scorecard
  1. Home
  2. Science
  3. Why insurers are beginning to embrace billion-dollar healthcare startups like SmileDirectClub and Warby Parker

Why insurers are beginning to embrace billion-dollar healthcare startups like SmileDirectClub and Warby Parker

Lydia Ramsey   

Why insurers are beginning to embrace billion-dollar healthcare startups like SmileDirectClub and Warby Parker

Smile Direct Club brightening

  • Massive insurers like Aetna and UnitedHealthcare are embracing direct-to-consumer brands like Warby Parker and SmileDirectClub by agreeing to pay for their products.
  • It's happening at a time when insurers are trying to get competitive and reach members through products they find as convenient as shopping online.
  • It's also a show of confidence in the approaches these companies are taking, which are sometimes opposed by other clinicians.
  • Visit Business Insider's homepage for more stories.

In the beginning, the pitch was simple.

Warby Parker would offer glasses at a lower price than you might find in your doctor's office. The frames were trendy and rarely set you back more than $130. But you had to pay cash, because the startup didn't have agreements in place with insurance companies.

Same with SmileDirectClub, a startup that provides clear aligners for teeth. While it typically costs anywhere from $3,000 to $7,000 to get traditional braces or Invisalign-brand aligners, SmileDirectClub goes for a fraction of that - you can either pay $1,850 up front, or a total of $2,170 total spread out over two years.

Warby Parker and SmileDirectClub are among a new crop of companies that have reached sky-high valuations or generated a lot of buzz, all with the aim to change the way Americans get healthcare. To date, Warby Parker has raised $290 million and has a $1.75 billion valuation, according to PitchBook. SmileDirectClub is valued at $3.2 billion after an infusion of $380 million in 2018, and is reportedly planning to go public.

As those companies grow, they've started inking deals with insurers to pay for their products. UnitedHealthcare's vision insurance, for instance, in 2018 became the first plan to pay for Warby Parker's frames and lenses as an in-network benefit. In April, SmileDirectClub announced that it'll be covered by dental insurance from Aetna and UnitedHealth, the first time the company's had in-network coverage. The course of treatment will now cost some UnitedHealth members less than $1,000.

Read more: We got a new eyeglass prescription for $40 at Warby Parker without stepping foot in a doctor's office. Here's what it was like.

Agreeing to cover the startups' services can help the insurers keep their customers happy. And it can strengthen the ability of the companies to negotiate lower prices with traditional eye doctors and orthodontists, who might be worried about losing business, said Leemore Dafny, a professor at Harvard Business School who studies competition in healthcare.

"I would expect insurers are up for experimenting both because a service may satisfy the needs of a customer segment better (and perhaps more cheaply) than what is currently available, and because it strengthens their bargaining position vis a vis incumbents," Dafny told Business Insider in an email.

Tom Wiffler, the CEO of UnitedHealthcare Specialty Benefits, said the company's been striking deals with companies like Warby Parker and SmileDirectClub because customers want their products.

"There's a constant theme throughout all those interactions, which is 'I want a simplified experience, I want it to be one and done and I want it similar to things that I do in my daily life like ordering from Amazon or getting a movie on Netflix,'" Wiffler said.

We're still a long way from making shopping for most healthcare as easy as using Amazon or Netflix. But dentistry and eye-care, where more consumers pay out of their own pockets, are further along.

"When we think about the types of product, this is a natural extension of that consumerism in healthcare more generally," Amanda Starc, a professor at the Kellogg School of Management at Northwestern University told Business Insider.

Warby Parker shipment

Gaining coverage

Wiffler said the company's introduction to SmileDirectClub actually came through UnitedHealthcare's relationship with Warby Parker.

Jerry Dioguardi, the president of Aetna's dental business, said he's been spending a lot of time thinking about how the insurance business is becoming less about making deals with other businesses and more about making the case to consumers that the insurance is valuable. Covering services like SmileDirectClub helps in that transition.

"We are seeing a demographic change across the country in terms of who in the next 10 to 20 years will be buying our services," Dioguardi said.

SmileDirectClub also has big physical expansion plans in the works with CVS Health, which acquired Aetna last year. SmileDirectClub will open hundreds of "SmileShops," or rooms in the pharmacy where patients can get a 3D image of their teeth taken that dentists and orthodontists can then use to figure out a treatment plan. Dioguardi said the Aetna team had been speaking with SmileDirectClub before the merger. Afterward, the teams realized that both companies were looking to work with the startup.

"It was very affirming that it was the area in which we felt we needed to move our business," Dioguardi said.

Warby Parker frames
Read more: We tried out 7 startups that claim to make it easier and cheaper to go to the doctor. Some fell short of the hype.

For other companies looking to get reimbursement from insurers, Warby Parker cofounder and co-CEO Dave Gilboa passed along some advice:

"Really understanding the motivations of different insurance carriers, finding ones that might be motivated to work with a more nimble businesses," Gilboa said.

Gilboa said UnitedHealthcare initially reached out to Warby Parker after hearing from customers that they wanted to use their benefits to buy Warby Parker frames. He said the insurer was willing to build a software connection known as an API so that it could work with Warby Parker's technology.

A big win for virtual care

In the case of Warby Parker, UnitedHealthcare is covering frames and lenses, but not its virtual prescription-checking program.

But when it comes to SmileDirectClub, working with the startup means going along with the company's approach to orthodontic care, in which dentists and orthodontists play a smaller role. For instance, the initial kit that takes a mold of your teeth can be done at home rather than through a trip to an office.

For SmileDirectClub, its a big show of support for the company's approach, one that for years has received pushback from orthodontists. As the online market has expanded, it's attracted increased criticism from the American Association of Orthodontists, the organization that represents orthodontists.

The organization has filed complaints against online clear aligner businesses with state dental boards and attorneys general, arguing that the virtual approach is less safe than going in person: patients might find that their bite gets worse or the treatment plan might miss something more serious happening in the patient's mouth.

"We are seeking to strike a balance with bringing SmileDirectClub into our network," Aetna's Dioguardi said. "I don't, nor do our clinical professionals, feel like one solution is appropriate for all patients."

Wiffler said he views deals like Warby Parker frame coverage and the SmileDirectClub clear aligners coverage as just another option for consumers, rather than replacing traditional coverage.

"These aren't meant to be disruptive plays, They're meant to be additive to the consumer choice portfolio," Wiffler said.

READ MORE ARTICLES ON



Popular Right Now



Advertisement