Arlo, a level-funded health plan and underwriting tech company for small businesses, has locked down $4 million from three venture capital groups and angel investors.
It is the first public funding round for Arlo, a company that prides itself in bringing value-based care principles and an artificial-intelligence-powered underwriting technology to businesses with less than 100 employees. Participating VC groups include Upfront Ventures, 8VC and General Catalyst.
The funds will be used to expand and hire more engineers and sales team members.
Arlo is led by its cofounder Jan-Felix Schneider, a former team lead at Palantir Technologies who grew up in Germany. At Palantir, Schneider worked with insurance companies on value-based care and data analytics claims.
“I saw how unsophisticated these payers are when it comes to using data and tech to control spend,” he told Fierce Healthcare in an interview.
In small group commercial insurance, companies fall into two buckets, he said. Some companies like Oscar Health are turning more of their attention to individual coverage health reimbursement arrangements (ICHRAs), but those plans are sometimes poor quality and expensive, Schneider argued.
The market share of level-funded plans, where employers pay a set monthly premium, is dominated by traditional carriers like UnitedHealthcare and Aetna. Like Arlo, there are other health benefits startups like Gravie and Sana Benefits jostling for position, while Centivo is more focused on businesses with more than 100 employees.
More than a third of small businesses offering health benefits are covered by a level-funded plan, according to KFF.
Arlo, however, derives its advantage from its underwriting system, said Schneider. It uses machine learning technology to assess health risk and allows small employers' operations to benefit from automation. Arlo can accurate quantify the risk and cost of a group and can help model the different effects of certain population health initiatives. These innovative solutions are conventionally offered only to large-sized businesses, he said.
“If you’re thinking about what makes up your premium, it’s always your claims,” he explained. “Premiums are a function of the claims. If you want to save on healthcare costs, you have to address the claims.”
Large, traditional carriers are not adept or incentivized at lowering healthcare costs, especially for small clients, he said. But Arlo is able to stress preventive care and partners with primary care practices to better manage population health.
The company also enters risk agreements with providers and is interested in launching and retaining multiyear contracts with employers. By using its underwriting model, Arlo can invest in improving certain attributes of employees, such as controlling diabetes and blood pressure.
"With their underwriting technology, easy-to-use quoting for brokers, and a deep understanding of the small group market, Arlo is uniquely positioned to transform how small businesses access and manage health benefits,” said Kevin Zhang, partner at Upfront Ventures. “At a time when frustration with legacy carriers is high, Arlo is the right company at the right time to take on this $275 billion market opportunity."
Arlo already has a stop loss partnership with Nationwide, serving as the company’s managing general underwriter.
“In the past, most small groups did not have access to stop loss coverage due to operational complexity and expense concerns,” said Syed Rizvi, vice president and chief specialty officer at Nationwide, in a news release from October. “New MGU relationships like these allow us to reach more producers, particularly those serving small to mid-sized employers that are increasingly self-funding and needing medical stop loss insurance.”
Stop-loss insurance protects companies against claims far exceeding the funds already set aside.
Small business owners are also paying “substantially higher” premiums than a decade ago, a report from JPMorgan Chase showed. Health insurance costs have increased by 33% since 2018.
Schneider said Arlo has “mid-eight figures” in premiums currently on the books, and the company underwrites for “hundreds” of employer groups.
“We are growing quite a bit because there’s such a strong demand for a solution that offers affordable health insurance for these small businesses who are getting hammered," he said.
“I think there is this broken relationship with providers and health plans," Schneider added. “They’re all just adding more AI tools to fight each other in the revenue cycle management world, and I think this is creating more waste and not solving any issues.”