Thatch, a San Francisco-based startup, has secured $40 million in a Series B round of funding to transform the health insurance experience for employers and employees alike. The financing, led by Index Ventures, brings the company's total equity funding to $84.5 million since its inception in October 2021.

The startup's innovative approach focuses on Individual Coverage Health Reimbursement Arrangement (ICHRA), a relatively new insurance option introduced in 2020. ICHRA allows employers to offer employees a budget to purchase individual medical insurance, unlike traditional Health Reimbursement Arrangements (HRAs) that only cover out-of-pocket medical expenses. Thatch's platform enables employees to choose from various health insurance options and utilize a debit card to spend their remaining balance on medical expenses.

Co-founder and CEO Chris Ellis explained that Thatch's platform provides employees with the flexibility to select healthcare plans that best suit their needs. "Imagine each employee gets $1,000 a month – one employee might buy a Kaiser HMO plan for $800 a month and spend the remaining $200 on therapy, while another employee might spend $1,000 a month fully on a United PPO plan." Ellis added that employees can carry over leftover funds to pay for treatment costs not covered by insurance.

The founders believe that the relatively new ICHRA regulation offers ample room for innovation. For instance, ICHRA employee classes allow businesses to customize health benefits by grouping employees based on factors like hours worked or geographical location. This flexibility enables employers to tailor health plan offerings to different classes, making it more appealing to employees.

Thatch has partnered with QuickBooks to embed and distribute ICHRA directly within its product, making it easier for companies to set up ICHRA accounts for employees. The startup is also building a similar offering for ADP, which is expected to launch soon. Since launching its offering in August 2023, Thatch has onboarded over 1,000 companies and achieved 8x year-over-year revenue growth, although exact revenue figures remain undisclosed.

The startup's founders, Adam Stevenson and Chris Ellis, bring extensive experience in healthcare and fintech. They recognized that making ICHRA work would require solving fintech problems, such as managing budgets, issuing funds, and handling adjudication. To address this, Thatch recruited employees from companies like Stripe, Rippling, and Ramp to create the necessary financial and operational infrastructure.

Jahanvi Sardana, partner at Index Ventures, praised Thatch's approach, likening the traditional process of choosing a health plan to "trying to buy a house without knowing the price or details." Sardana believes that Thatch is not only tackling benefits but also a technology and payments problem, designing a system that is transparent, personalized, and centered around choice.

With this latest funding round, Thatch is poised to continue disrupting the traditional health benefits landscape. As the company expands its platform and partnerships, it is likely to have a significant impact on the way employers and employees approach health insurance.