Venture capitalists willing to fund insurance startups who try to crawl over 'wall'

When health care firms that haven't been around very long announce new venture-capital financing, it's hard to miss the big numbers.

This year, $225 million went into an East Coast health insurance firm called Oscar and an additional half a billion dollars of equity was just raised by Bright Health of Minneapolis.

These firms are very much still startups, and you can hear a little Silicon Valley-style language in how they talk about themselves.

Oscar claims to make health insurance simpler and easier to understand, yet it describes itself as "the first direct-to-consumer health insurer, pairing member engagement with our own full-stack technology."

Well, that does sound better than having half-stack technology.

But the bigger point is how it's at least a little surprising that upstarts can raise so much capital to jump into an industry with so many barriers to entry.

Health care is highly regulated, both nationally and state-by-state, and relies on a hopelessly complex payment system the incumbents have all mastered.

Yet entrepreneur and venture capitalist Tony Miller said it's a much different world in venture finance than it was 10 years ago.

And the first half of the year "produced the largest two-quarter investment period ever for venture-backed health care companies," according to Silicon Valley Bank.

To illustrate his point, Miller talked about the 2013 zombie apocalypse film "World War Z," starring Brad Pitt, where the Israelis somehow anticipated the zombies would come and built a wall to keep them out.

The problem of relying on a wall, though, is once the wall is scaled or breached the zombies run wild.

The health care system seems similarly walled off, and Miller said venture capitalists realize that getting in won't be easy.

Miller isn't only a venture capitalist with Lemhi Ventures, he's also CEO of Bind Benefits. This Minneapolis-based "on demand" insurer seems to be a perfect example of the kind of innovation now being funded by the venture industry, although it has "only" raised $142.5 million including debt.

Bind is another response to the frustrations people have about health care, of too little control and too much cost. As Miller pointed out, most consumers don't think about "health care" in a broad enough way.

Miller asked, during a wide-ranging conversation, what's the "single greatest clinical weapon" in combating COVID-19, and I couldn't easily come up with one.

The right answer, of course, is maintaining social distance and always wearing your mask, an approach both effective and almost free.

"When I specifically used that word clinical, it triggers a paradigm in people's heads that says, 'Clinical, that means those people in the white coats. And they can help me,' " he said. "And what people lose sight of is that clinical … is how we treat our own bodies. And we own our own health."

One approach of Bind is to get rid of insurance deductibles, because it's just a fixed amount in a given tax year that does not align with the health needs that could crop up.

It mixes up events, like treatment for diabetes and an unnecessary back surgery, Miller said. Sticking carefully with diabetes treatment is probably cheap and certainly beneficial over the long term, but deductibles don't help get that outcome.

That's just bad insurance design.

Also, the health of people can be fluid and really hard to predict. That leaves consumers with three really hard jobs during the open enrollment period in health insurance plans, happening this time of year.

"The first job is be an actuary, and predict which benefit plan is right … based on some math," Miller said. "Two, be a clinician, and figure out what [treatments] you are going to need so you can plug it into the math. And three, be a fortuneteller, because you have to predict the future of that need."

The Bind member gets insurance coverage, but it allows for activation of specific coverage should one of nearly four dozen specific conditions rise. At that point, there will be choices for the member to make.

Miller used his own knee pain as an example. With a master's degree in kinesiology, Miller knew he had injured the soft tissue and could confirm it with an MRI exam.

First he had to see a doctor, who ordered an X-ray Miller knew would find nothing. The clinic's business side wanted to know if insurance would cover the MRI exam before it could get scheduled.

If an injury like his is confirmed, a member in that situation has choices offered by Bind, being transparent about how invasive and how expensive different options are. Surgeries are not always successful, of course, and if a member were to choose surgery anyway it would come with more out-of-pocket expense.

That's the way to understand the concept of "condition first," meaning that the conditions really matter. The member will have the opportunity to see costs in advance and make choices that may lead to a better health outcome and still be cheaper.

"What I hate hearing is 'Bend the cost curve,' " he said, a popular expression that means to slow down the increase in overall health care costs. "What do you mean, 'Bend the cost curve?' Break the cost curve. And if we want to break the cost curve, we're going to have to reset clinical value."