How Gravie nudged into insurance, keeps finding capital

Minneapolis health insurance firm Gravie got its start in 2013 and it's still progressing nicely, as it's just about to announce that it's closed on another round of venture capital to fuel its growth.

This new round, for $28 million, was led by AXA Venture Partners, a Paris-based affiliate of the giant AXA insurance and financial-services company. Previous Gravie investors, including Split Rock Partners here in the Twin Cities, invested in this latest round, too.

Professional investors can make mistakes, but it's fair to conclude there's a lot of opportunity for businesses like Gravie in the emerging field of digital health.

One takeaway from a quick call with AXA Venture general partner Alex Scherbakovsky was how the American employer-paid health insurance market is both very big and still "underserved," as he put it. And that's remarkable if you think about it, as the segment of the market targeted by Gravie is about 55 million people.

Gravie launched in late 2013, founded by Executive Chairman Abir Sen, Jill Prevost and Marek Ciolko, who serves as CEO now and runs the company's operations. It was part of a wave of startups that fall under the heading of digital health, meaning they use technology to try to hold down health care cost increases and make a pull-your-hair-out hassle of managing your health insurance a little easier.

Its service is a form of defined contribution benefit plan. While not exactly a new idea, as cafeteria plans that let employees pick company-paid benefits have been around for decades, it's easy to grasp if you think 401(k) for health insurance, and with a very big employer match.

Gravie has adjusted its approach since its beginning, having started out as a company that collected commissions from health insurers just like a traditional health benefits broker. More recently Gravie decided it needed to have its own insurance plan called Comfort, even though the company still provides a kind of online health insurance store that carries plans of other health insurance providers.

Sen likened Comfort to a store-brand product, much like the cheaper Walgreens mouthwash sold alongside Johnson & Johnson's Listerine.

It's a cheaper option in part, he explained, because traditional insurers aren't sharp enough in pricing risk in the small-employer market.

It's a problem big employers don't have, as they usually self-insure. Employers with fewer than 50 on the payroll get to be rated with the rest of their community.

But if you have more than 50 employees and fewer than maybe 500, Sen said, "You're sort of in that spot where an insurance company makes a lot of money off you."

One of the things Gravie's business generates is detailed health insurance purchasing information. That's not the history of the care the employees have needed but what decisions on health plans they have made when it's effectively their own money.

And, no surprise, people hate their big-deductible plans, Sen said. There's charge after charge for common health care items coming out of their own pockets before they reach their deductible cap and see the first dime of benefit from an insurance plan to which they've also paid a lot.

As it turns out, a small fraction of the employees in a health plan generate almost all the cost incurred by the plans. The majority of employees are just spending their own money for care under their deductible caps.

"Most of the employees feel like they're not actually getting any health insurance," Sen said.

With Comfort, much of that more routine care, such as an X-ray of a sore ankle or generic drug prescription, is covered without copays or deductibles. One reason to do that is it encourages employees to go ahead with things like that, potentially heading off bigger health problems that will lead to really costly claims down the road.

Plus, people feel like they are finally getting some benefit from their health insurance.

Gravie, currently selling in 13 states, plans to use the newly raised capital to grow. The company has "tens of thousands" of members in its plans, Sen said, but he declined to provide an annual revenue figure.

One change in the market that should make the path ahead a little easier is called the Individual Coverage Health Reimbursement Arrangement, or ICHRA, which went into effect in January 2020. It's always pronounced ICK-rah in the industry, and its very existence seems to suggest that the jargon-filled and technical health insurance marketplace hasn't gotten any simpler.

But in a nutshell, benefits dollars from the employer can now go to pay for individual health insurance premiums before taxes, eliminating a big headwind for companies such as Gravie pursuing the defined contribution model.

One problem with the Gravie approach is that it's still only working on the back-office problems of health care. It may offer a more efficient and transparent way to get health insurance through a family member's job, but it won't do much to lower the cost of somebody's cancer treatments.

In his ideal health care system, Sen said, there would be a quarterback coordinating a person's care in clinics, hospitals, pharmacies and so on. And there would be another quarterback to guide that person through the back office, or the health plans, financing and reimbursements.

For people who get health insurance through their jobs, there really wasn't anyone playing that back-office quarterback position. Employees just had to trust that their employer presented options at the start of the annual open enrollment period that really were going to work.

Until a firm like Gravie came along, Sen said, "That quarterback [had] never existed before."

lee.schafer@startribune.com • 612-673-4302