Harris Williams Market Analysis: Global Health and Wellness

Health and wellness is a $220+ billion opportunity. See the factors driving growth, three essential practices for success, and recent transactions in the space.

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The health of the world’s population is one of the most significant economic challenges of our time, with governments, corporations, healthcare payors and individuals all sharing a growing cost burden. Fortunately, the accelerating pace of innovation within the healthcare ecosystem presents a host of compelling opportunities to reverse this trend.

Emerging companies with innovative solutions enable consumers to engage directly with their health, wellness and fitness, while payors are adopting multidisciplinary, portfolio-based approaches to do the same. These trends are underpinned by novel software and technology solutions that help improve overall health while reducing costs, giving rise to a wealth of interconnected multibillion-dollar market opportunities.

In this paper, we share insights gained from several recent engagements in the health and wellness space, including:

  • Size, growth and value drivers in three constituent subsegments: health clubs, fitness and training; workplace health and wellness; and digital health
  • Key data points and trends regarding the three groups driving demand for health and wellness solutions: employers, healthcare payors and providers, and consumers
  • Three essential practices that set successful health and wellness businesses apart from others
  • Snapshots of businesses we have worked with that are leaders in the health and wellness marketplace

Health and Wellness: Strong Growth, Sizable Opportunities

As depicted in Figure 1, health and wellness represents a $220+ billion opportunity created by the convergence of three growing global markets: health clubs, fitness and training; workplace health and wellness; and digital health. These markets are evolving rapidly, with new business models emerging and disrupting the status quo.

Figure 1: $220+ Billion Health and Wellness Market

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1 IHRSA
3 Global Wellness Institute – 2017 Global Wellness and Economy Monitor
4 Statista – Value of Worldwide Digital Health Market

The health and wellness space includes a wide variety of businesses. Their goals range from preventing or managing chronic health conditions that contribute to rising healthcare costs to supporting growing consumer desires to improve health and well-being. 

As Harris Williams Healthcare & Life Sciences Managing Director Andy Dixon explains, “The wellness space is home to any kind of business with services or products that proactively help people maintain or improve their health so they avoid entering the healthcare system altogether, instead of reacting once it’s too late.”

Despite their diversity, all these businesses are supported by a set of powerful, long-term trends that suggest strong growth prospects for years to come.

Examples of wellness businesses include: 

  • Workplace wellness businesses
  • Nutrition products and services    
  • Emerging gym and fitness concepts
  • Technologies that identify health risks, aggregate health-related data or promote mindfulness

Fitness and Training

The roughly $87 billion global health club, fitness and training market is defined by strong consumer demand for customized, convenient, fitness experiences. In the U.S., revenue for the segment has grown at a 5 percent compound annual growth rate (CAGR) since 2006.1

The highest growth rates have been among high-value, low-price (HVLP) gyms, boutique fitness concepts and premium health clubs that offer a wide variety of health and wellness services. By reducing the expense and increasing the value proposition of the gym experience, the HVLP model has been especially important in driving first-time users into gyms.

Figure 2: High-Value, Low-Price Gyms Have Highest Growth Rates

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Source: IHRSA

At-home offerings are on the rise as well: Peloton, for example, allows customers to participate in high-intensity group cycling classes from their homes. 

“Consumers are looking for variety in how they keep fit,” says Ed Arkus, a managing director in the Harris Williams Consumer Group. “They want to mix and match concepts like boutiques and studios with more traditional gyms.”

For their part, traditional mid-market gyms have invested in new equipment, more specialized classes and new pricing models to boost their competitiveness in this changing market. 

New, intermediary businesses have emerged to tap into consumer demand for variety, allowing gym members to sample fitness offerings on a variable, low-cost basis. These include ClassPass, which provides admission to classes and group exercise at a wide range of facilities.

As shown in Figure 3, this rich variety of offers has helped drive steady growth in global club memberships over several years. In fact, between 2006 and 2017, U.S. health club membership has grown by 43 percent. In 2017, 61 million Americans belonged to a health club, and 70 million consumers used one, a record high.2

Figure 3: U.S. Club Membership Sees Steady Growth

U.S. Club Memberships (members in millions)

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Source: IHRSA

“As a whole, the industry has shown to be recession-resistant,” observes Zach England, a San Francisco-based vice president in the Harris Williams Consumer Group. “It is in a sense Amazon-proof, driving consumers to retail shopping locations. That’s making gyms highly sought-after anchor tenants in an evolving retail environment.”

Workplace health and wellness

Workplace health and wellness is a roughly $43 billion global industry. That growth is supported by surging interest among employers: As shown in Figure 4, the global workplace wellness sector is expected to grow at a CAGR of 5 percent between 2015 and 2020.3

Figure 4: Employers Seek to Make Wellness Services More Readily Available

Workplace Wellness Sector Growth Projections ($ in billions)

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Source: Global Wellness Institute – 2017 Global Wellness and Economy Monitor

 

Workplace health and wellness providers help employers manage healthcare costs and increase employee productivity via health risk assessments, nutrition coaching, fitness services, condition management, stress management, on-site wellness services and even primary care.

According to James Clark, a managing director in the Harris Williams Healthcare & Life Sciences Group, employers are increasingly recognizing the benefits of employee engagement and proactive health management: “Whether through fitness, nutrition, wellness, or primary care, or some combination thereof, employers are seeing increased engagement, higher productivity and lower healthcare costs.”

Digital Health

Digital health is a $96 billion global market expected to grow at a CAGR of 21 percent through 2020 (Figure 5). The technologies that make up the segment are vitally important, integrating far-flung data to drive lower costs and better health outcomes.

Figure 5: Global Digital Health Market

Global Digital Health Market ($ in billions)

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Source: Statista - Value of Worldwide Digital Health Market

The segment encompasses a wide range of businesses that use technology to collect, aggregate and analyze health- and wellness-related data. From wearable technology that captures biometric data to web-based employee wellness platforms, these businesses are tapping into consumer demands for greater visibility into and control over their health and healthcare costs. 

“There’s an enormous opportunity for software that can stitch together data from all these different areas,” says Sam Hendler, a managing director in the Harris Williams Technology, Media & Telecom (TMT) Group. “The other thing software can do is make health and wellness programs scalable without adding more staff or cost.”

Clark adds: “The power in this data comes from making immediately actionable recommendations to consumers to improve their health and fitness.”

Three Large Groups Driving Growth

While each of these segments has distinct growth drivers, they are tied together by one powerful trend: an increased focus on health and wellness among employers, healthcare organizations and consumers. 

Employers

Healthcare spending among Americans with employer-based health plans amounted to approximately $960 billion in 2016, representing $5,407 per person, an increase of 4.6 percent compared to 2015.5 From 2013 to 2016, the number of individuals with employment-based coverage grew from 156 to 157 million, accounting for 49 percent of the U.S. population.6 

“Employers are looking for ways to control these costs in the long term,” says Clark. “They want to enable employees to engage with their own health and wellness.”

Indeed, health and wellness solutions are increasingly being adopted by employers: Seventy-nine percent of U.S. employers offered wellness programs in 2013, up from 58 percent in 2008. As health and wellness data integration improves in the coming years through the increased use of wearables, other software and data-driven incentives, the U.S. corporate wellness industry is expected to undergo rapid growth.7  

Figure 6: Eight Wellness-Related Risks and Behaviors Drive Cost Increases

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Source: 2014 Healthcare Study – Aon Hewitt, Milken Institute

One reason for this growth is the effectiveness of health and wellness programs against the key drivers of healthcare costs. As shown above, eight risks and behaviors—each addressable by targeted health and wellness programs—account for 80 percent of total chronic illness costs worldwide. These include obesity, cardiovascular disease, diabetes and others.8

Just three common chronic conditions—asthma, diabetes and hypertension—result in 164 million days of absenteeism each year, costing employers $30 billion.9

Health and wellness programs are effective solutions to these challenges. Company participation over five years leads to annual reductions of direct medical costs of about 7 percent per employee per year, or 35 percent in total.10 U.S. companies that target just three major risk factors can save $2,100 per employee in healthcare costs and productivity improvements over three years.11

“Companies have a huge incentive to help employees improve their health,” says Hendler. “They see the value in these programs.”

That value is driving a flurry of activity in the workplace wellness segment. Seventy-four percent of employers include employee incentives as a part of their corporate well-being programs, with medium-to-large companies spending an average of $742 per employee per year on wellness incentives (up from $651 in 2016 and $521 in 2013).12

Healthcare payors and providers

Healthcare payors and providers share this focus, seeking innovative approaches to boosting health and wellness while keeping costs under control. At a high level, healthcare organizations are looking for ways to intervene earlier in patients’ health issues, provide more effective care to address those issues and help patients avoid catastrophic events.

For many healthcare organizations, shifting toward value-based care is a major component of this drive. In this model, outcomes—not the value of services—are the basis of compensation to healthcare providers. Making this transition will require several major changes and considerable investments in software.

For instance, providing value-based care will require greater visibility into that care’s effectiveness, which, in turn, makes data aggregation platforms more important. “Today, healthcare providers have access to clinical patient data, while payors have access to patient claims and utilization data,” explains Hendler. “Combining this information can provide insight into episodes of care, enable more proactive treatments and help cut costs and inefficiencies.”

Figure 7: Employers Rank Health and Wellness as Top Strategy 

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Sources: 2013 Healthcare Study, Aon Hewitt; HR/Benefits Pulse Survey, ADP Institute 

Likewise, increasing patient adherence to prescribed treatments can help cut costs and improve health. “Fill rates for prescriptions hover around roughly 50 percent,” says Dan Linsalata, a Boston-based vice president in the Harris Williams TMT Group. “Refill rates are even lower. Simply getting people to take their medicine through patient-facing adherence software is an important step to improving health outcomes.”

Identifying and managing at-risk populations is another priority for organizations shifting toward the value-based model. By understanding which individuals are at the greatest risk for which chronic illnesses via analytics and risk stratification software, payors and providers can offer customized programs that keep those people as healthy as possible. This goal will also require new kinds of relationships between healthcare stakeholders.

“It’s really about getting ahead of these major issues and helping people take more control over their health,” says Clark. “That has the dual benefit of keeping costs in check and improving people’s lives.”

Linsalata adds: “The overriding incentive is earlier interventions and better, more effective care that keeps people healthier, out of the ER and off high-priced drugs.”

Consumers

In addition to the universal human desire to live longer and be healthier, today’s consumers are facing direct financial incentives to engage with their health and improve wellness.

“We’re seeing the financial risk shift to consumers over time,” notes Hendler. “We all pay a lot more for our healthcare than we used to.” For one thing, explains Hendler, more consumers are covered by high-deductible health plans (HDHPs), assuming a greater portion of day-to-day healthcare costs in exchange for lower premiums. A recent study by the National Center for Health Statistics at the U.S. Centers for Disease Control and Prevention (CDC) shows that the portion of privately insured Americans between 18 and 64 with HDHPs rose from 26 percent in 2011 to 39 percent in 2016.13

While such plans can reduce premiums, they also can allow unexpected health issues to have a larger impact on consumer budgets. In fact, people with HDHPs are 50 percent more likely to have problems paying their medical bills than those with traditional health plans.14 By shifting the initial cost of healthcare to the consumer, HDHPs create an additional incentive to stay healthy. As Hendler puts it, “He who bears the risk has the incentive.”

In addition, as many employers seek to shift more responsibility for healthcare costs to their employees, they are offering significant financial incentives for meeting biometric goals or engaging in healthier behaviors.

These and other trends are pushing consumers to make health and wellness a higher priority. As shown in Figure 8, over the past 20 years consumers have increasingly added physical activities to leisure time. This, combined with rising incomes, has contributed to a 5 percent CAGR in fitness industry revenue between 2006 and 2017.15

Figure 8: Adults Engaging in Leisure-Time Physical Activity (18+ Years)

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Source: National Health Interview Survey, CDC/NCHS

Capitalizing on health and wellness

At its heart, the health and wellness opportunity is tied together by a shared financial imperative, notes Linsalata. “If you’re an employer, having a wellness program to keep your employee base healthier can cut your insurance premiums. If you’re a risk-bearing entity, an employer or even a consumer, you can avoid costs simply by being healthier and avoiding adverse events.”

With this broad, powerful trend behind it, the market is poised for long-term growth and is spawning a wealth of innovation.

“There are a multitude of things converging right now: advances in health data tracking and analytics, fitness concepts that better engage individuals and leverage social media, on-site health providers with incentive-driven offerings and broad-based consumer interest in health and wellness,” says Clark. “New models are emerging every day to deliver on these trends. These markets are growing, and there’s real demand for innovative solutions that can have an impact.”

Yet capitalizing on this opportunity can be difficult given its sheer size and diversity: “It’s very difficult to succeed if you don’t understand how technology platforms, service delivery models and consumer preferences intersect with each other,” notes Hendler.

Three Key Practices Drive Success

Understanding what separates winning health and wellness businesses from less successful ones can help companies and investors make the most of this opportunity. In our experience with leading companies in the space, we have observed three key practices:

  • Measurably impact costs and health outcomes through a portfolio approach
  • Make it compelling for consumers to engage with health and wellness
  • Take innovative approaches that cross disciplines 

Measurably impact costs and health outcomes through a portfolio approach

The health and wellness market is driven by the desire to cut healthcare costs and improve health outcomes. As such, companies that can make a substantial impact on either front are best positioned for success.

Yet one of the key challenges facing health and wellness companies is the inherent challenge of demonstrating impact and ROI, says Linsalata. “Typical goals in this space are dispositive,” he explains. “Someone avoids getting sick, for example, so there is no event to measure, but costs are reduced nevertheless. So those solutions and service providers with demonstrable cost savings or health outcomes are best positioned for long-term success.”

Of course, before showing results, companies must achieve them, which is inherently difficult given the array of health challenges facing a given population. One way to break through this challenge is by taking a portfolio approach, using a variety of approaches to engage with distinct populations and move them toward better health.

“If you have 30,000 employees, each responds to different incentives and different types of programs. So you need to have a full portfolio of tools to reach as many individuals as you can,” says Linsalata. “Ultimately the winners in the space are the companies that can show they can reach the most people with the most optimal outcomes and drive real cost savings.”

Dixon agrees: “There’s a strong push away from cookie-cutter approaches. The best services and products allow customization, which can boost consumer engagement and generate better results.”

Make it compelling for consumers to engage with their health

Even with increasing consumer interest in health and wellness, the competition for their time, attention and budget is complex. It follows that breakthrough businesses focus on making it easy and appealing for consumers to engage with their health, catering to their tastes. 

“Fitness consumers are looking for variety, community and value,” says Arkus. “It’s getting increasingly specific, with new niche concepts being launched all the time. Those include retail offerings, employer-provided programs like EXOS and at-home concepts like Peloton.”

Both high-end and HVLP gyms have found ways to play to this trend. For the high-end players such as Equinox, the strategy is to provide a full range of services and amenities under one roof, from fitness to food to massages. On the other end of the spectrum, HVLP gyms such as Planet Fitness keep their offerings affordable but with a high value proposition, allowing consumers to create customized bundles of fitness activities that fit into a monthly budget. 

Boutique fitness companies such as SoulCycle, Orangetheory Fitness and Barry’s Bootcamp take another approach, offering specific, interest-based classes that consumers can mix and match. As noted above, services such as ClassPass have emerged to help gym-goers make the most of this opportunity, offering promotions on classes at multiple studios.

“As fitness activities become more personalized and interest-driven, you start to see more loyalty, passion and even competition among participants,” observes Clark.

Value is another key way to make health and wellness offerings more appealing to consumers. “Value-oriented gyms are driving a lot of the increased participation we’re seeing globally,” says Arkus. “The more affordable it is, the more people try it and stick with it.”

Take innovative approaches that cross disciplines

“A lot of what’s been done to cut costs and improve health just hasn’t worked that well so far,” says Dixon. “Organizations that can cross these separate disciplines to make a bigger impact are going to be more successful and generate higher returns.”

Indeed, some of the most successful businesses in the market position themselves at the convergence of fitness and training, digital health and workplace wellness rather than as pure-play companies in one of those segments. 

For example, a software company could find success by offering tools that tie together coaching and exercise, nutrition tracking, emotional health and biometric data to help consumers track their progress toward wellness goals. 

In particular, Harris Williams sees substantial opportunity in using cutting-edge technology to move the needle on health outcomes: “The idea is to use technology to collect and analyze data and guide the decisions people make,” says Clark. “We see a near-future with clothing and gym equipment that captures biometrics while you work out and guides your training and nutrition. Companies that can cross those boundaries and provide an integrated health and wellness experience will be winners.”

Innovative Health and Wellness Businesses

Harris Williams has worked directly with several innovative businesses in the Health and Wellness segment. The following examples are capitalizing on this opportunity by incorporating the success factors described above.

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Therapy Brands

Therapy Brands is a leading provider of fully-integrated and comprehensive practice management, electronic health record, payment and revenue cycle management solutions for the mental and behavioral health market segments.

“The mental and behavioral health software market is experiencing significant growth and investment interest driven by increased public awareness of mental and behavioral health issues, new funding and coverage opportunities, and a heightened recognition of the role that mental and behavioral health issues play in increasing healthcare costs,” saidJeff Bistrong, a managing director at Harris Williams. “Therapy Brands is the leading platform in the market.”

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Taymax Group Holdings, LLC

Taymax is one of the largest and fastest growing franchisees within the Planet Fitness system. The company owns and operates 52 Planet Fitness health clubs and has been recognized as Planet Fitness Developer of the year in two of the last three years and Franchisee of the Year in 2018.

“We are thrilled to have advised Taymax in its sale to Trilantic North America,” said Ryan Budlong, a managing director at Harris Williams. “Under the exceptional leadership of the Taymax management team and in partnership with ClearLight, the company has emerged as one of the truly exceptional platforms and area developers in the Planet Fitness system.”

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EXOS

EXOS is the unrivaled leader in proactive health and human performance, offering a suite of proven, highly differentiated, technology-enabled solutions. EXOS is a leading workplace wellness company, providing employers with wellness services, technology, fitness facilities and training staff. The company currently has more than 150 corporate clients, with more than 400 on-site facilities in 30 countries.

As Dixon says: “EXOS is a great example of a business taking a convergent approach to the wellness space. They’re helping employers measurably reduce healthcare costs while making it easier for employees to improve their health and track their progress across mindset, movement, nutrition and recovery.”

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MedHOK

MedHOK provides information-based care, quality and compliance solutions that help government-sponsored healthcare plans keep pace with a rapidly evolving regulatory environment and enhance the quality of patient care. 

“Payors bear the risk of health issues among their covered populations,” explains Hendler. “MedHOK scans claims data and helps payors identify gaps in care that can lead to those problems. It’s helping them proactively protect their customers’ health.”

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Pure Gym

Pure Gym is the UK’s leading gym operator, providing low-cost, high-quality fitness facilities to more than a million members across 200-plus sites.  Pure Gym was launched in 2009, and pioneered the model for affordable, flexible, high-quality fitness clubs in the UK.  Most of its gyms are open 24 hours a day across the UK and offer a full range of top-of-the-line equipment as well as fitness classes.

“Pure Gym is a best-in-class business that has been disrupting the health and fitness space since 2009 with its high-quality, affordable, flexible and technology-enabled offering,” says Ed Arkus. “It has managed to strike an ideal balance between affordability and amenities.”

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Wellcentive

Wellcentive offers cloud-based population health management and data analytics solutions designed to facilitate healthcare providers’ transitions to value-based care.

“Wellcentive is helping make value-based care work,” says Linsalata. “It helps healthcare providers identify and address gaps in care that would impact patient health and reimbursement.”

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Precision Nutrition

Precision Nutrition supplies technology-powered, scientifically proven nutrition education and behavior change solutions to the global health and fitness industries. 

“Precision Nutrition is another example of a company crossing silos and segment lines to participate in the health and wellness opportunity,” says Hendler. “It offers online coaching and software to consumers, using technology to make it easier for consumers to be healthy. It also provides training and certifications through health clubs, taking advantage of the reach and growth of that market.”

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Daxko

Daxko is a leading provider of mission critical software to member-based health and wellness organizations. Daxko helps both non-profit and for-profit fitness facilities achieve high levels of operational efficiency, deliver strong fiscal management and engage their members in meaningful ways.

"Software used to manage member communities with integrated CRM, ERP and payment solutions has been a focus among investors recently and we have been fortunate to work with multiple sector leaders across distinct verticals," said Tyler Dewing, a managing director in the Harris Williams TMT Group.

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Catalina Health

Catalina Health is a behavior change company designed to provide customized messages based on where patients are in their health journey, ensuring successful outcomes for patients and profitable outcomes for partners. Catalina’s solutions can identify the most receptive customers and deliver the most relevant messages at critical decision points through trusted channels.

“Catalina Health provides consumers with personalized guidance on why and how to take prescribed medicine. It’s a great example of a simple yet effective way to boost medication adherence and move people toward better health,” says Hendler.

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Empowered Benefits

EmpoweredBenefits delivers a SaaS-based private benefits exchange and benefits administration software solutions to brokers, carriers and employees. 

Linsalata says the business is especially relevant in this era of high-deductible health plans: “Consumers want to be sure they’re signing up for a plan that meets their needs. Empowered Benefits walks them through their options and makes it easier for them to be an informed consumer and a better steward of their own health.”

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HealthMedia Solutions

HealthMedia Solutions—a subsidiary of Johnson & Johnson—offers digital coaching in areas like wellness, disease management, behavioral health, medication adherence and aging well. Its programs increase compliance, reduce medical utilization and boost productivity, which increases profitability for health plans, employers, pharmaceutical firms and behavioral health organizations.

“HealthMedia is a great example of an organization using technology to improve health and reduce costs through better compliance, lower medical utilization and higher productivity,” says Clark.

A Healthy Opportunity

Powerful, long-term trends are driving growth and supporting considerable scale in the health and wellness segment. In our experience, the most successful businesses in the space tend to incorporate one or more of three key practices:

  • Measurably impact costs and health outcomes through a portfolio approach
  • Make it compelling for consumers to engage with health and wellness
  • Take innovative approaches that cross disciplines 

To learn more about our most recent transactions in this promising sector, please contact us.  

Published June 2018
 
Sources:

1    IHRSA Global 2017 Report
2    bid
3    Global Wellness Institute – 2017 Global Wellness and Economy Monitor
4    Statista – Value of Worldwide Digital Health Market
5    HCCI 2016 Annual Report
6    U.S. Census Coverage Numbers and Rates by Type of Health Insurance: 2013 to 2016
7    RAND Workplace Wellness Study
8    2014 Healthcare Study – Aon Hewitt
9    American Hospital Association report
10    U.S. Census Coverage Numbers and Rates by Type of Health Insurance: 2013 to 2016
11    “The Economic Burden of Chronic Disease on the United States,” Milken Institute
12    2017 Wellness Survey by Fidelity Investments and the National Business Group on Health
13    Wyland, M. (2017, June 09). CDC: Americans with High Deductible Health Plans Skyrocket since ACA. Retrieved February 15, 2018, from https://nonprofitquarterly.org/2017/06/09/cdc-americans-high-deductible-...
14    bid
15    National Health Interview Survey, CDC/NCHS