Alex Frommeyer on Using ICHRA to Win Small Business Clients

Alex [0:00:00]: We think of it as brokers being able to go on offense and not defense.

Alex [0:00:04]: The defensive strategy is trying to save the client money.

Alex [0:00:09]: The offensive strategy is what if we could offer more value for every health dollar spent for the small business.

Alex [0:00:18]: And as more companies switch with Ic into the individual world, that risk pool is actually getting even bigger which ultimately will prevent these years of double digit health care cost increases from happening in the future.

Callan [0:00:34]: Welcome to the Insurance Growth Lab, where we go deep on the growth campaigns and strategies driving real results in the assurance industry.

Callan [0:00:42]: Callan Harrington founder of Flashgrowth and in each episode, I sit down with marketing and growth leaders from carriers shirt tech and top brokers to break down one specific initiative, whether it's how they marketed a product, scale to channel or solve a specific growth challenge.

Callan [0:00:59]: It's no fluff just tactical insights you can apply in your own company.

Callan [0:01:04]: Alright.

Callan [0:01:09]: Bro.

Callan [0:01:09]: I'm excited have be back on the show.

Callan [0:01:11]: First thing I wanna say, congrats.

Callan [0:01:13]: I mean, beam exited very recently to the Brim.

Callan [0:01:17]: So congrats on that.

Callan [0:01:18]: How does that feel?

Alex [0:01:20]: It's the culmination of fourteen years of...

Alex [0:01:23]: Hey really amazing work.

Alex [0:01:24]: I started this company in my dorm room in Louisville, Kentucky.

Alex [0:01:28]: And so for it to be exiting to a Fortune five hundred public business, and there's, you know, press releases and they're mentioning it in their earnings calls.

Alex [0:01:36]: Pretty surreal.

Alex [0:01:37]: It's amazing.

Callan [0:01:38]: Well, with that all being said, I can't imagine a better place to start than why don't you walk us through the first time you ran out of money at beam.

Alex [0:01:46]: Not the only time.

Alex [0:01:46]: That's why It has to be designated as the first time.

Alex [0:01:49]: So this was twenty Thirteen to fourteen, and we were four people total.

Alex [0:01:58]: My two cofounder and I and then our first employee, and we were at the time a hardware company, building connected electric toothbrushes or Iot toothbrushes, and we wanted to use that data in the context of insurance.

Alex [0:02:14]: But we didn't know how.

Alex [0:02:15]: And we had been messing around with pilot programs with large dental insurance companies where we were providing the data and the toothbrushes.

Alex [0:02:24]: And the idea is that this would open up new underwriting insights for these insurance companies, and then we would be this tech vendor into those businesses.

Alex [0:02:35]: And, you know, it's expensive to run a hardware company, and we had only been able to cobb together maybe seven hundred k total and seed financing at the time and we were running on fumes.

Alex [0:02:46]: And my cofounder and I had been trying unsuccessfully to raise more capital.

Alex [0:02:52]: We were in Kentucky and so we knew we needed to do this, you know, beyond you know, probably not only the state, but probably beyond even the region at the time to raise real capital, and every interested investor wanted us to just be a toothbrush company, a hardware company, we sense that there was something else there, which was the tech stacks of these super old school insurance companies we were working with looked like an opportunity to us, we wanted to build our own insurance company.

Alex [0:03:22]: Yeah.

Alex [0:03:23]: But this was an uni category back in twenty thirteen, twenty fourteen, the insure tech thing was not yet a

Callan [0:03:31]: think.

Callan [0:03:31]: Yeah.

Alex [0:03:32]: And so it all changed for us when we met drive capital, which is why I'm based in Columbus today.

Alex [0:03:38]: And I had this moment.

Alex [0:03:40]: I'm in their conference room.

Alex [0:03:42]: Everybody's starting to kinda shuffle in.

Alex [0:03:45]: And so I've gotta pull up a deck to speak to for the next hour, and I had two decks that I was pulling off my desktop.

Alex [0:03:54]: One was depicting the future of beam as a toothbrush company, a hardware company, kind of, you know, stylist statistically fitting in with, like, the fitbit.

Alex [0:04:03]: We were gonna be the fitbit dental company, And then the other deck was, we're gonna use this unique piece of tech and use it to power our own insurance company.

Alex [0:04:15]: And for whatever reason, even though I had been striking out on it every single time, I pulled up that insurance deck.

Alex [0:04:23]: And I thought it was the right answer.

Alex [0:04:26]: It was really what the company should be in the future.

Alex [0:04:28]: It's what my real vision for the business was.

Alex [0:04:31]: And I got to the...

Alex [0:04:32]: Maybe second or third slide in the deck, which is the first one that kinda introduced the concept that this is gonna be an insurance company.

Alex [0:04:39]: And Chris from Drive stops me.

Alex [0:04:41]: He's still on the board of beam today.

Alex [0:04:43]: And he goes,

Callan [0:04:45]: hold on.

Callan [0:04:45]: Hold on.

Callan [0:04:45]: Hold on.

Alex [0:04:46]: I was told this was some sort of, like, hardware company.

Alex [0:04:48]: Are you saying you wanna build an insurance company?

Alex [0:04:50]: And my internal dialogue was like, damn it.

Alex [0:04:54]: I picked the wrong deck.

Alex [0:04:55]: Here, it's gonna be another, you know, Silicon Valley Dc.

Alex [0:04:59]: This guy's from Sequoia.

Alex [0:05:00]: He's definitely gonna tell me that the only viable path is hardware.

Alex [0:05:04]: And even that is, you know, a hard go that there is no path forward for the uni insurance category.

Alex [0:05:11]: And so I've, you know, finally said, yep, I'm passionate about building this company.

Alex [0:05:15]: It's gotta be an insurance business for the following reasons, and then I kinda laid it out.

Alex [0:05:20]: And he said, man, we've been looking for founders in the Midwest.

Alex [0:05:25]: That wanna disrupt these old legacy insurance businesses.

Alex [0:05:29]: And we just can't find any.

Alex [0:05:31]: So we're, like, so excited that we met you and that this is what your vision is.

Alex [0:05:36]: And from there on, it was, like, the perfect match to Drive.

Alex [0:05:39]: They let our series a.

Alex [0:05:41]: Removed to Columbus to be closer to them in the talent pool here in Columbus and the rest as they say this history?

Callan [0:05:47]: You know, A couple of things that I think are interesting about that.

Callan [0:05:50]: For for those that don't know.

Callan [0:05:51]: I'm curious if this with Kate.

Callan [0:05:52]: Drives pretty traditionally known for also bringing, like, entire company into these Itch meetings.

Callan [0:05:59]: Was that the case?

Alex [0:06:00]: We had everybody.

Alex [0:06:01]: Yep.

Alex [0:06:01]: Okay right.

Callan [0:06:04]: Founder like, it's pretty intense.

Callan [0:06:06]: And it's right in the middle if people don't know drives off They've got this all glass conference room right in the middle.

Callan [0:06:11]: They bring everybody in there.

Callan [0:06:12]: And so at that point, you decided, You know what?

Callan [0:06:15]: We're going for it.

Callan [0:06:16]: We've gotta do it at this point.

Alex [0:06:19]: The full story was that there's on the way driving up, interstate seventy one because I was living in louisville, Kentucky at the time.

Alex [0:06:26]: I almost got a wreck.

Alex [0:06:27]: Like Guys skid it off the side of the road because a truck had blown out a tire in front of me, and so there's, like, a mini chaos scene So I was still...

Alex [0:06:37]: Actually...

Alex [0:06:37]: I would love to have measured my heart rate at the time, because it was probably still not back to par even an hour later by the time I got the Columbus and was setting up in the conference room there.

Alex [0:06:49]: So I think I was at the point where I was just, like, you know what?

Alex [0:06:51]: This is already a wild day.

Alex [0:06:53]: I'm just gonna go for it, and it ended up being a life changing moment.

Callan [0:06:58]: That's amazing.

Callan [0:06:58]: To drive credit, they went big on insure tech very quickly with you guys and root and a number of others, it went really heavy on the channel.

Callan [0:07:08]: So I love that.

Callan [0:07:09]: And, obviously, we already talked about.

Callan [0:07:10]: It was successful.

Callan [0:07:10]: You had a great exit to the principal.

Callan [0:07:12]: And just a couple of kind of just quick stats from that.

Callan [0:07:15]: You know, beam had over a hundred and seventy five million in premiums and serving over twenty five thousand businesses.

Callan [0:07:20]: So this wasn't just an insure tech that just kinda got acquired.

Callan [0:07:25]: This was a sizable exit.

Callan [0:07:26]: And now, you couldn't help yourself before the exit even happened, you...

Callan [0:07:32]: When did it again, which anybody that knows you knew that was probably gonna be the case regardless, But one of the things that I find interesting with what you're building at Stack Health is, you know, it beam, you were kinda on that carrier.

Callan [0:07:47]: Side, you guys were manufacturing the product.

Callan [0:07:50]: And in some ways, you know, we'll get into the weeds here you're doing that.

Callan [0:07:53]: But really, you know, you're working with the employers.

Callan [0:07:56]: Your product is very much being used by those employers.

Callan [0:07:59]: And by brokers as well, I know you've talked about that you're very pro broker, but you guys are going straight to the employers in a couple different ways, but I don't wanna butcher all of this.

Callan [0:08:07]: The the first question that I really wanna dive into from Stack Health is.

Callan [0:08:11]: When you look at Beam Beam was on that ancillary side, and dominated that ancillary stuff.

Callan [0:08:17]: Like, they found a niche caught fire, but I've kinda...

Callan [0:08:20]: As I have to do this, it's that you wanted to work on what you saw is that core problem on the benefit side.

Callan [0:08:27]: And I want you to correct me if I'm wrong in here, but as I understand that that's this right benefits are employer driven instead of employee individually driven.

Callan [0:08:37]: Is that correct?

Alex [0:08:38]: That's right?

Callan [0:08:39]: Why that problem?

Callan [0:08:40]: Why do you believe that's the core problem?

Alex [0:08:42]: Yeah.

Alex [0:08:42]: So if you traffic in the health insurance world and spend time listening to all of the many different takes on wire health care system is so broken as a country.

Alex [0:08:57]: You'll hear many different root causes.

Alex [0:09:00]: And I'm actually sympathetic to multiple...

Alex [0:09:03]: This being a multiple choice answer.

Alex [0:09:05]: It is that screwed up of Yeah.

Alex [0:09:07]: Of an industry.

Alex [0:09:07]: But at being the most frustrating thing about building what we were building is that we are literally known as ancillary benefits.

Alex [0:09:16]: Where all of the other things that you buy and consider and think about and worry about only after you've done a lot more worrying about and fret over the health insurance question.

Alex [0:09:29]: And the cost and complexity of health care has been not even slowly anymore.

Alex [0:09:35]: It's quickly eating the economy in a way that is particularly hurting the ability for small businesses to get started to grow to succeed.

Alex [0:09:46]: And so I've been staring at this problem in the face for the past decade building beam because this is the exact customer we serve.

Alex [0:09:54]: We're working with their brokers.

Alex [0:09:56]: We're talking to the HR managers, and it was always really frustrating to, like be at the table, but you're not actually helping that small business owner succeed maximally.

Alex [0:10:06]: And eventually, it just couldn't take it and decided to allow Beam to continue growing and doing its thing, obviously, super successfully because I needed to go zero to one again and to build something that really addresses health care cost and complexity.

Alex [0:10:23]: So when I did this first principles analysis on the root cause of health woes, at least from a finance perspective, what I came to is that we've fundamentally organized risk at the wrong layer.

Alex [0:10:41]: A hundred and seventy million ish americans get their health insurance today from their employer.

Alex [0:10:47]: And as a result, the considerations, the strategies, the techniques and the organization of the products and tools that exist at the employer layer are in some way, ob, abstract and not fully aligned with the incentives and the structure of risk being organized at the individual level.

Alex [0:11:10]: And there are many ways where this shows up, they're often subtle, but it's one of the core drivers to why health care can't see its way through to deflation forces being accepted and brought into the industry, why shopping and shop components of health care have never really taken off.

Alex [0:11:31]: And I really think as we enter an era of AI and health care to maximize the benefits that can come from AI and healthcare care across many different parts of the industry.

Alex [0:11:42]: The individual needs to be in charge and ultimately the one that is owning their own health responsible for their own health and the one making the decisions about the coverage they have, the benefits they have, or else AI and healthcare care will only pay a percentage of the dividend that it otherwise will.

Callan [0:12:03]: Alright.

Callan [0:12:03]: I'm gonna try to break this down.

Callan [0:12:05]: I'm gonna have some follow questions on this.

Callan [0:12:07]: But essentially, I mean, what I'm hearing is and I'll cut use my own example.

Callan [0:12:12]: Small business, you know, we're about to have our first child in February.

Callan [0:12:17]: And all these claims are, you know, getting submitted, and I'm looking at this, you know, talk with my broker and it's, like, like, you're best off going the individual route because underwriting...

Callan [0:12:28]: They don't like underwriting these small group plans, especially when they know a guaranteed claim event is happening.

Callan [0:12:34]: Which, you know, obviously, the delivery of the baby itself.

Callan [0:12:37]: And so I think a couple of things I'm hearing you is on the individual, you can go to masses.

Callan [0:12:43]: And so the underwriting is gonna be a lot different because the pool so large were small groups, it's often written on a small group basis.

Callan [0:12:51]: Is why it works better with a very large company when they have a group plan versus a small group because it's much less predictable the smaller the company that it is.

Callan [0:13:00]: And so by doing it this way, you can tailor the individual coverage to the person.

Callan [0:13:06]: And so people that need it can get a lot better plan the people that don't need it, can get the plan that's right for them.

Callan [0:13:12]: Is that right or am I just making up what I wanna hear?

Alex [0:13:15]: That's exactly it.

Alex [0:13:16]: And your example is actually a great one, which is that you and your family may have very strong opinions about where you wanna deliver that baby.

Alex [0:13:27]: Mhm

Callan [0:13:28]: Yeah.

Callan [0:13:28]: I'd say.

Callan [0:13:29]: Yes.

Callan [0:13:29]: That is a fact.

Callan [0:13:29]: Just to be.

Alex [0:13:32]: That would be a very reasonable take.

Alex [0:13:34]: But if you're sitting in a slightly different seat then you happen to be sitting in as the business owner if you're an employee at a company who's currently getting, you know, ready for a delivery.

Alex [0:13:44]: And your employer is offering a group plan that doesn't have in network access to the preferred health system that you want to deliver the baby in, you are choosing between having the baby in your non preferred location, or you are paying out of pocket for that experience because it's gonna be out of network.

Alex [0:14:05]: Yeah.

Alex [0:14:06]: And in the world of individual insurance, you and your family don't have to make that compromise.

Alex [0:14:13]: You can target the health system or the specific doctor provider specialist that you want to see for that particular episode of care, and that allows you to solve at least that care modality in a way that's very targeted and intentional and that's one of the many advantages to being able to make that decision at the correct layer of unit risk organization in my view, which is individual slash family versus the group.

Callan [0:14:41]: So That makes complete sense.

Callan [0:14:43]: And I actually had not even thought about it from that perspective, meaning if I was an employee and that wasn't in that network that we want to go.

Callan [0:14:49]: There'd be a real problem.

Callan [0:14:50]: I mean, I could tell you it's for fact at home, that would be a real problem.

Callan [0:14:54]: So I wanna focus in on what's in it for brokers?

Callan [0:15:00]: Because, you know, for years, brokers have been told And for good reason, we see this on the P and c side in small commercial, but in benefits, really that under fifty employees is it businesses a really tough market for it to make any sense to put time on.

Callan [0:15:16]: What is an ic plan?

Callan [0:15:18]: This is something that's been coming up left and right.

Callan [0:15:21]: I remember this when that was kind of like the Hr.

Callan [0:15:23]: I know it's different than the traditional Hr, but Could you just walk us through what is the ic plan?

Callan [0:15:29]: Why is it so hot right now?

Alex [0:15:32]: And Ic is, first of all, a terrible health care acronym?

Alex [0:15:36]: And there are many others, but it is it is certainly one of them.

Alex [0:15:41]: All it is is a type of HR called an IC HR, which stands for an individual coverage health reimbursement count, and it was a rule that got introduced in maybe twenty nineteen, it was effective in the plan year twenty twenty.

Alex [0:15:57]: Mh So should get much traction in its first couple years.

Alex [0:16:00]: The whole market was obviously distracted by Covid, and there were many different considerations at the time for her health policy and health benefits.

Alex [0:16:08]: But in the past, let's say, three years.

Alex [0:16:11]: There has been an enormous amount of attention, interest and growth of ic plants.

Alex [0:16:18]: And all an ic plan is is it switches the dynamic of how an employer organizes their benefits from defined benefit to defined contribution.

Alex [0:16:29]: A good analogy often used in the echo world, it is the pension four zero one k transition that retirement plans have undergone over time instead of the employer funding a pension, but managing the money on behalf of the employees, the four zero one k is just funded by the employer, but you as the individual make your own self directed decisions on what to invest in.

Alex [0:16:54]: And this is similar.

Alex [0:16:56]: It's just a health version of it.

Alex [0:16:58]: Instead of the employer funding a anthem fully insured small group plan.

Alex [0:17:03]: And then from time to time switching that policy to a United health or Kaiser Permanente or Ae plan.

Alex [0:17:10]: The employer now just chooses to fund five hundred bucks a month for each person to go shop for their own individual or family coverage, of which you might have here in Central, Ohio, for example, a hundred and fifty different plans to choose from at different deductible levels, maximum out of pocket, different metal tiers different, networks, different carriers.

Callan [0:17:37]: Mhm

Alex [0:17:38]: And so the d, and importantly, the employer sees the same tax benefit in terms of being able to write off these premiums regardless of whether they're doing Or a traditional plan, So from the employer's perspective, it's the same tax opportunity, which is kind of key to the ruling itself.

Alex [0:17:56]: But the reason why they're popular is that employers love the idea that they know what their health care is going to cost because they're the ones defining the contribution in the first place.

Callan [0:18:07]: So essentially, the four one k example is the one I've always kind of heard with the HR plans just in general, which makes a lot of sense.

Callan [0:18:13]: Essentially, they can decide what they wanna do with that money on the exchange.

Callan [0:18:17]: They can pick their plan.

Callan [0:18:18]: If they wanna have a super high deductible plan...

Callan [0:18:21]: Here's a random question.

Callan [0:18:22]: If they're getting five hundred hours a month, somebody that's young super healthy as the highest deductible plan, where does the rest of that money go?

Alex [0:18:30]: This is one of the cool things we do uniquely at stack.

Alex [0:18:32]: Normally, that money would just be returned to the employer.

Alex [0:18:35]: So if you don't any, like, unused allocation, just kinda disappears back to the employer's coffers.

Alex [0:18:40]: And so, you know, that's, I guess, good for the employer, but theoretically bad for the employee because of leaving money on the table.

Alex [0:18:46]: So if the employer today with most ic plans.

Alex [0:18:50]: If they're offering five hundred bucks a month per person, your incentive is kinda to buy a four hundred ninety nine dollar premium plan.

Alex [0:18:57]: Yeah.

Alex [0:18:58]: Because you wanna maximize the value of your dollars.

Alex [0:19:00]: Not everybody needs that plan though, depending on what the contribution in question is.

Alex [0:19:05]: So one interesting thing we do at Stack is we take any leftover bucks, and we help pull them into an Hsa for eligible employees.

Alex [0:19:14]: And so the employer's dollars end up getting used, and they get used to maximum benefit for the employee because the employee can now save that money in a triple tax advantage way in the Hsa vehicle, and they can use those dollars to actually buy other products that they include in their health stack.

Alex [0:19:33]: And the reason why we call the company stack in the first place is that we imagine that in the future, as people are setting up their own individual program, They're not just thinking insurance.

Alex [0:19:43]: They're thinking insurance plus other components to their health, which might be direct primary care doctors, specialty medication platforms, wearables, advanced labs, preventative care, fertility in women's health, There's all kinds of products that have natural consumer demand, but no easy way for the employer, especially from a small business to be able to offer those experiences.

Alex [0:20:07]: So most people end up just spending their own post tax salary dollars on.

Alex [0:20:12]: A wu, for example, but we think there's a better way to actually route dollars in a tax efficient way for the employees to use to set up their stack, which will then include how do I cover this birthing episode coming in your life?

Alex [0:20:27]: As well as preventative care and other experience that are relevant to other people as they manage their long term film.

Callan [0:20:35]: It's super interesting, I actually did not realize that you guys were doing that.

Callan [0:20:39]: Poor research life.

Callan [0:20:40]: Part.

Callan [0:20:40]: But I'm glad we covered.

Alex [0:20:43]: Also a brand new company.

Alex [0:20:43]: So that's what we think of as a self funded plan that a big employers deploying.

Alex [0:20:50]: We they have lots of levers and knobs available to the employee at any given time.

Alex [0:20:55]: But scale down to the individual level where that employee can now make a bunch of independent decisions that today they only really get to make if they're willing to use their own post tax dollars to deploy.

Alex [0:21:11]: And it's obviously true that a number of consumer health companies like Him and hers or or rings have gotten enormous traction.

Alex [0:21:20]: A lot of advanced labs companies like function and superpower.

Alex [0:21:24]: They've got an enormous traction.

Alex [0:21:26]: And most of that spending is out of pocket post tax dollars by regular people.

Alex [0:21:31]: And so we think this is a signal that people are ready to build stacks, especially if the employer's is the one that's still funding most of the dollars.

Callan [0:21:40]: Yeah.

Callan [0:21:40]: That's very interesting.

Callan [0:21:41]: I had not realized that.

Callan [0:21:42]: And so our audience in people that listen to this or what I would describe as a elite agencies.

Callan [0:21:47]: These are those agencies that are typically early adopters, whether that's on the technology perspective or they're very large top one hundred brokers things like that.

Callan [0:21:56]: And oftentimes, right?

Callan [0:21:57]: Just like on the P and C side with small commercial, it wanna do more in that small commercial space, but a lot times it doesn't make sense.

Callan [0:22:04]: Why does this product specifically make sense for those elite agencies to focus on.

Callan [0:22:10]: To offer and put that in their general stack.

Callan [0:22:13]: Then part of the pun.

Alex [0:22:15]: There we go.

Alex [0:22:15]: See your stack already.

Callan [0:22:18]: I'm already a stack.

Alex [0:22:19]: We think of it as brokers being able to go on offense and not defense.

Alex [0:22:24]: And this is especially pertinent in the small group market where I think the early indications for renewal this year are going to average somewhere around thirteen percent increases.

Alex [0:22:39]: And this will be the second straight year of double digit increases.

Alex [0:22:43]: So it's clearly getting worse every year.

Alex [0:22:45]: And that means more small businesses are either dropping coverage altogether or they are screaming at their broker when the renewal letter comes out.

Alex [0:22:54]: Sometimes with a twenty or thirty or fifty percent increase that they need relief.

Alex [0:23:00]: And so the brokers are doing all this work, which we think is, you know, phenomenal and it's real work.

Alex [0:23:06]: To try to figure out how to curb and contain costs for these small businesses of questioning.

Alex [0:23:13]: But there are only so many options when many of these businesses are too small, frankly too volatile to join a level funding pool.

Alex [0:23:21]: And they're far too small to go pure self funded.

Alex [0:23:24]: And so there's all these strategies being cooked up around dynamic c and building captive offshore to to drug spend and laser strategies in the self funded world, it's from really, really sophisticated stuff.

Alex [0:23:39]: The problem is that it doesn't scale to small employers because can't spread those big costs out.

Alex [0:23:45]: And, you know, the labor is, you know, involved in setting up programs of this sophistication is extremely costly, and and it doesn't make sense for the group.

Alex [0:23:53]: So most groups are just trapped in the fully insured world.

Alex [0:23:58]: And then they just ping pong back and forth every year, a couple years between whatever carriers willing to buy their business and keep them from having to eat the entire renewal increase.

Alex [0:24:10]: Obviously, not a sustainable strategy.

Alex [0:24:13]: So we think brokers should go on the offense.

Alex [0:24:16]: The defensive strategy is trying to save the client money.

Alex [0:24:20]: The offensive strategy is what if we could offer more value, for every health care dollar spent for this small business.

Alex [0:24:29]: And an Ic allows value to become a front center opportunity because now people get to choose their own health system they get to choose the doctor They want a network.

Alex [0:24:42]: They get to choose other products to stack with.

Alex [0:24:46]: They get an allocation maybe into an Hsa that they weren't expecting or receiving before.

Alex [0:24:51]: And so the employers is not only often able to save money and contain costs by switching to the defined contribution world, they can actually sell this strategy to their employees authentically as giving them more value, more choice more freedom.

Alex [0:25:08]: And we think that is both a resident pitch that brokers are increasingly deploying already with their small business customers.

Alex [0:25:17]: But we think it's a durable one because the individual world is ultimately sitting on the Aca market chassis and as more companies switch with Ic into the individual world.

Alex [0:25:29]: That risk pool is actually getting even bigger and even more performant, which ultimately will prevent these years of double digit health care cost increases from happening in the future.

Callan [0:25:42]: Alright.

Callan [0:25:42]: I'm gonna put myself in the shoes have been, like, a elite agency early broker.

Callan [0:25:46]: And my first thought is going to be, one of the reasons why, you know, benefits, the small group plans are pains because there's a lot of maintenance for not a lot of commission.

Callan [0:25:57]: Why is this different?

Callan [0:25:59]: Is it because I don't have to deal with as much service or what does that look like?

Alex [0:26:05]: Ic is new.

Alex [0:26:06]: And it requires a lot of education.

Alex [0:26:08]: So I think what the best brokers would say that we talk to and spend time with is that it actually does still cost me time and effort.

Alex [0:26:19]: Even though theoretically over the long term, it will prevent me from having to spend as much time in the administrative weeds as I do in the group world.

Alex [0:26:29]: And the reason simply put why that is is that in the group world, any complaint or any issue with the carrier, the group carrier usually gets routed to the broker to negotiate, fix, address, etcetera.

Alex [0:26:43]: In the individual world, the Ic administrator, which is stacks role has to do that work.

Alex [0:26:50]: Because if you have twenty five employees of a small business, they've probably chosen twenty five different plans as individuals on five or six or ten different carriers.

Alex [0:27:02]: So there's no way a Broker can service all of those individual policies, and they need help doing it, which is the role of the Ic administrator or the Ic vendors they're sometimes known.

Alex [0:27:14]: But in the near term, the brokers do need to do a lot of educational work upfront because companies are just getting introduced to this concept and the whole premise of defined contribution is intuitive to some, but not to everyone.

Alex [0:27:30]: So I wouldn't think of it as a way to save time in the near term.

Alex [0:27:35]: I think it is a way for the broker to get to play hero in the near term because of this offense not defense strategy.

Alex [0:27:43]: Top brokers are using Ic, partially to help address just out of control renewal, which we call brutal renewal at stack.

Alex [0:27:53]: Yeah.

Alex [0:27:53]: But I think increasingly, it's brutal renewal plus having an employee oriented ic program that allows the value for health care dollar spend to position the broker as an innovator and a leader in a way that they often don't get to play.

Callan [0:28:11]: So to that point, what are the businesses that are best to target?

Callan [0:28:15]: We had a ic at bold penguin, but we are also an insured tech startup at that time.

Callan [0:28:21]: So we're probably more willing to take on something that's new.

Callan [0:28:25]: Because oftentimes, it's like, well, we've got it this way.

Callan [0:28:28]: Everybody does it this way.

Callan [0:28:29]: From what you've seen, what are the top of the top that are providing ic plans?

Callan [0:28:34]: What are they doing different?

Callan [0:28:36]: You mentioned education, how do they get over that bar?

Callan [0:28:38]: Or is it you're finding people that just get it?

Callan [0:28:41]: First in your segmenting we were going after.

Callan [0:28:43]: What does that look like?

Alex [0:28:44]: Ic is working in a surprisingly large set of employers both in size and Si code.

Alex [0:28:52]: When it first launched, I think a lot of the early traction, Old Penguins a great example of this was with startups, tech companies, sophisticated buyers, people that could really rocket it and get excited by it, and it was new and different and interesting.

Alex [0:29:11]: And I think there's still a big role for that.

Alex [0:29:13]: We do see a lot of startups ups and white collar businesses making the switch into the echo world.

Alex [0:29:18]: A surprising area where Ic had a lot of traction is in franchises, like restaurant franchises, hospitality, health care businesses, like home health or nursing homes, and manufacturing, logistics, kinda classic blue collar industries.

Alex [0:29:37]: These are businesses that maybe didn't even offer health insurance before, but because of the d of an, the employer can set up an with even a minimal contribution.

Alex [0:29:52]: You know, maybe all I can afford is a hundred bucks a month for everybody.

Alex [0:29:56]: But now on at least offering something, which is a huge attraction and retention lever for that employer.

Alex [0:30:03]: And for the employees, they go from getting zero support in the shopping and plan selection arena, and zero money to help afford the health plan to now support and some money.

Alex [0:30:17]: Even if it's not a pre predominant of the total premium, And so we see a lot of blue collar industries really leaning in, like a restaurant, let's say that goes from minimum wage and no health care don't even ask me.

Alex [0:30:33]: To here's a robust benefit strategy that we can deploy even if it's only funded with a low flat dollar amount that that particular business can afford And so we think it's opening up the market to increase access and into more types of employment.

Alex [0:30:52]: And one of the reasons why we're so excited about the d of these plans.

Alex [0:30:57]: Is that this now encourages carriers and to some degree brokers, but in particular carriers to place more plans into the Aca market where they see traction and growth, which then can actually create a positive flywheel effect of more optional and more d in the plans being selected.

Alex [0:31:17]: So for example, in a market an Aca market that's running poorly, you see carriers take their lower metal tier products off the Ach aca exchange, let fewer bronze options, and they focus on gold enough options.

Alex [0:31:34]: But if they see a lot of hospitality businesses switching via Ic into the Aca market, now they have an incentive to file more bronze plans because it appeals to that class of workers.

Alex [0:31:47]: And so this just makes the Aca bigger, more stable, less volatile and more robust time, and we think that's a really good thing for the market.

Callan [0:31:58]: What are the brokers that you would say this segment would get the most value out of this?

Callan [0:32:03]: Who's your ideal customer profile for this.

Callan [0:32:05]: We're like, this is who if they look like this, they're in a prime position to take advantage of this.

Alex [0:32:12]: New to benefits, so first time buyer, under fifty lives.

Alex [0:32:16]: For us, Central Ohio based and focused.

Alex [0:32:19]: That's our launch markets.

Alex [0:32:21]: So we're very geographically focused at stack, but other companies, you know, can service us all over the place.

Alex [0:32:25]: And where there's a real interest in the employer toe dipping into their benefit strategy.

Alex [0:32:36]: They're in this binary.

Alex [0:32:37]: Either I offer nothing or I have to really go for it.

Alex [0:32:41]: And I'm somewhere in between as an employer.

Alex [0:32:43]: So I wanna offer something, but it's gonna be something you know, minimal, and it gets me started on the benefits and the health insurance journey for my team.

Alex [0:32:53]: That's the perfect sort of client that I think.

Alex [0:32:56]: Lots of small group brokers are very interested in court more of, and it's the exact sort of company that we think is perfect for.

Callan [0:33:05]: Yeah.

Callan [0:33:05]: It makes a ton of sense.

Callan [0:33:06]: Okay.

Callan [0:33:07]: So I wanna to switch gears a little bit?

Callan [0:33:09]: You guys are an AI native company.

Callan [0:33:12]: Would I be describing that correctly and saying that you are AI need, I know people are were either like, yes, either AI native or AI enabled, and one of the things that I find very interesting and you had talked about this a little bit.

Callan [0:33:23]: But you said, you're building stack, slower, smaller and senior.

Callan [0:33:28]: What does that mean to you?

Alex [0:33:31]: This is our mon as a company for how we think about talent in the AI era.

Alex [0:33:37]: And one of my favorite things to do with, you know, my founder friends and folks in tech is that there's always this notion of a playbook of how you build your company by many different definitions that is always subject to change over time as the ground conditions change.

Alex [0:33:59]: And, you know, for those of us that kind of came of age, like I did start get maybe twenty ten with my first business.

Alex [0:34:06]: There was a certain playbook.

Alex [0:34:08]: There was a way you built your company and the way you thought about building teams, what type of talent you needed to do attract and what the backgrounds of those people should look like and what type of tech products you would use, for example, I learned that every cool tech company uses a Slack.

Alex [0:34:26]: So what do I use at my business so today?

Alex [0:34:29]: I'm a Slack customer.

Alex [0:34:30]: Right?

Alex [0:34:31]: So it's just those sorts of short hands for how you think about the playbook of constructing the company itself.

Alex [0:34:38]: Talent is undergoing a massive change right now.

Alex [0:34:42]: And the way we've captured our approach to it as we build stack is slower, smaller senior.

Alex [0:34:48]: Slower means that we are hiring more slowly in time than ever before.

Alex [0:34:55]: We're more carefully getting to know our future coworkers and colleagues, making sure they're really aligned with our principles values and building style.

Alex [0:35:08]: And the reason why we do that is because the company is moving paradox so fast that we can afford to hire slowly, which was different than how we always thought about blitz scaling our startups ten years ago where you would just take every minimally qualified person with a good looking educational logo on their resume and just bring them in the door.

Alex [0:35:31]: Right?

Alex [0:35:32]: And even though it was increasing burn you know, you were being told by investors and the broader market that the way to grow companies to grow your employee base, more people can do more work.

Alex [0:35:43]: Therefore, going from fifty people to a hundred people means you can double the size of your business.

Alex [0:35:49]: In the near future.

Alex [0:35:50]: I mean, that's the venture capital playbook that we've all become accustomed to, but that's changed a lot.

Alex [0:35:58]: So we hire slower than ever as a result.

Alex [0:36:01]: Smaller is all about building smaller teams literally.

Alex [0:36:05]: And others are already experiencing efficiency gains by trimming their team, not just the amount of people on a team, but also the job descriptions can get much wider now because if you have agents helping you deploy more code or more designs or more strategy documents, you can now multiply yourself as a product manager as a designer as a software engineer in ways that you just practically speaking couldn't do it before.

Alex [0:36:38]: And so we think smaller teams of really, really high agency people, can get so much more done now, and that lowers the coordination drag because fewer people need to have necessarily fewer meetings, they don't need to have deep relationships with a hundred different people in a company, they can maintain tighter relationships with a smaller, close knit team.

Alex [0:37:05]: When we think there's certain advantages to that over time.

Alex [0:37:07]: And then senior is the third one.

Alex [0:37:10]: And this is the average level of senior that each person on our team has.

Alex [0:37:16]: At stack, that's around fifteen years of professional experience and since a third to a half of our team are former founders, of high growth businesses or early employees of high growth businesses.

Alex [0:37:29]: It's not even just that we have an average between us of fifteen years of experience, but you and I both know that you age much faster in startup up land than you do in linear time in other contexts.

Alex [0:37:43]: So ten years of being a founder like a thirty year career or something.

Alex [0:37:48]: And because of that, we think having a team of really senior people end up self organizing and self policing, both the culture and the ways of working in ways that are very difficult to do if you have a more junior and immature and earlier career team, And so we think we've been able to get much further faster than you would have experienced building a very similar looking company and strategy, even just five years ago, and AI is the common through line that's enabling the slower smaller senior modality to actually work in practical reality.

Callan [0:38:28]: So we talked about this a little bit before, but I'm building my business the same way, And I cannot tell you that it was intentional.

Callan [0:38:34]: I actually did not want to do it that way.

Callan [0:38:37]: Because I love bringing in new people.

Callan [0:38:41]: I love developing them, it's something I get a lot of fulfillment out.

Callan [0:38:45]: For me, I feel like I'm fighting that by not super charging by people with Ai.

Callan [0:38:51]: And as a result, we have not had to hire.

Callan [0:38:54]: Keeping head count reasonable is a good thing.

Callan [0:38:56]: That's you're less prone to layoffs and things like that, I struggle to find what that happy medium is.

Callan [0:39:05]: Right?

Callan [0:39:05]: Because I feel vulnerable to somebody leaving.

Callan [0:39:08]: If somebody leaves and they can fill it an exponentially large pull just by nature of doing it that way because one person is considerably more important than what they would have been without having all the tools.

Callan [0:39:21]: Do you see it similarly?

Callan [0:39:23]: And how do you think about that?

Alex [0:39:25]: The first thing people think when they hear about these, slower, smaller senior type strategies?

Alex [0:39:32]: As they go.

Alex [0:39:34]: U.

Alex [0:39:34]: I see it.

Alex [0:39:35]: This is why we're all gonna lose our jobs.

Alex [0:39:37]: AI is automating us.

Alex [0:39:39]: Like, what is a recent college graduate.

Alex [0:39:41]: What are they gonna do?

Alex [0:39:42]: They're obviously not gonna be able to find a job anywhere?

Alex [0:39:45]: Your mind kinda runs away with it.

Alex [0:39:47]: But I actually think what you just described about your business is exactly why I'm very bullish on net unemployment staying very low and why this is actually a very good thing for the workers in the economy and the economy itself.

Alex [0:40:03]: It opens up a ton more d in how you can...

Alex [0:40:08]: The options that you have to build your business.

Alex [0:40:10]: If you need to dial down your expenses and manage your small business very tight from a, like, labor a productivity perspective, you can do it.

Alex [0:40:22]: If you wanna open up and add interns.

Alex [0:40:26]: And early career people and ind them into your specific company's mission, culture, ways of working, etcetera, you can afford the time to do it in a way that you maybe couldn't have before, you would have needed those people producing right away.

Alex [0:40:43]: And if you just think about the meme of the millennial worker, let's say, over the course of the past fifteen years, it's getting placed into a business right out of school where you're doing a bunch of, like, really hardcore grunt work with very long hours for minimal pay.

Alex [0:41:04]: And there's some sort of write a passage to that that we, you know, all experience every generation, I think.

Alex [0:41:11]: But there's something really opportunistic that we're entering where because of the new skills being demanded in the economy, AI native skills this is.

Alex [0:41:23]: Mhm

Alex [0:41:23]: Combined with the productivity of the existing senior leaning team.

Alex [0:41:29]: I think actually opens up a much smoother on ramp for today's younger earlier career workers.

Alex [0:41:35]: And employers want backstop and red, and they want to grow young talent.

Alex [0:41:42]: And so nothing's changed about how employers are thinking about this just that they actually might have the time money in space to finally do it the right way.

Callan [0:41:52]: Well, I would debate that that's a very small subset right now.

Callan [0:41:55]: I actually do agree with what you're saying?

Callan [0:41:57]: How are you seeing large employers think about it in that way?

Alex [0:42:03]: Not large ones probably.

Alex [0:42:03]: I think this is more how small businesses will think about adding, you know, the sixth person to their team something along these lines.

Alex [0:42:12]: A big fortune five hundred is probably going to take much longer realistically to change how they organize all their teams in order to really allow anything approaching a slower smaller senior thing to actually emerge.

Alex [0:42:28]: And this is the opportunity for small businesses, like any other platform shift moment.

Alex [0:42:33]: It's the big slow moving incumbents that might just not realize what you already realized inside your business.

Alex [0:42:41]: You're already building with a new and different mindset than two years ago, five years ago, eight years ago, a large business frankly might never get there.

Alex [0:42:51]: And that's maybe a huge boo for small businesses in the Us, which we think would be a wonderful thing considering that Smb are already they make up half of the employment in the country, and it's the route to wealth building.

Alex [0:43:08]: It's the route to economic d.

Alex [0:43:11]: And so I think anything that helps Smb, And I think AI is a force for good for Smb success.

Alex [0:43:18]: Is something that we should be encouraging and supporting.

Callan [0:43:21]: Well, I think the example that you mentioned, it does free up capacity for interns, contractors, freelance, things like that more so than, you know, that was really doable in the past.

Callan [0:43:31]: Because sometimes just couldn't get somebody part time to be able to create something that meaningful for.

Callan [0:43:36]: Exactly we just said, and usually, I've got a ton of grunt work to be able to get past that.

Callan [0:43:39]: And a lot of that's been eliminated.

Callan [0:43:42]: You can do very high polished good work and have more of the senior people serve almost as the Qa building the guide rails and things like that.

Callan [0:43:50]: And that's all I've kinda tried to think about it.

Callan [0:43:52]: I didn't think about that from the...

Callan [0:43:53]: I've done it with a lot of contractors and freelance, things like that.

Callan [0:43:56]: But I feel for a lot these graduating seniors as they are navigating.

Callan [0:44:00]: There is a lot of anxiety around it right now.

Callan [0:44:03]: And I know I wanna try to create some sort of on ramp for that.

Callan [0:44:07]: So I think it's really interesting.

Callan [0:44:08]: That was a great breakdown.

Callan [0:44:10]: I appreciate that.

Callan [0:44:11]: So you know, fro, we talked about that.

Callan [0:44:14]: We talked about a lot of things that you're doing differently, and we went really deep into the ic, which I think is very, very, very interesting.

Callan [0:44:20]: Actually, I actually wanna talk to you guys about that after.

Callan [0:44:22]: But one of the things I'm curious about is if we're having a conversation in ten years time?

Callan [0:44:28]: And for you, every single thing went to plan, what does that conversation look like?

Callan [0:44:34]: What does the business look like?

Callan [0:44:36]: What are you doing within it, what does that all look like to you?

Alex [0:44:40]: We think that today Ic works like conceptually, and tactically, You know, there's already plenty of companies that are building ic plans and switching to Ic, you know, you've already experienced this yourself.

Alex [0:44:52]: So Ic works, but it doesn't yet work for the employee.

Alex [0:44:57]: And just to bring what we just talking about full circle, what we just said were things indicating that, hey, in the future, there might be a lot more small businesses, and a lot more employees might be part timers, freelancers, ten ninety nines, they might kind of dance in and out, you know, kind of gig working, dancing in and out of, you know, a variety of different companies and even industries over time.

Alex [0:45:24]: And one of the drawbacks to that lifestyle and why your mom probably doesn't like the sound of you being a full time freelancer, first thing in her head, and the first thing probably in your head as a freelancer is, what am I gonna do about health care?

Alex [0:45:41]: Yeah.

Alex [0:45:41]: It is very, very near the top of everyone's list, and the reason why your mom is comparatively proud of you getting a job at, Fortune five hundred business that she's heard of before is that, oh, there's probably good benefits there.

Alex [0:45:56]: You're probably getting taken care of from health care perspective.

Alex [0:45:59]: And so one if that was no longer true.

Alex [0:46:01]: How many more people in the Wall street Journal just has great article on this exact thing, like last week, I think, Something like a fourth of all Fortune five hundred or large c employees say that they are basically still working at that company?

Alex [0:46:15]: Because of health insurance benefits.

Alex [0:46:17]: So if we were no longer dependent on they're just being huge as and the quality of the health care between working at a big company versus working at a small company, because we were all organizing it for ourselves at the individual level, think about how many more people would be willing to start their own company and found a small business.

Alex [0:46:40]: How many more people would be excited about freelancing and working for and helping many different businesses, how many more people would go work at a nonprofit and contribute, I think there would be a lot more of that activity.

Alex [0:46:52]: And if that's true then what I wish to be true for the next ten years is we need to make a version of Ic work for the employees.

Alex [0:47:02]: And this is why we love our concept of stacking and inside what we're building, which is that it's probably not just going to be Oh, yeah.

Alex [0:47:12]: This is a way to get insurance, and you just buy as an individual versus group.

Alex [0:47:16]: That's in and of itself be a huge transformation to the American health care system.

Alex [0:47:20]: But I wanna go beyond that.

Alex [0:47:22]: I want to give people the feeling of having their own program.

Alex [0:47:26]: Their own stack of benefits where if they are super passionate about fitness, their stack probably would reflect them.

Alex [0:47:35]: Or they're in family building mode, their stack should reflect that.

Alex [0:47:39]: Or they're managing a chronic illness.

Alex [0:47:41]: They're diabetic.

Alex [0:47:42]: Their stack should reflect that.

Alex [0:47:44]: Or they are working on enabling themselves to be a high risk entrepreneur worried about cash flow.

Alex [0:47:52]: Their stack should probably reflect that.

Alex [0:47:54]: And that level of customization and personalization is now possible, but it is not out there yet.

Alex [0:48:01]: And so our core job at stack specifically is to get this concept of stacking proliferate.

Alex [0:48:06]: And for people to feel comfortable being the procure of their own health care.

Alex [0:48:14]: And in the same way that people have gotten a lot more sophisticated about, you know, buying and owning their own equities and stock market over the past generation, and you've gotten way more comfortable shopping for and buying their own home, than a generation ago, we think something similar will happen with health care where you go from.

Alex [0:48:33]: This is a pretty uncomfortable experience because if I'm being honest, I'm not quite sure I remember exactly what a deductible is.

Alex [0:48:39]: To now...

Alex [0:48:40]: Oh, I've totally got this.

Alex [0:48:42]: I could set up my stack.

Alex [0:48:44]: I know exactly how I wanna edit and move things around to optimize my care coverage for me and my family moving forward.

Alex [0:48:51]: And if we can create an outcome even close to that over the next decade, I think the American healthcare care system will be saved from eating our economy alive and maybe with at the health of the Us dollar, and it'll certainly allow for, I think, a whole new type of care and coverage d to proliferate, and especially the small business community all over the country.

Alex [0:49:14]: You hit on a point

Callan [0:49:16]: early on that.

Callan [0:49:16]: And I talked to a lot of people when they're going to be an entrepreneur.

Callan [0:49:20]: Or they're like, hey, I think Really I wanna do this.

Callan [0:49:22]: What are some of the things that I should be thinking about.

Callan [0:49:25]: And this is more somebody's gonna start their own bootstrap company.

Callan [0:49:28]: Although, it applies the Vc as well.

Callan [0:49:31]: But really, when you're going and you're doing this completely bootstrap And I say, you know, there's two things that are really gonna probably throw you off.

Callan [0:49:38]: Taxes are gonna be different, and you've got it pay the money to a good accountant.

Callan [0:49:43]: It will matter.

Callan [0:49:44]: And benefits are gonna be just a thorn in side always.

Callan [0:49:48]: Health insurance is gonna be a pain.

Callan [0:49:50]: You probably are gonna think, oh, I wanna do this because of it.

Callan [0:49:53]: Try to get yourself over that, but I do think it just feels like it's just exponentially harder than it needs to be.

Callan [0:50:01]: For somebody starting a business.

Callan [0:50:03]: So that point in particular.

Callan [0:50:04]: I think everything you said was interesting, but I think that point in particular really resonates with me.

Callan [0:50:08]: So I'm rooting for you.

Callan [0:50:10]: I love what you're doing.

Callan [0:50:11]: Thanks for coming on today for.

Callan [0:50:13]: I...

Callan [0:50:13]: Honestly is terrific breakdown of Ic and all of its benefits.

Callan [0:50:16]: So I appreciate that.

Alex [0:50:18]: Thanks, Man.

Alex [0:50:18]: Good to see you.

Alex [0:50:19]: Hundred percent.