The (Self-insured) Employers are Coming

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Livongo’s upcoming IPO is big news. It is one of the few IPOs to come from the large amount of funding that has gone into the digital health space. According to Startup Health, $14.6 billion of venture funding was pumped into digital health startups in 2018 alone. Investments over the last decade in the space have led to relatively few success stories in the form of IPOs or significant exits. In fact, Livongo’s IPO ends a three year drought for digital health IPOs.

In addition to the good news for Livongo and its investors, the IPO further highlights the growing success of companies that cater to self-insured employers. While the majority of digital health companies sell to providers (health systems, hospitals, clinics, SNFs, etc), payers (health insurers, Medicare, Medicaid), or manufacturers (pharmaceutical and medical device companies), a growing number now focus on selling to employers who take on the risk of insuring their own employees, and pay their medical bills directly instead of contracting with traditional health insurers like UnitedHealth or Anthem. Large and smaller companies alike have entered into the business of healthcare to try to reign in rapidly rising costs.

This trend is accelerating, with rising healthcare costs leading to employers that want more transparency into, and control of, how employees use their healthcare benefits. The share of self-insured employers has grown by more than one-third since 2010, according to the Employee Benefit Research Institute. Today, 91% of employers with more than 5,000 employees are self-insured. While that number drops down to about 50% for companies with 200 to 1,000 employees, the share of smaller employers moving to self-insured models is also increasing. In fact, more and more employers are entering into Administrative Services Only (ASO) contracts with traditional health insurance companies, where the insurers only perform specific administrative tasks such as plan enrollment and claims processing, while the employer pays the actual medical bills.

At Hexi, as a result of this shift of risk to employers, we are seeing a growing number of our own users shift their focus to sell to these self-insured employers. For example, one telehealth company uses Hexi’s Relationship Mapping tool to identify and reach out to VPs of Wellness and Employee Benefits at large employers, who their current customers and champions know well.

Livongo focuses on net promoter score as a driver of their growth

Livongo focuses on net promoter score as a driver of their growth

As more companies sell to employers, they are finding that they typically have shorter buying cycles and less convoluted decision-making processes (ie. fewer decision-maker sign-offs) than provider and payer organizations. While the decision-making process may be faster and simpler, selling to them does necessitate a deep understanding of their buying motivations, especially around user (employee) satisfaction. While employers care about lowering healthcare costs, they also see employee benefits such as digital health apps, wellness programs, gym memberships, and fertility benefits as ways to recruit and retain talent. This is especially true in competitive labor markets in industries such as tech & finance. This means that successful digital health companies in this space will need to prove the triple goals of ROI, improved health outcomes, and user satisfaction, with a bigger emphasis on the last. In Livongo’s case, they tout their net promoter score of +64, a sign of high user satisfaction. To successfully sell to employers, no longer is it enough to treat user satisfaction as a nice to have, instead it is often the main buying decision driver for employers as they seek to purchase tools that engage and keep their employees happy.