Executive Summary: The Direct Compact: What Emerges When the Current Architecture Falls
TOS.SYN — The Other Side#
The twelve articles in this collection make one argument from twelve angles. The bundled insurance product is the wrong architecture for the 1-to-50 employer market. Community rating accelerated the exit of healthy groups from that market. The uniform contribution norm misrepresents the employer’s actual retention priorities. The broker accountability framework protects brokers more reliably than it protects employers. The TPA exercises de facto plan sponsor authority without bearing the fiduciary consequences. Stop loss carriers determine what is insurable and are therefore the actual architects of plan design. AI is approaching functional replacement of what the small group broker actually does. ICHRA and level funded are converging toward a contributory platform that renders both current products intermediate steps. Groups below ten lives cannot be insured through any group mechanism. The consumer protection apparatus has become a barrier to simpler arrangements. The specialty drug pipeline is breaking stop loss pricing for the smallest employer segments on a five-year horizon. The most effective health investment a small employer can make for a low-wage workforce may not be insurance at all.
These failures interact. The drug pipeline accelerates the exit from level funded for micro-groups, which the convergence partly absorbs through ICHRA, which requires the regulatory accommodation that TOS.10 identifies as blocked. The broker’s displacement removes the intermediary whose friction currently slows the transition. What looks like twelve problems dissolves into one structural problem: the small group health benefits architecture was designed for an employment-and-insurance relationship that no longer describes most of the 1-to-50 market, and it is maintained by entities whose revenue depends on its continuation.
What replaces it is the direct compact: not a product but a relationship. The employer commits a defined dollar amount toward the employee’s health, structured to vary by class and tenure. Primary care goes to a DPC membership at $75 to $90 per member per month. Pharmacy goes to transparent pricing. The catastrophic layer, the only genuine insurance function in the stack, goes to a high-attachment stop loss or individual catastrophic policy. No TPA adjudicates routine claims because there are no routine claims. No broker recommends a product because the platform is the product. The employee engages with their health in return. That is a different relationship than handing someone a plan document with a $3,000 deductible and a provider directory.
The entities that lose revenue if the direct compact reaches scale are identifiable: bundled carriers whose small group enrollment has already declined 7 percent in 2024 per Mark Farrah Associates data, TPAs whose revenue comes from group claims adjudication volume, PBMs whose spread pricing and rebate capture disappear under transparent pharmacy pricing, and the functional broker whose pattern-matching layer AI platforms are replacing. Their resistance is rational protection of revenue models that current regulation sustains. The question is whether pressure from cost, technology, and actuarial reality overcomes that resistance on a timeline that matters.
The specialty drug pipeline creates acute stop loss pricing pressure in the 2025 to 2030 window. AI capability for broker function replacement matures on a five-to-seven year horizon. ICHRA adoption grew 52 percent among small employers from 2024 to 2025. The regulatory accommodation is the slowest and least predictable variable, and the direct compact will likely follow the pattern of level funded and ICHRA before it: market adoption precedes regulatory clarity, and regulatory clarity follows because the market has already established the product. What remains is for the current architecture to become sufficiently unable to bear its own weight.