The Future of Employer-Sponsored Health Benefits

Employer-sponsored health benefits remain a cornerstone of coverage for roughly 160m Americans— about half the U.S. population. Yet, with healthcare costs rising at an unsustainable 10-15% annually, employers face mounting financial strain. Employees, meanwhile, increasingly demand comprehensive, personalized benefits, forcing businesses and investors to adapt to a rapidly evolving landscape. Several transformative trends are poised to reshape how employer-sponsored health coverage is purchased and delivered in the coming years. Here’s what we’re watching.

The Rise of Individual Coverage Health Reimbursement Arrangements (ICHRAs)

Small and medium-sized businesses typically purchase health insurance through a group plan that is fully insured. They pay a fixed premium to an insurance carrier, and the insurance company assumes full financial risk for claims. While the average annual increase for fully insured group health plans typically falls between 8% to 12%, it's not uncommon for employers,  particularly small businesses, to face premium hikes of 15% to 25% or more due to factors like higher claims, demographic shifts, and regulatory changes. 

The fully insured group plan model currently covers approximately 67m Americans, mostly through companies with fewer than 500 employees. Individual Coverage Health Reimbursement Arrangements (ICHRAs) represent a new alternative, and possibly a seismic shift in employer-sponsored healthcare. Launched in 2020 under the first Trump administration, ICHRAs allow employers to provide employees with a fixed, pretax dollar amount to purchase individual health plans and cover qualified medical expenses.

This new ICHRA model has drawn comparisons to the shift from defined benefit pensions to defined contribution 401(k) plans. Much like 401(k)s shifted retirement investment decisions to employees, thereby reducing corporate pension liabilities, ICHRAs shift healthcare decision-making to individuals and limit employers’ financial exposure, while also providing employees with increased visibility into the otherwise opaque health insurance cost structure. 

For employers, ICHRAs deliver predictability in budgeting, reduced liability, and simpler regulatory compliance— benefits that resonate strongly with small and medium-sized businesses facing complex administrative burdens. 

The model’s intuitive appeal has sparked significant investment, with two dozen or so tech-driven administrators vying for dominance. Remodel Health, for instance, has raised over $100m, while Thatch secured $38m. This growing field of players is experimenting with diverse strategies around customer acquisition, distribution partnerships, and revenue models.

Though still early, current ICHRA enrollment sits between 500,000 and 1m participants, experts predict this could double by 2025, with potentially accelerating growth in the future. The market has reached an initial inflection point. But critical questions remain: How will future regulatory frameworks evolve? Can distribution strategies scale effectively? How will revenue models play out? The answers will shape ICHRA’s trajectory in the years ahead.

Transforming Health Insurance for Large Employers

Large employers are often self-insured and thus bear their own underwriting risk. They are also navigating profound changes as they seek to balance cost containment with improved care quality and employee choice. Several innovative approaches are gaining traction, though each faces hurdles to widespread adoption.

Reference-Based Pricing (RBP) models

RBPs set reimbursement limits for medical services at a fixed percentage above Medicare rates, aiming to provide predictable and transparent healthcare pricing. Companies like Sidecar Health and Nomi Health are developing solutions for RBP; however, implementation challenges frequently arise when certain hospitals, accustomed to higher negotiated rates, occasionally reject RBP terms and opt to balance bill patients directly. While RBP has achieved some success in smaller, localized markets with favorable provider dynamics, broader adoption remains challenging due to limited leverage against dominant hospital systems, regulatory barriers, and ongoing skepticism regarding its long-term viability. Nevertheless, the model's effectiveness varies significantly based on local market conditions and provider acceptance.

Innovative Stop-Loss Models

Traditionally, self insured employers (typically 2k-20k employees) use stop-loss insurance to cap the risk of high-cost claims. Granular Health, recently acquired by Elevance Health, introduced a novel approach by lowering stop-loss thresholds and transitioning high-cost claimants into a dedicated insurance model. This provides employers with greater financial predictability while offering high-cost patients concierge-level care through dedicated navigators. Early implementations have shown promise but have also struggled to gain broad traction. A key litmus test will be whether non-high-touch employees demand inclusion, signaling the model’s broader appeal.

Tighter Integration of Primary and Specialty Care

Startups are driving innovation in the self-insured market by fostering deeper integration between primary and specialty care, aiming to reduce costs and improve outcomes. Centivo offers primary care-centered plans to lower employee out-of-pocket costs and overall expenses. Maven Clinic provides comprehensive women’s healthcare in partnership with employers and plans. Frontier Direct Care  is expanding primary care services for self-funded employers beyond Texas into markets like California and Florida. There are countless others driving innovation in this category that are worth watching, while also noting that employers will only engage with a finite number of point solutions.  

Looking Ahead

Employers of all sizes remain acutely focused on escalating costs and are proactively exploring alternative cost models. While ICHRAs may not suit the large self insured cohort today, many are adopting direct primary care and value-based care arrangements to emphasize prevention and efficient chronic disease management. Comprehensive wellness programs addressing physical, mental, and emotional health are also gaining momentum, with growing evidence linking them to improved employee well-being, productivity, and potential cost savings. The self-insured health plan market is evolving rapidly as employers seek sustainable solutions that balance cost, quality, and satisfaction.

Employer-sponsored insurance is and will remain the dominant source of health coverage in the U.S.  We anticipate that leading platforms will leverage— and increasingly integrate— key trends such as the capped costs and flexibility of ICHRAs, outcome-driven self-insured strategies, and technology-enabled care delivery. The companies best able to synthesize and realize these elements have the best chance to build category defining businesses.