Housing Investment Strategies by Healthcare Payers and Systems: Paving the Road Ahead

Since passage of the Affordable Care Act, which both statutorily mandated tax-exempt health systems to address community needs and incentivized payers to invest in social determinants of health, a new era of investing in affordable housing has begun.¹ CVS Health invested $185 million in affordable housing in 2021 while Kaiser Permanente topped its housing investment fund at $400 million in 2022, often strategically restricting investments to areas where it is the predominant healthcare operator. Health systems spent $1.6 billion on housing-focused interventions from 2017 to 2019.² This funneling of healthcare dollars towards housing demands an understanding of the policy and financial levers used to invest in housing. Programmatic improvements to protect and improve patient well-being will provide policymakers a better understanding of which approach, if any, healthcare entities—in collaboration with government agencies and community-based organizations—should exploit to create housing and improve health.

THE NEW TOOLS IN HEALTHCARE’S TOOLBOX

The Low-Income Housing Tax Credit (LIHTC) program financed by the Department of the Treasury provides LIHTC-allocating agencies, such as the New York State Housing Finance Agency, the ability to issue tax credits for the acquisition, rehabilitation, or construction of lower-income rental housing. In general, LIHTC-allocating agencies distribute credits to housing developers who sell them to, typically, for-profit investors, such as banks, that provide cash for the project’s capital budget and receive multiple tax deductions.³

The LIHTC program decreases payers’ tax burden and increases the supply of affordable housing in communities where they have large member shares. Payers also benefit by being partnered with housing developers who best meet their state’s Qualified Action Plans (QAP), which can include provisions to address social determinants of health.³ UnitedHealth Group (UHG) worked with a LIHTC syndicator to develop 1000 homes for housing-insecure individuals.

Payers and providers also finance housing projects directly or indirectly via low-interest loans. For example, they can work with community development financial institutions (CDFIs) that provide financial services to individuals and organizations. An investor may provide a CDFI with a 3% interest loan whose principal amount is lent to a housing developer at 6% interest, with the CDFI netting the difference. Investors can also issue loans directly to housing developers or community development corporations.

Through an Impact Investment Fund, Rush University Medical Center contributed an initial $1.08 million loan to its regional CDFI to revitalize 50 vacant buildings in distressed neighborhoods.⁴ Rush expects the full return of its investment plus a 1–3% return over comparable maturity U.S. treasury rates. Kaiser also invested $5 million in a revolving loan fund (not through a CDFI) to support housing developers in Maryland. UHG-Arizona similarly issued a $22 million low-interest loan to a community development corporation.⁴

Obtaining part or full equity ownership in a housing project is another financing strategy. Once projects are developed, operational costs are typically covered by rental assistance subsidies and rental payments. An additional source of revenue is the sale of the property.

With $10 million in financing—the majority coming from an equity investment fund to create housing and improve health outcomes—Kaiser and Enterprise Community Partners collaborated with a community development corporation to acquire a 41-unit apartment complex. The corporation then worked to stabilize resident rent and pursue government subsidies to transform the units into income-restricted housing. The Fund earns a 4–5% return and pays Kaiser a percentage of rental revenues after expenses.

IMPROVING AND EXPANDING HEALTHCARE INVESTMENTS

Though these investment strategies are not the only mechanisms (e.g., real estate investment trusts, grants) that payers and providers use to finance housing projects, they exemplify common investment channels with implications that policymakers should examine.

The LIHTC program typically allows housing developers to buy out the for-profit investor’s interest in the property at low cost after a 15-year period. However, investors are incentivized to seek large exit payments by demanding the property be sold on the open market, thereby placing tenants at risk for eviction—the very same phenomenon with detrimental health effects⁵ that payers and providers aim to prevent. Patients are also at risk for eviction when housed through loan or equity arrangements. In some loan deals, payers can secure housing units for their members. To ensure members remain housed, payers often use regulatory flexibilities, such as Medicare Advantage Supplemental Benefits and Medicaid home- and community-based service waivers, to provide employment and case management support, but health insurance churn places patients at risk for eviction. Equity and ownership arrangements similarly place patients at risk if rent payments are increased due to higher expenses, investor preferences, or macroeconomic influences.

To support LIHTC investments, policymakers could set aside health-and-housing specific LIHTC credits tied to comprehensive QAPs with contractual clauses that prevent price exploitation and earmark a percentage of total investments for onsite resident services to support housed beneficiaries. For loan and equity arrangements, state insurance regulators and Departments of Public Health could hold payers and providers to specific housing investment standards, such as minimum beneficiary protections and program evaluations measuring housing attrition rates, mental health improvements, and social return on investment as recommended elsewhere.¹ These standards could build off Community Reinvestment Act ratings, which are used to ensure financial institutions are meeting community credit needs and are considered when evaluating asset expansions.

With these guardrails, mechanisms to increase investments in underserved housing markets could follow. For example, Treasury could expand the LIHTC program—the most feasible and scalable option—and payers could be held to a minimum requirement of risk capital that must be allocated to housing projects at appropriate rates, similar to some Life and Property Casualty Insurance programs. Additionally, the Centers for Medicare and Medicaid Services could consider allowing Medicaid managed care organizations to invest surplus dollars in housing, a currently forbidden practice by the agency, if payers demonstrate success in providing housing support services. The IRS could revise community benefit reporting to incentivize greater health system investments in housing and support services, which can help members remain housed in a dignified manner.⁶ Notably, effectively providing housing and support services will require training of care team staff and investment in technological infrastructure. For example, population health analytics tools that stratify patients by acuity levels and subsequently place them on appropriate housing pathways can be used by complex care managers who are skilled in patient engagement and referral management.

Healthcare investments alone will not—and should not—close housing gaps, but the lack of affordable housing warrants some financial investments by payers and providers, while the health inequities exacerbated by the COVID-19 pandemic demonstrate a need to reexamine policies that can benefit disadvantaged communities.⁷ In particular, expansion of an enhanced LIHTC program would create partnerships between housing agencies, community developers, and healthcare entities that are financially incentivized, appropriately regulated, and accountable to the public, unlike in loan and equity arrangements. Data links the LIHTC program to social and economic benefits,³ and the comprehensive evidence base connecting affordable housing to better health outcomes, including recent randomized control trials,⁶ makes it reasonable to assume that housing investments paired with support services can improve health outcomes if unintended consequences are mitigated.⁶

Nonetheless, housing investment strategies should be thoroughly analyzed for their impact on patients and society at large. Understanding their characteristics could help policymakers appropriately incentivize the use of specific investment channels.

Declarations

Conflict of Interest

Dr. Megan Sandel is an unpaid trustee on the board of Enterprise Community Partners but this work is unrelated to her role. Mr. Velasquez reports consulting fees from Suvida Healthcare unrelated to this work.