Introducing the Healthcare Startup Revolutionizing Medical Expense Funding through Crowdfunding.

Crowdfunding

CrowdHealth encourages a departure from conventional health insurance, advocating for a fresh perspective on expense management. While it has garnered support from Bitcoin enthusiasts, the question remains: Can this alternative approach resonate with a broader audience?

Andy Schoonover faced a dilemma as a parent when his daughter experienced ear pain, leading to the discovery of a perforated eardrum. Despite having insurance costing $1,200 monthly, he received an $8,000 bill for what insurers deemed an “unnecessary” procedure. Rather than accept the broken system, Schoonover decided to challenge it.

He founded CrowdHealth, a company aiming to disrupt traditional health insurance by introducing an alternative system. In CrowdHealth, members pay directly for medical services, often at lower rates negotiated by the company. Moreover, significant bills are funded through crowdfunding. Schoonover, a 44-year-old with a Stanford MBA, has a history of successful ventures, having sold his previous company, VRI, for over $100 million.

CrowdHealth, established in 2021 in Austin, Texas, seeks to offer a lean, efficient, and humane alternative to the conventional insurance nightmare. Despite being in its early stages, the startup has secured $12 million in funding and boasts a valuation of $30 million as of 2022. With 7,000 members each contributing $50 monthly, the company is on track to generate nearly $4 million in annual revenue. While not yet profitable, Schoonover expresses confidence in achieving profitability by the upcoming spring. Notably, CrowdHealth has found support from Bitcoin enthusiasts, evidenced by a 99% month-over-month retention rate.

“Ventures like this work until they don’t.”Larry Levitt, EVP for Health Policy at KFF

CrowdHealth distinguishes itself from traditional insurance models. In exchange for a $50 monthly fee, members receive the support of a team dedicated to negotiating lower medical and prescription costs. This third-party service leverages knowledge of the actual expenses involved in medical care, subtracting the insurance companies’ share and offering prompt cash payments to providers, resulting in potential savings of around 30%.

While founder Andy Schoonover acknowledges that not all healthcare professionals are fully on board with cutting out the insurance intermediary, he asserts that a majority, especially outside the Northeast, support the idea. Despite some resistance, particularly in the Northeast, Schoonover emphasizes that it doesn’t pose a significant deterrent for potential customers in that region.

Larry Levitt, the executive vice president for health policy at KFF (formerly the Kaiser Family Foundation), offers a cautionary perspective, stating that ventures like CrowdHealth can be successful until unforeseen challenges arise. While 7,000 members may seem substantial, it’s relatively small in the context of health insurance. Levitt highlights potential vulnerabilities, noting that a few instances of bad luck with subscribers could overwhelm this model. Furthermore, the lack of regulation raises concerns about recourse for subscribers if their bills go unpaid, unlike traditional insurance companies that operate under regulatory frameworks.

“Commons Catastrophe: Unraveling the Tragedy”

Beyond the monthly fees, CrowdHealth encourages, but does not mandate, additional contributions from its members. For instance, a family of four, all under 55, might choose to contribute up to an additional $400 per month (maximum, not mandatory) to support others in the crowd facing medical expenses. This brings the total monthly payment, including the base $50 per person, to around $600. In comparison to the average non-subsidized insurance plan costing approximately $1,437 per month, CrowdHealth appears to offer a more affordable alternative, especially for individuals without employer-based coverage.

To address the “tragedy of the commons,” where individuals take without contributing, CrowdHealth implements a generosity score for each member. This score reflects how much individuals contribute, acting as a gentle reminder against selfish behavior. When members require financial assistance, their generosity score becomes visible to the crowd. Without generosity, there may be limited support. The system eliminates the complexity of claims and reimbursements, providing members with clear guidelines on what the crowd will and won’t fund.

Under this plan, members can receive fully funded preventive care visits each year, with the crowd covering the first $500 of any other claims. Beyond that initial amount, the crowd steps in to assist. When someone seeks help, the crowd sees essential details—such as the health issue, location (for potential provider feedback), the requester’s generosity score, and whether the service cost is deemed fair. This system operates on the principle of reciprocity, relying on human nature to ensure that those who contribute receive support when needed.

“CrowdHealth is almost certainly not for everybody, but it does work for people who want a minimalist approach and who are willing to take responsibility for their health and the care they need.”Brooks Lockett, CrowdHealth member

Brooks Lockett, a freelance writer and a member of CrowdHealth since 2022, initially had reservations about the system. He questioned its ability to handle significant health expenses. However, when he needed to undergo knee aspiration following a rock climbing injury in 2023, CrowdHealth successfully negotiated the cost down to just a few hundred dollars.

According to Lockett, CrowdHealth may not be suitable for everyone, but it appeals to those seeking a minimalist approach and are willing to take responsibility for their health and care. Lockett’s most significant realization was how the payment model transformed the doctor-patient relationship. He observed that doctors actually prefer dealing with cash-paying customers, leading to a vastly improved experience. The direct transaction with doctors encourages a more human interaction, as they invest more time in patient care. Lockett reflects on the positive impact of this approach, emphasizing the surprisingly enhanced experience and the benefits of a more personalized doctor-patient dynamic.

“Practical Advice: Avoid Common Pitfalls, Make Smart Choices”

CrowdHealth comes with certain limitations and exclusions. It has restrictions on accepting members who smoke or individuals exceeding certain weight limits. Residents in states with minimum essential coverage mandates may find CrowdHealth incompatible. The coverage also draws lines, excluding procedures like acupuncture and chiropractic care, as well as certain disorders such as ADD, ADHD, addiction rehab, and eating disorder treatments. Reproductive issues like abortions, contraceptives, infertility, and impotence are not eligible for crowdfunding, although some traditional insurers also exclude these services.

According to Larry Levitt from KFF, many of CrowdHealth’s exclusions resemble those employed by insurance companies before the Affordable Care Act. The ACA, in a way, enables businesses like CrowdHealth by allowing individuals with preexisting conditions to fall back on ACA plans if necessary, even though they may risk being uncovered until the next open enrollment period.

Additionally, there’s a gray area labeled as “hazardous activities,” encompassing risks like off-roading races and activities deemed risky by an independent third party. CrowdHealth clarifies that this is not a loophole to avoid funding costly injuries but rather to discourage reckless behavior.

Karoline Mortensen from the University of Miami’s Center for Health Management Policy sees CrowdHealth as a disruption to the traditional health insurance model, emphasizing its alignment with the traditional concept of insurance covering catastrophic expenses.

Andy Schoonover asserts that CrowdHealth has successfully funded every crowdfunding request exceeding $500, ranging from pregnancies to cancer treatments. He argues that paying in cash significantly reduces the cost of cancer treatments compared to the framework of health insurance. However, Katherine Hempstead from the Robert Wood Johnson Foundation expresses skepticism about CrowdHealth’s claims of cash-pay discounts, questioning the feasibility of achieving the levels they assert.

Exploring the AMISH Model

CrowdHealth adopts a model inspired by the traditional practices of the Amish community, where individuals, when falling ill, contribute 20% of the costs while relying on the support of friends and neighbors for the remainder. In contrast to conventional insurance structures, this system operates on direct communal assistance, eliminating intermediaries.

However, distinctions between the Amish approach and CrowdHealth highlight challenges. The Amish, united by shared values and deep cultural bonds, showcase the effectiveness of a close-knit community. The real test for CrowdHealth lies in its ability to extend this spirit of communal support to a broader, more diverse audience, as people naturally tend to assist those they identify with. Overcoming these divides is crucial for CrowdHealth’s widespread acceptance.

Applying the Amish healthcare model to a business context poses challenges, as the success of the Amish approach relies on an established group with shared values. Transforming this concept into a business venture necessitates depending on the generosity of strangers, a shift from the community-focused approach. Disparities also exist, as highlighted by KFF’s Levitt, emphasizing the need for CrowdHealth to bridge the gaps.

Notably, CrowdHealth differentiates itself by leveraging existing affinity groups, with bitcoiners being one such community. The unconventional health expense approach resonates with bitcoiners, known for challenging monetary norms. The personal connections of CrowdHealth’s spokesperson, coupled with the alignment of their strategy with issues bitcoiners identify in the monetary system, contributes to a successful synergy. Furthermore, CrowdHealth addresses the principal-agent problem, aligning with the concerns raised by bitcoiners regarding issues in the monetary system.

Embracing Accountability

In conventional insurance, the customer (the principal) relinquishes control to insurance companies (the agents), which prioritize profits over the patient’s best interests. This inherent conflict often results in suboptimal outcomes and escalating costs. CrowdHealth disrupts this paradigm by eliminating intermediaries and conflicting interests, offering direct control to keep costs in check.

Founder Schoonover emphasizes the transformative impact of personal responsibility on behavior. When individuals are accountable for their own healthcare bills within a supportive community, their behavior shifts positively, leading to improved health and reduced expenses.

Schoonover’s ambitious goal is to amass 100,000 members within three years, driven by compelling statistics and a steadfast belief in a better alternative to the traditional system. However, the challenge lies in convincing the broader population that traditional health insurance is a futile endeavor. Presently, CrowdHealth’s typical user is a 34-year-old without employer-backed health care, but Schoonover aims for a more diverse audience.

Acknowledging the stagnation in the health insurance industry, KFF’s Levitt sees CrowdHealth’s innovation as a positive step, particularly in customer service. While the startup’s size mitigates systemic risk, individual subscribers may face potential risks. Despite this, CrowdHealth’s model is anticipated to be effective for most users.

Interestingly, beyond its core audience of startup professionals and gig-economy freelancers, CrowdHealth envisions healthcare workers as a significant customer base. Schoonover believes healthcare professionals recognize the flaws in the system and are open to a fundamentally different approach to healthcare payment. The emphasis is on empowering individuals to take ultimate responsibility for their healthcare, including financial obligations, fostering a direct relationship between patients and doctors.

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