This is the first of a few posts on an outsider’s perspective on the health insurance market. For an industry that’s involved in nearly 20% of US GDP, you’d think it’d be easy to learn about (absolutely not). This series is meant to be a walkthrough of some of my learning from chatting with those in the industry, reading many (dry) articles, and even more podcasts. I’ll attach my favorites at the bottom.
Virtually all of my favorite topics and companies to research in this space revolve around bringing capitalism into healthcare. I’m aware that sounds awful initially, but bear with me here.
The foundation of my thesis is that the companies I’m most interested in are aligned with the idea that a reduction in greater healthcare costs and increases in quality and access will come through a greater emphasis and widespread adoption of robust primary care, and the ability for payers and individuals to gain a greater understanding of the prices of services and procedures.
I’m a firm believer in the benefits of Direct Primary Care (DPC), or the idea that primary care doctors should be able to run their own independent practices, with smaller panel sizes and more personal relationships with their patients.
The second part of the thesis revolves around how to bring about price transparency in the marketplace, and I believe the biggest driver of this is going to come from the employer-side of the market. While the government is able to impose cost reductions through their pricing-power and benchmarking, individual employers are subject to the black-box negotiation process for procedures by large insurance companies and provider networks. If more employers are either self-funded or level-funded, they’d gain:
- Access to the granular claims data to make informed decision-making
- Plan flexibility (by way of ERISA pre-emption) to actually incentivize employees to make investment in their own health and direct them towards the “best” providers (in terms of quality, affordability, and access)
Virtually every startup or healthcare company is aimed towards decreasing costs and increasing access or affordability, but I firmly believe the ones making the most impact will be focused on one or both of these initiatives.
Why is DPC important?
A common critique of the healthcare system in the US is that it’s great for acute care, but fails when incentivizing preventative care. I believe a fair part of that is because the role of the primary care doctor has increasingly been used as a routing center to more profitable initiatives within health systems, rather than being focused on keeping patients healthy. This led to increasingly overworked PCPs, who might only have 15 minutes to chat with a patient about their problems and concerns.
It’s difficult to quantify how much worse a 15-minute appointment is versus an hour or longer in DPC, but the primary benefit is in fixing the incentive structure so that doctors are rewarded for keeping patients healthy and happy. Research has consistently shown that increased investment in primary care is one of the strongest levers out there to decrease downstream costs. If you as an individual want to stay out of the hospital and all the associated costs, finding issues early is going to be the best course of action.
The benefits are clear, but the distribution to get as many individuals into DPC is more of an issue.
How to increase price transparency?
This is a more difficult problem to solve, but to decrease prices you’ll have to find some way to get market participants to have independent decisionmaking. The first step is for plans to go either level or self-funded. Most large employers are already self-funded, but the main benefit is the increased visibility into where the dollars actually go. With detailed claims data and plan flexibility through ERISA, employers get the ability to design real incentives around the things that actually keep employees healthy.
Without this data, you’re essentially running blind and taking high single (or double) digit premium increases year after year. One fortunate upside to the currently expensive healthcare climate is that it’s pushing executive leadership to find new ways to decrease costs. For those businesses that care about their employees and their benefits, simply raising deductibles through high-deductible plans will only push people to delay care rather than seek more cost-effective options. This approach of pushing more responsibility onto employees and having them find cost-effective care is only available in an ecosystem with easy-to-find, transparent pricing (which we do not have currently).
The problem
To split it into nice chunks, you can think of US health insurance coverage as being roughly split between employer-sponsored coverage (~54%), Medicare (~19%), Medicaid (~18%), the individual market (~11%), with the rest going to military coverage or the uninsured. What this means is that while real top-down insurance reform is probably unlikely to happen, more than half of the market is controlled by employers with a bottom line to protect.
The issue is, as an employer, oftentimes you have little to no visibility into how your valuable dollars are being spent. When no one knows the prices for anything, suddenly pressure on outside companies to compete for business disappears. I’m a firm believer that the way to finally reduce healthcare costs and improve quality is to allow the healthcare markets to compete.
If you’re a company in the U.S., you’re required to provide a “minimum level” of coverage for your employees if you have 50 or more full-time-equivalent employees. The main issue is that as a small employer (sub-50 employees), you’d love to offer comprehensive benefits, but it’s just wildly expensive. The average employer-sponsored plan in 2025 cost $9,325 for single coverage and $26,993 for family coverage. Even if the employee is paying half the premium, that’s still a huge cost on the business, and one that’s been rising faster than wages and general inflation for years (family premiums up 6% in 2025 versus 4% wage growth and 2.7% inflation).
<50 employees
This is a bit of a tough spot. Generally, when buying insurance from one of the big carriers (think BCBS or Aetna), they like to see a large number of employees so they can get a better idea of the risk that they’re taking on (underwriting). More people = less variance in theory. This process breaks down when the “pool” or group of employees gets smaller, and therefore more expensive.
Small Group Plans?
Buying small group insurance from one of the main insurance companies is going to be pricey, and you’ll just be paying into the void with zero idea about your claims data. Another issue is that you can kiss customizable benefits goodbye, as it’ll be more difficult for you to try to customize your benefits.
ICHRA?
ICHRA is a cool concept, as you’re basically giving your employees money to go purchase their own plans. The upside is that you as the employer have less complexity and it’s easier to understand, but it does place your employees in a tougher position as they have more options to choose from on the public exchanges.
As the employer, you’re basically offloading the responsibility to individuals and giving a tax-deductible amount to your employees to buy their own insurance. Quite a few companies are working to make this easy to implement for small employers.
The downside is you’ve set your employees off into the public market plans, and generally these plans will have higher premiums for fewer benefits and will be less comprehensive than if you had gone with a small group or other option. One issue is that there is growing evidence that DPC memberships (basically having a primary care doctor easily available for a monthly subscription fee) are very useful for keeping people healthy and facilitating a closer relationship between doctors and patients, but many of these ACA plans don’t allow access to these doctors (exceptions apply). Very few ACA plans currently have integrations with free/reduced pay primary care options. The underlying thesis here is that better primary care is hugely beneficial for making your employees healthier, and the path forward for employers is going after options that implement these initiatives.
Another consideration when looking at ICHRA is that while it is convenient from an employer perspective, it isn’t necessarily the right choice for certain small businesses. There are three critical factors to consider:
- For lower-income workers, having an “affordable” ICHRA can disqualify them from the premium tax credits the government provides on the marketplace. In 2026 the 400% FPL subsidy cliff has returned (the enhanced subsidies from the American Rescue Plan and Inflation Reduction Act expired at the end of 2025), which means subsidies cut off entirely at $62,600 for a single person or $128,600 for a family of four. For workers below those thresholds, an ICHRA can actually leave them worse off than if they’d had no employer offering at all.
- ACA plans are known to have more limited networks compared to private plans, and therefore employees who are in more rural areas might have a much more limited provider list than those in urban areas.
- In grouped insurance plans through private insurance or self-funding, spouses and children would be available at a lower subsidized fee. However, with the public exchanges, you would be essentially paying for multiple individual plans.
This isn’t to say that ICHRAs aren’t right for many employers. They are exceedingly good at getting your employees’ benefits quickly and allow them a level of customization that wouldn’t be available in private insurance. For many startups in metropolitan areas with plenty of providers available nearby and a younger workforce, this is a great option to get your employees coverage quickly and affordably.
Level-Funding (mix between self-funding and fully insured arrangements)?
This is the approach that most large employers use, which is basically understanding that if you have enough employees you can basically act as your own insurance company. That means that you’re holding all that financial risk in-house (scary if you’re a small employer).
The benefits are that you’ve now removed most of the middlemen holding risk for you (makes it cheaper if you’re holding the risk), and you’re also exempt from the state laws governing plans (now you’re under the much looser ERISA rules). This means you get a huge amount of freedom in implementing creative benefits strategies like using DPC clinicians for your employees or steering employees towards certain providers. An added huge advantage is you’re close to the claims data and you can make better decisions on health initiatives and which local providers to choose from, based on now having access to pricing information.
These are some great perks, but the con is complexity and risk. You can offload some of the risk to get really steep stop-loss insurance (this is what makes “level-funding” the main feasible approach for small employers, since the stop-loss component caps your exposure on any individual claim and on aggregate claims for the year). You pay a monthly fee that covers your TPA running all the operational and administrative elements of the plan, plus that stop-loss reinsurance to ensure you aren’t fully on the hook if a huge claim comes through.
Previously this sort of arrangement wasn’t available to small businesses because no reinsurer was willing to underwrite the risk for a small group of employers, but that is quickly changing and there are a few companies out there that are willing to do the underwriting for these plans. The industry is still maturing, but this is quickly becoming one of the best solutions for a small business looking to care for their employees (if it’s not clear by this point, I’m biased towards this industry direction). Worth noting that level-funded plan adoption is already real: 36% of covered workers at small firms offering benefits are in a level-funded plan, per the 2024 KFF survey.
Not to say that level-funding is all sunshine and roses. While being regulated on the federal level through ERISA is wonderful for creative plan designs and allowing employers and creative benefits startups to generate real ways to bend the cost curve and make people healthier, it does remove some of the rules within ACA plans which are a real benefit to consumers. One example is that ERISA pre-empts most state-level network adequacy requirements that fully-insured ACA marketplace plans have to follow, which means self-funded plans don’t owe employees the same guaranteed access to in-network providers.
Closing thoughts
Overall it’s much more difficult for small employers who want to offer benefits to decide on which of the many options are right for them. The choice is infinitely easier for large employers, which makes the space ripe for disruption. This combination of legacy industries + deep customer need makes me hopeful that we’ll see a rise in startups disrupting the employer-sponsored space.
- Milbank Memorial FundHealth of US Primary Care scorecards
- KFF2024 Employer Health Benefits Survey
- U.S. Census BureauHealth Insurance Coverage in the United States, 2024
- IRSApplicable Large Employer determination
- KFF2025 Employer Health Benefits Survey
- HHS / ASPE2025 Poverty Guidelines
- IRSEligibility for the Premium Tax Credit
- healthinsurance.org2026 ACA premium subsidy changes
