The Stew BLOG

One More New Year’s Resolution: Dream Big on Sustainable Financing

Stacy Becker, Vice President, Programs | 01/27/2017

So Santa Claus didn’t leave a nice package of sustainable financing under the tree? Aw shucks. But you have to admit it’s a pretty tall order, even for Santa. Following on our “Five Resolutions for the New Year” post from earlier this month, I’m suggesting one more resolution: identify sustainable financing! Here are six leads you can consider pursuing. Some are actually being implemented in communities; others are still a twinkle in Santa’s eye.

1. Excess margin of managed care organizations/medical loss ratios

New federal rules require that managed care organizations (MCOs; organizations that contract with state Medicaid agencies to deliver Medicaid services to enrollees on a capitated basis) must have minimum medical loss ratios (MLR) of 85% by 2018. What those words simply mean is that these Medicaid plans can spend no more than 15% of the revenues they receive on administrative costs plus profits. The Centers for Medicare & Medicaid Services (CMS) encourages states to require MCOs to rebate any excess beyond the 15%. This compels us all to ask: besides sharing the rebate with the federal government, what else could a state do with refunded money?

One idea is to reinvest in community health improvement initiatives. In partnership with the Central Oregon Health Council, PacificSource agreed to cap its profits at 2% and return any additional profits back to the community, making available $6 million in 2016. Alternatively, CareSource of Ohio is showing it’s possible under the new MLR formula for MCOs to pay for non-medical services that tackle the social determinants of health. And a few states, such as Texas and New Mexico, already had rules for recapturing“ excess profits” prior to the new formula.

2. Tax credits

ReThink Health is exploring how tax credits might be used for population health. As long as we’re handing out tax credits, why not hand them out in a way that benefits communities and taxpayers?

If you’re looking for bedtime reading, just Google your state’s or the federal government’s “tax expenditure report.” These reports estimate all the tax breaks provided in a given year and reveal a lot about our priorities. Let’s take housing for example. Investors in low-income housing will receive estimated credits of $9 billion in 2017; homeowners will receive tax deductions for mortgage interest of $75 billion as well as exclusion of capital gains on home sales of $40 billion.

The best tax expenditure reports illustrate the extent to which public policy ends are actually achieved. A few will even tell you which income levels benefit the most from any particular tax break. This is important because tax policy can be a very blunt instrument for pursuing public objectives. For example, there are numerous studies of “enterprise zones,” which typically use tax policy as a means to create jobs and spur economic development. Summaries of some of these studies, here and here, question the effectiveness of these zones, and certainly question the return on investment.

How could tax policy be used more wisely? There is plenty of evidence that smart population health investments can reduce healthcare costs, improve health, reduce health disparities, improve productivity and residents’ earnings, reduce crime, and raise student achievement. If done well, population health is a go-to investment!

3. Sugary drinks taxes

Communities (Albany, CA; Berkeley, CA; Boulder, CO; Cook County, IL; Oakland, CA; Philadelphia, PA; and San Francisco, CA) are starting to adopt these taxes, despite some efforts questioning the linkage between excess sugar and poor health. However, the research suggests that there’s a two-fold benefit: additional revenues to invest in population health and positive health impacts resulting from reduced soda consumption, for example in Berkeley and Mexico. Get out ahead of this one. If you’re not advocating for this tax to fund population health, it might end up filling the general fund coffers as it does in Berkeley, as opposed to funding community development initiatives as it does in Philadelphia.

One argument against soda taxes is that it is regressive. As a sales tax, it hits low-income people the hardest. This is true, but the impacts can be ameliorated through the design of the tax and its uses. For example, imagine if the additional revenues were used to increase the generosity of the earned income tax, which has been proven to be of significant benefit to low-income families. And since we know that income is directly related to health, this design decision would hopefully be putting a deposit down on population health as well.

4. Private-nonprofit partnerships

This article, which focuses on a restaurant in Spain that creates profits that are used to feed the homeless, got me thinking. Hundreds of start-ups are looking to make money in the healthcare sector through mobile apps, medical devices, and data tools that they create. I had a conversation on an airplane with a man who created an app to remind patients to pick up their meds or go to their doctor’s appointments, and I can assure you it was very lucrative for him.

It takes a special set of skills to be an entrepreneur. But what if nonprofits and/or multi-sector partnerships could partner with a for-profit organization whose purpose is to share the profits with them? ReThink Health just got wind of the formation of such a private-nonprofit partnership. That’s all we can say for now, but you can be sure we’ll be watching it and will share when we can!

5. Conversion foundations

We spoke with Kathy Dunleavy, president and CEO of the Mary Black Foundation in Spartanburg, SC. For many years, this conversion foundation operated in a typical philanthropic way, providing annual grants to grant-seekers. Under Kathy’s leadership, however, the Foundation decided that it could have a much greater impact. It’s taking a leading role in Spartanburg, convening community leaders around population health, using its funds to leverage other funds, and trying new forms of grantmaking to assist its key nonprofit grantees in building the capacity that will enable greater sustainability and better outcomes over time.

Conversion foundations are created, by law, when for-profit hospitals close. As such, they might be a particularly important resource in smaller, rural communities, as in Spartanburg. Those of you in rural communities most likely know the executives and board members that are running the conversion foundation in your community. Why not get this conversation started, even if informally? As one executive of a backbone organization put it, “It’s not uncommon for me to do business in the grocery store.”

6. Employers

Employers, especially self-insured employers, have a lot at stake when it comes to health. This is underscored by the fact that employers spent nearly $700 per employee in 2015 on health and wellness programs, almost $900 per year for companies of more than 20,000 employees [1]. That’s a big price tag, but a relatively small percentage of their health care costs. Moreover, absenteeism and presenteeism (working while sick) are additional significant costs borne by employers. ReThink Health’s own Dynamics Model shows the significant gains in productivity that can be reaped through investing in population health.

The work of the Health Enhancement Research Organization (HERO) demonstrates that employers are increasingly attuned to the importance of their employees’ health, as well as to the health of the broader community. Does this mean that area employers will just write a check if you ask very nicely? Of course not. But there are certainly “win wins” here to be explored. Rethink Health has our eye on a few emerging models—we’ll let you know.

Has your community implemented any of these ideas? What interesting sources of sustainable financing are you exploring? We’d love to know! Please comment below, or connect with me at [email protected]. And follow us on Twitter! @stacymbecker  @ReThinkHealth