27
votes
Private equity firms in US health insurance - the private-equity backed health insurer Friday Health Plans shut down under order by Colorado state regulators in July
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- Title
- Private Equity Wreckers Come For Your Health Insurance
- Published
- Jul 28 2023
- Word count
- 1510 words
I think this is a good move. In my limited experience on the Health IT side of things (HIEs, InterOp, compliance) anytime PE entered a healthcare portion of the market, things always got worse.
My experience is anecdotal but seems to match other experiences where PE entered.
This is the first I'm hearing of this. They did make it clear how this is an issue for staffing emergency rooms, for example.
But for insurance, I don't really understand how this is different than regular insurance companies.
That's not really selling me on being different than the big insurance carriers. Is there something I'm missing?
The blame for leaving folks without insurance seems to fall on the folks who shut down their insurance company. How is that ok without putting them on the state plan or something?
I don’t think the article is very good in general. It seems to be parroting stereotypes without putting in the prerequisite logic for it.
That’s a good example, for instance. It doesn’t make any sense. An actual criticism you can levy against private equity owned healthcare relative to “traditional” healthcare companies is that PE tends to have lower time horizons - that is, a PE is more likely to favor short term returns. That’s because a PE firm has more liquidity and options available - it may not want to hold onto a healthcare company for decades on end. Whereas an ownership group for a healthcare company only has incentives to ensure the company operates for as long as possible. Instead it just says “PE healthcare companies want to make money”. Insightful.
I also like how it randomly started talking about Bright Health, which is not PE owned but public instead.
It also spent so little time talking about why these companies were shut down that I had to google it separately; tldr they were insolvent, or on track to be insolvent.
This is such a cacophonous paragraph. Is it an industry dominated by monopolies or are there too many new entrants? Pick one and elaborate, don’t glue those two in the same paragraph.
The paragraph you quoted is the one which made me start to question the article in general. It almost sounded like they'd been paid by "traditional" companies to deflect and criticize the upstarts trying to take over.
I appreciate your elaboration, I don't know much at all about this topic and it was really helpful.
So some (possibly many, I'm unsure of the proportion) of private equity companies have shown a pattern of loading companies with debt, distributing proportionally large amounts of funds to investors and letting the companies fail or go bankrupt, basically acting like a vampire. This is especially bad when applied to companies that provide basic survival needs where there are high barriers to entry such as health care providers or utility companies.
There are famous examples like RJR Nabisco, subject of the book Barbarians at the Gates. More recently ToysrUS.
https://www.theatlantic.com/ideas/archive/2023/05/private-equity-firms-bankruptcies-plunder-book/673896/
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-portfolio-companies-on-track-for-most-bankruptcies-since-2020-74886821
https://www.retaildive.com/news/the-road-to-bankruptcy/540617/
https://www.nytimes.com/2023/04/28/opinion/private-equity.html
I appreciate the insight. I knew about Sears, for example, I didn't know that hedge funds were categorized as private equity firms.
I can't tell if this is in jest or not, but assuming it's not, hedge funds are not private equity and vice versa. Hedge funds would never own something as illiquid as an entire company.
This is apparently me needing to do some more reading on financial terms.
This is like saying the blame for making folks homeless falls on the folks who forced them to leave the house that was burning down. Friday had to open their books and it was quickly determined they would not be solvent by the end of the year. Providers were already choosing not to see people covered by this failing insurer. Should Colorado have done nothing?
It wasn't clear to me that this is what had happened, only that they're been shut down. I'm guessing I either missed something or theres some jargon in the article I'm unfamiliar with.
If course the state should have shut them down. I don't think that analogy works, though. We aren't talking about random strangers or neighbors, were talking about the state, who these people pay taxes to.
States already have an emergency healthcare program. Offering it up for at least a few months will probably save some lives.