A report released by the Institute of Medicine last month recommends a new tax on medical care to generate more funding for public health initiatives to prevent disease (coverage). The proposal aims to address two disconnects in the current system:

  • First, the vast majority of our nation’s $2.6 trillion annual health spending focuses on downstream treatment of illness rather than on upstream prevention and health promotion achieved through public health (which accounts for just 3% of spending).
  • Second, health care financing structures and incentives are mis-aligned in a way that perpetuates this disconnect; it’s a vicious cycle.

But are taxes the best lever to re-align the system?

Instead, imagine a market-driven approach that leverages future health care cost savings to pay for proven health interventions today. For example, a “health impact bond” could generate upfront cash needed to pay for evidence-based chronic disease prevention programs; bond investors would receive a return based on a share of savings (costs avoided) that accrue to health insurers and other risk-bearing entities.

This model taps into a growing movement toward impact investing and pay-for-success contracting; it is based on carrots (incentives) not sticks (taxes); and it has the potential to capture ongoing savings streams for reinvestment, creating a virtuous cycle of health.

As a recent Fast Company article notes, the idea is gaining traction.