ICHRA for Private Equity Firms

The private equity guide to defined contribution healthcare

Private equity firms are always looking for ways to reduce volatility, improve cost predictability, and boost operations across their portfolio companies. Yet traditional group health insurance is one of the largest and most variable expenses in many organizations' budgets. Annual group rate renewals can rise by several unpredictable factors, including employee medical claims, hospital pricing, specialty drug costs, and carrier underwriting decisions. Over the past four years, annual premium increases of 8% to 9% have become normal, according to PwC.

Thankfully, an individual coverage health reimbursement arrangement (ICHRA) takes a defined contribution approach to health benefits. Instead of dealing with the annual renewal season and ever-changing rates, employers set a fixed healthcare contribution amount that aligns with their budget to support their employees’ medical needs. This creates a predictable cost structure while still giving employees access to quality health coverage.

At Remodel Health, we've helped thousands of employers across the country smoothly transition from volatile group plans to personalized ICHRAs — and we’re here to help you too. We can set you up with a defined contribution health benefits strategy that will control your costs and support your firm’s growth.

Understanding ICHRA for private equity firms

An ICHRA is a defined contribution health benefit that allows businesses to give their employees tax-free money to spend on individual health insurance premiums. Rather than sponsoring a traditional group health insurance plan, employers choose a monthly contribution amount, and employees purchase and enroll in their preferred individual health coverage

The ICHRA represents a massive shift in how portfolio companies, also known as portcos, can offer health benefits. Instead of allowing insurance companies, claims experience, and renewal negotiations to determine healthcare spending, private equity companies can set a predictable contribution strategy that gives leadership teams greater control over costs.

Here's how an ICHRA works:

Portfolio companies set a contribution amount. Rather than getting a premium rate from an insurer or self-funding a group plan, each portfolio company sets a fixed monthly healthcare contribution for its eligible employees. Employers can customize contributions based on employee classes, family status, or age, giving firms greater flexibility to design the perfect benefit strategy. Remodel Health works closely with private equity firms and leadership teams to develop contribution strategies that balance cost, employee satisfaction, and scalability.
Employees select individual health coverage. Once added to the ICHRA benefit, employees can choose an individual health plan based on their medical needs, provider preferences, and family budget. Through Remodel Health's ICHRA+® platform, employees can compare plans, review covered services, and receive guidance from our licensed benefits advisors to help through the shopping process.
Employer contributions are applied directly toward health insurance premiums. Once enrolled, employees can use their monthly ICHRA contributions to pay for their individual health insurance premiums. If an employee selects a plan that costs more than their monthly allowance, they simply pay the difference. To keep things easy, Remodel Health's platform supports automated premium payments directly to insurance companies, simplifying administration and reducing out-of-pocket costs for employees.

Why private equity firms are turning away from traditional group health insurance

Many private equity companies try to keep healthcare costs low by aggregating portfolio companies into purchasing groups, multi-employer trusts, or group purchasing organizations (GPOs). This method, similar to association health plans, can increase bargaining power when dealing with insurance carriers. However, it still places employers inside a shared risk pool where group healthcare costs are impacted by the amount and cost of employee claims.

Below are a few examples of claims that can trigger significant premium increases at renewal:

A high-cost cancer diagnosis
Specialty prescription drug utilization, such as GLP-1s
Prenatal and neonatal intensive care
Complex chronic conditions, such as end-stage renal disease (ESRD)
Catastrophic medical events

If your portfolio company (or another group in your aggregation) has several employees who experience costly claims throughout the plan year, you can expect your premium rate to drastically rise the following year. This unpredictability can make budgeting difficult, reduce earnings before interest, taxes, depreciation, and amortization (EBITDA), and create company-wide instability.

The advantages of an ICHRA for portfolio companies

Private equity firms have to consider every operational expense carefully to ensure every cent is optimized effectively. By replacing traditional group health plans with a defined contribution model through ICHRA, private equity firms can have more oversight over their budget and keep healthcare costs low, while still giving employees access to a comprehensive health benefit.

Reduced employee claims risk

Under a traditional group plan, a single high-cost claimant can significantly affect future premiums, depending on your group size. Even if you think you’ve properly budgeted for high claims, a serious healthcare event within your firm can be detrimental to your budget and negatively impact your profits.

With an ICHRA, employees purchase their own individual health insurance coverage. As a result, the burden of absorbing high claims shifts back to the broader individual insurance market, not the employer or their budget.

High claims also don’t impact future ICHRA contributions. ICHRAs have no minimum or maximum contribution limits. Portco leaders can choose to raise or lower their contribution at the end of the plan year. However, they can do so solely based on their budget, employees’ needs, or company goals — they don’t have to consider employees’ claim histories. Instead, employers with 50 or more full-time equivalent employees (FTEs) need to ensure their ICHRA contribution meets affordability requirements under the ACA.

Predictable healthcare spending

Rather than facing endless annual premium increases or paying employee medical claims directly, an ICHRA allows portfolio companies to establish a fixed monthly contribution amount that aligns with their financial objectives, eliminating unpredictable rate hikes. By determining exactly how much they will contribute toward employee healthcare coverage, leadership teams can create more accurate budgets, forecast future healthcare spending, and improve operating margins more effectively.

Standardization opportunities across portfolios

Many private equity firms often manage multiple portcos operating under different health plans, carriers, and renewal cycles. Each organization faces its own set of healthcare challenges, from rising premiums to claims volatility and administrative complexity.

An ICHRA creates a standardized, repeatable framework that can support the entire portfolio, while still allowing employees to select plans based on location, family size, provider preference, and healthcare needs. This helps firms simplify benefits management for every company in the group.

Greater cash flow and value creation

For private equity firms, value creation is about increasing a portfolio company's profitability through operational improvements. Every dollar saved on healthcare costs supports the bottom line, improving EBITDA and cash flow. Because portfolio companies are often valued as a multiple of EBITDA, those savings can create more value later than just reduced initial costs.

For example, reducing healthcare spending by $100,000 or more annually could equal significantly more in exit value, depending on the company's valuation multiple.

With a defined contribution ICHRA, private equity firms can reduce operational overhead and free up funds that can go toward long-term value creation over time.

Why private equity firms choose Remodel Health and ICHRA+

Remodel Health has become the nation's leading ICHRA administrator by helping organizations move away from traditional group health insurance and toward sustainable defined contribution employee benefits. Our ICHRA+ platform can support employers of all sizes, from individual portfolio companies to large enterprise, multi-state organizations.

We work closely with private equity firms, operating partners, and portfolio leadership teams to evaluate existing healthcare costs, identify potential savings, and develop custom strategies that align with company goals. Whether a firm is moving a single company away from a group plan or making a portfolio-wide transition, our team has the expertise to help you make the change successfully.

Our dedicated implementation specialists coordinate every aspect of the transition process, including:

ICHRA plan design and contribution strategy development
Employee communications and change management
Enrollment and onboarding support
Compliance guidance and documentation
Ongoing administration and program management

After implementation, employees can enroll in plans directly from our platform. Those with complex medical situations can receive one-on-one onboarding support from licensed benefit advisors who help them evaluate coverage options and select plans that meet their individual needs, reducing the burden on HR teams while helping employees feel supported and knowledgeable.

Rather than managing separate carrier relationships, renewal schedules, and plan designs at every company, firms managing multiple portfolios will have access to a consistent healthcare strategy that delivers:

Greater visibility into healthcare spending across the entire portfolio
Simplified ICHRA benefits administration for HR and leadership teams
More predictable budgeting and forecasting
A repeatable benefits model for newly acquired companies
Reduced exposure to claims-driven cost volatility

In addition to administration and employee support, Remodel Health helps organizations navigate the complex compliance requirements associated with ICHRAs.

Our team provides expertise in areas such as:

Affordable Care Act (ACA) affordability requirements
Employee class structures and eligibility rules
ERISA compliance considerations
Required reporting and documentation
Ongoing plan administration
Automated premium payments and payroll integrations with more than 200 payroll and HRIS systems, including ADP, Paylocity, UKG, Workday, and Dayforce.

At Remodel Health, we know about company growth, stability, and security. Founded in 2015, we’re supported by a team of more than 200 employees serving employers across various industries nationwide. We’re uniquely positioned to help private equity firms modernize health benefits, reduce costs, and support employees throughout the healthcare industry.

Healthcare costs show no sign of slowing down. But that doesn’t mean that traditional group insurance and annual premium increases are the only option for private equity firms. With an ICHRA, private equity portfolios can gain greater control over their healthcare spending, reduce claim volatility, and design a scalable benefits strategy that supports their employees and investors.

Talk with our team at Remodel Health to learn how a customized ICHRA strategy can help your firm improve budget predictability, strengthen EBITDA performance, and create greater satisfaction year-over-year.

FAQs

Traditional group health plans expose employers to rising premiums, claims risk, and unpredictable renewals. An ICHRA shifts healthcare benefits to a defined contribution model, allowing portfolio companies to maintain competitive benefits while gaining more control over costs, forecasting, and long-term financial planning.

Remodel Health combines innovative technology with white-glove service to help private equity firms implement and manage ICHRAs across their portfolios. Our team provides strategic plan design, employee education, compliance support, automated premium payments, and ongoing administration to ensure a smooth transition and long-term success.

Yes. While each company within the portfolio would be separate in our platform, our team can help private equity firms create scalable ICHRA strategies with the entire portfolio in mind. This creates consistency in healthcare spending, simplifies administration, and provides a repeatable framework for new businesses.

Employees with complex medical situations receive access to licensed benefits advisors who provide personalized support throughout the enrollment process, which is especially helpful if they’re new to the ICHRA and switching over from traditional group health insurance. In our platform, employees can compare plans, evaluate provider networks, review prescription coverage, and select the health insurance plan that best fits their needs so they can get the most out of their benefit.

ICHRA for private equity firms: Reduce healthcare costs across your portfolio companies

Understanding ICHRA for private equity firms

Why private equity firms are turning away from traditional group health insurance