Venture Capital Firms Invest More Money in Self-Funded Healthcare – Consumers Are Not Celebrating

American consumers are used to seeing products and services get better. From coffee to car mileage to smartphones, it’s common for the things we consume to become more attractive, efficient and easy to use over time.

But one area where that hasn’t happened is health insurance. Every year, we pay more for health insurance, get more bills we don’t understand, and shoulder a greater burden of out-of-pocket expenses.

Statistics back up these findings. Over the past decade, Americans’ average health insurance deductible has increased by 53%, according to a recent report from JP Morgan. More than half of consumers said they have trouble paying for health care, with many juggling debt and delaying or forgoing treatment because of the cost.

This is not your typical “startups to the rescue” narrative

Having written many stories about startup trends, I recognize this as the point in the article where I usually explain how startups are working to solve all of the aforementioned problems. Then I find examples of entrepreneurs who hope to make our lives easier.

But the trends in health care with self-pay and high deductibles don’t create such a simple narrative. It’s true that many companies are getting funding around the theme of consumer-facing health care, as well as providers of tools for employers to help employees navigate their coverage options.

Just last week, for example, Thatch and Flex, two self-funded health care startups, both received new funding. The largest round went to San Francisco-based Thatch, a platform where employers provide employees with money to buy their own health insurance plans, which raised $38 million in a Series A round led by Index Ventures and General Catalyst.

And just a few weeks earlier, PayZen, a provider of payment plans for patients to pay medical bills, raised $32 million in equity funding along with $200 million in debt financing. It is promoting a “care card” that people can use during a doctor’s visit and pay the cost over time, interest-free.

In total, seed, venture, and growth investors have invested more than $1.4 billion to date in a range of recently funded U.S. companies that are innovating in high-deductible health plans, self-pay, and consumer-facing healthcare. Using Crunchbase data, we’ve created a sample list of 23 such startups that have raised funding since 2022.

The number of funds has grown significantly since we last wrote about this investment space, just five months ago. The largest round since then went to Sidecar Health, a health insurance platform that lets members pay doctors directly and then submit bills for review for reimbursement. The company raised $165 million in a Series D in June.

Many on the list, including Thatch, are developing deals around ICHRAs, or Individual Coverage Health Reimbursement Arrangements. That’s an acronym for deals from employers that, instead of offering health insurance plans, provide employees with money to pay for their own policies or medical expenses out of pocket.

Consumers are not thrilled

It could be argued that new tools for managing consumer healthcare costs could make life easier for consumers who have to pay medical bills.

However, it has also been observed that American consumers dislike health plans with high deductibles and out-of-pocket care. Most would prefer private insurers or the government to cover the majority of our medical bills.

Among Democrats, a majority supported a single national government program that would provide health insurance. And most adults, regardless of political views, believe the federal government should provide health insurance to all Americans.

In addition to being unpopular, the status quo of health care in the U.S. is also expensive and inefficient. According to the research group The Commonwealth Fund, the United States spends more on health care than any other high-income country, but still has the lowest life expectancy at birth.

Plans with high deductibles don’t help outcomes. Instead, research suggests that this type of coverage “may reduce or delay needed care, ultimately leading to poorer access to care for chronically ill participants.”

Wishful thinking, meet the current reality

But while consumers may want someone else to handle our healthcare spending, market trends appear to be heading in the opposite direction. This hasn’t escaped the attention of venture capitalists, including sector heavyweight Andreessen Horowitz, which has carved out consumer health as one of its key focus areas.

The storied VC firm is also aware that the field is not exactly in high demand. In an article explaining its investment thesis, it wrote, “Why are we so bullish on consumer health? The current state of affairs is bleak. Patients are unhappy; providers are burned out.”

The firm’s investment strategy is based on the premise that as consumers face higher health care costs, they are becoming more discerning about their health care services and, as a result, “are likely to vote with their wallets.”

It’s hard to see how this approach works in all situations. When we have an illness or an accident that requires immediate attention, for example, few of us have the desire or ability to shop around for the cheapest test provider or visit an emergency room.

However, for more routine, pre-planned care and for chronic conditions, better comparison of prices and payment options can be helpful.

That said, most of us are miserable enough with the hassle of scheduling and navigating our countless doctor visits. Adding comparison shopping to our to-do list won’t make us happier.

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Illustration: House of Guzman