Aggregate health

Many private equity GPs pride themselves on their ability to create value and streamline operations at portfolio companies, but until now, managing their investees' employee benefits has tended to be a less than scientific endeavor.

When it comes to operational expenses, employee benefits such as medical insurance can translate into a chunky line item on a portfolio company's budget, but no platforms exist to allow their private equity backers to engage in consolidated and streamlined administration with other portfolio companies. That healthcare is a necessary and sizeable expense confronting portfolio companies was the impetus behind healthcare and medical insurance provider UnitedHealthcare's creation of a private equity-focused product.

Minnetonka, Minnesota-based UHC's launch of its Private Equity Solutions Practice in March of this year coincides with a confluence of factors within the private equity industry that make the ability to purchase healthcare in aggregate for portfolio companies an attractive prospect to GPs, claims Patrick O'Keefe, vice president of the practice. With the high cost of employee benefits, the limited human resources staffing at many PE-backed companies, and private equity firms' shift toward being more operationally hands-on, GPs are keen on addressing this issue via a more strategic approach.

“We met with 30 or 40 [private equity] firms, and none of them said, ‘It doesn't make sense,’ or, ‘I don't care,’” says O'Keefe, who added that UHC had engaged with 20 firms, and had put together plans for a couple of GPs. “They say it's an issue they need to tackle, but they don't know what to do about it.”

What most GPs have said they want is the ability to have all the administrative efficiency of purchasing and managing coverage for a single, 5000-person company – but to allow each portfolio to have its separate policy and its own plan design. “We'll allow them to do that,” says O'Keefe. He also points out that, in the event that a GP shies away from the prospect of being the holder of all of these policies, they can have each policy in the name of the portfolio company in question, while still retaining a lower administrative burden.

That these programs can be customized to a wide range of needs and special cases is something that UHC hopes will attract GP clients. If a portfolio company's workforce includes 30 employees who reside overseas, then the GP can leverage UHC's international department. Partial benefits for part-time employees can be arranged. Retiree programs for companies with aging workforces are also available.

Of course, aside from the flexibility, the prospect of cutting down on costs also appeals to GPs. By adopting one of UHC's private equityspecific plans, “on average, there's probably about ten percent savings [in health insurance costs] for a given portfolio,” says O'Keefe. “That can vary depending upon where those portfolio companies are and how they structure those benefits.”