Supplemental Health Insurance Fills Payment Gaps For A Younger, Mobile Consumer

Reining in the rising cost of healthcare and simplifying the elaborate insurance system we use to pay for it has to be the best-known problem in the country that, despite decades of debate, nobody’s been able to fix.

According to Ian Blumenfeld, who has a Ph D. in physics from Stanford and is now the CEO of supplemental health insurance startup LifeRaft, fixing this costly and life-threatening problem requires new products, creative thinking and a mental makeover for how consumers view our current system.

“Your traditional health plans are not really an insurance product,” Blumenfeld said in a recent chat with PYMNTS. “You don’t buy a health plan to get protection for your bank account or for your family, you buy a health plan to get access to doctors, so it is really a network access product.”

In fact, studies have shown that the vast majority of consumers who have to pick between two plans do so depending on which doctors are actually in-network. With that in mind, Blumenfeld said, the role of supplemental insurance, to cover all the things that your primary policy doesn’t, starts to make sense.

“And so the way that we think about our products is that there is value in holding a set of health-related policies that look more life insurance,” he said, pointing to the need to protect yourself from specific costly events that can be financially ruinous at a time when you are often least able to deal with it.

Less Coverage, More Exposure

As healthcare and insurance costs rise, many consumers have had no choice but to scale back their coverage (and increase their deductibles) to make their policies more affordable. By owning these so-called ‘bronze level’ plans, Blumenfeld said, people are increasingly left with substantial financial and medical gaps.

“Having some supplemental [health insurance] coverage is a fairly cost-effective way of closing [the financial gaps],” he said, while at the same time addressing some of the healthcare gaps that emerge if you have to go out of network, especially in emergencies or for specialty treatments.

“How these health plans are actually constructed also leaves you with some exposures,” he said. “They’re actually health exposures and they have to do with how the networks are built,” he said, noting that insurers build their networks of doctors and providers to keep their costs down, not yours.

So, instead of stepping up to a “platinum plan,” which you might not be able to afford, Blumenfeld said having some supplemental coverage instead is a fairly cost-efficient alternative.

“We believe that the value proposition is very similar to a life insurance product where, if you’ve got a family and you have kids, you just need to have life insurance,” he said.  “You absolutely need to have that tail risk covered.”

It’s More Common Than You’d Think

One of the things Blumenfeld says is that LifeRaft is not looking to replace your health plans but rather to exist alongside them. While this month-old startup is still working through issues, such as covering the crippling cost of prescriptions, the basic value proposition is intact, even though consumers don’t always understand it.

“The core problem that we really have to solve is, ‘How do we make it obvious to a consumer that this is a thing that they should have?’” he said.

While people are acutely aware that medical bills for a trip to the ER or a few nights in the hospital can quickly run into the tens of thousands of dollars or more, they’re often not aware that most of the rest of the industrialized world where single-payer systems are the norm, use supplemental insurance to protect themselves and their families.

“I think the thing a lot of people don’t know is that these sorts of products are actually quite common outside the U.S., particularly in places where there’s a single-payer healthcare system you see a supplemental ecosystem that’s probably 10 to 100 times what we have here,” he said.

While he thinks that little known detail of single-payer systems relying on the widespread use of supplemental plans refutes the end-all-be-all beliefs in that type of coverage, it illustrates even more so the gaps and holes that exist in all healthcare systems.

“That immediately tells you that there’s always going to be things that are not covered or covered in a substandard way, where you just need something extra to make it work,” he said, and that is supplemental insurance.