Value based health insurance. Podcast interview with SeeChange CEO Martin Watson (transcript)

This is a transcript of my recent podcast interview with SeeChange Health CEO, Martin Watson.David E. Williams: This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog.  I'm speaking today with Martin Watson. He is CEO of SeeChange Health, a health insurance company that's just launching today.  Martin, thanks for speaking with me.Martin Watson: Thanks David.  Pleasure to be here.Williams: Martin you describe SeeChange as a value-based health insurance company.  What do you mean by that?Watson: Value based is really the next iteration in benefit design within the health insurance world. Our definition of value-based is the delivery of benefits that enables somebody to change their behavior, help better manage any conditions or just take better care of himself.  The value-based label is around having people change their values such that they take better care of themselves.Williams: Do those behaviors extend to the physicians and other providers or is it primarily a consumer focus?Watson: Our model extends to having the physician involved.  It's having a benefit plan that enables a stronger relationship between the consumer and their physician.I can give you an example of how our plan works.Williams: That would be great.Watson: We go to market in specific geographies. A good example is Fresno, where we’re launching. We have a number of different health plans.  For example we have an 80/20 co-insurance plan with a $2,200 deductible and $3,200 total max out of pocket. This product is real insurance and is priced very competitively to any of the other carriers, and frequently better.We ask consumers to do three things.  They don't have to do anything and they've got real insurance at a good price point, but if they do three things we reward them.The three include: 1) seeing their physician for their routine annual wellness visit, 2) participating in a biometric session, which is just the same kind of thing as when you have life insurance and some blood is drawn, and 3) going online to our website and registering with our web portal.When they complete those three things, in whatever order, we move the person from an 80/20 plan to 100/0 co-insurance.  We reduce their out of pocket exposure from $3,200 to $2,000 and we fund a health incentive account with $200 for a single consumer or $400 for a family.  When you look at that from an actuarial basis you've moved from one plan to a much richer plan while your premium stays the same. And then, based upon the data that we get back, we may identify that the person might be trending towards type two diabetes or they might have diabetes or some other condition.We reach out to that person both electronically and hard copy. The physicians will also reach out to the people and say, “It looks like you now have type two diabetes.  You should probably do a few additional steps over the next bit.  See your doctor at least twice a year for your A1c, have a foot exam, have an eye exam, etc.”We try to give you an incentive to go and do those things by then funding additional money into the health incentive account, another $200 or $400 for a family. That covers the cost associated with seeing the doctor for those visits.So our whole goal is that we want people to see the physician more frequently to identify conditions sooner and then provide a richer benefit set so the person won't be stressed financially to manage their condition.Williams: You're launching this company right when health reform is being signed into law.  I'm just curious if you think it's a good time to be starting a health insurance company.Watson: I actually think it's great timing.  Our plan design and our focus reflects a lot of the things that are in health reform. For example we modeled our products to have 100% preventive services within the plan designs.  We're focused the offering on segments that require guaranteed issuance, such as small businesses.We're also focused on behavior change because we know that if we can get people to manage their conditions even a little bit better or see the physician on a more regular basis that you can lower the overall cost trend with all of those conditions because you're treating and servicing them sooner.Williams: You mentioned Fresno, California as your launch site.  Why do you choose that market?Watson: It's a great pilot market to start off in.  It's got a decent sized population.  We also liked the fact that it has had a hard go on the economic side so they will be hungry for a new offering that's priced competitively.  We started talking with the hospitals and physicians more than three years ago about this concept. Community Medical and Santa IPA embraced the concept of looking at the total population of our membership and getting them to see their physicians and manage their conditions earlier rather than later. So they were willing to partner with us on this model and implement it and let us build out.Williams: Consumer directed health plans like Lumenos and Definity that were started a few years ago ended up being acquired by the big traditional health insurers.It may be a little early on day one but is that the path that you expect to follow?Watson: You know, that's a great question and I'd love to know what the future would say.  That's not how we're operating the company.  Frankly we don't envision ourselves to really get beyond probably half a million members or maybe a million members over the next seven to eight years.A lot of the competitors out there have broad networks.  That could be a potential approach but that's not how we're operating the company.Williams: What financial backing do you have?Watson: We raised $40 million from Psilos, which is a private equity firm out of New York.  They focus on health care services and software and device that focused on improving health care while lowering costs.Williams: Are the folks that you have on your team people who have a health industry background or a health insurance company background?Watson: We all come out of health insurance, pharma, or health IT.  We've all been very intimately involved with the health insurance marketplace.  Some of our team were the early participants in Definity.Williams: Stepping back a little bit from your specific company and looking at the broader environment, both with the stimulus package and now with health care reform, there have been some pretty major shifts in the market. I'm wondering what you think will likely happen as we look over the next five to ten years as the health care environment evolves.  Do you expect that some of the actions that the government has taken are going to have the desired effect?Watson: I certainly hope so.  I'm sure reform will continue to get changes over the next ten years.  Right now I do worry a little bit that it doesn't appear that there has been a lot of emphasis on how you manage the cost trend, long term.  Frankly I have yet to see an estimate come out of government that's ever even been close to what they forecast.  So I think it would be great if this thing could even be deficit neutral but I'd be very surprised.Williams: Thanks for your comments.Watson: I appreciate the time and look forward to future discussions.