COMP NEWS – The rapidly changing employer market is having an effect on digital healthcare solutions, according to several key figures in the field.

Since the mid-2010s and until recently, digital health companies selling to employers had found an enthusiastic audience eager to stand out in a tight labor market by offering a variety of digital health solutions. 

But with health insurance premiums rising, employee benefits managers are paring digital health options, forcing digital health companies to adapt and focus primarily on integration and cost savings. 

“The last few years for employers was all about innovating through virtual health solutions and giving employees options to increase access to healthcare,” said Julie Yoo, general partner at venture firm Andreessen Horowitz, which funds digital health companies in the employer space. “The next couple of years for employers is all about how they can save costs… everyone is hyper-focused on return on investment.” 

A Mercer survey found that the cost of employer-sponsored health insurance may increase over 5% in 2023, leaving companies scrambling to consolidate costs while still providing healthcare plans attractive enough to draw new talent.

Employers have no choice but to focus on getting the most bang for their buck thanks to the higher cost of health benefits. A survey of employers from consulting firm Mercer in December 2022 found they expect the average per-employee cost of employer-sponsored health insurance to increase 5.4% in 2023. As employers pay more for premiums, benefits managers will look for more financially viable contracts from digital health companies, experts say. 

“Benefit managers are having a ‘come to Jesus’ moment around pricing,” Yoo said. “A lot of these digital health companies got these amazingly lucrative per-member per-month contracts where they got paid regardless of who is using the product…Now employers are like, ‘Why did we do that?’” 

Another rising priority for employers is to find digital healthcare solutions that integrate with more traditional care providers.

Cost savings is not the only metric employers are considering when selecting digital health solutions. Ellen Kelsay, CEO of the employer-focused nonprofit advocacy organization Business Group on Health, said large employer members in her organization are looking for digital health solutions that can integrate with each other and traditional care providers. 

“A lot of these virtual health solutions were offered as a one-off,” Kelsay said. “They are a well-intentioned and compelling one-off solution, but the sustainability isn’t there if these systems aren’t integrated more holistically.”

Companies selling to employers have taken notice of the changing priorities. At the J.P. Morgan Healthcare Conference earlier this month, Teladoc Health CEO Jason Gorevic promoted the company’s whole-person telehealth efforts that include primary care, mental health and specialty visits. The company recently put all its virtual health offerings onto one app.

“There are a lot of virtual care companies out there that are more narrowly focused, smaller in scale and are nipping at the edges of single [software] solutions,” Gorevic said.

To read more about the employer market is changing digital healthcare solutions, click here.

For more Comp News, see our recent posts.