This is a followup to “Will the Nation Go Broke Paying for Senior Housing & Long-Term Care?” as part of a series of articles about senior housing and care options, alternatives, and opportunities.
It’s becoming increasingly apparent that the nation will need to come up with some innovative solutions to weather the impending “silver tsunami” as the Baby Boomer generation heads into old age, and public funding for senior care may emerge as an option.
Government benefits programs for the aged and needy are already stretched to their limit, with signs pointing toward further overextension as the elderly demographic continues to grow.
The number of those who are unable to meet their long-term care needs independently is expected to rise, and the government might need to get creative and enlist the help—or pockets—of the general public.
Using Private Capital for Public Initiatives
One solution is to create a social innovation financing program that sells “Social Impact Bonds” to raise private investment capital that goes toward funding interventions and care alternatives that can simultaneously meet seniors’ needs and save the government money.
The concept comes from British organization, Social Finance, Ltd., which launched a Social Impact Bond program in the United Kingdom in 2010. This pilot program was meant to improve social outcomes through reducing the number of criminals returning to the prison system.
The idea crossed the pond to the U.S., and in January 2011, sister organization Social Finance, Inc. was born. The organization collaborates with the government, investors, nonprofits, and thought leaders on “how Social Impact Bonds might realign incentives for delivering social outcomes and augment public funding and philanthropy to support our collective efforts to improve the lives of individuals and communities in need,” according to Tracy Palandjian, Social Finance’s CEO, in a written foreword to an overview of the project.
Here’s how it works:
Social Impact Bonds (SIBs) raise private investment capital to fund prevention and early intervention programs that reduce the need for expensive crisis responses and safety-net services. The government repays investors only if the interventions improve social outcomes, such as reducing homelessness or the number of repeat offenders in the criminal justice system. If improved outcomes are not achieved, the government is not required to repay the investors, thereby transferring the risk of funding prevention services to the private sector and ensuring accountability for taxpayer money.
The best candidates for SIBs, according to the overview of the project, are nonprofits with a proven track record of improving outcomes for well-defined target populations, which can translate into government savings that are large enough to cover the program’s cost and give a “reasonable” return to investors.
Social Impact Bonds and Senior Care
While the program seems to be targeted mainly at ending chronic homelessness and lowering re-offending rates of juvenile and adult offenders, it can also be used to help low-income seniors.
The overview points to the growing senior demographic, which is expected to account for 20% of the overall population by 2050.
“When they can no longer live independently, many seniors must enter costly nursing facilities, even if they need acute care only for a short time,” says the report. “Low-income seniors who move into these facilities and who are eligible for both Medicaid and Medicare impose significant costs on the government. Yet numerous alternative services can provide the extra care seniors need at much lower costs than nursing homes while allowing seniors to remain in their own homes or communities.”
Finding ways to provide senior care outside of expensive nursing homes is deemed as an “aging-in-place intervention” by Social Finances, as it facilitates healthy outcomes while generating government savings.
Potential Risks in Implementing the Program
There are many risks presented in the Social Impact Bond program, in areas that include execution, finances, and reputation. Positive outcomes are crucial for the program to be beneficial not just to target populations, but also to investors, so the organizations in charge of preventions and interventions must have a well-defined game plan. Because of the pay-for-performance model, investors bear 100% of the financial risk in SIBs.
“SIBs signify a new paradigm of public-private partnerships in the wake of the financial crisis, one that privatizes the risks and shares the gains,” says the overview.
“A New Tool for Scaling Impact: How Social Impact Bonds can Mobilize Private Capital to Advance Social Good” gives a more detailed look into the aspects of this initiative. It can be viewed here.
Written by Alyssa Gerace