VCs Pour More Money Into Self-Pay Healthcare — Consumers Aren’t Celebrating

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

One area where this has not occurred, however, is health coverage. Every year, we pay more for health insurance, receive more bills we don’t understand, and shoulder a higher burden of out-of-pocket expenses.

Stats back up these findings. Over the past decade, the average American’s health insurance deductible amount has increased 53%, per a recent J.P. Morgan report. More than half of consumers said they struggle to afford their healthcare, with many juggling debt and delaying or forgoing treatment due to cost.

Not the usual “startups to the rescue” narrative

Having written a voluminous number of startup trend stories, I recognize this as the point in the article where I usually explain how startups are working to solve all the aforementioned problems. Then I find examples of entrepreneurs hoping to make our lives easier.

But self-pay and high-deductible healthcare trends don’t make quite so straightforward a narrative. True, there are a lot of companies getting funded around the consumer-driven healthcare theme, as well as providers of tools for employers to help workers navigate coverage options.

Just last week, for instance, Thatch and Flex, two startups with offerings tied to self-pay healthcare, picked up fresh financing. The largest round went to San Francisco-based Thatch, a platform for employers to provide money for employees to purchase their own health insurance plans, which raised a $38 million Series A 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 along with $200 million in debt financing. It promotes a “care card” that people can use at their medical appointment and pay the cost over time with no interest.

Overall, seed, venture and growth investors have to date put over $1.4 billion into an assortment of recently funded U.S. companies innovating around high-deductible health plans, self-pay and consumer-driven healthcare. Using Crunchbase data, we put together a sample list of 23 such startups that have raised funding since 2022.

Funding tallies are up significantly since the last time we wrote about this investment space, just five months ago. The biggest round since then went to Sidecar Health, a health insurance platform that has members pay doctors directly and then submit the bill to be reviewed for reimbursement. The company raised $165 million in a June Series D.

Many on the list, including Thatch, are developing offerings around ICHRAs, or Individual Coverage Health Reimbursement Arrangements. This is acronym-ese for offerings from employers who, rather than offer health insurance plans, provide money to employees to pay for their own policies or out-of-pocket medical expenses.

Consumers aren’t thrilled

A case could be made that new tools for managing out-of-pocket healthcare costs could make life easier for consumers faced with medical bills.

However, it has also been observed that American consumers don’t really like high-deductible health plans and self-pay care. Most would prefer to have either private insurers or the government cover the bulk of our medical bills.

Among Democrats, a majority have supported a single national government program to provide health insurance. And most adults of all political affiliations believe the federal government should ensure all Americans have health coverage.

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

High-deductible plans aren’t helping outcomes. Instead, research indicates that this type of coverage “may reduce, or delay, needed care, which will ultimately lead to poorer access to care for chronically affected participants.”

Wishful thinking, meet current reality

But while consumers may wish someone else would handle our healthcare expenses, market trends appear to be moving in the opposite direction. This hasn’t been lost on venture investors, including sector heavyweight Andreessen Horowitz, which has carved out consumer health as one of its core focus areas.

The storied VC firm is also well aware that the space hasn’t enjoyed great popularity. In an explainer piece on its investment thesis, it wrote: “Why are we so bullish on consumer health? The current state of affairs is dismal. Patients are unhappy; providers are burned out.”

The firm’s investment strategy rests on the notion that as consumers are footing more healthcare costs, they’re becoming more discerning about healthcare experiences and thus “likely to vote with their wallets.”

It’s difficult to see this approach working in all situations. When suffering an illness or accident that requires immediate attention, for instance, few of us have the desire or ability to shop around for the cheapest test provider or ER visit.

However, for more routine, scheduled-in-advance care and for chronic conditions, one could see better price comparison and payment options as helpful.

That said, most of us are miserable enough with the hassle of scheduling and getting through our myriad medical appointments. Adding comparison shopping to the to-do list isn’t going to make us happier.