While the wearables craze that developed over the last few years seems to have slackened off a bit recently, companies like Fitbit (NYSE:FIT) are actively working toward revolutionizing the health insurance industry as we know it.
In this clip, Kristine Harjes and Dylan Lewis go over how Fitbit is looking to transform insurance with all the data it could collect, how far along its path it is on the way to making this goal a reality, and what major roadblocks still stand in the way. Also, they take a look into the upsides and downsides of some health insurance programs in place today that are using personal health data.
A full transcript follows the video.
This podcast was recorded on Feb. 10, 2016.
Kristine Harjes: So, first thing we want to talk about for this episode, maybe the obvious overlap between healthcare and tech. It's something we've talked about on the healthcare edition before, but I thought it would be awesome to get some more of the tech insight into it. This topic is, of course, wearables. So, what do you need to know to understand this space?
Dylan Lewis: A name that we talk about a ton on the tech show is consumer tech company Fitbit. They're one of the leaders in the wearables space. By shipments, they are the market leader at the moment, just over 20% market share, and they have those fitness bands that you've probably seen people all over your office walking around with. Some of them are very minimalist, rubber bands with trackers inside. Some of them resemble more of a smartwatch, some of their higher-functionality products.
And for some of the healthcare listeners who may not be as familiar with them, their products range from $60 -- the Zip, which tracks steps, distance, calories, active minutes, very basic stuff -- up to around $250 for their Surge, which is all of the above plus GPS tracking, splits on runs, things like that, elevation, heart rate -- some really advanced metrics there. And I think that general spectrum is pretty representative of what you would expect for the wearables space.
Harjes: So, looking at this from a healthcare perspective, the thing that comes to my mind as the huge opportunity is the data behind that, and how you could use that, kind of in the same way as, for example, some car insurers will give you a little device that tracks whether or not you're a good driver. Like, could you take a wearable device, use it to track whether you work out or, say, how much sleep you're getting -- all these variables that you know play a big role in your general health -- and then look at that from an insurer standpoint and get discounts or be able to better match up products? Are there companies that are working on this?
Lewis: Right now, a lot of data interaction we're seeing is with individuals. You're a Fitbit user, right?
Harjes: I was.
Lewis: (laughs) Was. So, you're one of the people who are having it collect dust in a drawer somewhere?
Harjes: Yeah, I'm one of the sheep.
Lewis: (laughs) Yeah, that's one of the problems with Fitbit. But, a lot of the data interaction right now is individuals. So, they're tracking what they're doing on a daily basis, maybe how they stack up against their friends, things like that. But, we're not really seeing large institutions make use of that data. And obviously, the immediate connection we have when we talk about people's health habits, things like that, is health insurance.
And the lead-in to this show was this quote from an interview that Fitbit CEO James Park did with Jim Cramer in December. Cramer had asked about the potential for health insurers to integrate these fitness trackers into their plans in some way or another. And Park said, "That is the holy grail of this category," meaning fitness wearables, "and it's going to happen. When it happens, that is going to be a huge inflection points for the business."
So, this is obviously something that he's very interested in. We can get into this a little bit on the show, but I think insurers are particularly interested in having some more-advanced health metrics on their plan participants. So it could be one of those awesome cases where it's a win-win for consumers and businesses.
Harjes: Yeah. This, to me, screams opportunity, particularly as insurers have struggled under Obamacare to find profitability. When UnitedHealth Group (NYSE:UNH) reported that they took a huge loss on Obamacare plans -- and mind you, this is the biggest health insurer out there -- they estimated a $425 million loss on the Obamacare exchanges in 2015, mostly just because their actuaries must have messed up, where the pricing wasn't quite reflective of the actual needs of the population they were serving. So, you have to wonder: If you have better data, and a better understanding of the people that you're trying to serve, can you get a better price point, and thus be able to meet those really tight margins that a lot of insurers are facing?
Lewis: And even if it's a minor behavioral tweak, these kind of programs can get people thinking a little bit more about running once a week or something like that, or just being a little bit more health-minded, and that will obviously trickle up to some of the insurers. So, first, talking about this, I thought it would be interesting to talk about John Hancock and what they did on the life insurance side of things. Obviously a little bit different, a little more of a financials take. But in searching around and getting some background on this, they're one of the immediate insurers that popped up.
Harjes: It is remix week, after all.
Lewis: Yeah, so why not? You want to bring in oil, too? We can talk about them. (laughs)
Harjes: Ooh, (laughs) we can try.
Lewis: So, John Hancock has their Vitality program, which is an employee health performance type business. They're based out of South Africa, I believe, and they work in promoting healthy initiatives for employees and consumers. And so, basically, the way John Hancock's program works is, you sign up, you take this health review, they issue these goals based on your current level of activity and the various levels that they aspire for people to reach, and then they send you a free Fitbit. So, they track your fitness activity, you earn points for doing certain things, like going for a run.
Getting a health checkup is another thing you can get points for. Then, those points can be redeemed for travel rewards, gift cards, discounts, things like that. And based on the levels you achieve, you can be eligible for premium discounts in future policy years, which is kind of cool. And by participating, you start out paying premiums at roughly a 9% discount, which is pretty cool. That will shift down, I think, by about 30 basis points for every year that you're active. So, it's a pretty awesome deal, I think, for people who are in the life insurance game.
Harjes: Yeah, that's huge, 9%.
Lewis: Yeah, and I know Hancock was using it to stoke interest in life insurance. I think a lot of people are not participating as actively as they have in the past. So, that was the impetus there. But, looking a little more on the healthcare side, Humana (NYSE:HUM), one of the health insurers -- this is something you can speak a little bit more to -- has rolled out something similar, although it doesn't have all the rewards for participants that John Hancock's offering does.
Harjes: Yes, but they're also working with Vitality for something called Humana Vitality. Shocking name. So, this is something that Humana is using in a lot of their different plans. Interestingly, not any of the government plans, so not the Humana Medicare members. But, it's included as a program with all of the commercial members' medical plans. So, if you sign up for the plan, then all of a sudden, the businesses can save up to 10% for having their staff reach a certain level of achievement with their different metrics that they're tracking. And it's kind of speculation whether or not that actually trickles down to employees savings, but you'd have to think that if you're an employer that wants to have their employees actively targeting, say, 10,000 steps a day, or whatever the different numbers are that they're looking at, you would probably incentivize them so that you then can receive that 10% discount. So, it kind of seems like a win-win.
Lewis: Yeah, that trickle down might manifest itself in a couple different ways. Like we were talking about before the show, it could be that there are employer programs in place where getting certain levels gets you gift cards, and they handle it that way. It could be that they choose to lower premiums or find better rates for people, and pass that subsidy down. So, a couple different ways to approach it. I think, one of the beauties of this, and something we alluded to earlier, is that it is a win-win. It seems like it's something that benefits both sides, aligns incentives. So, obviously, some of the pros here, if you're a user, you're saving money and you're encouraged to live a healthier life, which is pretty awesome. And for the insurers, you're getting way better data, your incentives for people being healthier, making better choices, perhaps not smoking or going to the gym more often, those incentives are aligned with what benefits the plan. So, theoretically, it should be good for the business.
Harjes: I feel like there's a "but," coming.
Lewis: (laughs) There's definitely some buts. One last pro though, for insurers, it probably makes insurance, given that it can reduce costs, a little bit more appealing for people that are younger and healthier. It kind of gets rid of that attitude of, "Oh man, I'm totally subsidizing the older, possibly out of shape or ill people that are also participating in this plan."
That said, some cons to deal with. For users, you're not really saving that much money if you're looking at John Hancock's side of things. So, it's not a perfect parallel, looking at life insurance and health insurance. Or, like we talked about before, auto insurance and the black boxes that look at the diagnostics on a dash. I think on most life insurance premiums, this will probably wind up saving you somewhere around $80, $90. You get a free Fitbit, which is pretty cool. So, figure, run that over the two or three years, maybe they issue a new one, the total value of this isn't overwhelming, and there's definitely a trade-off there where you're providing pretty detailed behavioral data about yourself to a major company. I'm sure there are agreements in place that they're not going to sell that data or do anything like that, but you're exposing yourself to more digital issues.
And, I guess, on the con side for some of the insurers, similarly, major cybersecurity issues. These insurers already have very robust personal information: Social Security numbers, residence, you probably know more than I do, but birthdays, things like that. And that's something that people are very accustomed to giving already, but this is kind of a different level of data. It's much more behavioral pattern. It will know that you go to the gym every Tuesday from 6 to 8 and every Thursday from 7 to 10. You know?
Harjes: That's a long gym sesh.
Lewis: It's a very long gym sesh, but if you're only going twice a week...
Harjes: Yeah, OK. (laughs)
Lewis: (laughs) So, it's just a different type of comfort that consumers would have to have with providing information.
Harjes: Yeah, exactly. And right now, it is pretty voluntary whether you want to be a part of these programs and save a little bit of money. But then, the question becomes, if you do sign up for it, how exactly is your data going to be protected?