Healthcare is one of the few industries where rising usage is treated as a failure, and a16z just published some solid arguments for why that framing might be completely backwards.
Everybody wants to be healthy. The demand for services that help people get and stay healthy is almost limitless, but the supply has always been limited by clinician time and cost.
- AI balances the equation. It expands our capacity to provide care and drives down its marginal cost, and a16z makes the case that AI opens the door for us to consume an effectively unlimited amount of proactive care – consistent coaching, continuous monitoring, and earlier interventions.
Health is invaluable. As it stands today, when a payor sets reimbursement for a medical service, the rate assumes a certain volume to assess the overall budget for that service.
- Price x Quantity = Total Medical Expense
- If AI sends the quantity of the service through the roof while holding the price constant, the total medical expense would skyrocket.
The question isn’t how to avoid this. It’s “what do we get for it?”
- Half of all U.S. health expenditures go to 5% of the population, and AI that helps avoid hospitalizations or acute events can generate huge savings from a few patients.
- Healthier people are also more productive. If AI can help just 1% of the 160M workers in the U.S. work an additional year because they’re healthy, that’s worth $260B in GDP.
How do you price AI for abundant consumption? In a world with truly proactive AI-driven care, delivering more care earlier is what actually bends the cost curve. Pricing shouldn’t punish usage.
a16z looks to other industries as good examples for healthcare:
- Telecom used to charge for voice and data by the minute because network capacity was scarce, but pricing shifted to unlimited plans as infrastructure improved. Usage went up significantly, but the total market value grew alongside consumption.
- Music followed the same arc. iTunes sold songs one at a time. Spotify sold access instead. People started listening to more songs, and consumer surplus expanded.
The Takeaway
As AI expands care capacity and access, consumption naturally increases. Affordable access leads to explosions in usage, and business models shift to subscriptions over per-unit pricing. Other industries have made the transition before, and a16z thinks it might be healthcare’s turn.