{"id":1162110,"date":"2023-07-30T11:40:18","date_gmt":"2023-07-30T11:40:18","guid":{"rendered":"https:\/\/jacobin.com\/2023\/07\/private-equity-health-insurance-failure-firiday-health-plans-bright-health-out-of-pocket\/"},"modified":"2023-07-30T11:40:47","modified_gmt":"2023-07-30T11:40:47","slug":"private-equity-backed-insurers-are-failing-policyholders","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2023\/07\/30\/private-equity-backed-insurers-are-failing-policyholders\/","title":{"rendered":"Private Equity\u2013Backed Insurers Are Failing Policyholders"},"content":{"rendered":"\n \n\n\n\n

Over a million people have lost their health insurance thanks to the failures of Friday Health Plans and Bright Health, two private equity\u2013backed insurers \u2014 illustrating the risks of private equity moving into the already-unstable health insurance market.<\/h3>\n\n\n
\n \n
\n The failure of private equity\u2013backed insurers comes as private equity has massively expanded its footprint in the health care space. (E. Jason Wambsgans \/ Chicago Tribune<\/cite> \/ Tribune News Service via Getty Images)\n <\/figcaption> \n<\/figure>\n\n\n\n\n \n

The private equity\u2013backed health insurer Friday Health Plans collapsed under order by Colorado state regulators on July 18, stranding thirty thousand policyholders without health insurance as of August 31 \u2014 forcing them to pursue new plans in the middle of the year and rendering the money they\u2019ve already spent toward annual deductibles and out-of-pocket maximums moot.<\/p>\n

The implosion of Friday Health Plans, which offered plans on seven<\/a> state health insurance exchanges, comes as other private equity\u2013backed insurers have faced similar issues. Bright Health, which was backed<\/a> by private equity titan the Blackstone Group among others, had to end its insurance business on the exchanges last year, leaving<\/a> hundreds of thousands of people to find new insurance policies for 2023.<\/p>\n

In total, more than a million people have lost their health insurance thanks to the failures of the two private equity\u2013backed insurers.<\/p>\n

Their collapses illustrate the major risks of private equity moving into the already-unstable health insurance market. Due to decades of failing<\/a> anti-monopoly policy, the health care industry is designed for big players that are getting bigger. Lax regulations mean unscrupulous entrants can offer insurance to potentially millions of people with minimal oversight, while facing massive headwinds to profitability and long-term stability for patients.<\/p>\n\n \n\n \n \n \n

Private Equity Moving In<\/h2>\n \n

The failure of private equity\u2013backed insurers \u2014 and their impact on customers desperate for affordable care \u2014 comes as private equity has massively expanded<\/a> its footprint in the health care space.<\/p>\n

Hospitals, medical practices, nursing homes, psychiatric care, disability care, and health care information technology have all been subject to extensive private equity speculation.<\/p>\n

Private equity\u2019s business model is centered on extracting profits, rather than providing high-quality, consistent, and affordable care. Studies show that private equity involvement often spells worse patient outcomes<\/a>.<\/p>\n

Private equity\u2013owned nursing homes have 10 percent<\/a> higher resident deaths than in nursing facilities overall. Private equity\u2013backed hospitals have cut staffing<\/a> and services to meet the colossal dividend payments to the private equity firms that bought them. Private equity\u2013backed emergency room staffing firms helped effectively create<\/a> the \u201csurprise billing\u201d phenomenon, in which patients receive far higher medical bills for out-of-network care despite going to hospitals that are included in their insurance networks. And private equity roll-ups<\/a> of dermatology practices have resulted in higher prices with poorer-quality care.<\/p>\n

Laura Katz Olson, a professor at Lehigh University who has studied private equity\u2019s role in health care, said that private equity results in \u201cinstability for patients and far lower quality of care. They sell off their companies after several years, so patients don\u2019t have any stability in terms of their providers.\u201d<\/p>\n

\u201cThey\u2019re extracting value from the health care system, they load them up with debt and then they pay it back by lowering the quality of care,\u201d said Katz Olson. \u201cHealth insurance is just another niche that private equity is destroying. They keep buying up these places, extract the value, and then spit them out.\u201d<\/p>\n

Friday had been operating plans in Colorado for six years<\/a>, and for less than three years<\/a> in the six other states where it operated. Bright Health was founded in 2016<\/a> by a coterie of former executives at UnitedHealth Group, the country\u2019s largest insurer.<\/p>\n

Friday, which is based in Denver, received backing<\/a> from Vestar Capital Partners, a private equity firm with strong Colorado connections. Vestar managing director Jim Kelley is based in Denver and also heads<\/a> the Colorado Impact Fund, where former Denver mayor and US transportation and energy secretary Federico Pe\u00f1a is a senior adviser.<\/p>\n

From 2006<\/a> until 2018<\/a>, Vestar owned the Mentor Network, a for-profit foster care company for children with intellectual and physical disabilities. A bipartisan report from the Senate Finance Committee found that ninety-four children<\/a> died in the company\u2019s care during that period.<\/p>\n

Bright Health, which is based in Minneapolis, has recorded a 99 percent<\/a> erosion in its share price since going public in June 2021. Modern Healthcare<\/em> reported that when Bright Health exited the exchange market in October, the company would be able<\/a> to reap $250 million from winding down its businesses. Instead, it owes $200 million to health care providers.<\/p>\n

Blackstone backed Bright Health as part of a funding round in September 2020. Other backers include venture capital firm Bessemer Venture Partners and the hedge fund Tiger Global Management.<\/p>\n

While Bright Health, an insurer, would appear to have a vested interest in lowering the cost of providing care, Blackstone\u2019s other investments in the health care space have substantially increased care costs.<\/p>\n

Blackstone-backed TeamHealth, an emergency room physician staffing firm, helped pioneer<\/a> the practice of surprise medical billing. According to a 2017 working paper from Yale researchers, out-of-network billing costs increased by 33 percent<\/a> when TeamHealth entered a given market.<\/p>\n

TeamHealth is currently restructuring<\/a> its debt and could face bankruptcy in the coming months.<\/p>\n\n \n \n \n

\u201cA Good-Governance Problem\u201d<\/h2>\n \n

Ari Gottlieb, a health care analyst who has studied private equity\u2013backed insurers, says of the Bright Health and Friday collapses, \u201cThere\u2019s a good-governance problem and a systemic-solvency problem.\u201d<\/p>\n

For starters, said Gottlieb, regulators failed to ascertain whether these plans had sufficient capital, despite a long history of excessive risk-taking by private equity firms.<\/p>\n

\u201cInsurance companies are authorized by state regulators to operate for a full year,\u201d he said. \u201cBut they don\u2019t have to sign anything certifying that they actually have the capital to operate.\u201d<\/p>\n

Gottlieb pointed out that the Centers for Medicare and Medicaid Services (CMS) \u2014 which is tasked with regulating the state health insurance exchanges created under Democrats\u2019 2010 Affordable Care Act (ACA) \u2014 doesn\u2019t guarantee or investigate insurer solvency, meaning that insurers can be approved to operate on the exchanges even if they don\u2019t have sufficient capital.<\/p>\n

\u201cIf you want to sell insurance products for a year, you should certify that you have money to operate for a year,\u201d he remarked.<\/p>\n

Another core issue is that the rapid consolidation of health care is driving up costs for insurers and making it harder for narrowly focused insurance start-ups to survive.<\/p>\n

As hospitals are consolidated, only large insurers with diverse regional footprints will have the market power to negotiate lower prices from hospitals and medical practices \u2014 the latter of which have been getting scooped up<\/a> by private equity firms as well as by giant health insurers<\/a>.<\/p>\n

If an insurer is only focusing on the ACA exchange market and the Medicare Advantage<\/a> markets \u2014 as private equity\u2013backed insurers have typically done \u2014 that doesn\u2019t provide the company with enough market power to negotiate the same prices that much larger insurers like Blue Cross and UnitedHealth can demand.<\/p>\n

\u201cThe individual market isn\u2019t big,\u201d said Gottlieb. \u201cIn any given market, you\u2019re never going to be big enough to bargain with providers.\u201d<\/p>\n

Likely in part because of these issues, Friday collapsed midyear \u2014 a catastrophic development for many policyholders in Colorado, who will now face significant additional out-of-pocket expenses if they need care this year.<\/p>\n

That\u2019s because the vast majority of other insurers have refused regulators\u2019 request<\/a> that they voluntarily honor the payments these policyholders had already made to Friday toward their deductibles and out-of-pocket maximums.<\/p>\n

\u201cFriday is being shut down involuntarily, they\u2019re going through the liquidation process in the middle of the year,\u201d said Gottlieb. \u201cAs a result of failing midyear, individuals are having to pick new plans. Their deductibles don\u2019t carry over. There\u2019s no provision in the law protecting them.\u201d<\/p>\n

Health insurers are currently allowed<\/a> to impose out-of-pocket maximums of up to $9,100 for individuals and $18,200 for families on ACA exchange plans. Friday\u2019s \u201cgold,\u201d or most robust, insurance offering<\/a> in Colorado, had out-of-pocket limits<\/a> of $8,250 per individual and $16,500 per family.<\/p>\n

For example, if a family already paid $16,500 or more for out-of-pocket costs this year on their Friday health plan, they could now face an extra $18,200 in out-of-pocket costs on their new health plan before the end of 2023, if anyone on their plan needs expensive care or services.<\/p>\n

Despite their collapsing business, Bright Health\u2019s executives have still enjoyed major rewards<\/a>. (Bright Health is publicly traded, so this information is public. Friday Health is privately held, so there is no public information about executive compensation.)<\/p>\n

As Bright Health was pulling back from providing insurance altogether, choosing to focus on a small group of primary care clinics<\/a> it had purchased, its board of directors \u2014 which includes former General Electric CEO Jeff Immelt and Biden COVID-19 adviser Andy Slavitt \u2014 approved $4 million in bonuses for Bright Health executives. These payments came despite the company\u2019s stock price falling precipitously.<\/p>\n

Under the terms of Bright Health\u2019s supervisory agreement with the state of Florida, where it offered coverage, the company could not pay bonuses to executives, Gottlieb pointed out. But because the parent company is separate from the legal entity that offered insurance in Florida, the bonuses were still legal.<\/p>\n

\u201cIt\u2019s just sort of staggering that they have negative capital, and are paying cash bonuses,\u201d he concluded. \u201cWhere\u2019s the accountability there?\u201d<\/p>\n\n \n \n \n\n \n \n

You can subscribe to David Sirota\u2019s investigative journalism project, the\u00a0Lever<\/i>,\u00a0here<\/a>.<\/p>\n\n\n\n

This post was originally published on Jacobin<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

The private equity\u2013backed health insurer Friday Health Plans collapsed under order by Colorado state regulators on July 18, stranding thirty thousand policyholders without health insurance as of August 31 \u2014 forcing them to pursue new plans in the middle of the year and rendering the money they\u2019ve already spent toward annual deductibles and out-of-pocket maximums [\u2026]<\/p>\n","protected":false},"author":138,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1162110"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/138"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=1162110"}],"version-history":[{"count":1,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1162110\/revisions"}],"predecessor-version":[{"id":1162111,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1162110\/revisions\/1162111"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=1162110"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=1162110"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=1162110"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}