An op-ed in The New York Times presents an intriguing idea (“The College Graduate as Collateral,” Luigi Zingales, June 13, 2012):
Investors could finance students’ education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student’s future income — or, even better, a fraction of the increase in her income that derives from college attendance. (This increase can be easily calculated as the difference between the actual income and the average income of high school graduates in the same area.)
We think there are applications in health care as well. Health insurers and employers have been receptive to our model for Health Impact Bonds (PDF): investors finance prevention and health promotion in exchange for a share of future value (improved health, lower health care costs). Demonstration projects focused on reducing asthma-related emergencies and other conditions are coming together in Fresno, CA, and other communities. (Related story on Fast Company‘s Co.EXIST site.)
While the current model is a form of debt financing, we are developing alternative financing mechanisms (and new insurance products) that could be a form of equity contract. In this sense, my/our future health can be collateral for investments made in disease prevention, evidence-based care, and environments that promote healthier choices and wellbeing. The incremental value generated by these investments would be realized — and shared — in the form of better health, higher productivity and achievement, and lower costs.