Yuzu wants to make health plans cheaper by letting insurers mix and match benefits

In the U.S., figuring out ways to pay for health insurance is a perennial problem — not just for individuals, but for the businesses employing them. Companies pay upwards of $22,000 per employee for family coverage, according to health policy publication KFF. And that’ll soon increase — the cost of medical plans is set to rise 7% next year.

Under the Affordable Care Act, businesses with 50 or more full-time employees must offer health coverage to 95% of their staff — or face penalties. But most smaller firms forgo offering benefits to cut costs. According to one recent survey, 61% of companies with 29 or fewer employees don’t offer any form of health insurance.

Entrepreneurs Russell Pekala, Ryan Lee and Max Kauderer — who’d experienced firsthand being overbilled for subpar care — thought there must be a better way. So they founded Yuzu Health, a startup that aims to help small businesses offer more affordable health plans by customizing plans based on their staffers’ needs.

Lee previously worked at Bain as a consultant, focusing primarily on healthcare clients. Pekala was an early engineer at DoNotPay, the “robo-lawyer” service, while Kauderer was formerly a product engineer at fintech Lithic.

Initially, Pekala, Lee and Kauderer set out to launch a service that’d help patients fight crippling medical debt. But as they dug into the U.S.’ healthcare affordability problem, they came to believe that tackling the equation from the insurance side would have a bigger impact.

“It feels like, more often than not, it’s the insurance companies — not the healthcare providers — that are making decisions about a consumer’s healthcare,” Kauderer told TechCrunch via email. “Insurance companies are the ones that are making decisions about how the cost of healthcare should be split among members and the collective group, how much freedom a member has to find a provider, what services are preventative or a necessity and so on.”

Kauderer describes Yuzu Health as a “nervous system” (anatomical reference intended, surely) for health insurance — a central platform that “plugs into” various parts of a health plan customized to an employer’s personnel. Insurance companies and brokers sponsor Yuzu to offer and administer self-funded plans to small businesses and startups, tracking claims and payments from patients, health providers and pharmacies.

Self-funded plans — plans where an employer pays member claims directly to healthcare providers — aren’t exceptionally common among small businesses. As of 2010, only 16% of employees working for startups with 3 to 199 employees were covered by self-funded plans compared to 93% of employees working for companies with over 5,000 employees.

One reason small businesses tend to shy away from self-funded plans is the risk associated with them. Self-funded plans don’t have pre-established costs, making it difficult for companies to plan and budget healthcare year over year. And unexpected high-cost claims through self-funded plans can affect a business’ cash flow, straining finances.

Yuzu attempts to mitigate this risk by allowing customers to design “nontraditional” health plans. For example, a broker using Yuzu can choose a flat, per-member-per-month-fee plan design where the copays change depending on the provider, or work with a preferred vendor for pharmacy benefits and virtual care.

Yuzu Health can build dashboards similar to these ones for its customers, relying on its in-house tech team.

“We’re working with around ten health plans — created by insurance companies, brokers and plan sponsors — that service tens of thousands of employers on their end,” Kauderer said. “Some of these plan designs include direct primary care, cash pay models and financial assistance programs.”

In addition to delivering real-time reporting and alerts to customers, Yuzu handles provider payments and manages claims using large language models along the lines of ChatGPT. “AI-assisted” support tools analyze plan documents to offer personalized provider and care recommendations, making members aware of potential treatment costs and suggesting alternatives where appropriate.

Kauderer explained: “A member might call in and want to get a better understanding of what a procedure might cost with their current plan … Yuzu automates all of this with AI, and provides the patient with a real-time, accurate response on care costs — and can even steer the patient to specific local providers that are more affordable and have better care outcomes.”

I’m skeptical that Yuzu’s AI is perfect — large language models have well-known flaws, after all. And part of me wonders if enabling customers to pick and choose which benefits they provide might lead to inadequate or incomplete coverage for some employees.

Coverage gaps already exist. A 2022 survey from the American Psychological Association found that only 43% of workers receive health insurance with coverage for mental health and substance abuse disorders. Could Yuzu’s business model exacerbate this?

Kauderer takes the position that lower-cost coverage — even if it isn’t comprehensive — is better than no coverage at all. He pointed to a recent poll suggesting that 78% of employees would be more likely to stay in their current role if they had better health benefits — or benefits period.

“With Yuzu, small businesses and startups can save 40% or more savings on customizing top-tier benefits for their employees,” he said. “They don’t need to sacrifice taking care of their employees and save money while doing so.”

In any case, NYC-based Yuzu sees its primary competitors as incumbent players like UnitedHealthcare, Humana and Aetna. The company is pre-release, but it’s raised $5 million in seed funding led by Lachy Groom with participation from Neo, Day One Ventures, Altman Capital, WndrCo and Browder Capital.

The proceeds are being put toward hiring (Yuzu has a five-person team), general growth and building new products, including cost containment and pricing transparency tools, Kauderer says.

“We’re focused on developing our healthcare operating system, signing on more customers and providing accessible healthcare to more employers and employees,” he added. “We’re helping small businesses and startups provide high-quality health insurance without overpaying.”