Center for Health Policy

Could Social Impact Bonds Help Finance Public Health Innovation?

Social impact bonds are emerging in many state governments and local municipalities as a new way to finance public health interventions. SIBs can be a way to launch an innovation without bearing the cost for years to come. So how do they work? Here is an example from South Carolina. SC is using SIB to finance an intervention to reduce premature births. If the program succeeds in reducing the premature birth rate among Medicaid beneficiaries, and reduces state spending as a result, the state will repay the principal plus a yet-to-be determined rate of return. If the program doesn’t meet expectations, the state will owe the investors less or even nothing at all. SIBs are also referred to as a pay-for-success contract. They have been used for multiyear projects pertaining to education, homelessness and prisoner recidivism. In most cases, the money goes to a nonprofit that provides the services. Because SIBs extend for many years, there is time for those savings to emerge and be measured and they often promise double-digit returns. Although enthusiasm is high for SIBs, they have only been around since 2010 so critics point out that SIBs are yet unproven and that calculating the return for investors can be complicated given the complexity of the contracts. Yet, given the climate of austerity in government financing of public health, SIBs are a glimmer of hope for public health organizations wanting to improve the health of their community.