither bend the health care cost curve. To paraphrase Peter Thiel from his book Zero to One, “Innovation must be something new not a slightly different version of something that already exists….and that innovation must be at least 10 times better than its closest substitute”. Private Exchanges, payroll/HR tech companies giving away free technology, and most of the other technology solutions in the benefits business that I have seen do not meet this definition of innovation. In fact, these companies too may be disrupted by those that bend the health care cost curve.

The true disruptors are going to impact the market in ways many of us may not yet even imagine. But they will come, because there are many people interested in bending the cost curve including the government, employers, employees, and any individual paying an insurance premium. And of course those investors who are spending billions of dollars. Those less interested are those protecting the status quo.

So who are these disruptors? Firms like Google and Apple are hoping to play a major role in the mobile health market. Apple’s HealthKit is designed to manage ones heart rate, blood pressure, cholesterol, take a temperature, and make that information immediately available to one’s physician. Google also happens to be an investor in the new health insurer called Oscar Health. Evolent is helping hospital systems enter the health insurance business. Theranos can do over 120 blood tests with the prick of a finger and substantially reduces the time and costs for such testing. There are hundreds of others on the horizon.

The health care marketplace is ripe for change. The political environment, expanding web and mobile technologies, and a cash rich, highly motivated investment community, are all aligned and ready disrupt the status quo. And the prize for success is very lucrative. That future has yet to be defined but change is coming. Benefits brokers will have a choice to fight the change or start looking for those outsiders that will need help bringing their new solutions to market. But there will be no choice. The winds of change are already blowing.