Reuters recently published an article that describes the ongoing creation of a social impact bond pilot for a preventative healthcare service in Fresno, California. In this pilot, the nonprofit organization Collective Health is testing whether services to reduce environmental triggers for individuals with chronic asthma will generate savings to the insurance companies that pay for those individuals’ resulting hospitals visits. This blog post reviews the program and offers some analysis.
The problem: Fresno County has 200,000 individuals living with asthma. These individuals account for over 6,000 emergency room visits and over 1,100 hospitalizations annually. The total annual cost, including foregone worker productivity, is $87 million. (Source)
The solution: Several services can reduce home-based asthma triggers by improving indoor air quality. These services can reduce asthma triggers and prevent costly ER visits and hospitalization.
The barrier: Individuals switch health insurers too often for any single insurer to realize financial gains from asthma preventative services. Therefore, insurers under-invest in this preventative programs for asthma.
The innovation: If insurers are convinced that these preventative services reduce their costs, they will have the incentive to create a collective pool of funds that will invest in these services and generate cashable savings to all the insurers. (This solution has the accompanying collective action problem that each insurer will want to reduce their financial contribution into the pool and increase their financial benefit from it.)
The caveat is that neither the current Fresno pilot nor the envisioned future program resembles the social impact bond model that is being designed in Massachusetts and New York. In the Fresno pilot, the California Endowment is paying service providers up-front to reduce chronic asthma triggers, while actuaries work to determine the financial outcome of the program months later. This is not a social impact bond; it’s just good investment into a pilot to test whether savings materialize.
In the program envisioned after the pilot, insurers will collectively purchase services to reduce asthma-related hospital visits and benefit from the resulting financial gains. The social impact bond component of this model is that private investors will give service providers money, and insurers (or a fund they jointly create) will repay these investors. However, if the service is proven to be effect, the insurers can simply pay for the service and include a basic performance bonus to incentivize good outcomes, rather than creating a social impact bond with private investors. In order to determine if the social impact bond is the most appropriate financial mechanism for preventative asthma services, I think the designers of this program should consider two questions:
1) If insurers are convinced that the preventative service saves them money, will they be able to come together and purchase this service?
2) If insurers are able to purchase this service, can they disburse money in expectation of the savings, or are they constrained (in some legal, technical or budgetary way) in paying only out of the resulting savings?
3) If insurers can make an up-front purchase of this preventative service, is a regular performance bonus to service providers sufficient to generate the same level of savings that would exist in a social impact bond? In other words, are the benefits of the SIB worth the costs of creating it?
Data for this blog post were taken from secondary sources, including the Collective Health website and the Reuters article on the Fresno program.
Michael Belinsky 