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Transcript

Ben Markland: Thanks, everyone, for joining us with our Insurance Leadership podcast episode. We're coming at you from Tampa, Florida, at the ICMl conference. And I'm privileged to sit here with Chris Ellis, who's the CEO and founder of Thatch.

Thatch is administering and processing ICHRA implementations for group clients. So something that, you know, I've been very interested in for the last few years. Chris is a new father as well, so I want to congratulate you on that. We're talking about sleeping arrangements or lack thereof a little bit.

That being said, Chris, let's get to know you a little bit. Tell me a little bit about your background and what inspired you to found this company.

Chris Ellis: Well, like most people in the health insurance industry, I actually started my career somewhere completely different and then found my way into it. I started my career actually in science as a cancer researcher at MIT, many years ago now. I always was really interested in health care. I always wanted to make an impact in that area.

Kind of found the science side of it—once I was deep into it, I had this moment where I said, I don’t think I could do this for the rest of my life. I've always been interested in companies, and that led me to actually join a startup. I always had this idea that one day I’d found my own company, but had no idea how to do that coming out of grad school.

So, I joined a startup, started the sales team for a health tech company called Sophia Genetics that was selling into health systems—going kind of door to door, knocking on doors, meeting with medical directors and selling clinical software. It really opened my eyes to the fact that the way health care is paid for makes just as much of a difference in patient outcomes in the broader system as the clinical aspect itself.

And that got me really intrigued by the mechanism by which you pay for health care, which is fundamentally health insurance. That kind of brought me down a path over to a biotech company after that. But it eventually led me to learning about ICHRA—the individual coverage health reimbursement arrangement—which is a bit of a mouthful.

You know, they keep getting worse after HSA! But it was a really cool idea. Rather than a company having to choose the benefits for their employees, instead, they could give them money and let them choose it themselves. I was intrigued by the idea that if you could align the incentives toward the consumer, you could actually create a system that people really loved, as opposed to the way that it works today, which in some cases isn’t always the best for the patient.

They're kind of like the last rung on the totem pole—after the carriers, the pharmaceutical firms. And so when I learned about that law—it was around that time, now 4 or 5 years ago—I met my co-founder Adam. He came from a company called Stripe. It’s a fintech company that powers many payment solutions.

Many of their customers were insurance companies, but also products you use every day, like Uber. And when we met, we had an instant connection. He came from fintech, my background was healthcare—it was kind of the perfect union of a financial product and a healthcare thing.

So that’s kind of how we originally got into it. We were intrigued by the idea, wanted to build something of our own, and had this perfect union of our backgrounds to go do it.

Ben Markland: That's fantastic. So, I don’t know if you’re familiar—we’re at Morgan White. We work with a lot of brokers across the country. And when ICHRA kind of came around, I was very interested, much like yourself, in how this was going to affect everybody. Were brokers going to embrace this?

What I found was the challenge with brokers was—they're especially group brokers, traditionally used to just selling insurance to a group and moving on. We explain the benefits of these handful of plans, and we move on.

So, it looks like a Mount Everest for them to say, “Hey, this is a 30-man group, and now I have 30 individuals that could buy 300 different plans,” depending on the state, obviously. So I saw a lot of them kind of shying away—like, “How do we do this?” And then on top of that, “How do they pay for it?”

Chris Ellis: Yeah. And I think, really, that’s what companies like Thatch are doing—to help these brokers. That leads me to that question: What are you guys doing to capitalize on this trend, and how are you helping groups or brokers deliver these solutions?

When we were first getting started, that was one of the biggest pieces of feedback we heard from brokers: “This is actually way more work. And how do we get paid for the individual populations?” More work, less pay, right?

Look—brokers, their incentives are simple. Like anybody, they want to do less work and make more money.

The early implementations were really tough. Often the administrator would handle maybe the payment or some aspects of the administration, but then throw the enrollments over the fence to brokers—who may not be trained on the individual plans and don’t necessarily have the capability to enroll individuals or deal with that kind of administrative overhead.

Then they’d be earning the individual commissions, which are less valuable than the group commissions—maybe $15–25 per member per month, depending on the state. That’s quite a bit shy of what group commissions offer.

So what we realized pretty early on is this: Health insurance in America is predominantly distributed through brokers. We don’t want to replace brokers—we want to do all of our distribution through them. That means we have to align their incentives to sell ICHRA. And that means figuring out how to make it less work, and make it more money.

Turns out, the solution was relatively simple.

We act like an escrow general agent. We handle back-office functions for the broker—payments, reconciliation, enrollments, aspects of plan advisement. We interface with carriers to ensure payments are made. The broker gets to shine using our tools to construct the optimal quote, find cost arbitrage, and dial in coverage.

Once the quote is aligned, the broker sends the employer the invite link—boom, they’re good to go. The broker doesn’t have to do more work. That includes renewals.

Renewals are simple: “The individual market went up 4%. Do you want to stay in line with that?” Brokers can also charge a per-employee-per-month fee, which we help facilitate—and in some cases, they earn more than with group commissions.

That’s why it’s our fastest-growing channel—we’ve gone from 1–2 brokers referring, to hundreds. By the end of this year, thousands. And it all comes down to making their lives easier and empowering them.

Unknown: So I’m curious—you’re empowering the broker and giving them the tools, but I assume the employee is making their own choices using your technology?

Chris Ellis: Yes, and that’s a great question. The advice I like to give entrepreneurs is: Solve a problem you have yourself. Build a product you want to use.

We have incredible software engineers who were also early users. They experienced firsthand how confusing it is to get dropped into a portal with 60 options. So we built a recommendation algorithm to narrow it down to two plans—based on demographic data, utilization, employer allowance, preferred doctors.

If someone only cares about their primary care physician of 20 years, we help them filter and choose a cost-effective plan that still includes that doctor.