Thatch wants to turn the traditional approach to health insurance on its head. The startup launched a year ago with the aim of offering personalized health benefits that decouples health insurance from employment.
The company secured $38 million, backed by Andreessen Horowitz (a16z) and General Catalyst, to scale up its technology and fuel its growth.
Thatch joins a growing movement to offer employers individual coverage health reimbursement arrangements (ICHRA), which enables employees to choose their own health benefit plans.
Historically, healthcare benefits were selected and offered by employers as a retention incentive.
"The labor market is becoming more dynamic with the rise of the gig economy and flexible work and remote work arrangements. The way we have done health insurance for the last however many decades was really intended for a workforce that stayed in the same job for their entire careers. Now, people need a more personalized solution that they can bring with them from job to job, and that's the future that we're working to create," Chris Ellis, CEO and co-founder of Thatch, told Fierce Healthcare.
Most people stay in jobs for less than four years so many employees switch or lose access to their health plans every few years. Plans also are not incentivized to provide care to serve members' longitudinal healthcare needs. At the same time, employers are facing rising health care costs which lead to rising out of pocket costs for individuals.
The ICHRA insurance option became available in 2020 and allows employers to provide tax-free dollars for employees to purchase their own health insurance plans. Thatch's platform offers a user-friendly interface that simplifies the complex process of healthcare benefit management for both employers and employees, according to the company.
Thatch's approach moves away from the traditional one-size-fits-all that characterizes most employer-sponsored health benefits plans, noted Adam Stevenson, co-founder at Thatch.
"Thatch is a self-serve product. So, for an employer, let's say you've got a coffee shop, you've got 10 employees, you want to give them health benefits. You come into Thatch, you sign up self-serve, you connect your bank account, you authenticate into your payroll system, and then we've got some cool tools that make it easy for you to budget," he said.
Employees can then choose their health, dental and vision benefits based on their own medical needs. If employees spend less than their budgeted amount on insurance, they receive a Thatch Visa debit card they can use to pay for healthcare costs, like prescriptions, copays and therapy.
Key features of Thatch's platform include simplified budget setting and fund allocation for employers, personalized plan selection tools for employees and integration of tax incentives and credits. The platform enables cost savings through pooled buying power, according to the company.
The company now works with "hundreds" of companies, Ellis said, ranging from AI startups and small businesses to nonprofits and large enterprises with thousands of employees. "Thatch has a truly universal value proposition," he noted.
Ellis said the startup's name is in reference to a thatch roof. "The individual businesses that participate in our model are like the strands of straw in a thatch roof. Alone, they have little weight or leverage in our healthcare system. But bound together, they pool their buying power to unlock more affordable, higher quality healthcare coverage. The more companies we sign up, the stronger the model becomes," he said.
As an engineer, Stevenson's resume includes stints at Humana and Stripe. Ellis started his career as a cancer researcher at MIT and then built and marketed clinical software products at Sophia Genetics and Agilent Technologies. The two connected three years ago with a shared desire to launch a startup in the healthcare market with a specific focus on helping patients.
As employers, Ellis and Stevenson said they saw first-hand the challenges of managing health insurance benefit plans and the frustration for employees to get the benefits they wanted.
"We were kind of at the point where we were pulling our hair out because we were spending time managing it. We were spending a ton of money on health insurance. It's our biggest expense after salaries. And yet everyone was unhappy," Ellis said. ICHRA seemed like a good solution as it effectively makes the employer just a vehicle for financial support.
"It turns out, actually making that possible was really challenging at the time. People would have to go to healthcare.gov, and navigate these government exchanges and put gigantic health insurance premiums on their credit cards and file for reimbursement. Our unique insight was this is actually a fintech problem. We decided to go out and build a solution to this problem that we felt ourselves," Ellis said.
He added, "We realized that not only was this solving a business problem, which is people don't want to be managing their employees' health insurance, they just want to give people the best coverage possible at the most affordable price, but it's also an amazing way to realign incentives around the patient who is actually the final decisionmaker of how they spend their dollars."
Thatch's $38 million series A funding round was led by Index Ventures and General Catalyst, along with new investors SemperVirens and The General Partnership. Existing investors a16z and Avid Ventures also participated in the round.
The company plans to use the fresh capital to expand its team and continue to scale its technology platform, executives said.
"We have a few different ways we're planning to deploy the capital, but the first is just scaling up our operations and ultimately meeting the demand that's coming inbound. We're really lucky to have grown so quickly and identified opportunities to really not only scale our own distribution, but also we do most of our work with health insurance brokers, so we're heavily investing in that channel and building better ways to support them," Ellis said.
Thatch also is making big tech investments to more seamlessly integrate with insurance carriers through application programming interfaces (APIs). "One of the things that we're really focused on is building enrollment integrations," Stevenson said.
The ICHRA market opportunity
Thatch joins a growing list of companies and startups betting on ICHRA's growth. Companies like Venteur Health, benefitsbay, SureCo and StretchDollar are all jostling for market share and backed by multi-million dollar funding rounds.
The HRA Council, an industry group, reported that U.S. employers’ adoption of ICHRAs increased 29% between 2023 and 2024, with an estimated 5,000 firms offering ICHRAs in 2024. ICHRAs grew 84% among applicable large employers (ALEs), the industry group reported.
The Department of Labor forecasted in 2019 the program would one day grow to more than 11 million employees. By 2032, about two million people could be enrolled in ICHRA, according to Congressional Budget Office projections from 2022, Fierce Healthcare's Noah Tong reported.
Large insurers Oscar Health and Centene also are banking on continued ICHRA growth. Oscar Health revealed in June that it intends to build its ICHRA carrier business, targeting small and medium-sized businesses. It will also look to bring in large employers in industries with high benefit costs, Tong reported.
Centene CEO Sarah London said in January that she believes the ACA is here to stay, leaving room for individual products. The company, targeting small employers and gig workers, announced a partnership with health benefits platform Take Command to deploy ICHRA plans to Indiana employers.
"Healthcare is the last major financial decision still controlled by employers but, like the shift from pensions to 401(k)s empowered individuals, healthcare is due for the same revolution," said Jahanvi Sardana, partner at Thatch investor Index Ventures, in a statement. "Thatch is driving this shift by harnessing free market forces in the individual market and pooling risk across businesses to create collective buying power. From the moment we met Chris and Adam, their deep market insight and compelling vision were unmistakable. Their relentless execution and ability to attract top talent made us confident they're building a category-defining company."