Fighting Medical Debt: Why We Funded Betterbank

Dorm Room Fund is proud to announce our investment in Betterbank, a company building a checking account that provides a free emergency fund for the everyday American.

When co-founder Saumik Tiwari was injured during a rugby game at Trinity College, the last thing he wanted to think about was how he could cover the medical bills. But a visit to the emergency room demonstrated to him the impact an accident can have on not just a student’s, but on anyone’s, budget.

Saumik found that not only did he have to pay deductibles and co-pays, but that his cost of living had increased after his injury due to transportation and other lifestyle changes. Not to mention the risk that he could not work and could lose his income, leaving him unable to pay rent, utilities, and student loans. The cost of his injury was simply debilitating.

With this experience ingrained in his head, Saumik teamed up with his brother, Kaushik, to dive deeper into the problem of medical debt. The two were astonished by what they found. One in five Americans has overdue medical bills on their credit report. More than half of these medical collections are less than $600, yet 40% of people struggle to scrape together $400 in the event of an emergency. Medical debt is the most frequent cause of bankruptcy in America—more common than credit card debt, car loans, or student loans. The scope of the problem and subsequent risks cannot be overstated: Americans have more than $81 billion in total outstanding medical debt. 

Saumik and Kaushik also found that the problem of medical debt disproportionately affects young people, like themselves; 27-year-old Americans account for 11% of all medical collections. Medical bill collections begin to peak for Americans at the age of 27, an age at which they are most likely to be uninsured. According to the U.S. Census Bureau, approximately 25% of all uninsured Americans were between the ages of 26 to 34 years old. And while the Affordable Care Act, enacted in 2010, helped improve coverage for those young adults below the age of 26, too many young people are still uninsured or underinsured. 

Meanwhile, deductibles have been growing eight times faster than wages, leaving many insured individuals unable to afford the cost of medical services. Saumik and Kaushik realized that the cause of the problem was institutional.

Introducing Betterbank: the Bank Account that Fights Medical Debt

The Tiwari brothers have set out to fix this problem by building Betterbank — a company that will offer a checking account that includes a free emergency fund. An account with Betterbank comes with an FDIC insured checking account with no fees, and a debit card that gives you access to 38,000 no-fee ATMs across the country. Each Betterbank member is eligible to receive a free insurance policy that will cover up to $5,000 for short-term medical bills, lost wages, transportation costs, etc., deposited directly into their Betterbank account during an emergency. The goal for Betterbank is not to replace medical insurance, but to supplement one’s insurance policy to mitigate credit risk.

Why Dorm Room Fund Invested:

1. Team. The Tiwari brothers not only know the underlying problem from personal experience, but are, as one Dorm Room Fund Partner put it, “true insurance nerds”. Kaushik, a Thiel Fellow, and his brother, Saumik, are serial entrepreneurs in the insuretech and healthtech spaces. The two have been working to fix the insurance market since 2017 when they started their first venture, Truedime, a health insurance platform for international students.

2. Timing. The United States spends more than $3.5 trillion per year on healthcare, a rising figure, while the total for outstanding medical debt towers at more than $81 billion. Medical insurance has dominated the news cycle as politicians and presidential hopefuls continue to discuss their solutions to the insurance crisis affecting America. As this discussion continues for politicians, everyday Americans struggle with uncertainty over their future insurance and financial security today. Historically, individuals have relied on credit cards or savings to relieve medical debt burden, but neither of these are sustainable long-term strategies. At a time when insurance insecurity is at an all-time high, Betterbank seeks to provide a tool to alleviate the burden of medical debt.

3. Urgency from a Large, Underserved Market. Medical debt affects more than 25% of Americans — just over 80 million people. Moreover, the problem is not exclusive to young, low-income, single individuals. More than 60% of individuals suffering from medical debt have attended college and approximately 45% are married. While young adults are likely to be the first adopters of Betterbank’s solution, the problem affects a disproportionate segment of our country, and the potential customer base is enormous.

Betterbank represents what we at Dorm Room Fund seek to invest in: entrepreneurial students with a bold vision to solve the world’s greatest challenges. Co-founders Kaushik and Saumik have built a product that could positively impact the lives of millions and we at DRF believe that these brothers can bring this vision into fruition.

Written by Alex Chen, DRF Partner (NYC). Follow him on Medium and Twitter.

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