When a personal fairness agency prepares a portfolio firm on the market, each line merchandise on the stability sheet comes beneath intense scrutiny. Potential patrons study EBITDA multiples, price constructions, and monetary predictability to find out valuation. Traditionally, medical insurance has been one expense that felt not possible to manage, with unpredictable renewals threatening to derail rigorously deliberate exits.
However there’s an answer that’s gaining traction amongst PE corporations: Particular person Protection Well being Reimbursement Preparations (ICHRA). As advantages guide Kerry McArthur explains in her current dialogue on ICHRA and personal fairness,¹ this different mannequin helps firms bypass the necessity to report vital will increase in advantages prices on their stability sheet. For PE-backed firms within the 5-7 yr window between acquisition and exit, ICHRA affords the predictable price construction that protects valuations and appeals to potential patrons.
The hidden risk to non-public fairness exits
Most PE corporations focus their worth creation methods on go-to-market enhancements, operational efficiencies, and income progress. But worker advantages–typically one of many largest bills on the P&L assertion–steadily get missed till renewal season arrives with an unwelcome shock.
Conventional group well being plans tie an organization’s insurance coverage prices on to the danger pool of their particular worker inhabitants. If even one worker or dependent receives an costly prognosis or requires specialised therapy, the whole group’s premiums can skyrocket with little to no warning.
For a corporation making ready on the market, this creates a number of issues:
EBITDA compression: A sudden double-digit enhance in medical insurance prices instantly reduces earnings, decreasing the corporate’s valuation a number of at exactly the fallacious second.
Monetary unpredictability: Patrons worth consistency and predictable price constructions. Risky medical insurance bills sign monetary danger and may cut back buy worth and even kill offers.
Stability sheet affect: As Kerry McArthur notes,¹ reporting a serious advantages price enhance in the course of the sale course of raises purple flags for potential patrons who’re analyzing price tendencies and projecting future bills.
The place the issue hits hardest
The problem is especially acute in sure industries. McArthur factors to residence healthcare and retail as sectors the place conventional group medical insurance typically fails. These industries face distinctive obstacles:
- Dwelling healthcare firms sometimes make use of a distributed workforce with various schedules and areas, making group plan participation difficult. Excessive turnover charges and part-time schedules imply many staff choose out of high-priced group protection, leaving those that do take part in a smaller, higher-risk pool.
- Retail organizations face related dynamics: multi-state footprints, excessive turnover, and workforce range make one-size-fits-all group plans inefficient and costly. When solely a fraction of staff enroll, the danger pool turns into concentrated and renewals turn into more and more unpredictable.
For PE corporations with portfolio firms in these sectors, the conventional group medical insurance mannequin creates pointless monetary volatility in the course of the vital years main as much as an exit.
ICHRA: A strategic resolution for personal fairness
ICHRA affords non-public fairness corporations a option to resolve a medical insurance unpredictability drawback whereas sustaining, and even bettering, worker advantages.
With ICHRA, as an alternative of buying a gaggle well being plan, employers present staff with an outlined month-to-month allowance to buy particular person medical insurance on the Reasonably priced Care Act (ACA) market. The employer units the contribution quantity based mostly on worker class (comparable to full-time, part-time, or location), giving full price range management.
Defending EBITDA by means of predictable prices
The monetary benefit for PE-backed firms is important. When an organization makes use of ICHRA, the employer decides the precise month-to-month contribution. In response to Take Command CEO Jack Hooper,² many organizations present staff with a month-to-month allowance “sometimes between $500 and $1,000” to buy protection on the person market. This quantity stays mounted no matter claims expertise, worker well being standing, or market volatility.
Come renewal time, there is no such thing as a renewal. The employer merely continues contributing the identical quantity, or adjusts it by a predictable proportion based mostly on their price range and strategic objectives. This eliminates the danger of reporting a sudden main advantages price enhance on the stability sheet throughout due diligence.
From an EBITDA perspective, this predictability is invaluable. Monetary leaders can forecast advantages prices with accuracy, mannequin future situations for potential patrons, and exhibit disciplined price administration–all elements that command greater valuation multiples.
The person market benefit
When staff store on the person market utilizing their ICHRA allowance, they’re coming into a a lot bigger danger pool. As Hooper notes in PE Professional², firms “can now be part of the biggest conceivable danger pool – greater than 20 million People who buy medical insurance on the person market.” In contrast to a company-specific group plan the place a restricted variety of staff share danger, the person market spreads danger throughout thousands and thousands of individuals, so one costly prognosis has minimal affect on total premiums.
The person market has additionally turn into more and more aggressive, with insurance coverage carriers providing dozens of plan choices at numerous worth factors. Workers can select protection that matches their particular wants, whether or not that’s preserving their household physician, deciding on a community with their most well-liked hospital, or selecting a high-deductible plan paired with an HSA.
This flexibility typically ends in staff discovering higher protection at decrease prices than what a one-size-fits-all group plan would offer. Some staff lower your expenses by selecting cheaper plans, whereas others can use the complete allowance for complete protection, giving everybody the best match for his or her scenario.
Actual-world outcomes: PE-backed firms making the swap
Prototek, a non-public equity-backed digital manufacturing firm with greater than 250 staff throughout 9 areas in a number of states, made the transition to ICHRA after going through steep renewal will increase beneath their conventional group plan, in line with Take Command CEO Jack Hooper’s article in PE Skilled.² The corporate wanted to manage prices with out decreasing worker advantages high quality, a standard problem for PE portfolio firms.
By switching to ICHRA, Prototek gained full price range predictability whereas truly decreasing out-of-pocket prices for some staff. Jenifer Combs, the corporate’s Director of Human Assets, emphasised the price range management: “We get to select the greenback quantity. From a price range perspective, particularly since we’re non-public fairness held, that’s key.”
For a PE agency managing a number of portfolio firms, ICHRA affords a scalable resolution. The identical mannequin works for a 50-person software program firm and a 500-person retail operation. Corporations rising by means of acquisition can simply combine newly acquired staff into an present ICHRA construction with out the painful strategy of harmonizing group plans.
Implementation issues for personal fairness corporations
Whereas ICHRA affords clear monetary benefits, profitable implementation requires consideration to a number of elements:
Worker communication: Transitioning from group insurance coverage to particular person market plans requires clear, proactive communication. Workers want to grasp how ICHRA works, how to buy plans, and what assist is on the market.
Administrative assist: Third-party directors like Take Command deal with worker questions, assist with plan choice, and handle day-to-day administration so inside HR groups aren’t overwhelmed.
State variations: Insurance coverage rules and market choices differ by state, which issues for firms with multi-state operations. Employers should guarantee their ICHRA construction complies with rules in every state the place they’ve staff.
Timing: The transition sometimes occurs at open enrollment, although particular circumstances might permit for mid-year modifications. PE corporations ought to issue ICHRA analysis into their worth creation timeline, ideally effectively earlier than a deliberate exit.
The underside line for personal fairness
In non-public fairness, worth creation will depend on managing each controllable price whereas sustaining operational excellence. Medical health insurance has historically been a value that felt uncontrollable—topic to the whims of insurance coverage carriers and the well being standing of particular person staff.
ICHRA modifications that equation. By offering mounted, predictable advantages prices, ICHRA protects EBITDA from unstable renewals, eliminates the danger of reporting main price will increase in the course of the sale course of, and demonstrates monetary self-discipline to potential patrons.
For PE corporations with portfolio firms in residence healthcare, retail, or different industries the place conventional group insurance coverage is especially problematic, ICHRA affords a strategic benefit. The mannequin reduces monetary danger, improves worker selection, and creates the predictable price construction that patrons worth.
Wish to be taught extra about how ICHRA can shield your portfolio firm’s valuation? Watch advantages guide Kerry McArthur’s full dialogue on ICHRA and personal fairness, the place she shares particular insights on utilizing ICHRA to organize firms on the market: Watch Kerry’s ICHRA and Personal Fairness Dialogue
References
- McArthur, Kerry. “Personal Fairness, EBITDA and ICHRA.” YouTube, 2025. https://youtu.be/3iv2Vb5eT1E
- Hooper, Jack. “The right way to Management Healthcare Prices All through Your Portfolio With New Insurance coverage Mannequin.” PE Skilled, Might 8, 2025. https://peprofessional.com/2025/05/how-to-control-healthcare-costs-throughout-your-portfolio-with-new-insurance-model/