Tuesday, April 09, 2013

Social Impact Bonds -- Might They Help Fund Health Education and Preventive Medicine?

The United States and United Kingdom are experimenting with social impact bonds. This blog post describes the concept of these bonds and suggests that they might be used to fund health education and preventive medicine programs managed by NGOs. If the concept worked, it might be a win-win-win proposition benefiting the public and investors with little risk to the public purse.

In the United Kingdom and the United States experiments are under way with social impact bonds. The bonds are issued by a financial firm and purchased by investors. The funds raised from the bonds are then passed to a non governmental organization that provides services to a target population. The services, by helping the target population, reduce the need for some government expenditures. As a result, the government saves money. It uses the savings to pay the investors interest on the bonds. There is a risk, in that if the government savings are not sufficient, interest may not be paid and indeed, the principle may not be repaid. The financial institution "has skin in the game" by providing some of the capital from its investors. Foundations may help by providing guarantees for the bonds and the financial institution.

If the program works, everyone wins. The target population benefits from the services. The government saves money. The NGO obtains funding to carry out a program that meets its objectives. The foundation does good, but doesn't have to shell out any money. Of course, if the program doesn't work, everyone many lose something (albeit, the government and target population may be no worse off than before).

How about using this mechanism for public health programs? People often could be saved from getting sick with proper health education and preventive services such as immunizations. Lacking these services, the do get sick, lose working days, cost their employers money, and draw on government funding for curative and ameliorative medical services.

So how about enabling NGOs to offer the public health service through "health impact bonds". The government could expect to save money through reductions in Medicare and Medicaid funding, from which they could pay back the investors. Indeed, corporations might be added to the mix if they found that they could reduce health insurance costs and costs of workforce absenteeism. There should be foundations that would be willing to participate (or in a developing nations context, foreign donors). Indeed, financial institutions might be willing to create pilot projects simple as a public service.

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