There’s enormous opportunity in the $6 trillion “care economy”

The White House recently shared its hot take on the “care economy’s” crucial role in supporting labor force participation, stating that “low U.S. fertility combined with an aging population has the potential to generate significant headwinds to economic growth.” 

As a digital health community, we should pay attention to the pressure cooker of problems associated with the growing numbers of retirees, the lack of babies being born (a.k.a future taxpayers), and the dearth of affordable care for both groups. It is truly a perfect storm. But these issues are difficult to discuss because they’re multifactorial and political. Here’s just one example: We need more babies to support the growing aging population. But we support women’s right to choose, and we must consider how fewer humans may be the more responsible choice given climate change. 

After investing in or covering this sector for a decade, we are concerned that the private sector can only do so much on its own, Much of the change required involves participation from state and federal governments, yet another reason health-tech startups should invest in and follow public policy work. 

The good news is there’s a growing zeitgeist around this topic, and our community is opening up to the idea that it is squarely in our lane. There’s also a $6 trillion care economy market up for grabs, rife with opportunities for companies to tackle in the next decade. Even something as simple as moving caregiving from ‘unpaid to paid’ is a big opportunity. Take Forta Health, which helps parents of children with autism spectrum disorder get training in ABA therapy and then access associated benefits. Even without the public sector, there’s still work to do for individuals who access commercial insurance through their employers, as more companies realize that caregivers are leaving the workforce in their droves. 

For those looking to build in this space, the second opportunity detailed in The White House’s manifesto, productivity growth, is an area where tech can very directly improve the care economy, by increasing per-worker output. Reverence for example is providing better scheduling tools for home health providers, and off-hours coverage to help avoid gaps in care for those aging in place.

Likewise, Summer Health is filling a huge gap in the pediatric market, by scaling care and in some cases removing the need for in-person appointments for common conditions that can be treated remotely. The service also removes the burden for pediatricians to be on call 24/7, and better meets parents where they are asynchronously since the service is delivered via text. Anyone who has attempted to do even a telemedicine appointment with a sick two-year-old can understand why text is an appropriate medium for parents. We’re also seeing exciting companies in pediatric behavioral health, which is a growing need amongst parents, including Bend Health, Daybreak, Little Otter and Brightline Health.

Some of the Care Economy companies that form in the coming years will have looser ties to the healthcare industry, but others are directly relevant, including fertility services and tools that drive down costs and expand access. These include Gaia, Future Family, Sunfish, Alife and others. We’ll also see the rise of companies that better meet parent’s and caregiver's healthcare needs where, when, and how they need them. Leslie and I advise or work with a few companies in the latter camp, including Roon Care, Bend Health, Cherish Health, Summer Health, Reverence, and Grayce, and we’re also actively pursuing investment opportunities in this area.  

So let’s talk about some of the underlying trends we’re seeing, not just in the U.S. but globally. 

The factors driving people to have (or not have) babies

First off, we’ll acknowledge that the “sandwich generation,” the term for an increasing number of our friends caring for their kids and elderly relatives at the same time, is really struggling and needs help. As Julia Cohen Sebastien, CEO of Grayce, put it this weekend: child care is “cheap” compared to the costs of caring for seniors.

She’s right. But also take it from us: Childcare is not cheap. The pandemic increased costs, which are crushing parents all over the country, and decreased supply with daycare centers closing everywhere. The 50% of parents who live in childcare deserts are forced to cobble together a patchwork of family members, friends, and paid caregivers to care for their kids just so they can work.

Even once kids reach school age, the expenses don’t stop. The cost to raise a child in the US today in this country is anywhere from $250,000 on the low end, and on the high end when inclusive of astronomical university costs, can be in the millions of dollars. For a long time, we struggled to pass even basic child tax credits to help people defray some of these costs.

Hearing these stories from parent friends makes the prospect of starting a family less than appealing, and that’s not the only reason people have fewer kids. The Washington Post did an interesting analysis on millennials, finding that some people can’t have 2 kids for age or health reasons, so they opt instead to have none. Apparently, we millennials are biased against “only children.” Then there are the higher rates of maternal mortality than any other developed nation; cost of living; the lack of paid leave; and greater numbers of millennials making the decision not to get married. 

There’s also a more subtle reason: Humans tend to be swayed by what people around them are doing. We’ve heard many people joke recently that a third child is like a “status symbol,” especially in cities like New York and San Francisco, because of the expense of raising kids. When a choice to even have three kids - which used to be the norm - feels like a lot of kids, then many people feel they’re better off stopping at two.

Gen Z also has mixed feelings about marriage and is going a step further to ask whether or not to have children at all, with only 27% of 18-26-year-olds in one recent poll listing starting a family as an important goal to achieve in the next five years. Their concerns are existential and range from their own futures to finances, mental health, the climate crisis, war, and global conflicts. 

Then there are the people who want to have children but encounter infertility along the way. 1 in 6 people will encounter infertility during their reproductive years, and much of the world, including the U.S., has “fertility care deserts.” People who don’t have coverage through their employers are spending tens of thousands of dollars they don’t have and mortgaging their houses to attempt to produce a single live birth.

Not meeting replacement rates is a global problem

Now, the official replacement rate is 2.1 children per woman, and the only affluent country meeting that standard is Israel. In every other high-income country the birth rate is 1.6 children. In the US, over half the decline in the total fertility rate since 1990 is a collapse in teen pregnancies, in part because more women are attending college. Women aged 30 and above are actually having more children on average. 

Globally, France is so worried about this that it is proposing to offer free fertility assessments to women over 25 as part of routine medical checkups. South Korea, with a current birth rate of 0.7, is noodling on a $70,000 payout to parents for every baby born, along with tax breaks and other maternity benefits. Israel is offering free IVF to families that need it. 

Governments may be doing a lot to encourage people to have kids, but America remains an outlier that is dragging its feet. Everyone who works in this space acknowledges that giving parents more time off after they welcome a new baby is crucial, but still, neither party can summon the political will to enshrine it in federal law. Because in the end, who would pay for it? That’s why for now, around 1 in 4 women return to work just 10 days after giving birth—regardless of how things go.  

Public and private 

So what should we be doing about it - and who is poised to benefit as we come up with potential solutions? Firstly, we do believe the care economy will continue to grow, because the macro trends will only get worse. As a result, governments will increasingly come to the table and be more willing to experiment with new ideas. What works in, say, Sweden, may not be applicable in the U.S., but we do hope to see more collaboration across borders. Legislation will be passed that will support caregivers and families, as these issues continue to get more attention. 

Whether or not any of the legislation countries are considering truly solves the root problems is an open question, and it may take time. The solutions won’t be linear or straightforward, because the problem is so complex. Case in point: If you believe more benefits lead to an increased fertility rate, that isn’t always the case. Sweden’s current fertility rate is 1.7, despite its generous childcare and leave policies. In Sweden, parents receive 480 days of paid parental leave to be split among them whether a child is born or adopted. From the day a child turns one, Swedish children are guaranteed a spot in a nursery school for a modest fee. Considering nearly 90% of 25 to 64-year-olds in Sweden are employed, this benefit is a boon for working parents. So in theory we should see a skyrocketing rate of kids being born, but we just aren’t. At least not yet. 

Still, we do believe we need public and private sector participation. We health-tech folks should get into the mix. Without that, it’ll be a struggle. We have seen a lot of VCs in our network try to invest in startups that provide childcare, for instance, but fail because there is still a lack of mandated support from the federal government. It is really expensive to pay childcare providers, given the shortages, which means that costs need to go up. And none of that helps us with the core problem: Childcare is so expensive that sometimes it doesn’t make financial sense for one parent to participate in the workforce. The financial model doesn't make sense without more subsidies. 

We’ll also say the quiet part out loud: even for companies that want to walk the walk, it isn’t always easy to offer generous parental leave. If you speak to early-stage founders who became parents while building their companies, most admit they did not take advantage of their company’s own parental leave policies. It’s not operationally easy for startups to provide family-friendly policies as companies at scale. Look no further than the Kyte Baby debacle earlier this year to see how this can play out. The small baby brand caught major heat for firing an employee who asked to work from the NICU, claiming the position couldn’t be done remotely. Every person’s presence (or absence) is felt much more acutely at an early-stage startup. And it’s a big problem beyond tech, as small businesses account for 46% of all private sector employment in the US. If small businesses cannot absorb the cost, financial or otherwise, those considering starting a family may opt for a large company job over a startup, or for some entrepreneurs, not start a small business at all, further stifling economic growth. 

Likewise, VCs and PEs can invest all they want in solutions to help people who are struggling with infertility. But that help is going to remain out of reach for most people until infertility is officially classified as a disease and every payor is forced to cover it, and the federal government steps in and provides nationwide insurance coverage for IVF and other forms of infertility treatment. 

Bottom line: We need to work hand-in-hand with policymakers, even as we develop innovative solutions to these problems. Tech can help scale access and remove some of the operational burden, but cannot go at it alone, particularly in our quest for more equitable solutions, or we’ll end up in niche parts of the market where the business model makes sense. As a follow-up to this post, Second Opinion is committed to doing much more research and analysis around the burgeoning Care Economy and highlighting companies or public sector efforts that may alleviate some of the problems, even as we adjust to the “baby bust.” The status quo is simply not sustainable. 

Are you building in the Care Economy? We’d love to hear from you. What categories of companies do you see as having the most impact? We’ll be writing a lot on this topic, both in Second Opinion and Leslie’s newsletter Fertility Rules. And we want to hear from you, particularly as we put together a market map.

Another important note: We mention a few companies in the piece we advise or have invested in — we always want to be upfront about that.

And a brief housekeeping update: Second Opinion will be moving over to the newsletter platform, Beehiiv. Not much will change on your end, but you’ll be getting a few updates about that in the coming weeks.As always, thanks for reading!