When a personal fairness agency prepares a portfolio firm on the market, each line merchandise on the stability sheet comes underneath intense scrutiny. Potential patrons look at EBITDA multiples, price buildings, and monetary predictability to find out valuation. Traditionally, medical insurance has been one expense that felt not possible to regulate, with unpredictable renewals threatening to derail rigorously deliberate exits.
However there’s an answer that’s gaining traction amongst PE companies: Particular person Protection Well being Reimbursement Preparations (ICHRA). As advantages marketing consultant Kerry McArthur explains in her latest 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 gives the predictable price construction that protects valuations and appeals to potential patrons.
The hidden menace to non-public fairness exits
Most PE companies 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 neglected till renewal season arrives with an unwelcome shock.
Conventional group well being plans tie an organization’s insurance coverage prices on to the chance pool of their particular worker inhabitants. If even one worker or dependent receives an costly analysis or requires specialised therapy, the whole group’s premiums can skyrocket with little to no warning.
For a corporation getting ready on the market, this creates a number of issues:
EBITDA compression: A sudden double-digit enhance in medical insurance prices straight reduces earnings, reducing the corporate’s valuation a number of at exactly the incorrect second.
Monetary unpredictability: Patrons worth consistency and predictable price buildings. Risky medical insurance bills sign monetary threat and might cut back buy worth and even kill offers.
Stability sheet influence: As Kerry McArthur notes,¹ reporting a serious advantages price enhance through the sale course of raises purple flags for potential patrons who’re analyzing price developments and projecting future bills.
The place the issue hits hardest
The problem is especially acute in sure industries. McArthur factors to dwelling healthcare and retail as sectors the place conventional group medical insurance typically fails. These industries face distinctive obstacles:
- Residence 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 comparable dynamics: multi-state footprints, excessive turnover, and workforce variety make one-size-fits-all group plans inefficient and costly. When solely a fraction of staff enroll, the chance pool turns into concentrated and renewals develop into more and more unpredictable.
For PE companies with portfolio firms in these sectors, the conventional group medical insurance mannequin creates pointless monetary volatility through the important years main as much as an exit.
ICHRA: A strategic resolution for personal fairness
ICHRA gives non-public fairness companies a method to resolve a medical insurance unpredictability drawback whereas sustaining, and even enhancing, worker advantages.
With ICHRA, as a substitute of buying a bunch well being plan, employers present staff with an outlined month-to-month allowance to buy particular person medical insurance on the Inexpensive Care Act (ACA) market. The employer units the contribution quantity primarily based on worker class (similar to full-time, part-time, or location), giving full price range management.
Defending EBITDA via 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. Based on 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 fastened 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 share primarily based on their price range and strategic targets. This eliminates the chance 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 eventualities for potential patrons, and display disciplined price administration–all elements that command increased 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 threat pool. As Hooper notes in PE Professional², firms “can now be a part of the most important conceivable threat pool – greater than 20 million People who buy medical insurance on the person market.” Not like a company-specific group plan the place a restricted variety of staff share threat, the person market spreads threat throughout hundreds of thousands of individuals, so one costly analysis has minimal influence on general premiums.
The person market has additionally develop 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 protecting their household physician, choosing a community with their most well-liked hospital, or selecting a high-deductible plan paired with an HSA.
This flexibility typically leads to staff discovering higher protection at decrease prices than what a one-size-fits-all group plan would supply. Some staff lower your expenses by selecting cheaper plans, whereas others can use the complete allowance for complete protection, giving everybody the correct 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 dealing with steep renewal will increase underneath their conventional group plan, in accordance with Take Command CEO Jack Hooper’s article in PE Skilled.² The corporate wanted to regulate prices with out lowering worker advantages high quality, a typical problem for PE portfolio firms.
By switching to ICHRA, Prototek gained full price range predictability whereas truly lowering 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 gives a scalable resolution. The identical mannequin works for a 50-person software program firm and a 500-person retail operation. Corporations rising via acquisition can simply combine newly acquired staff into an present ICHRA construction with out the painful technique of harmonizing group plans.
Implementation issues for personal fairness companies
Whereas ICHRA gives 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 know how ICHRA works, how to buy plans, and what help is accessible.
Administrative help: 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 laws and market choices fluctuate by state, which issues for firms with multi-state operations. Employers should guarantee their ICHRA construction complies with laws in every state the place they’ve staff.
Timing: The transition sometimes occurs at open enrollment, although particular circumstances could enable for mid-year modifications. PE companies ought to issue ICHRA analysis into their worth creation timeline, ideally properly earlier than a deliberate exit.
The underside line for personal fairness
In non-public fairness, worth creation relies 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 fastened, predictable advantages prices, ICHRA protects EBITDA from risky renewals, eliminates the chance of reporting main price will increase through the sale course of, and demonstrates monetary self-discipline to potential patrons.
For PE companies with portfolio firms in dwelling healthcare, retail, or different industries the place conventional group insurance coverage is especially problematic, ICHRA gives a strategic benefit. The mannequin reduces monetary threat, improves worker alternative, and creates the predictable price construction that patrons worth.
Need to study extra about how ICHRA can shield your portfolio firm’s valuation? Watch advantages marketing consultant 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 Non-public Fairness Dialogue
References
- McArthur, Kerry. “Non-public 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/
