Two entrepreneurs are proposing a major disruption of the payer model for health care, suggesting that algorithms and analytics can do a better job of covering health care costs than health insurers.

As reported by Sarah Buhr in TechCrunch, a new venture called Collective Health seeks to “cut out the middleman (health insurance) and instead offer employers a less expensive, cloud-based, a la cart version of health care coverage for their workers. Employers can pick and choose which things they want covered for their employees. 'We’re not building another health app or gadget. We’re building a complete solution to replace your employer-provided health insurance,' says Ali Diab, co-founder and CEO of Collective Health.”

Of course, there have been brokerages and agencies that managed employers' health plans for decades, including self-insured plans, which this comes close to replicating. Collective Health adds a digital dimension to self-insurance plans. The cloud service connects with a network of health providers, and is constantly monitoring and evaluating costs. The company's founders believe many health costs, when negotiated as a direct payment to doctors, can be considerably reduced.

Diab was spurred to start Collective Health when his own health insurer refused to pay the medical costs of a severe intestinal disorder he experienced last year.

Collective Health is a startup, so it remains to be seen how its business model fares when subjected to the realities of the byzantine and perversely incentivized health care market. Tools provided employers and members include cost comparisons, accented by data visualization. While it's not certain how deeply this startup will disrupt the current health insurance industry, it certainly puts self-insurance options on a digital path.

Most important of all, whether it succeeds or not, the new venture brings the boundless innovative energy of Silicon Valley into the equation.

Note: This is not to be confused with another Collective Health, a health care financing organization that encourages community-based investment to drive better health outcomes. 

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.

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