Health care focused fintech MedZero raised $8.7 million from investors as it rolls out its medical payment financing product to more employers.
The round consisted mostly of existing investors including True Ventures and Village Global as well as angels. New in the round is Michigan-based Grand Ventures. More new investors may also jump in as the round is still open, said co-founder and CEO Craig Froude. The company raised its first round of capital in 2021.
MedZero is the latest health care related startup from Froude. He was an early player in online health and medical information as CEO of WellMed, which was acquired in 2002 by WebMD. He was later named CEO of Carepayment, a company that worked with hospitals to take on medical debt and then worked with patients for payment.
At MedZero, Froude is working with employers to offer a medical benefit that helps employees pay upfront costs for care and then repay those costs over time with no interest.
Employers sign on to MedZero to offer the benefit to their employees. When an employee seeks medical care and must pay upfront, such as with a high deductible plan, they can opt to use MedZero to pay for those expenses. MedZero pays the bill and then deducts a repayment amount out of the employee's paycheck or health savings account for a six-to-12-month timeframe.
For example, if someone borrows $1,000, the repayment comes as a payroll deduction for 12 months at about $41 per paycheck. If someone has an HSA the money comes out pre-tax.
MedZero integrates with an employer's payroll system. The startup can lend up to 5% of a person’s gross income with a $5,000 cap. The only requirements are the employee is at least 18 years old and has been with the employer for more than 90 days. MedZero generates revenue from fees charged to employers for every employee that has access to the platform as well as fees based on use. The product launched in January and the company has 10 customers.
Froude noted the employer fees are small compared to other employee benefits companies offer. Plus, MedZero can help employers encourage employees to sign-up for high deductible plans.
“Our thesis was lets tie the financing to the benefit plan so everyone ends up winning,” said Froude. “The goal is to make health care accessible, affordable and equitable. We provide employees instant access to funds to pay out-of-pocket costs with.”
Froude points to these data points to highlight the need for something new:
- $500 billion is spent annually on out-of-pocket health care expenses, not including vision and dental.
- $88 billion is borrowed through credit cards, home equity lines or personal loans to cover those out-of-pocket costs.
- 67% of bankruptcies are tied to medical debt.
- 51% of insured and employed individuals last year deferred care because they couldn’t afford the out-of-pocket cost.
“(The current system) is not helping anybody,” he said.
Right now the company makes the loans off of its balance sheet but Froude expects to have a credit facility collateralized by the loans in place by the end of the year.
Current customers range in size from a few hundred employees to 4,000 employees. The largest and most recent customer announced is infrastructure and supply chain services company Savage. MedZero is seeing faster adoption of the product than anticipated, Froude said.
He is already hearing from customers about how the product is helping them tap into benefits they already have. For example, the first loan made by the company went to a man who was walking on a bad knee for two years and worked in a warehouse. He put off care because he couldn’t afford it.
“We helped him and he can be happier and more productive,” said Froude. “We had someone (else) borrow $450 at a Walmart for a prescription.”
MedZero is a team of 10 and has an office in downtown. Froude expects to hire for sales and marketing as the company ramps up its go to market strategy.
