Archives for May 8, 2025

During the five- to seven-year window that private equity typically owns businesses, firms have a value creation plan to increase profitability so they can sell or take the company public. Those plans frequently involve go-to-market strategies or cost reductions like offshoring some business areas. But private equity firms often ignore one of the largest items on a P&L statement: employee benefits.

Improving the cost structure of employer-sponsored health insurance is incredibly effective in enhancing profitability, especially for middle-market PE-backed companies, but leaders are understandably wary of changes that might spark employee backlash or drown HR teams in administrative tasks.

Many companies in the portfolios of private equity and venture capital firms are struggling with health insurance costs.

Fortunately, there’s a new model — the individual coverage HRA (ICHRA) — that delivers quality, personalized healthcare for employees while giving the business control over insurance costs and eliminating the risk of double-digit renewals that can devastate a balance sheet.

Here’s how ICHRA can help control healthcare costs throughout your portfolio:

Why PE-backed companies are turning to ICHRA
From speaking with industry leaders, it’s clear that many companies in the portfolios of private equity and venture capital firms are struggling with health insurance costs. Perhaps the worst part of a traditional group health plan is the unpredictability.

Strong financial management is built on data-driven decision-making — accurately forecasting revenues and proactively anticipating expenses. But there’s no way to adequately prepare for health plan renewals. A company’s annual rate increase is tied directly to the risk pool of its group insurance. The plan may include 150 employees; if one of those employees or their dependents has a difficult diagnosis or requires specialized care, that will cause the overall group rate to skyrocket. All of the organization’s careful financial planning is now meaningless.

The new model is especially attractive to employers with a multi-state footprint.

These are the moments when a company most wants to be there to care for its employees — to help them through a challenging time and assure them they’ll be supported. But there’s a harsh reality to the situation: one employee’s health diagnosis can have dramatic consequences for the business. As the company’s costs skyrocket, the CFO has no choice but to shift costs and increase employee contributions. One person’s health status has an immediate financial impact on the other 149 people in the group plan.

The vast majority of companies don’t exist to choose health insurance plans. Why should a company that builds software or manages restaurants be making healthcare decisions for their employees? And why don’t the employees — each of whom has specific, personal health needs — have a say in the matter? With ICHRA, employers let go of group plans and instead provide an allowance to employees to buy health insurance on the individual market.

The playbook for applying ICHRA across a portfolio
ICHRA can save money for both employers and employees when the individual market is less expensive than the group healthcare market. PE firms who are not exploring the potential for an ICHRA win-win may be leaving money on the table. More importantly, ICHRA means that employers are no longer financially shouldering the burden of high-cost claimants. Employees can choose the quality coverage that best meets their needs — benefiting from a competitive market as carriers slash premiums to attract customers — while employers no longer nervously await their renewal.

Additionally, traditional insurers have strict participation requirements. If a carrier knows your company only has 5% enrollment, they’ll decline to quote because they assume only the poorest-risk employees are enrolled. ICHRA has no such requirements.

In addition to providing stability for the employer, ICHRA also provides flexibility to employees.

The new model is especially attractive to employers with a multi-state footprint. One-size-fits-all plans are a poor fit for those companies. PE-backed businesses growing quickly by acquisition are often bringing together different employers, and trying to harmonize group plans every time is a miserable exercise. Alternatively, businesses that use ICHRA simply fold the newly acquired company’s employees into their existing ICHRA plan and let them choose their insurance.

Finance and HR leaders sometimes worry that putting hundreds or thousands of employees on an ICHRA plan means they’ll have to hire people to handle the day-to-day management, but that’s not the case. Vendors like Take Command help employees find the right plan, then handle everyday employee inquiries and ensure the HR team is not dealing with every question. These vendors can also help companies proactively communicate the available plans and average costs.

Cost savings and employee freedom of choice
Business leaders understand the risk of having an employee get sick and require expensive care. As a result, employers often try to join a consortium and participate in larger group plans. The arrival of ICHRA means that companies can now join the largest imaginable risk pool — the more than 20 million Americans who purchase health insurance on the individual market. When spread out across that pool, an expensive diagnosis has no impact on the overall cost.

That stability allows financial leaders across a PE firm’s portfolio to finally set a predictable, consistent budget for health insurance costs. Many organizations provide employees with a monthly allowance — typically between $500 and $1,000 — to purchase an ICHRA plan on the individual market. When renewal season arrives, the employer can simply continue contributing the same amount, avoiding unpredictable cost increases.

In addition to providing stability for the employer, ICHRA also provides flexibility to employees.

Prototek, a PE-backed digital manufacturing company based in New Hampshire with more than 250 employees, experienced this firsthand. As the company expanded rapidly through mergers and acquisitions across nine locations in multiple states, it faced a steep renewal hike under its traditional group health plan — a challenge that threatened the company’s efforts to improve benefits for employees.

Jenifer Combs, Prototek’s director of human resources, was determined not to shift the burden onto employees. Instead, the company adopted ICHRA, maintaining its existing healthcare budget while even reducing out-of-pocket costs for some team members.

“We get to pick the dollar amount,” said Ms. Combs. “From a budget perspective — especially since we’re private equity-held — that’s key. You can base it on that and next year make an adjustment if need be. The beauty is that employees get control over both their coverage and costs.”

In addition to providing stability for the employer, ICHRA also provides flexibility to employees. Rather than providing too little coverage for some employees and too much coverage for others, the individual market allows employees to choose the right amount for their families. With ICHRA, employees choose the services and providers that matter most to them. Whether it’s keeping a family doctor they like or choosing a network with the hospital closest to their home, the individual market offers dozens of options to meet the needs of every employee.

One of the roles of a private equity firm is to outfit its portfolio companies with the right systems and tools. For businesses staring down sky-high renewals or trying to assimilate a newly acquired company into their own, ICHRA is a powerful tool that controls costs while giving employees back control of their healthcare. It’s a proven lever for value creation.

About the Author
Jack Hooper is the CEO and co-founder of Take Command, a Dallas-based SaaS company that offers health reimbursement arrangement administration. Jack is a founding member of the HRA Council and has served as Chairman of the Board. He is a graduate of the Wharton School of Business and has been featured in The New York Times, BenefitsPro, Dallas Morning News, Bloomberg, and more. His motto? “Health insurance was never meant to be this complicated.”

Contact Jack Hooper at jack@takecommandhealth.com

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