Packy McCormick makes a provocative claim that American healthcare isn't broken by design, but by a seventy-year-old accident of history that is finally being corrected by a specific tax code quirk. This isn't just another pitch for a startup; it is a structural argument that decoupling insurance from employment could unleash a market correction as significant as the shift from pensions to 401(k)s. For a busy leader navigating rising costs and talent retention, the question isn't whether the system is expensive, but whether the incentives are finally aligning to fix it.
The Incentive Trap
McCormick begins by exposing the perverse logic at the heart of the current system: insurers have no financial reason to keep you healthy if you are likely to leave their network in two and a half years. He illustrates this with a chilling anecdote from a conversation between Thatch founders and a health insurer, where the executive admitted, "If I catch that person's cancer... They'll leave their job in 2.5 years and go to a competitor insurer." The author argues that this isn't malice, but a rational response to a system where "the insurance provider that someone gets through their job isn't incentivized to save that person's life." This framing is effective because it shifts the blame from individual villains to a structural flaw that punishes long-term thinking.
The commentary highlights that this misalignment forces employers to act as middlemen for a service they don't understand, while employees are stuck with "lowest common denominator" options. McCormick writes, "The American healthcare system is a layer-cake of misaligned incentives so complex that attempts to fix it by changing one thing here or another there often make things worse." He suggests that the only viable path forward is not more top-down regulation, but a mechanism that unleashes consumer choice. This is a bold stance in a sector dominated by calls for single-payer solutions, yet it rests on the historical precedent that market-based reforms, like the 401(k), have successfully replaced rigid, employer-defined benefits before.
Critics might note that relying on individual choice assumes a level of health literacy and financial stability that many Americans lack, potentially leaving the most vulnerable behind without a robust safety net. However, the argument posits that the current system already fails these individuals by locking them into jobs they cannot leave.
"There is no law of physics that says that American healthcare needs to suck. So eventually, it won't. Thatch is pulling eventually forward."
The Infrastructure of Choice
The core of McCormick's analysis focuses on the Individual Coverage Health Reimbursement Arrangement (ICHRA), a regulation that allows employers to give tax-free dollars to employees to buy their own plans. He argues that the bottleneck has never been the policy itself, but the operational nightmare of administering it. "The hardest parts of making ICHRA work are primarily fintech problems," he notes, pointing out that the founders of Thatch, Chris Ellis and Adam Stevenson, recognized that managing budgets and compliance required the same rigor as a payments processor like Stripe.
McCormick details how Thatch is building the financial infrastructure to abstract away this complexity, allowing the market to function as intended. He cites the rapid growth of the company, noting that it grew revenue eightfold last year and is on pace to quadruple again. The author frames this growth as a validation of the thesis: "When a reputable venture firm leads two consecutive rounds of investment in a company... that is 'a screaming buy signal.'" This reliance on market validation serves as a counterweight to the skepticism often directed at healthcare startups, suggesting that the demand is real and the solution is scaling.
The piece also touches on pending legislation, the CHOICE Act, which would provide a $1,200 tax credit to employers, potentially accelerating the shift. McCormick quotes Gary Daniels, a former UnitedHealthcare executive now at Thatch, who predicts that if passed, the bill "will kill small business group insurance. The entire industry will have to rotate into it." This prediction underscores the disruptive potential of the shift, suggesting that the incumbent model of group insurance is not just inefficient, but existentially threatened by the new alignment of incentives.
A Virtuous Cycle
The argument culminates in a description of a network effect that could rapidly dismantle the old system. As more people switch to individual plans, group plans become more expensive due to a shrinking, sicker risk pool, while individual plans become cheaper and better as the pool expands and insurers compete for long-term customers. McCormick writes, "Because of how insurance works, as people switch from group to individual plans, group plans get more expensive and individual plans get less expensive, which causes more people to switch, which accelerates the vicious... or virtuous... cycle." This mechanism is the crux of the optimism: the system is self-correcting once the initial friction is removed.
However, the speed of this transition remains the biggest variable. While the financial incentives are clear, the administrative burden of switching plans and the cultural inertia of the employer-employee relationship could slow the momentum. The piece acknowledges that "freedom isn't free," and that the transition requires significant effort from both employers and employees to navigate the new landscape.
Bottom Line
McCormick's strongest argument is the reframing of healthcare costs not as an inevitable tragedy, but as a solvable misalignment of incentives that can be corrected through market mechanisms. The biggest vulnerability lies in the assumption that the market will self-correct quickly enough to prevent a chaotic transition for those currently dependent on group plans. Readers should watch the passage of the CHOICE Act and the adoption rates of ICHRA as the true indicators of whether this structural shift is imminent or merely theoretical.