Article - October 3, 2024

SIIA 2024 Spotlights Self-Insurance Growth

Members of our Healthcare & Life Sciences Group recently attended the SIIA National Conference, meeting with CEOs across the employer health landscape and investors looking to back innovative, high-quality platforms.

The conference was well-attended by self-insurance enablement platforms, third-party administrators (TPAs), cost containment solutions, and direct-to-employer provider organizations. Although all these business models are unique, they share a common goal of improving access to quality care while helping employers take control of rising healthcare costs.

Investors are recognizing the need for these solutions, and we’re seeing the private equity community allocate more dollars and time toward employer health. Below, our senior professionals share the attributes of successful employer health companies and ways that investors can differentiate in the sector.

Reducing Healthcare Costs, Improving Employee Satisfaction

Employer healthcare costs are projected to climb by 9% in 2025, a jump compared to the 6.4% increase that companies absorbed in 2024.¹“Recent inflation took time to affect the healthcare system, as there is a delay before payers and networks adjust rates paid to providers,” says Nick Owens, a managing director. “We’re now seeing that impact along with increasing utilization of high-cost procedures and specialty drugs.”

Due to the lack of flexibility, control, and cost containment capabilities from fully insured plans, more employers are deciding to self-insure—either directly or through a self-insurance enablement option. This is driving greater demand for independent TPAs. By taking more control of their health plans, employers can often flatten their medical spending year over year.

“We are still in the early days of small and medium-sized employers moving to self-insured options, particularly due to growth in consortium and captive models that enable self-insurance,” says Owens. “Strong growth will continue in traditional self-insurance, while successful TPAs are also evolving to offer a menu of options, including level-funded solutions.”

By providing a wider range of plans, TPAs can capture a larger market opportunity for customized solutions tailored to an organization’s unique workforce and needs.

This shift to independent TPAs is also fueling growth for cost containment providers that can drive further savings through bill review, subrogation, claim repricing, and network replacement.

“In the current environment, cost containment solutions are particularly in demand as they provide innovative technology and a variety of services to help employers lower their costs,” says Sam Hendler, a managing director. “And with the increased usage of specialty pharmaceuticals, especially GLP-1s, drug pricing and management will be the next frontier of spend management.”

Beyond cutting costs, employers are also looking to offer better benefits for their employees. This is an important differentiator for hiring and retention in today’s challenging labor market, and specialty benefit managers are key to this effort.

“Specialty benefit managers drive lower costs and improved care access by carving out costly, complex conditions and leveraging high-performing networks, technology, and care coordination to deliver better outcomes,” says Owens. “These companies can also help employers attract, retain, and improve productivity for employees through access to quality orthopedic, fertility, sleep, behavioral health, and other benefits.”

Combining Point Solutions

While the universe of point solutions for employer-sponsored health plans continues to expand, more companies are looking to decrease their numbers of vendors. This is driving consolidation potential across key employer health categories, including TPAs, cost containment businesses, specialty benefit managers, and direct-to-employer providers.

“There’s a highly fragmented ecosystem of employer health vendors that companies need to rationalize,” explains Hendler. “While many organizations intend to keep best-in-class point solutions, there’s an increasing desire to manage fewer vendors and combine multiple services into an integrated offering.”

Employer health platforms have a significant opportunity to capitalize on this trend by bringing more in-demand services under one roof.

“TPAs are natural consolidators due to their strategic advisory relationships with employers, access to claims data, and ability to identify and manage fraud, waste, and abuse,” says Owens. “Direct-to-employer primary care organizations are as well, given their trusted doctor-patient relationships and their ability to influence downstream specialty and pharmaceutical spend.”

Taking Control

More companies are self-insuring to have greater control over their healthcare costs and plan designs. This growing market of self-insured companies is giving rise to a host of businesses that help employers better manage rising healthcare expenses and offer expanded benefits packages to employees.

“The employer health market offers several ways for investors to create value,” says Owens. “There’s plenty of white space in the sector with many employers still on fully insured plans and those that already self-insure continually seeking more capabilities to improve plan design, manage costs, and deliver better care for members.”

To receive our latest Q3 2024 report covering M&A opportunities within Payer and Employer Tech and Services, please contact our senior professionals at hwpayertech&services@harriswilliams.com.