Flume Health is an insurance administrator cutting costs by pre-approving prices and paying on-demand

Cedric Kovacs-Johnson launched Flume Health after watching his own family struggle with payments for his sister’s surgery.

When we looked at who was calling the shots [on prices] it was this litany of service providers that was unknown to us and the cost was unknown to us until we got the bill weeks later,” says Kovacs-Johnson. 

The family thought their medical bills would be covered by one insurance provider, but as bills kept rolling in, they realized that what had been promised as one insurance company was actually an insurance plan managed by a benefits manager whose plan was not as extensive — and that the insurer was only managing the relationship with the benefits manager.

So the former MakerBot employee launched Flume in February 2017 to make the payment process more transparent for the hundreds of companies that are self-insuring their employees to cope with rising healthcare premiums.

Roughly 80% of companies with more than 500 employees are providing their own insurance plans, or outsourcing the administration of insurance coverage to plan administrators and startups that see the woefully poor service these companies provide.

Collective Health is one of the best funded, with $230 million* in capital committed to the company, including a $110 million round last year. Another startup, Limelight Health, has raised $40 million in financing as it tries to grab market share by providing tools to make the self-insured health management process easier for companies.

Those companies and upstarts like Flume, Apostrophe and Eden Health are all tackling services and support for companies providing self-insurance.

“We become the independent administrator [and] instead of buying a whole bundle of services from a carrier we let them buy it from independent providers.”

Flume is able to offer lower prices for procedures than competitors by offering payment on the day of an operation or within three days of a visit.

“Our difference is that you have an ability to change the fundamental relationship between payer and provider,” said Kovacs-Johnson. “We pay for a bundle. We know ahead of time that a procedure is pre-authorized… when we give them the approval on this estimated date of service… now that we know we’ve authorized the service we are going to pay that before or at the time of service. So we get discounts because providers hate the billing process.”

Traditional insurance administrators usually offer a bundled package of services that companies just pay for. Instead, Flume offers companies transparent pricing for independent services that allows patients and providers to pick and choose — cutting out much of the claims processing that creates additional administrative overhead for care providers, according to the company.

To navigate the world of third-party administrators, Flume hired one. The company’s chief operating officer was the chairman of the board of the Society of Professional Benefit Administrators, Kevin Schlotman.

“As SPBA chairman, I am constantly looking at the future of our industry and have been frustrated by the lack of transparency in the cost and quality of healthcare, and the structural barriers in place that restrict flexibility in plan design and reimbursement methods that our clients are demanding,” Schlotman said in a statement when he joined the company in September.

So far, Flume has eight customers who’ve signed on to its digital health plan administration service, pulling its first clients from unions and school districts across five states.

The New York-based company has also managed to attract a few investors, raising $4 million from New York investors, including Primary Venture Partners, Accomplice, Founder Collective and Entrepreneurs Roundtable Accelerator.

By working directly with providers to get cash prices for services, patients avoid surprise bills and know what they’re paying before an appointment, according to the company.

“Cedric and team have created a solution to one of the most crippling problems facing America right now, and their early success is strong evidence that employers are desperate for change. What they’re doing has huge implications for the future of healthcare in our country,” said TJ Mahoney, a partner at Accomplice.

*An earlier version of this article mistakenly said Collective Health had raised $300 million.