May 2009 Private Equity Bulletin HEALTH CARE REFORM AGENDA AND STIMULUS SPENDING MAY PRESENT OPPORTUNITIES FOR PRIVATE EQUITY I. Executive Summary agenda also provides a renewed focus on health insurance burden employers and the provision of high quality care in two million fewer Americans receive President Barack Obama and the current lower cost settings. health insurance coverage through their Democrat-controlled Congress have employers than they did eight years ago. begun taking steps to reform the health These dramatic changes may present The rise in unemployment over the last care system, actions that are consistent private equity funds with investment two years has only exacerbated the with President Obama’s promises made opportunities in health care. For problem, causing many Americans to on the campaign trail to bring about example, managed care organizations lose their employer-sponsored private widespread changes. 1 Recently, President could potentially be a target for health insurance and put certain medical Obama proposed a $634 billion reserve dealmakers, as these companies may treatments on hold, leading to a decline fund for health care over the next experience improved enrollment growth in the utilization of certain health care decade that could be used to implement prospects from the expansion of health services and prescription drugs by some. President Obama’s proposals to lower insurance availability. The incentives in costs, offer affordable, accessible, the Stimulus Bill may also bode well for In response, President Obama has universal health insurance coverage, companies that provide electronic pledged to provide universal health care promote prevention and strengthen health records and electronic coverage by expanding coverage for pre- public health, though significant prescriptions, as $19 billion has been set existing conditions and offering adjustments may unfold as the proposals aside for HIT systems adoption. With Americans the opportunity to elect to work through their way through the $1 billion allocated to preventive care, enroll in a new public plan (the legislative process. Additionally, $53 companies that provide worksite and National Health Insurance Exchange) or billion has been specifically set aside for school site clinical prevention programs an approved private plan (under which health care (along with non-specific could be well positioned. Finally, funds income-based sliding scale tax credits ancillary spending bringing the total funneled into the system to shore up would be made available). This plan closer to $150 billion) in the American state Medicaid programs and to help calls for a tax credit for small business Recovery and Reinvestment Act of 2009 unemployed consumers purchase owners of up to 50% on premiums paid (the “Stimulus Bill”), the legislation “COBRA” coverage are only being on behalf of employees, and large passed in response to the current provided temporarily, but could employers that do not offer meaningful economic crisis that earmarks $288 strengthen portfolio companies that rely coverage would be required to contribute billion to tax relief and $499 billion in on Medicaid reimbursement or that a percentage of payroll costs toward the affirmative federal spending throughout would otherwise have taken a hit costs of the national plan. Furthermore, various economic sectors over the next resulting from the decisions of all children would have health care several years. The Stimulus Bill consumers to delay or forgo treatment coverage, and eligibility for Medicaid specifically calls for the widespread due to the loss of their employer- and SCHIP would be expanded. adoption of standardized health sponsored benefits. Though not as dramatic as the changes information technology (“HIT”) proposed by President Obama’s plan, and II. Expanded Health systems, allocates funding to strengthen by no means universal, the Stimulus Bill Insurance Availability state Medicaid programs, eases the includes measures that increase the burden of “COBRA” benefits, and President Obama has often cited the availability of health insurance. First, provides financial support for preventive statistics that over 45 million Americans while many terminated employees are medicine. President Obama’s reform lack health insurance, rising costs of 1 Barack Obama’s health care platform is available online at http://www.barackobama.com/pdf/issues/HealthCareFullPlan.pdf.
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