To keep the lights on during a bruising year for restaurants, Don Mahaney rebranded his Troy Hill eatery, Scratch & Co., and added a retail line of jarred pickles, sauerkraut, pickled beets and heirloom carrots.
Mr. Mahaney, 42, a Shaler native, also dropped pricey health insurance coverage for his employees in favor of a hybrid plan that offers primary medical care while helping insulate his staff from big health care bills. Pairing direct primary medical care with the services of a health care cost-sharing organization is saving him a bundle while improving the quality of medical care his employees receive when compared to group health insurance, he said.
“I started asking around and this is the perfect fit for us,” Mr. Mahaney said. “It’s a cost-sharing arrangement instead of insurance. We’re pretty thrilled about it.”
Scratch & Co. isn’t required by law to offer health care coverage to employees because the restaurant has 10 workers — fewer than the 50-employee minimum limit. Mr. Mahaney believes that coverage is an important benefit to attract and retain a reliable workforce.
Piecing together an employee health benefit plan from a direct primary care arrangement, discount pharmacy and health care cost-sharing organization could be a lifeline for small employers struggling with the downturn caused by the COVID-19 pandemic. But the arrangement is not without caveats, even if it costs less than small group health insurance.
“It is not insurance at all,” said Jamie Lagarde, CEO of Austin, Texas-based Sedera Inc., the nonprofit clearinghouse for medical bills that Scratch & Co. chose for its employees. “It’s a membership.”
“It doesn’t come with a policy or guarantee. People should have more options, not less, when it comes to health care.”
Hunt for alternatives
Escalating health insurance premiums are driving the search for alternatives.
Annual premiums for employer-sponsored family health coverage reached $21,342 in 2020, up 55% since 2010, according to the Kaiser Family Foundation.
Sedera, which has 30,000 members, promises savings of 30% to 60% over the cost of health insurance. Mr. Mahaney said his approach to employee benefits costs about $500 less a month than group health plans.
Nationwide, some 1.5 million Americans are active in health care cost-sharing arrangements, according to the Alliance of Health Care Sharing Ministries, a Washington, D.C.-based trade group. Membership in these arrangements includes 26,864 people in Pennsylvania.
Organizations like Sedera, including some that are faith-based, have been around for decades — charging members a monthly fee in exchange for paying bigger medical bills, including hospitalization. The amount of the monthly fee is set by how much the member wants to pay for medical care out of pocket before submitting a bill for reimbursement.
Sedera’s payments for eligible medical expenses are deposited in a banking account that is controlled by the member, who writes the check to the doctor or hospital. Sedera determines which bills are eligible for reimbursement.
A member under age 30, for example, could pay as little as $113 a month under Sedera’s Access+ plan, after the member first pays $5,000 for eligible medical expenses.
“This is a great way for small businesses to offer benefits when otherwise it would be crippling for an employer to offer any kind of health benefits,” said Natalie Gentile, a family practice physician in Highland Park who doesn’t accept health insurance and contracts with Scratch & Co. to provide employee medical care.
For small businesses, she said, “It seems like their only option is to do nothing or to pay a boatload of money for another plan. They don’t realize there are other options.”
Pairing a health cost payment organization with direct primary care services, which allows unhurried visits with a doctor who doesn’t have the administrative headaches of health insurance claims, is “incredibly complementary,” Sedera’s Mr. Lagarde said.
Members who have an agreement with a direct primary care doctor receive a monthly discount from the company. Most family doctors accept health insurance, but an increasing number of doctors are declining to accept insurance with all its extra administrative costs and instead agree to see patients for a flat monthly cash fee.
Scratch & Co.’s employees also have access to Blueberry Pharmacy, a discount West View drug store, which has partnered with Dr. Gentile.
The arrangement simplifies relations between the patient and doctor: no network of approved medical providers, no co-pays, no deductibles, no surprise bills from out-of-network doctors. Medical bills from out-of-state doctors may also be eligible for reimbursement.
Potential concerns
But the arrangement may not be for everyone.
Among the critics of member-based medical cost-sharing arrangements is the American Hospital Association, which opposed a proposed Internal Revenue Service rule last year that would’ve allowed payments to such organizations to be tax-deductible, much like health insurance expenses.
“These plans operate outside state and federal insurance requirements and do not have to guarantee coverage for pre-existing conditions or any other services — a fact that regularly confuses consumers and leaves them vulnerable to significant medical bills,” the AHA wrote.
The proposed IRS rule, initiated by then-President Donald Trump, was never adopted.
Moreover, the availability of health cost-sharing services may be limited in some states.
Sedera, for example, isn’t accepting new members in four states, including Vermont, where the Vermont Department of Financial Regulation in 2019 cited the company for selling unlicensed insurance and using deceptive marketing materials.
In a statement, a Sedera spokeswoman said the company was included in a cease-and-desist order that was filed against a third-party marketing company, but the issue has since been resolved.
“Sedera reached an agreement with the state to resolve all regulatory concerns,” the company said. “Sedera prides itself on being transparent and working collaboratively with regulators and policymakers.”
Since its founding in 2014, the company has coordinated payment of $32.2 million in medical bills for members — 90.1 cents of every dollar received from members.
But Sedera limits coverage for medical problems that existed before enrollment. Also some bill payments are capped, including a $25,000 limit for smokers over age 50 who are diagnosed with cancer, respiratory disease or stomach ulcers. Bills for attention deficit hyperactive disorder are limited to $1,500 per member per year.
Meanwhile, health insurers by law must cover pre-existing medical conditions without restrictions.
Despite the limitations, Mr. Mahaney is pleased with Sedera and its services.
“It’s all been about investing in our staff,” he said, “creating a safe and energizing environment so they feel good about coming back to work. It’s looking really great for us.”
Kris B. Mamula: kmamula@post-gazette.com or 412-263-1699
First Published: May 10, 2021, 10:00 a.m.
