I saw this recent tweet from a health tech investor (Alyssa Jaffee is a Partner at 7wire Ventures) about how Starbucks spends more on healthcare than it does on coffee beans, which prompted me to think, 1) I guess the $5 lattes are justified, and 2) I’m not super surprised. While the tweet is likely not true today (it was true in 2008 according to a comment by Howard Schultz), the fact that it could be remotely true is shocking to a lot of folks.
Most people don’t understand how much employers actually pay for healthcare. It’s generally understood that employers partially subsidize health insurance and perhaps offer some healthcare benefits. But the extent to which employers spend money on healthcare isn’t well known.
Unless it’s your job to know. Benefits & finance leaders at companies should know. Small business owners know. And healthcare solutions vendors that sell to employers must know.
I’ve been in that last camp. So how much?
According to Kaiser Family Foundation, which runs a yearly employer health benefits survey, annual premiums for employer-sponsored health coverage reached $7,470 for single coverage (i.e. no dependents) and $21,342 for family coverage (i.e. multiple dependents) in 2020. On average, employers cover 83% of single coverage premiums and 73% of family coverage premiums. That means the average premium contribution from employers ranges from $6,200 for single coverage to $15,580 for family coverage per employee per year [2]. And this doesn’t include additional employer insurance cost-shares, fees to benefits administrators, and other healthcare-related incentives and perks. For a company with 2,500 employees and 5,000 total members on the company’s health plan, this amounts to a conservative $30M+ budget for health insurance premiums alone.
Of course, employees (i.e. patients) do bear the brunt of this pain especially with the rise of high-deductible health plans which pass a larger share of costs to employees. I’m simply highlighting why employers are financially motivated to drive down these costs. These are not small budgets.
While we were building out Garner Health, there was a particular stat I learned that drives the point home. In 2021, US companies will spend more on healthcare benefits ($1.4T) than they are projected to make in profit ($1.3T).
This financial burden is a primary reason for employers to care about healthcare. Yes, there are other reasons: employee wellness, talent retention, productivity, etc. But if you really think about it, doesn’t it come back to money? It’s business, after all.
There’s an entirely separate conversation to be had on whether employers should have an active role in healthcare and healthcare spending, but that’s for another post.
Also, here’s some related general advice that you’ll probably ignore: If you’re considering two employment offers, you should take a close look at how the health benefits package affects overall compensation. The difference may not be life or death, but…actually, it could be life or death!
Selling to Employers
Every single founder gets asked this question early and often: Who pays? In healthcare, the answer is often “employers”.
As we now know, there’s a lot of money involved. And thus, a lot of money to be saved, and made.
And compared to other potential sales channels that can aggregate patients (e.g. health plans, hospitals), the burden of clinical proof is lower, the sales cycles are shorter, and there is a willingness to collaborate among like-minded peers on the buyer side at employers. And going direct-to-consumer is hard because of a lack of consumer willingness to pay for most healthcare solutions and/or lack of clear and compelling insurance reimbursement for most services.
So, how does a healthcare entrepreneur go about selling to employers? Based on my experiences working at employer-focused companies like Garner Health & Maven Clinic, and advising others like Icon Health, this is meant to be a light guide to help frame the thinking and approach to selling to employers.
Note: Before deciding to sell to employers, there’s an entire go-to-market exercise that needs to happen in order to determine if employers are even a viable channel to sell into. Entrepreneurs need to first decide what problem they’re solving for what end-users, then determine how and who they should be charging for the value created, and then understand the buyer appetite for their particular solution. Like any channel, there are tradeoffs to selling into employers.
Segmenting the Market
In the US, we have tens of thousands of employers. Millions if you include small businesses. In order to focus the product development and sales motions, it makes sense to first narrow the target buyer. The following criteria are good starting points for firmographic segmentation.
- Self-insured (aka self-funded) vs fully-insured: Employers who offer fully-insured plans pay insurance carriers fixed annual premiums per member in exchange for the carrier taking the risk of paying out medical claims. Employers who self-insure their health plans are putting their own capital at risk to pay out medical claims, which third-party administrators will help facilitate. Self-insured health plans offer premium savings, greater plan design flexibility, and less regulation compared to fully-insured plans. Most benefits vendors focus their go-to-market strategy on self-insured employers, but the fully-insured market is heating up and quite underserved. Increasingly, fully-insured employers will work with vendors to partially self-insure their healthcare plans.
- Size: There is a rule of thumb that employers will consider self-insuring once they reach about 500 employees. So deciding on a self-insured vs fully-insured focus can help dictate the general employer size of interest. The size of an employer can also affect the sophistication level of the benefits team, length of the sales cycle, severity of the technical and legal due diligence, complexity of the onboarding and integration, and overall savings potential.
- Geo Focus: Depending on how the data, staffing, and overall product or service delivery model scale, entrepreneurs need to think about how geo impacts their strategy. For example, if an early stage startup delivers care and is required to set up professional corporations and onboard providers who are licensed in a particular state, it may be cost-prohibitive to launch with a national employer until the model is proven out or they have enough capital to do so. Another vendor that offers dedicated in-person clinic buildout as a part of their solution may want to focus on employers with large metro concentrations of employees.
- Industry & Employee Characteristics: This becomes important if a solution is better suited for certain demographic or psychographic types. Some solutions like those focused on managing musculoskeletal conditions may want to prioritize employee populations that skew older and blue collar; this could warrant a focus on industries like utilities, manufacturing, transportation, and construction.
- Existing Benefit Design: How exactly the current health plan and benefits stack is designed, and what flexibility there is to change this design, can of course impact where an entrepreneur should focus. For example, if a vendor offers a health savings account (HSA) as a part of the solution, a prospective employer client needs to offer a high-deductible health plan to meet HSA eligibility requirements.
Choosing Strategic Channels
Once the target employer criteria are defined, entrepreneurs can think about how to leverage various routes-to-market in order to reach target clients.
In the world of health benefits, channel partnerships are critical even early on. Benefits brokers & consultants in particular have a ton of influence on which solutions are implemented at employers. In-house benefits teams often rely heavily on their broker partners to help with sourcing, implementing, and managing benefits vendors.
My view is that there are a lot of great digital health companies but the distribution layer of digital health innovation is quite broken today. That’s why I’m excited about companies like Nava that are focused on modernizing the brokerage experience.
Below is a non-exhaustive list of example channels to consider, in addition to selling directly to employers.
| Type | Example | End Clients | Focus | Difficulty |
| National Consultants | Willis Towers Watson | Large & midsized employers | Full service benefits consulting | High |
| Regional Brokers | OneDigital | Midsized employers with a mix of self-insured & fully-insured | Lighter scope of benefits consulting | Medium |
| Hyperlocal Brokers | Many! [see Note 3] | Small groups with < 500 lives | Non-strategic benefits advisory | Low |
| General Navigators | Accolade | Mostly large & midsized self-insured employers | Broad healthcare navigation | High |
| PEOs | Justworks | Small groups with < 100 lives | Comprehensive HR, benefits, & more | High |
| Benefits Administrators | Gusto | Usually small groups < 500 lives, though some platforms have an enterprise focus | Payroll + other light HR | High |
| General Agents | BenefitMall | Small groups with < 50 lives | Distro layer between insurance carriers & small brokers | Medium |
A Few Additional Considerations
As entrepreneurs realize that target employer characteristics and decide on potential channels to leverage, there’s an opportunity to tailor the messaging a pitch to the various buyer personas involved. These personas can include heads of benefits, commissions-focused benefits brokers, savvy and innovative benefits consultants, various flavors of benefits leaders, heads of finance, and more. Each of these personas has their own priorities & interests.
Furthermore, entrepreneurs should think about which payment model, pricing levers, and performance measures will promote and yield the most value. With healthcare solutions, there is increasing room for creativity here. For example, many vendors with strong capabilities to affect and measure actual health outcomes and medical cost savings are putting large portions of their contract value at risk.
It’s important for entrepreneurs, especially at the earliest stages, to balance the need for focus with having some optionality. So I always encourage leaders to pick a primary go-to-market approach and place a few small side bets. [4]
For healthcare entrepreneurs who are considering the employer channel, I believe there is still a ton of white space, and given the overall spending and the way that spend is trending, there’s certainly a lot of room for improvement. Plus, more competition is good. I’m all for it. Just be thoughtful about your go-to-market and be smart about how you differentiate.
And lastly, remember that every prospective client & investor is going to ask you how you’re solving the engagement problem.
Some articles to check out that discuss digital health go-to-market strategy:
Chris Hogg on the new B2C2B approach for virtual care companies.
Rock Health on building a digital health GTM strategy.
Alex Rampell on B2B2C business models (not healthcare specific).
Notes
[1] https://twitter.com/AlyssaJoyJaffee/status/1448329242895388675
[2] https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/
[3] SHRM has a useful tool to help employers find broker partners: https://brokerfinder.shrm.org/
[4] For example, when the COVID pandemic began, many employers stopped talking to new benefits vendors for good reason. But these employers would still face annual health insurance renewals which meant they would need to communicate with their benefits brokers. In this reality, benefits vendors who had already established relationships with benefits brokers were better off than those who hadn’t.
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