By Marc Cooper
As many consumers contemplate their health insurance options during the Open Enrollment period, which takes place at this time of year in the United States, I sat down to discuss industry trends with Matthew Cornish. He serves as a Managing Director in Solomon’s Financial Institutions Group and has deep expertise in Insurance Services.
Matt, can you give us more information on the types of insurance services you focus on?
Absolutely, Marc. Insurance Services is a broad category spanning everything from property and casualty claims to businesses to third-party administration for workers’ compensation, property and casualty, and healthcare. Within the healthcare distribution ecosystem, I cover benefit administration, benefit enrollment, benefit brokerage, Medicare, Affordable Care Act or ACA, full self-funded solutions, and related third-party administrators, or TPAs.
There are also hybrid models like Individual Coverage Health Reimbursement Arrangements, or “ICHRAs,” which have gained a lot of traction since 2020 due to technological advancements and increased need for flexibility. These solutions are innovative because they offer both small and large employers’ access to healthcare with fixed costs and more choice for employees than traditional group benefits.
What trends are you seeing in that market, especially with changes to the Affordable Care Act on the horizon?
It’s a big year for the ACA, mainly because we are waiting to see what happens with government regulation. The enhanced subsidies from the Inflation Reduction Act are set to expire at the end of 2025, and there’s uncertainty in Congress about whether those subsidies will be extended.
Can you explain how the Affordable Care Act might impact Individual Coverage Health Reimbursement Arrangements—if at all?
I don’t think the headwinds facing the act will impact ICHRA enrollment, since ICHRAs are employer-sponsored healthcare, not government-subsidized. However, the loss of enrollment on the overall platform could increase costs for all remaining members. The ACA marketplace will still offer plan choices for ICHRA participants, but the expiration of subsidies will affect lower-income individuals more than the ICHRA market itself.
Do you see ICHRAs and self-funded solutions as growth areas? If so, what’s driving that?
Definitely. The self-funded ecosystem, including ICHRAs, is experiencing strong tailwinds. As employers look for ways to reduce and contain costs, healthcare is typically the largest benefit expense. Self-funding allows employers to privatize insurance on their own balance sheet, saving money compared to paying premiums to large healthcare providers.
ICHRAs are attractive because they let employers set a fixed-dollar amount for employees to choose their own health plans, offering flexibility and predictability in costs. This model is gaining attention, as it simplifies management compared to fully self-funded programs, and helps with employee retention by providing meaningful choices.
You referenced stop-loss policies. How important are they in the self-funded ecosystem?
These types of policies are critical. A stop-loss policy caps the employer’s risk by insuring against gross medical claims above a certain threshold. I have worked on multiple M&A transactions in the stop-loss sector, which include conglomerate businesses and monoline-dedicated Managing General Underwriters, known as MGUs.
MGUs analyze a company’s workforce and claims history to underwrite policies that cap annual healthcare expenses. This is essential for auditors and corporate governance, as it prevents uncapped balance sheet risk. The stop-loss market is growing hand in hand with the self-funded market, and I think it’s prudent for any self-funded employer to have such a policy in place.
How has the self-funded market evolved in terms of company size?
Self-funding used to be the domain of large companies—think 250 employees or more. Now, it’s accessible to companies with as few as 50 to 100 employees, and Individual Coverage Health Reimbursement Arrangements make it possible for groups as small as 25. The support system—including stop-loss providers and third-party administrators—has matured, expanding the universe of companies for whom self-funding makes economic sense.
What role do third-party administrators play in this ecosystem?
For most companies, these external administrators are essential. If you self-fund without a TPA, your Human Resources team would have to manage medical claims, which is extremely complex. TPAs are professionals at managing claims, running reports, and ensuring employees get the right care. They handle the administrative burden, making self-funding feasible for employers of all sizes.
With rising healthcare costs and inflation, how are employers and the industry coping?
Healthcare is not immune to inflation—costs rise alongside general inflation. There are outliers, like certain drugs with outsized price increases, but overall, healthcare cost increases correlate closely with inflation.
The government can intervene in cases of monopolistic pricing; but for the most part, employers are looking for ways to manage these rising costs, which is driving interest in self-funded and ICHRA solutions.
Are there any trends or opportunities in employer health that you think are especially important right now?
There’s a lot of private equity interest in the self-funded spectrum, driven by industry tailwinds and the corporate need to reduce health costs. Both full and partial self-funding—via ICHRAs—are now viable for companies of all sizes, making it a very backable business for private equity in both the healthcare and insurance sectors.
For more insights, listen to our recent podcast FIG Focus: M&A Trends Shaping Financial Institutions with Group Head Arik Rashkes.
