In the United States, the challenge of financing health insurance is a persistent issue, affecting not only individuals but also the companies that employ them. According to the health policy publication KFF, businesses currently bear a cost of over $22,000 per employee for family coverage, and this expense is expected to rise by 7% in the coming year.
The Affordable Care Act mandates that companies with 50 or more full-time employees must provide health coverage to 95% of their workforce, or else face penalties. However, smaller enterprises often choose to forego offering benefits to cut expenses. A recent survey revealed that 61% of companies with 29 or fewer employees do not provide any form of health insurance.
In response to this ongoing issue, entrepreneurs Russell Pekala, Ryan Lee, and Max Kauderer, who had personally experienced excessive charges for subpar healthcare, sought a better solution. They founded Yuzu Health, a startup with the aim of helping small businesses offer more affordable health plans by tailoring plans to the specific needs of their employees.
Kauderer, previously a healthcare-focused consultant at Bain, Pekala, an early engineer at the “robo-lawyer” service DoNotPay, and Lee, a former product engineer at fintech company Lithic, initially set out to create a service to assist patients in dealing with overwhelming medical debt. However, as they delved deeper into the issue of healthcare affordability in the United States, they realized that addressing the problem from the insurance side would have a more significant impact.
Kauderer describes Yuzu Health as a “nervous system” for health insurance, serving as a central platform that integrates various aspects of a health plan customized for an employer’s workforce. Insurance companies and brokers partner with Yuzu to offer and manage self-funded plans for small businesses and startups, monitoring claims and payments from patients, healthcare providers, and pharmacies.
Self-funded plans, where the employer directly pays member claims to healthcare providers, are not common among small businesses. In 2010, only 16% of employees in startups with 3 to 199 employees were covered by self-funded plans, compared to 93% of employees in companies with over 5,000 employees. Small businesses often avoid self-funded plans due to the associated risks, as these plans lack predetermined costs, making it challenging to budget for healthcare expenses year over year. Unexpected high-cost claims can strain a business’s finances.
Yuzu seeks to mitigate this risk by enabling customers to design “nontraditional” health plans. For instance, a broker using Yuzu can opt for a plan with a flat, per-member-per-month fee, where copays vary based on the provider, or they can work with a preferred vendor for pharmacy benefits and virtual care.
Yuzu collaborates with around ten health plans created by insurance companies, brokers, and plan sponsors, which collectively serve tens of thousands of employers. Some of these plan designs include direct primary care, cash pay models, and financial assistance programs.
In addition to offering real-time reporting and alerts to customers, Yuzu manages provider payments and claims using AI-powered tools that analyze plan documents. These tools offer personalized provider and care recommendations, inform members of potential treatment costs, and suggest alternatives where applicable.
It’s worth noting that Yuzu’s AI may not be flawless, as large language models have known limitations. There’s also a concern that allowing customers to choose benefits might result in inadequate or incomplete coverage for some employees, potentially exacerbating existing coverage gaps. For example, a 2022 survey from the American Psychological Association found that only 43% of workers have health insurance that covers mental health and substance abuse disorders.
Kauderer’s perspective is that lower-cost coverage, even if not comprehensive, is preferable to no coverage at all. He points to a recent poll indicating that 78% of employees would be more likely to stay in their current jobs if they had better health benefits. With Yuzu, small businesses and startups can save more than 40% on customized, top-tier benefits for their employees without sacrificing their employees’ well-being.
Yuzu identifies its primary competitors as established players such as UnitedHealthcare, Humana, and Aetna. Although the company is not yet officially launched, it has secured $5 million in seed funding, led by Lachy Groom with participation from Neo, Day One Ventures, Altman Capital, WndrCo, and Browder Capital. These funds will be used for team expansion, general growth, and the development of new products, including tools for cost containment and pricing transparency.
In conclusion, Yuzu Health aims to develop its healthcare operating system, onboard more customers, and make high-quality health insurance accessible to more employers and employees, thereby assisting small businesses and startups in providing quality health coverage while saving costs.
