SAN FRANCISCO — Four years ago, Noah Lang saw an opportunity in Obamacare. With an eye toward the millions of people set to purchase health insurance on their own for the first time, the 29-year-old Silicon Valley entrepreneur founded a start-up, Stride Health, that helps them compare and choose between plans — and do it all from a smartphone.
Steadily and without fanfare, the Affordable Care Act has created a boom in Silicon Valley. Since the law passed nearly seven years ago, billions of investor dollars have flowed into digital health start-ups such as Stride Health that were spurred by the legislation’s overhaul of the health-care system and the market forces it unleashed. The law’s reach also extends to a generation of “gig economy” companies — including Uber, Lyft, TaskRabbit and Instacart — that are dependent on the labor of flexible workers, who are among the biggest ACA consumers. Tech entrepreneurs have also relied on the law, saying it has made it easier for them to found start-ups.
“Any time there’s a big policy change that affects the financial underpinnings of any system, investors see an opportunity to create billion-dollar companies,” said Sean Duffy, whose diabetes-prevention start-up, Omada Health, was spurred by provisions in the law that created national standards for the disease. “Obamacare threw a pebble into the water.”
Today, Stride Health is one of many start-ups trying urgently to read the tea leaves of a new Congress and presidency that is set to strike down President Obama’s sweeping health law. With no clear replacement plan at hand, many in Silicon Valley wonder how its repeal will ripple across the region.
Up to 18 million people could lose their health insurance in the first year if the law is repealed without a replacement, according to the nonpartisan Congressional Budget Office.
One of Silicon Valley’s biggest and earliest proponents of the ACA was Uber chief executive Travis Kalanick, who said in 2014 that the law was “huge” for his business because it gave people “more flexible ways to make a living.” Thousands of Uber drivers select and manage their insurance through Stride Health.
Thomas Bos, a 45-year-old Uber driver in Greensboro, N.C., said the ACA enabled him to leave his job as an assistant manager at a local grocery. “I decided I could do Uber full time because of that health insurance capability,” Bos said. Bos, a Republican who voted for Donald Trump, said he was worried a repeal of the ACA without a replacement would cause turmoil in his life and end his career with Uber. “I may have to go back into a different field,” he said.
Uber had no comment.
The ACA created opportunities for entrepreneurship because it introduced sweeping changes to the health-care system and also sped up transformations already underway, said Robert Wachter, interim chairman of the Department of Medicine at the University of California at San Francisco.
The expansion of insurance coverage to 20 million people through ACA exchanges led to the emergence of a crop of companies that help people comparison-shop for plans. Of these, the most prominent may be Oscar, the health insurance company targeting exchange users founded by Joshua Kushner, the brother of Jared Kushner, President Trump’s son-in-law and special adviser.
Oscar has raised more than $300 million from venture capitalist Peter Thiel’s Founders Fund, Google Ventures, Goldman Sachs and Khosla Ventures. The start-up is planning to change its business model.
The ACA’s mandate that Americans get health insurance led to other types of innovation, said Bob Kocher, a health information-technology investor at the Palo Alto, Calif.-based venture capital firm Venrock. With so many more people seeking health care from roughly the same number of doctors and nurses, new opportunities to use technology to maximize the capabilities of providers also cropped up.
Recent “telemedicine” start-ups, enabling patients to communicate with doctors remotely via smartphones and other devices, are a good example, Kocher said, because they offer a way to deliver care more efficiently to greater numbers of people. While telemedicine would probably have emerged on its own, the ACA gave it a boost in the eyes of investors because it created a much bigger market for such services, he said.
Moreover, a major health-care shift that was already underway got a big lift from the ACA, Kocher and Wachter said. The shift, from paying providers for a service, or fee-for-service, to paying for performance or improved health outcomes, was originally prompted by policy changes the federal government put in place several years before the ACA.
But the law sped up the trend significantly by tying Medicare payments to hospitals to their performance and creating an innovation center within the Centers for Medicare and Medicaid Services. The center provided a pool of cash and federal backing to companies willing to experiment with new models to pay providers. The center helped incubate start-ups such as Amino, which mines data from Medicare that was released for the first time under the ACA, and Aledade, which provides software infrastructure for primary-care physicians to set up groups known as accountable care organizations.
Wachter said he was “terribly concerned” that the innovation center appears to be on Congress’s chopping block. “Taking it down means Medicare will become far less innovative, less experimental and more risk-averse,” he said.
Since 2011, venture capitalists have poured $17.8 billion into digital health start-ups, including insurance shoppers for individuals and small businesses, companies that help providers take advantage of provisions in the law, and start-ups that enable employers to cut down on costs, according to Rock Health, a health start-up incubator and seed fund.
The number includes total funding for all digital health start-ups; companies tied to the ACA are a smaller subset. Investment in digital health spiked to more than $4 billion after 2013, doubling from the previous year — a rise that can be attributed to tail winds created by the ACA as well as broader transformations in the health-care system, such as digitization of medical records and services, said Ashlee Adams, Rock Health’s vice president of partnerships and strategy.
Entrepreneurs also said they were helped by the law. David Adams, 46, a serial entrepreneur who has founded six technology companies, said that having the ACA made it much easier to launch a start-up. Serial entrepreneurs tend to go through periods where they are not working, he said, such as after they sell a company. Before the ACA, the availability of health care determined when and how he could go back to work, he said. “The only answer [after he sold his last start-up] was to go get a job at some big tech company and be a serf,” he said. “But I didn’t want to get a job at a company. I wanted to found a company.”
As a small-business owner many times over, Adams said he wasn’t “starry-eyed” about the ACA. Choosing a plan is still too complex and expensive and the law is rife with other challenges for small-business owners, he said. But he said it is far better than the previous options. “Pre-Obamacare was a sobering experience,” he said, adding that his wife had a preexisting condition that might not have been eligible for coverage before the law.
Lang, the Stride Health founder, said he will look for opportunities in the repeal of the ACA of the ACA. He said he is turning his focus on lobbying the government.
“Me personally and my team are investing heavily in working with the new administration to keep this labor force burgeoning and be a voice that represents them,” Lang said. Stride has agreements to manage insurance for workers contracting with Uber, Lyft, TaskRabbit and other gig-economy companies.
He was heartened by Trump’s recent statements that people who benefited from the law’s coverage expansion would continue to get insurance when it was repealed. “Now there’s a lot of complexity behind keeping that promise,” Lang added. “There is probably going to be more confusion — not less.”