In twist on medical-loss ratio, insurers back health startups


Insurers are pumping money into digital health startups--a sector that's raising record amounts of cash.

Fueled by the medical-loss ratio rule in the Affordable Care Act mandating that insurers redeploy capital rather then distribute it to shareholders, payers are entering into venture funding deals with health startups.

"They're mandated by law to use these funds in a variety of different ways. Why not use it in a way that could result in additional returns while at the same time meeting the requirements?" Josh Kaye, a partner at the multinational law firm DLA Piper, says in a Forbes article.

Blue Cross and Blue Shield of Florida, for instance, has created an accelerator for healthcare startups based in Jacksonville. Horizon Healthcare Services in New Jersey is putting $3.7 million into oncology big data company Cota.

Accenture recently predicted that funding for digital healthcare startups in the U.S. will double to is $6.5 billion by the end of 2017. It's on pace for another record-setting year, according to Rock Health, with $2.3 billion raised in the first half of 2014.

The Forbes article makes the point that corporate investors tend to have little interest in the success of their portfolio ventures and end up competing with them instead. However, with the ACA forcing insurers and providers to work together to improve care, quality and efficiency, that could be different for health startups.

At a May hearing, Sen. John D. Rockefeller IV (D-W.Va.) touted the medical-loss ratio as "working the way we hoped it would," saying it has "forced insurance companies to review their operations and reduce their non-healthcare costs."

Insurers issued about $513 million in rebates for 2012 under the medical-loss ratio requirement, according to a Commonwealth Fund report, half of the amount paid in 2011. However, a separate report found less than 1 percent of premiums in 2011 went toward improving healthcare quality.

To learn more:
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