October 8 (Bloomberg) -- When Dietra Prater Slack was recovering from oral surgery last month, she needed to hire someone to take care of her 86-year-old mother, who can’t walk and needs help eating. Prater Slack and professional caregivers take turns caring for her around the clock in her San Francisco home, moving her around, providing companionship and feeding her. The home care agencies she called wanted at least $300 per day to send a nonmedical health aide -- prohibitively expensive for the family.
Desperate, Prater Slack, a paralegal instructor who lives about 25 miles from her mother’s home, searched online. She hired a caregiver willing to do a 24-hour shift for $150 through CareLinx, an online marketplace for home care workers, and would like to bring her on regularly. The site, she says, “puts us where the average person can truly afford to take care of their elderly loved ones or disabled individuals at home without institutionalizing them.”
Launched in San Francisco in December by a former derivatives trader for Merrill Lynch and Knight Capital Group, nine-person CareLinx matches professional caregivers with individuals seeking nonmedical in-home care for their aging parents. Care seekers post jobs and search CareLinx’s database of 5,500 home care workers for free. They pay around $50 a month to be able to connect to caregivers. Once matched, caregivers undergo national criminal background checks and can become bonded and insured under CareLinx’s liability insurance if the client uses the online agency’s payment system.
Founder and Chief Executive Officer Sherwin Sheik says cost and compensation distinguish CareLinx from traditional home care agencies and online startups positioning themselves as resources for the 40 million-plus Americans older than 65 who want to age at home. The U.S. Census Bureau expects that number will surge to more than 88 million by 2050, sparking a shortage of senior caregivers. Bill Dombi, a vice president at the National Association for Home Care and Hospice, the biggest lobbying group for home care agencies, estimates the home care market in the U.S. is at least $85 billion now. The Department of Labor projects the industry will add 1.3 million workers by 2020, making it the fastest-growing occupation in the U.S.
Sheik says clients pay CareLinx a fee of 10 percent of the worker’s pay; the worker takes home $12 to $15 an hour on average. Home care agencies generally charge clients $15 to $20 an hour and pay workers $10 to $12 an hour, according to Dombi. (Multiply $10 by 40 hours a week by 52 weeks a year, and his low-end figure is on par with the Labor Department’s most recent median annual wage estimate of about $20,000 for U.S. home care aides.) “Our goal is to disrupt and disintermediate the industry by allowing families to go direct to the caregivers and then manage all the care online,” Sheik says.
Jody Holtzman, a senior vice president at AARP, says CareLinx, which won the lobbying group’s Consumers’ Award at a competition in September, is tackling the sector of the senior care market with the most potential for disruption. “Nobody wants to go to nursing homes,” says Holtzman. “There’s a reason that they have the rep that they do. … If you could provide a source of vetted [home] caregivers at a lower cost than you can get from the agency, then you have an interesting model. That’s what CareLinx is trying to do.”
CareLinx isn’t the first to remove the middlemen from the equation. Since it launched in 2007, Care.com has connected its subscribers to in-home senior caregivers, “sort of like a Match.com,” says founder and CEO Sheila Marcelo, and last year added home care agencies. She says the 450-plus-employee company, backed by $111 million in angel and venture funding, now has about 2.5 million caregivers nationwide and its aging-in-place providers are “critical to its business.” She notes that Care.com, which sells subscriptions for $35 a month to consumers seeking multiple types of caregiving, including for children and pets, doesn’t get a cut for the service as an agency would. Another established site, Caring.com, doesn’t connect its users with individual caregivers, but co-founder and CEO Andy Cohen acknowledges “there are a number of consumers that also are interested in trying to find their own directly.”
Dombi grasps the appeal of negotiating directly with the caregiver but isn’t concerned the new model will create a significant challenge for the more than 6,000 home care agencies his group represents. “It’s not exactly a lucrative job for caregivers,” he says. “A dollar-an-hour difference may matter a lot to the caregiver … but an agency model will have a tendency to give them a client quicker than going through this.” Jill Gilbert, who sold her senior care review site, Gilbert Guide, to Caring.com in 2009, thinks the direct model is “important” but questions whether CareLinx can maintain quality when expanding nationally. “It’s not just about matching good caregivers; it’s about responding when something may not work,” she says.
Sheik, who launched the fledgling venture with around $1.5 million of his savings and money from colleagues, friends and family, says he is raising more capital from venture firms and a large company in a deal he expects to close “within the next couple months.” If it goes through, he plans to hire 15 to 20 more employees to handle the more than 120 caregivers he says are signing up weekly, and create a sales team.
Sheik is also trying to manage a surge of business from the very folks he’s trying to put out of business: “Two months ago we saw agencies registering themselves as families and trying to poach the caregivers,” he says, noting agencies today account for roughly 40 percent of his monthly revenue of around $20,000. “We have some of the largest franchise agencies now. It’s an irony in that they’re paying us to disintermediate themselves.”
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