This article is from a cover package of essays entitled Ten New Ideas for the Democratic Party to Help the Working Class, and Itself. Find the full series here.
During the tense negotiations over his “Build Back Better” bill, President Joe Biden fought hard to include a $400 billion provision that would have dramatically lowered the cost of child care and expanded access to pre-kindergarten. He did not succeed, thanks to opposition from Senate Republicans and one key Democrat, Joe Manchin. But the effort signaled a new level of commitment among most Democrats to address what policy wonks often refer to as “the care economy.” During her campaign, Kamala Harris stressed her support not just for increasing public funding for child care but also for another urgent issue: the lack of affordable long-term care for the elderly and people with disabilities.
Though elements of the MAGA movement have advocated for more federal support for families with children, today it seems unlikely that the Trump administration will do much. Another federal push to fund the care economy is likely years away.
That delay, however, could be a blessing if those who are committed to helping families use the time wisely to address a growing problem with social service delivery: its capture by corporate interests. Experience has demonstrated that when the federal government steps in to provide more public support for different facets of the care economy, too often the unintended consequence is to attract new players to the sector who are motivated by greed. Examples include a vast corporate ecosystem of privately owned, publicly subsidized, and massively predatory providers that range from dental chains specializing in the overtreatment of children on Medicaid to abusive, monopolistic dialysis centers gorging on Medicare dollars.
Before more spigots of federal money get opened, advocates need to figure out how to corporate-proof the care economy. The way to do that is to focus their energies at the state and local levels. That’s not only where reform actions will be possible over the next four years—it’s also ground zero for the care economy itself. After all, child care facilities, hospitals, nursing homes, and most other health care providers operate almost exclusively in local or regional markets, and they have long been subject to regulation, and subsidy, by state and local governments.
Get those regulations and subsidies right, and great things can happen, even in red states. It’s worth remembering that Oklahoma, which voted for Donald Trump twice by huge margins, has operated a no-cost pre-K program open to all four-year-olds regardless of income since 1998, which is widely considered among the best in the country.
Get the ground rules wrong, however, and government programs can become captured by corporate interests. That’s especially true with the spread of private equity. Firms like Apollo, Carlyle, KKR, and Blackstone are the rebranded descendants of the corporate raiders and leveraged-buyout firms that wreaked mayhem on industrial America during the junk bond boom (and bust) of the 1980s and ’90s. These 21st-century raiders use wealthy clients’ funds and high quantities of debt to buy control of companies, restructure these companies to maximize short-term profits, and then sell them off to the highest bidder within three to five years.
The consequences are often disastrous. Bankruptcies of care providers, including hospitals, are rising due to private equity’s debt-fueled acquisitions and asset stripping. Private equity–owned providers are driving up prices for patients, and have been behind the surge in surprise medical billing for out-of-network care in hospitals and emergency rooms. Private equity cost cutting has delayed and deteriorated the quality of care received by hospital patients and nursing home residents, killing thousands of people every year.
Until now, regulators have largely acted retroactively, waiting for evidence of harm to emerge before closing the loopholes that enabled these outcomes. For example, Congress banned surprise medical billing as part of its pandemic relief efforts, while the Centers for Medicare and Medicaid Services set new minimum staffing levels for nursing homes to limit the risk of fatalities from understaffing.
What can state governments do to get ahead of the problem? Policy makers’ immediate instinct may be to prohibit private equity from entering these socially critical sectors. And short of a total ban, private equity ownership should at the very least trigger extra scrutiny from regulators.
Nevertheless, such a ban would not, by itself, protect states against companies or investors that, although organized through a different corporate form, mimic the worst of private equity’s tactics. So a broader approach is needed.
State governments can start by leveraging their control over the distribution of public money for federal and local care programs. They should set clear expectations in return for their funding, including standards for the quantity or quality of care provided, the wages and working conditions for caregivers, and the costs that will be passed on to care recipients and their families. States can also place restrictions on asset sales, executive compensation, dividend payments, and other corporate methods for passing a company’s wealth on to Wall Street.
When the federal government steps in to provide more public support for different facets of the care economy, too often the unintended consequence is to attract new players to the sector who are motivated by greed.
Meanwhile, states should take the lead in enforcing competition policy rules against companies that profit from illegal, anticompetitive behavior. This is especially important in highly fragmented care markets that are typically populated with small, independent businesses—like family doctors, dentists, and veterinarians, or like child care centers—that can be rolled up into chains and then sold at a profit to even larger chains.
Addressing this trend at the federal level is challenging because the scale of each individual deal is so small that the cumulative impact does not immediately register on the national radar. But state attorneys general are closer to the problem and do not need to wait for federal regulators to act.
For example, the Colorado attorney general this year broke a private equity–owned anesthesiology chain’s monopoly over the Denver and Durango markets, requiring them to suspend contracts with five hospitals and dissolve their noncompete agreements with local doctors.
One important issue reformers must deal with is the many care providers, ranging from independent doctors to nursery school owners, who are tempted to sell their small businesses to large chains or private equity firms. There are some legitimate issues of fairness here for providers who have built up their businesses without the benefit of direct public subsidies, and are now hoping to be relieved of administrative burdens or just to cash out. But going forward, care providers who benefit from large infusions of public dollars and who operate essentially as public subcontractors have no legitimate expectation of making huge returns on the public’s money. In the care sector, everyone should make a fair and decent income, but we need people driven by mission, not margins.
One way to deal with this issue is for states to encourage community development finance institutions or public pension funds to invest in smaller providers. This source of funding can give older caregivers the ability to transfer ownership of their businesses to their employees or to local entrepreneurs or nonprofits and still provide for their retirements. Another way is for states to discourage the roll-up of smaller providers by helping them with publicly subsidized administrative services or through shared service alliances with other providers.
Whichever mechanisms states choose, they should deepen their collaboration with people on the ground: care workers; small business entrepreneurs; care recipients and their families; and community leaders. Not only should these stakeholders participate in designing local regulation and market rules, they also should be included as partners in the fight against corporate chains’ and private equity’s campaign to corporatize and financialize the local care economy.
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