January 13, 2017 The Financial Revolutionist
Saying that health care insurance is just a health care issue is misleading to say the least. Sure, the term health care insurance includes the word “health care,” but health care insurance and benefits impact every sector of America’s economy. After all, according to the National Health Expenditure Accounts (NHEA), health spending accounted for nearly 18% of America’s GDP in 2015. That makes covering health care costs everybody’s issue. And by everybody, we mean everybody: S&P 500 companies, small businesses, providers, health care consumers (most everyone) and the people working to make the current health benefits system, badly broken by most accounts, better. There’s another group that has a dog in this fight: the fintech industry. That’s because health care insurance will increasingly start to look like insurance and less like an intermediary that passes money between patients and providers as it is today. At the same time, ways to finance and/or re-price health care will be on the rise, requiring innovative financial thinking. One such innovator is Denny Weinberg, CEO of Hixme, who is hard at work in breaking the conventional mold of health and employee benefits and replacing it with a new model that is portable, flexible and technologically advanced. Recently, The FR’s Gregg Schoenberg spoke with Weinberg to better understand his company and the evolving backdrop in which it operates.
The Financial Revolutionist: Hixme is reimagining how health care insurance is provided to people working at companies that sponsor health care coverage. It does this by offering individual rather than traditional group policies as well as other financing services. Is that a fair description?
Denny Weinberg: Yes, that’s true. Our approach is revolutionary and counterintuitive because we’ve been told that the reason we get our health coverage through our employers is that by “pooling” people together at an employer level, we end up with the best possible pricing. Today, that’s not true. That group insurance model was created when there were few alternatives. Now, a worker can say ‘no thanks’ to his or her employer’s coverage and go buy it elsewhere, often for less money and with more relevant coverage. Hixme in particular has found a way to make that happen. Previously, families looking to optimize their dollars by breaking up their sources of health care funding could not, because it introduced some volatility into the group health care market.
FR: Why is that?
DW: Typically, when people are shopping for a better price, they’re generally healthy. If healthier spouses and children move into an individual plan and the employer is left with the less healthy workers only, or a healthy worker opts out, the employer ends up with a poorer pool and pays for it.
FR: So in a standard group plan, the healthier people are subsidizing the people who are more likely to use the benefits of that plan?
DW: Yes, and that distribution difference is extreme. Consider this: In the US, 10% of employed people will consume an average of just over $4,000 per month in health care. Meanwhile, 50% of employed people will consume less than $25 per month.
FR: Is it fair to say, then, that if a company selects Hixme to manage its benefits, healthier people save money while unhealthier workers — who have been subsidized to this point — pay more?
DW: Under the Hixme model, the plans that are being offered to all of the workers are plans that are sold to and pooled with millions of individuals all around the country at the same rates. The health of any one worker does not determine their rate thanks to the risk adjustment mechanisms offered by the Affordable Care Act (ACA). And because we’re talking about 22 million people, stability is much greater than any one employer can create. Workers have more choices to match their health needs to their plan choice – so they can choose to pay more or not. But in the traditional employer system, it’s a zero-sum game. It’s you and your employees, and whatever your costs are, you’re paying them.
FR: Understood. There’s also portability associated with the insurance plans you offer, right?
DW: Yes, the Hixme plan belongs to each worker, so they “plug into” their employer’s structure. The employer is subsidizing the cost — connecting each worker with payroll and the tax-advantaged access — but it’s really each worker’s individual plan.
FR: Does the person still own that plan if they switch jobs or become a freelancer?
DW: Yes. When they leave, they can take the plan with them, often supported by COBRA continuation features. They’d pay for it themselves, but they’re benefiting from the initial group structure they signed up through, just like they would today if they were taking a traditional group plan with them through COBRA.
FR: Let’s turn to the private market. Are the plans offered by insurance carriers on the private exchange different than the plans offered on the ACA public exchanges?
DW: An insurance company can independently decide what its portfolio of individual plans will include. Carriers are free to sell any or all of their plans on the public exchanges or choose to limit what they offer. At times, if you sell one particular plan, sometimes it makes sense to sell another one along with it.
FR: In the private market?
DW: Yes. And you tend to see a much smaller selection of plans available on the public exchanges than what the insurers offer in total.
FR: Why is that?
DW: While many view this as a new source of business, insurers lose a certain amount of control over the process on public exchanges. There are really complicated challenges of having another administrator in the middle of their relationship with their clients. As a result, outside of the public exchanges, there’s a much bigger market, and some of that variety offers much lower prices. But if an insurer chooses to sell the same plan both off-exchange and on-exchange, it must be priced the same, so there’s no opportunity for an insurer to cherry pick from one to the other.
FR: Is it safe to say that more attractive plans can be sourced through Hixme as compared to buying a plan directly from a public exchange?
DW: Yes. Originally, the thought was individual insurance brokers would be unnecessary in the public exchanges because of the variety and attractiveness of having plans in one place. The thinking was, ‘If there’s a public exchange in every state that is available to everyone, why do we need insurance sellers?’ In the ACA’s first year, that was proven wrong, and instead the broad variety continued to be offered directly in many parts of the country.
FR: So the policy makers got it wrong?
DW: It was one of many examples of naive health policy thinking; it was easy to assume that it’s just like banking. However, choosing health care isn’t like picking a source for a checking account where the products are basically the same. For some insurers, it was just too much, so they decided to focus off-exchange. Most carriers also feared that the loss of enrollment control would result in abuses on-exchange. For example, sick people were able to sneak onto these exchanges literally on their way to open heart surgery or dialysis.
FR: That’s amazing.
DW: Yes, the insurers realized that off-exchange, they could control whether a person had a legitimate qualifying event as defined by the IRS to allow them to enroll outside of the annual open enrollment window. Clearly, there are things like that which don’t work well for many carriers on the exchange market and plenty of dialogue on potential solutions.
FR: In this private market, you have giants like Mercer and Aon Hewitt. You’re entering their market, right?
DW: Yes, absolutely. Historically, they’ve been product-agnostic, but when the public exchanges were created, and ‘exchange’ became a big buzzword, they introduced these private exchanges to leverage the power of the idea. But the way their models work is not radically different from traditional group insurance, so the industry has not been able to get out from under traditional risk problems.
FR: Why is that?
DW: Because they’re not able to pool risk between and among companies. All they can do is create a big factory that administers and saves a little money on administrative costs, which is a small part of health care dollars.
FR: So returning to Hixme, what is your business model and why is it different?
DW: We provide a benefits platform for each employer; everything from the technology that allows workers to choose individual plans for themselves and each family member bundled with other important protections, to managing all the payroll interfaces and other integrations. Not only can each worker, but each family member can be on a unique and separate plan. Plus, the Hixme Bundle includes more than just health insurance. Hixme cobbles together health insurance and other gap coverages along with fintech assets to create a solution that is much better than simply a group health insurance plan.
FR: But how does Hixme help people select insurance?
DW: By gathering key personal information, our platform assists each worker in narrowing their selection and in being able to project and understand what their needs are going to be moving forward. We curate the most likely resulting coverages that would work best for each worker. Then, we integrate and manage all of the services that the worker and the employer may need during the year. As a result, we operate like a technology platform and like a broker both for the worker and the employer. This generally eliminates some pain points by managing the risk when the inevitable need for health care comes into play.
FR: Would Zenefits, TriNet and companies like that be part of your peer group?
DW: We actually don’t have a peer group, because we’ve developed a radically different approach using fintech solutions to address the problem of providing health security for people. We’d actually like to see others offering similar solutions. That said, we are generally grouped together in the marketplace with many companies, including the ones you just mentioned. Zenefits, for example, has a much broader HR replacement platform that’s far beyond what we do. Plus, in some other models out there, an employer stops participating in a group plan and gives some financing support to their workers who must purchase health care on their own. That’s not how our model works at all. We keep the employer subsidies in place, and offer coverages that are alternatives to group coverages, within the existing payroll and administrative structure.
FR: Do you have a SaaS product in place?
DW: Not today, although that is where we will go. This is a complicated enough model and we’re new enough that we want to have a good base of customers and a solid packaged product before we make it available for others to service and use. We are experimenting this year with a few brokers as test users of a SaaS model, but today, Hixme offers a full, direct sale to an employer.
FR: Considering the pretty shocking results of the election, a lot of health care businesses may have some recalibrating to do. When you awoke the day after the election, what was going through your mind?
DW: Well, of course, we were shocked. We spent the year working in D.C. with the important agencies of the federal government to make sure our model fit clearly into current law. Our assumption was that those relationships would remain largely the same in a Clinton presidency.
We awoke to a very different world. Like most people in our industry, we huddled with our advisors, made some trips back to D.C., and started reformulating our views. We’ve got a pretty good sense of what’s likely to stay, as do most Americans now, and we’re literally watching it unfold as we get closer to the inauguration.
FR: Our sense is that however the specifics of the new laws play out, the economic forces surrounding health care still create the need for innovative solutions. Do you have a battle plan ready, regardless of how the sausage-making process unfolds?
DW: Yes, we do, based on the premise that a lot won’t change in the near-term. As you said, the underlying problem is big and it’s persistent. Costs of health care continue to go up as people age. The habits related to the consumption of health care are problematic and the incentives are not well aligned. The one thing we know for sure is that when people possess a sense of ownership — this is maybe a uniquely American thing — they behave better and make better choices.
We think that the incoming administration and new Congress are going to be much more pro-consumer, pro-business and pro-freedom of choice, and much less regulatory-oriented. The result will be less restrictions on what health care insurers can offer and more freedom to try different models. That bodes quite well for our model.
FR: How about on the consumer-behavior side?
DW: There’s an inevitability about the consumerization of health insurance. It’s what we saw happen with the replacement of designed pension plans with 401(k) plans. It’s a great model to follow and we believe that this trend is bigger than politics. 2017 will be an interesting year for models that advance that trend.
FR: You sound prepared for whatever comes your way. You also know that health care represents a growing percentage of the nation’s GDP. The FR points this out by modifying Andreessen Horowitz’ tag line, “software is eating the world” by saying that “health care is eating the world.” If you were king, how would you try to stop health care costs from spiraling out of control?
DW: Having spent 30 years watching this evolution, it’s impossible for me not to start with the difference in the definition of health care today versus what it was 25 years ago. The solutions for financing health care 25 years ago were tied to hospitalization, complex procedures and all the occurrences that are related to them. It turns out, a million dollar hospital stay experience, when you spread that over the population, is quite insurable. On the other hand, covering routine prescription drugs, routine office visits, wellness, birth control pills, and other things broadly accessed with moderate unit costs, are not insurable, and become incredibly inflationary themselves.
FR: The little things that are accumulating?
DW: Yes. Over the years, the health care system has been affected by social policy, by this idea of what is “right,” not what’s insurable. Something that’s consumed by 40 or 50 percent of the United States at $10 or $15 per month could cost way more in average premiums than a million dollar claim that occurs for a fractional percent of the population. Insurance should be about people paying very small amounts of money, so when something goes very wrong, it’s covered. A re-definition of health care to meet the social needs of people and the policy objectives of politicians looking to provide services is a great concern.
FR: By propelling health care insurance into a payment mechanism as much as an insurance one…
DW: Exactly, and that’s why for Hixme, we don’t see insurance as solely the right model to pay for health care. That’s why financing is important, using both credit accounts and debit accounts to provide access to more frequent services that might not be covered under large deductible insurance plans. Those large deductible insurance plans continue to grow at a higher and higher rate to solve the problems I just described. That doesn’t mean those other services can’t be covered, it’s just that traditional insurance isn’t a good model for doing it.
FR: What you’re saying is that if health care insurance starts to look more like a broader-based insurance business, then you’re going to have a greater percentage of high deductible plans purchased through Hixme or some other mechanism.
FR: So financing deductibles, because people might not have the liquidity to cover unanticipated costs, becomes an important component to delivering a holistic health care solution?
DW: That’s absolutely correct, and I believe that this is really a radical shift. The high deductible plans that we’re seeing right now, over the next two to five years, are going to start defining the cost of health care, as opposed to being a small contributor to solving the problem. That’s good long-term for Hixme’s business.
FR: As people become more acutely aware of the costs that they are paying for health care, it will force all sorts of medical services and drugs to bend to a new reality. Right?
DW: Yes. Transparency also affects me as a consumer. We have tried for 20 years to impose controls over pricing by looking to insurance companies and/or care managers to bend the cost curve. But when it’s the patients themselves who say, ‘this is coming out of my pocket, right?’ or ‘I’ve got to draw it out of a line of credit or use money that I set aside just to pay it,’ they’ll suddenly become very interested in exactly what’s going to be done and what it will cost.
FR: Last question: How do the carriers feel about you?
DW: The carriers see us as an increasingly larger source of healthy-individual business, which is something they desperately want. They also like the idea that predictable, healthy working people are going to be brought into individual plans by models like Hixme’s. That’s why we’re connected to about 160 insurance companies today.
FR: That’s impressive momentum. Thank you for offering your time and your insights.
DW: Sure, thank you. I appreciate having a fintech platform like The FR to discuss these important concepts and models.
This interview has been edited for content, length and clarity.
ABOUT THE HIXME THINK BLOG: Authored by one of the gurus of health insurance, Denny Weinberg, postings reflect market trends and the powerful emerging movements toward true portability and personal ownership by workers and their families. Postings follow these emerging trends, driven by consumer ownership of retirement benefits, consolidations by health care institutions, and the stated pro-consumerism goals and actions of the administration, federal agencies and Congress.