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Startups, investors look to insurance economy to disrupt, profit

Amid the transition to the Affordable Care Act, startup companies looking to augment, service or replace health insurance have been getting record investments.

Health insurance technology is getting a makeover and venture capital firms are looking to capitalize on the evolution, according to a report by CB Insights, which tracks venture capital.

"The significance of the law has not been lost on investors who have put more than $528 million into companies operating in the health insurance tech space since 2011," according to the research outfit.

The first five months of 2014 have seen almost half of that half-billion, with investors putting more than $240 million into health insurance IT and service startups in 14 different deals, nearly 50 percent of them originating on the West Coast.

One of the potentially disruptive startups is New York City-based Oscar Health Insurance, offering unlimited telemedicine consultations and free generic drugs, among other benefit designs.

Led by a partner at Thrive Capital, also an investor, Oscar has raised $150 million across three rounds of financing -- with $80 million of it secured in May -- and is trying to start a whole new insurance plan from scratch, going after individual consumers and small businesses as one of the health plans on the NY state exchange. 

Other recent health insurance tech financing rounds are going toward startups serving other players in the insurance economy, including health plans -- GetInsured, an online private exchange like eHealth that has also won a number of state exchange contracts; Maxwell Health, the maker of benefits administration software; and Zenefits, an HR outsourcing platform for payroll, health plans and retirement funds.

There's also Gravie, a Minneapolis-based startup with an online platform for consumers in public and private exchanges to manage insurance options and financial responsibilities.

With enrollment in both public and private exchanges set to increase at the same time that public frustration with high out-of-pocket spending shows no signs of abating, health insurance is likely to continue drawing more interest from startups and investors.

"2014 has already exceeded last year's funding and is on track to set a deal activity high," CB Insights writes.

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