Consumers as a New Class of Payor

The portion of healthcare spend covered directly by consumers has shot up in the last several years—as of 2022, total out-of-pocket healthcare expenditures reached $471 billion. As such, consumers are effectively a new class of payor. And a number of opportunities exist to build solutions for those consumers (aka these new “micro payors”) to fund, navigate, and manage their healthcare purchases.

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What do we mean by “payor”

Let’s first define the scope of what we mean by “consumers as payors”—we’re referring to any use case in which a consumer is shopping a) with a known financial budget, b) against a universe of transparently priced goods and services.

This definition accommodates the scenarios in which the funding of the shopping budget is from a third party versus out-of-pocket, but where the responsibility for use of the budget is in the hands of the consumer—for instance, a consumer may be granted a budget by their employer to shop for a certain type of healthcare product or service, like in the case of ICHRA (e.g. Thatch provides employees with a pre-loaded card to shop for health insurance) or fertility benefits programs (e.g. Carrot provides eligible employees with a pre-loaded card to shop across a network of fertility clinics).

Even when a consumer is covered by a traditional health plan, the surface area of the deductible and non-covered services exposes enough of a gap in consumer-friendly services to warrant purpose-built solutions to improve and facilitate these “consumer as a micro payor” experiences.

Company building opportunities

Here are a few areas we view as compelling company building opportunities to serve consumers as a new class of payor:

Health insurance

Medicare Advantage and ACA marketplaces are current examples of consumers shopping and paying for health insurance directly, where funding comes from a combination of out-of-pocket payments and government subsidies. The aforementioned ICHRA concept is another example of an employer-sponsored, “defined contribution” product, in which the employer creates a budget for each employee to shop for their own health insurance on ACA marketplaces, instead of limiting their choice to 1 or 2 pre-selected plans.

Shopping for health insurance in a way that is intuitive, compliant, and tax benefit-friendly is a non-trivial feat, so we see opportunities to build novel infrastructure to seamlessly integrate together a mess of legacy payments and enrollment systems (e.g. government, private insurance, marketplace, TPAs, payroll), provide audit trails and policy frameworks to comply with insurance and tax laws, and even to create a new semantic/conversational layer to make the health insurance shopping experience understandable to the average consumer. Ideally these platforms also incorporate or integrate with the network of products and services that consumers will utilize under their insurance benefits, or even create marketplaces for consumers to be made aware of relevant offerings.

Ancillary financing products

We also see opportunity to provide financing products to consumers, whether it be to fund below-the-deductible purchases by members of high-deductible health plans, or to create health plan alternatives for the uninsured or underinsured. For example, some companies are building payments programs atop tax-advantaged HSA/FSA/HRA infrastructure to manage out-of-pocket medical expenses that are not covered by insurance. Others are developing membership-based programs that direct out-of-pocket spend towards pre-negotiated cash pay services, or implementing ancillary services spending programs (e.g. for groceries, over-the-counter medicines, fertility, etc) through directed spend cards. Healthcare-specific buy-now-pay-later (BNPL) products can be a wedge into a broader spend management solution for patients to manage their medical expenses.

Cash pay-optimized services

Consumers in control of their healthcare budgets will want access to more affordable and consumer-friendly services options than what they could get through legacy health plan networks. We’re excited about the rising tide of cash-pay services that either wrap improved experiences around traditional healthcare services (e.g. AI-powered preventative care clinics delivering novel bundles of lab tests), or simply aggregate demand to negotiate better rates and SLAs with healthcare providers (e.g. pre-pay surgical procedures marketplaces). These cash-pay services could be made available through healthcare marketplaces for a more friendly shopping experience, as well.

Disintermediating the bloat

As insurance-covered healthcare costs continue to balloon to unsustainable levels, we see consumer-driven purchasing becoming a more widely utilized release valve that holds the promise of creating more free market dynamics and commensurate price competition in healthcare. While consumer-directed spend is still a relatively small portion of overall healthcare spend, the trendline indicates that this phenomenon of consumers behaving like a new class of payor could potentially become one of the major drivers of how the dollars flow through our healthcare system.

Special thanks to Daisy Wolf for her help on this piece.