News & Insights
Could Social Impact Bonds Be Used to Capitalize Preventive Health Care Solutions in Latin America?
by Lara Diaconu, vice president, Health Services Fund, Global Partnerships
Social impact bonds (SIBs) are an emerging impact investment vehicle that enables governments to innovate in the prevention of costly social ills. The way it works is that impact investors (i.e. foundations and high net worth individuals) receive a return linked to clearly defined program results. Social impact bonds have to date been devised to finance interventions that reduce recidivism rates, teenage pregnancy rates, juvenile delinquency, and to increase employability of students.
In early October, the US Department of Labor announced $24 million in grant awards to pilot SIBs to increase employment and reduce recidivism among formerly incarcerated individuals in Massachusetts and New York. And at the IDB’s annual FOROMIC conference last week in Guadalajara, Mexico, experiences were shared from the UK and Colombia. Despite relatively recent reports that remain skeptical about their efficacy noting that it’s too early to see results, SIBs seem to be gradually gaining in popularity as a means for the public sector to encourage funding innovation for social impact – using more risk-tolerant sources of capital.
On the surface, it would seem that there could be lot of potential for SIBs to work in the health sector as well. We know that investing in prevention (like PAP exams to detect cervical cancer) and behavior change (replacing sugary drinks with water, eating healthier, getting more exercise) can reduce the incidence of cancer and diabetes. We know that the overall costs of care decreases, and quality of life increases, when those living with chronic conditions receive maintenance care from a primary level health care provider instead of waiting until their condition deteriorates so much that they require hospitalization.
Could SIBs be used to capitalize preventive health care solutions in Latin America?
A couple of initial thoughts:
- In many countries, the public sector does not currently absorb the long term cost of health care, so the economic incentive to invest in prevention might not yet be clear. Across Latin America governments are struggling to finance the most basic health infrastructure, and budgets may not be bearing the burden of preventable conditions such as cervical cancer or diabetes. The costs of not getting an annual PAP exam, or of consuming foods high in fat and sugar, is currently being borne directly by individuals, who incur exorbitant costs treating chronic conditions diagnosed in a later stage. At least this is the case for the large majority of people working in the informal sector with no insurance coverage.
- Many health prevention interventions are largely proven, but lack the resources and distribution channel to reach the last mile. SIBs might be an option if the public sector in fact has the mandate and resources allocated to address a given preventable condition (for example cervical cancer), but decide to take a risk on a lower cost distribution channel (like a microfinance institution, or a non-profit organization).
In reflecting on my time at the FOROMIC conference, I see many possibilities and I look forward to learning more as the sector grows. Social impact bonds appear to have some supporters, but the jury is still out on whether or not they’ll have an impact.