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The Effects of Financial Structures to Increase Social Drivers of Health Investments in Medicaid: A Simulation
Francis Haoyu Fang1, Pinar Karaca-Mandic1, Richard T Thakor1
1Francis Haoyu Fang is a PhD student in economics at the University of Washington, Seattle; he was with the Department of Applied Economics at the University of Minnesota, Minneapolis, at the start of this study. Pinar Karaca-Mandic and Richard T. Thakor are with the Department of Finance at the University of Minnesota, Carlson School of Management, Minneapolis.
Abstract:
Objectives. To explore and quantify the potential effects of financial innovations aimed at increasing investments in social drivers of health (SDH). Methods. We built a simulation model in which individuals in a health care market are served by multiple Medicaid managed care organizations (MCOs). In our model, each MCO can spend money to make SDH investments that improve patient health and reduce costs to the MCO, but patients can switch between different MCOs. Results. While SDH investments improve patient health and increase the profitability of the investing MCO, the benefits also accrue to noninvesting MCOs because of the churn of patients between MCOs, resulting in a "wrong-pocket problem" where investing MCOs bear the costs but share the benefits with competitors, resulting in worse financial returns compared with making no investments and ultimately disincentivizing SDH investments. Outcomes can be improved when all MCOs participate in a financial structure-an SDH bond-which raises money from investors and distributes the proceeds to MCOs to make SDH investments. Conclusions. An SDH bond can improve patient health and increase profits for MCOs because of cost-savings. (Am J Public Health. 2026;116(S3): S210-S217. https://doi.org/10.2105/AJPH.2026.308479).
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