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As health insurance broker startups rise, regulatory issues loom

Zenefits CEO steps down amid controversy surrounding licensing

The health insurance sector has seen a host of innovative startups recently, including broker services that tap into the rising trend of consumerism. But the controversy surrounding one such company also shows the challenges that tech-driven startups face in the highly regulated healthcare industry.

Zenefits, once one of the fastest-growing startups in Silicon Valley, began as a disruptive health insurance broker that also distributes free administrative software to businesses, the Washington Post reports. But it ran into trouble when a BuzzFeed News investigation last fall revealed that it failed to secure the necessary licenses to sell insurance in various states.

CEO Parker Conrad stepped down Monday, and the company's chief operating officer, David Sacks, acknowledged in an email to employees that "our culture and tone have been inappropriate for a highly regulated company." He also pledged to steer the company toward a new phase that addresses its compliance issues.

Zenefits isn't the only healthcare-related startup to find itself on the wrong side of regulators. The Centers for Medicare & Medicaid Services recently concluded in an investigation of Theranos that the startup blood-testing company had deficient lab practices that "pose immediate jeopardy to patient health and safety."

Some startups, however, are still flying high.

Take Stride Health, which caters to a consumer-driven health insurance marketplace by allowing individuals to sign up for health insurance through its online platform, as CNBC reports. The San Francisco-based company, which so far has raised more than $15 million, works with companies such as Uber and Etsy.

Stride Health saw an opportunity in the on-demand economy, CEO and co-founder Noah Lang tells the news outlet. "We had independent working Americans gathering on these platforms to build their own self-employed lifestyle, but there was one major gap--benefits," he said.

Another web broker for health insurance, HoneyInsured, focuses on using data analytics to guide consumers to plans either on or off the Affordable Care Act exchangesFierceHealthPayer has previously reported.

To learn more:
- read the Washington Post article
- view Sacks' email
- here's the CNBC report

Related Articles:
Zenefits valued at $4.5 billion after $500 million funding round
6 startups using tech and data to challenge the health insurance industry status quo
Startup aims to sweeten process of shopping for health insurance
CMS to Theranos: Deficient lab practices pose 'immediate jeopardy to patient health'