HEALTHY CHOICE [Star Tribune, Minneapolis]

Mar. 21--As more employers strain to provide health insurance for their workers, a Minneapolis start-up has a novel suggestion: Outsource it.

Bloom Health, headed by a couple of Twin Cities serial entrepreneurs, wants to take over the task of choosing, buying and administering health benefits for small and medium-sized employers.

For years, smaller companies have suffered whiplash from swings in health insurance premiums. Because their groups are small, all it takes is one major illness or high-risk pregnancy among employees to raise the following year's premiums by double digits. Yet many companies still regard benefits as an important tool to recruit and retain workers.

Bloom bills itself as part insurance broker, part health finance adviser and part outsourced human resources department. Its proposal to employers is this: Deposit a fixed chunk of pretax money -- for example, $6,000 -- into a Bloom account, and let the employee, in consultation with Bloom, choose any health plan on the market.

Employers get budgeting certainty; employees get a level of customization not possible in today's world of limited group plan choices.

CEO Abir Sen calls Bloom the "Charles Schwab meets the eHarmony of health care."

Average health care costs for U.S. employers rose by 7.3 percent, to $3,341 per employee, in 2009, according to a new report by Thomson Reuters. Small employers, defined in the report as those with fewer than 5,000 employees, were hit harder. Their costs on average rose by 9.8 percent last year, compared with an increase of 5 percent in 2008.

Of course, fixing employers' contributions means that employees are the ones left vulnerable to rate increases. But then, they always were, as companies shifted premium increases to their employees. The difference now is the employee has a say in choosing the health plan he or she will buy.

Another advantage is that workers still will be spending pretax dollars, something they can't do if they simply go out and buy health insurance on the individual market. Eventually, Bloom hopes to get big enough to pool employees from multiple employers to smooth out yearly premium increases, though that won't happen for a while.

To be sure, the idea of outsourcing health benefits -- to a start-up, no less-- would be a big mindshift for many employers. And health care financing is notoriously resistant to change.

Other Twin Cities start-ups have had a mixed record. Carol.com, founded by alumni of Definity Health, launched a website in 2008 that allowed consumers to compare and buy medical services. But providers were unwilling to post their services and consumers appeared not ready to shop that way. Carol has since retooled itself as a consultant to employers and medical providers.

By contrast, Bloom is targeting employers.

"Direct-to-consumer is a tough market," said Dave Delahanty, a consultant with benefits consultancy Towers Watson in Minneapolis. "It's the employers who will take the leap."

Bloom has some heavyweight financial backers. It recently raised $5 million from Blue Cross Blue Shield Venture Partners, which is owned by national Blue Cross and Blue Shield health plans, and Sandbox Industries, a venture capital firm in Chicago.

"It's a great team that has a real shot at changing the way health care choices are made," said Matt Downs, a partner at Sandbox, which tends to invest in companies that have national potential.

CEO Sen was formerly president of RedBrick Health, a health and wellness company, and a co-founder of Definity Health, a health savings accounts pioneer now owned by UnitedHealth Group. Jill Prevost, who heads marketing and product development for Bloom, was formerly at RedBrick and Life Time Fitness.

Restoring choice

In today's world, not only are premium hikes unpredictable, employers limit their health plan offerings for administrative simplicity. They tend to pick two or three plans that they think will meet the needs of most of their employees, from the middle-aged manager to the 20-something just out of school.

This one-size-fits-all approach has its limits. For example, employers have noticed more younger, healthier employees declining coverage. That was especially true in the last recession.

Although Bloom is initially targeting small employers, Delahanty of Towers Watson said he's introduced Bloom to a big, self-insured client with this problem. The idea is Bloom could help these younger employees find cheaper options. "This is a way of bringing those young-and-healthies back into the medical plan," he said.

Bloom is launching its site with a handful of customers in May. One client Bloom has signed up is Echobit, a start-up company in Golden Valley that specializes in video game software.

Echobit's three founders are at different life stages: One is just out of college, another is a young professional in his late 20s and the third is pushing 40 with a wife and three young children. The company expects to hire a lot more people as it ramps up in coming months.

"When it came time to be shopping for benefits, we wanted a company as flexible as we were looking to be," said CEO Adam Sellke.

Another new client is Ridgeview Medical Center in Waconia, which plans to start using Bloom in July to manage its COBRA beneficiaries, who are former employees still on Ridgeview's group plan.

Personal profile

Bloom's product is Web-based. New users take a 15-minute survey online, answering questions about their health, finances and willingness to take risks. Bloom's software then figures out what level of premium and deductible would best suit the individual. It's a sort of Myers-Briggs profile for health, said Prevost, referring to the widely used personality test.

The program then offers two or three health insurance plans that fit the profile. Users can also buy programs such as a virtual fitness trainer or advice on nutrition. Bloom is paid an administrative fee of $10 to $20 per employee a month.

Regardless of what's happened to health care reform in Washington over the weekend, Bloom's founders feel they'll have a market niche.

If health reform dies, employers still will be looking for relief from rising premiums. If reform passes, along with a mandate for employers to provide coverage, employers might see Bloom as a cost-effective option.

"It could be a good solution in a post-reform world," said Downs of Sandbox.

Chen May Yee --612-673-7434

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