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EuroHealthNet Guide for Financing Health Prevention and Promotion

Glossary

This glossary is designed to help you navigate concepts related to financing, social investment, and health with ease, whether you’re encountering these ideas for the first time or need a quick refresher.

Asset class

An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace.

Historically, the three main asset classes have been stocks, bonds, and money market instruments. Investment assets include both tangible and intangible instruments, which investors buy and sell for the purposes of generating additional income on either a short- or a long-term basis.

Co-financing

Co-financing was developed by the United Nations Development Programme and colleagues. It is an approach whereby two or more sectors or budget holders, each with different development objectives, co-fund an intervention or broader investment area, which advances their respective objectives simultaneously. Co-financing does not require additional resources or increases in capital investment. Rather, it helps optimise the allocation of existing resources across sectors to maximise cross-sector outcomes.

The co-financing methodology necessitates different government departments, sectors, or budget holders to move outside their current silos and work together. This includes through effective cross-sectoral governance, planning and financing mechanisms through their inter-institutional and coordination mechanisms.

Community investment

Community investment works by selling a share in an enterprise to people in the community. Members of a community benefit society can become community shareholders and invest in local enterprises providing goods and services that meet local needs. Members expect a modest return on their investment.

The return payable is based on the principle that interest should be no more than is sufficient to attract and retain the investment. Members invest on the understanding they will be rewarded primarily through a social dividend rather than a monetary dividend.

This long-term alignment of the interests of owners, investors and customers is at the heart of the community enterprise movement: the community purpose of the enterprise is the primary motive for investment. The central task of all community shares initiatives is to build membership.

Crowdfunding

Crowdfunding is a way of raising money to finance projects, ‘start-up’ businesses, or charitable events. It enables fundraisers to collect money from a large number of people via online platforms. The platforms must be managed and administered to ensure money raised goes to the intended parties. However, some platforms will ask for a percentage fee to manage the crowdfunding operations but this can be on an all or nothing basis (this means if you do not meet your target, you do not pay their fee and all money is returned).

Crowdfunding is most often used as a way of accessing alternative funds. It is an innovative way of sourcing funding for new projects and can be a way of cultivating a community that is based around the new project – e.g. a social concern or issue.

The most types of crowdfunding include:

Peer-to-peer lending: The crowd lends money to a company with the understanding that the money will be repaid with interest. It is very similar to traditional borrowing from a bank, except that you borrow from lots of investors.
Equity crowdfunding: Sale of a stake in a business to a number of investors in return for investment. The idea is similar to how common stock is bought or sold on a stock exchange, or to a venture capital.
Rewards-based crowdfunding: Individuals donate to a project or business with expectations of receiving in return a non-financial reward, such as goods or services, at a later stage in exchange of their contribution.
Donation-based crowdfunding: Individuals donate small amounts to meet the larger funding aim of a specific charitable project while receiving no financial or material return.
Profit-sharing / revenue-sharing: Businesses can share future profits or revenues with the crowd in return for funding now.

Equity investment

An equity investment is an investment through the purchase of share capital. If a civil society organisation’s legal structure allows it (i.e. a company limited by shares), it can sell its shares to individuals or institutions. The funds can then be used for start-up, growth or working capital.

A company limited by shares is able to sell some or all of its shares to investors. However, this may dilute ownership and control of the company as shareholders may be able to make their demands on the management team to change operational strategy. Investors will also expect dividends, so not all funds will be re-invested in to the company.

Health inequalities impact assessment (HIIA)

A Health Inequalities Impact Assessment (HIIA) is a tool to assess the impact on people of applying a proposed, new or revised policy or practice. HIIA assesses the impact on; health inequalities, people with protected characteristics, human rights, and socioeconomic circumstances. Many policies, plans, proposals or decisions have the potential to impact on health and potentially widen health inequalities. By conducting an HIIA the potential impacts can be considered and action taken to reduce those impacts.

Impact assessments help to:

ensure non-discrimination
widen access to opportunities
promote the interests of people with protected characteristics.

The HIIA should be conducted when the policy, plan or financial instrument is still in draft. It should be well enough developed to understand the potential impacts, but not so far developed that changes are not possible as a result of the assessment.

For information, visit this page from NHS Scotland.

Health promoting services

Health promotion

Health promotion is the process of enabling people to increase control over and improve their health. It represents a comprehensive social and political process, which includes actions for improving the skills and ability of individuals to increase control over the determinants of health, and actions towards changing social, environmental and economic conditions to address their impact on public and individual health.

To learn more about health promotion and why it matters, please visit the first chapter of our guide 'Why prevention and health promotion matters?'

Hypothecation

InvestEU

The InvestEU Programme builds on the Investment Plan for Europe. During the next EU budget period 2021-2027, it will bring together the European Fund for Strategic Investments and 13 EU financial instruments currently available.

The InvestEU Programme will bring together the European Fund for Strategic Investments and 13 EU financial instruments currently available. Triggering at least €650 billion in additional investment, the Programme aims to give an additional boost to investment, innovation and job creation in Europe.

For more information, visit this page about InvestEU and other form of funding.

Loans

A loan is a traditional form of financing that involves a sum of money which is borrowed and has to be paid back, usually with interest. A secured loan is one that is protected (for the issuer – collateralised) against a tangible asset e.g. building, equipment and land.

The borrower will pledge a tangible asset such as a building or equipment to receive a loan. In the event of a default, the lender can take possession of the asset which can then be sold to recoup the loan.

Loans can involve a standby facility which is a commitment by a lender to advance a specified amount of funds for a period of time (i.e. a line of credit) for a particular project, which may be drawn down only if budgeted income does not materialise.

Outcomes funds

Social outcomes contracting, also known as outcomes funds, is a novel mechanism for investment in health promoting services. Social outcomes contracting (SOC), also knows as outcomes funds, are contracts in which payments are made only when pre-agreed social (or health promoting) outcomes are achieved by the funded programme/organisation.

Click here to learn more about social outcome contracting.

Payment by results

Payment by results, also known as payments by outcome, is the practice of paying providers for delivering services after agreed results have been achieved. The advantage for a service commissioner of this model is that public money is only spent when the results are achieved, so money isn’t spent on unproductive services. However, payment by results schemes have proven to be complex and costly to set up, and often mean providers taking a very high level of risk.

Payment by Results comprises an assortment of different models, including:

Binary model: The provider must achieve an absolute target. The model is binary in the sense that there is an absolute yes/no distinction as to whether they receive payment; payment is not graded for achieving lesser results. An example is the Work Programme where service users needed to return to work for a fixed period or no result is funded.
Frequency scheme: As opposed to the binary model, rewards are staggered along agreed frequency of results, with payments increasing as results increase. This was the model used in Ministry of Justice pilots to address reconviction numbers.
Hybrid grant and payment by results model: This is a mixed model where the cost of delivering a service is funded, but additional payments are rewarded as bonuses if additional impacts are demonstrated at the end of a programme.

Voluntary sector providers, particularly smaller organisations, usually need start-up and revenue funding to enable them to deliver a service. In payment by results contracts, this funding can be provided by a prime contractor or by a social investor in the form of a loan or a social impact bond.

Pay-for-success (PFS) model

Social Impact Bonds (SIB), also known as a pay-for-success (PFS) model, are a form of outcomes-based contracts between the public and private sector. The former agrees to pay for substantial improvement in social outcomes for a specific population, which will reduce the public sector’s costs in the long run. The private sector initially pays for intervention, which is delivered by service providers with a proven track record. The private sector will only be repaid if a significant social impact is achieved. Social Impact bonds are designed to overcome the challenges governments have in investing in prevention and early intervention.

They mitigate the risks of failure and bring in impact investors, who want to test innovation and scale successful programmes. Investors provide flexible funding to programmes that are designed to be responsive to the needs of vulnerable groups to improve their lives.

Charities and social enterprises can issue bonds (Charitable Bonds) as a form of long-term debt to expand business operations. An organisation may be able to issue bonds if it has a viable underlying source of revenue with which to repay the bond holders (e.g. an organisation which operates a chain of charity shops).

In some cases, investors may also receive the repayment in non-monetary terms, such as the goods and services provided by the enterprise. In addition, tax relief for investors may be granted by central governments. For example, this allows investors to reduce their tax bills by 5 per cent a year for five years.

To learn more about SIBs, visit this page.

Quasi-equity

Quasi-equity, also known as revenue participation investment, is usually structured as investments where the financial return is calculated as a percentage of the investee’s future revenue streams and bridges between debt and equity and aims to reflect some of the characteristics of both.

A quasi-equity investment can be a useful source of finance when debt financing is inappropriate or too onerous for charities or social enterprises, or where share capital may not be possible due to the investee’s legal structure. Unlike a loan, this investment is dependent on the financial performance of the organisation. If future expected financial performance is not achieved, a lower or possibly zero financial return is paid to the investor. Conversely, if performance is better than expected, then a higher financial return may be payable.

A quasi-equity investment may be structured so that its return is capped (e.g. revenue participation payments cannot exceed double to the original investment size), or be limited in duration (e.g. the right to revenue participation is extinguished after a specified period of time).

Return on Investment

Return on investment is a metrics for achieving significant returns on investment cover varying methodologies, which are not simple but which merit better understanding. These are the key relevant aspects.

There is the conventional financial profitability measure of the Internal Rate of Return (IRR) which is used by, for example, companies or financial institutions, for areas with trustworthy prices. Similarly, the Economic Rate of Return (ERR) is used by public institutions such as the European Investment Bank.

Governments or businesses carry out the evaluation of the efficiency of investments, projects, and programmes by calculating within a “Cost-Benefit Analysis” (CBA) framework. A cost-benefit analysis is a process to analyse decisions. An analyst sums the benefits of a situation or action and then subtracts the costs associated with taking that action. Analysts can build models to assign a monetary value (Euro, Dollar, etc.) on intangible items, such as the benefits and costs associated with building an infrastructure project like a new hospital, road, or railway line.

Specifically, for the social impact area, there has been development of the index of Social Rate of Return (SroI). Unfortunately, the methodology for this particular metric is by no means settled. It contains a variety of elements, valued differently depending on the analyst: stakeholder engagement, articulation of change processes, monetisation when possible, transparency etc. Despite the name, SroI is confusingly not really a rate-of-return at all, in that it is closer to a benefit/cost ratio.

Internal rate of return (IRR) is an interest rate that gives a net present value of zero when applied to a projected cash flow of an asset, liability, or financial decision. This interest rate, where the present values of the cash inflows and outflows are equal, is the internal rate of return for a project under consideration, and the decision to adopt the project would depend on its size compared with the cost of capital. In plain language this means it is the rate at which an investment project promises to generate a return during its useful life. In other words, it is used to estimate the profitability of potential investments.

Economic rate of return (ERR) is an interest rate at which the cost and benefits of a project, discounted over its life, are equal. ERR differs from the financial rate of return in that it takes into account the effects of different fiscal measures (tax breaks, subsidies) to compute the actual cost of the project. In addition, ERRs can include income or value-added that is expected to be generated through environmental and social improvements, such as the effect of clean water on health outcomes, or improved female educational attainment on incomes.

Cost benefit analysis (CBA) is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings. In a more straightforward way, it is a method of reaching decisions by comparing the costs of activity to its benefits. CBA is an assessment that quantifies in monetary terms the value of all consequences of the activity.

Social Return on investment (SROI) compares the net present value of benefits to the net present value of the resources invested, but it aims to do so by accounting for the whole range of value generated, beyond the narrow microeconomic dimension. SROI considers not only benefits generated for the investor but also focuses on what social value has been created to the society, including other stakeholder groups. The definition of SROI is still widely debatedxc.

RoI Calculator, developed by the Commonwealth Fund, aims to help community-based organisations and their partners across the health system to plan sustainable funding for social services to high-need, high-cost patients. The tool is intended for health systems, medical providers, social service providers to explore, structure and plan sustainable financial arrangements to support the delivery of services. The tool’s basic algorithm calculates the financial returns of partnerships by subtracting the expense of offering social services from the financial benefits of avoided medical events.

To use the tool, it will be necessary to estimate what the overall medical costs of the targeted population would be under standard care – that is, in the absence of social services. – https://www.commonwealthfund.org/roi-calculator

Sin tax

A sin tax is an excise tax specifically levied on certain goods deemed harmful to society and individuals, for example alcohol and tobacco, candies, soft drinks, fast foods and sugar. Sin taxes are used to deter individuals from behaviour that are harmful for their health or socially undesirable. Their purpose is to decrease the demand for harmful products by increasing their price. The revenue generated by sin taxes can be used to finance initiatives that aim to improve public health.

Social determinants of health

The social determinants of health (SDOH) are the conditions in which people are born, grow, work, live, and age, and the wider set of forces and systems shaping the conditions of daily life. These forces and systems include economic policies and systems, development agendas, social norms, social policies and political systems.

Social determinants are shaped by the distribution of money, power and resources at global, national and local levels. Their distribution, in turn, can be altered through the implementation of policy. It has been argued that the social determinants of health are responsible for much of the inequality in health within and between countries.

Social gradient

The social gradient refers to the linear or step-wise decrease in health that comes with decreasing social position. It represents the association between socio-economic position and health across the whole population. However health is measured, there tends to be a gradient where the more socially advantaged a person or group is, the better their health is. Over time, the gradient as a whole tends to shift upwards because the health of most groups is improving. However, the degree and rate of improvement tends to be greater in more advantaged social groups, meaning that relative differences, and therefore the degree of inequalities, also tend to increase. See also: Inequalities in health.

Social Impact Bonds (SIBs)

Social Impact Bonds (SIB), also known as a pay-for-success (PFS) model, are a form of outcomes-based contracts between the public and private sector. The former agrees to pay for substantial improvement in social outcomes for a specific population, which will reduce the public sector’s costs in the long run. The private sector initially pays for intervention, which is delivered by service providers with a proven track record. The private sector will only be repaid if a significant social impact is achieved.Social Impact bonds are designed to overcome the challenges governments have in investing in prevention and early intervention.

To learn more about SIBs, visit this chapter about outcomes-focused payments..

Social infrastructure

Social outcomes contracting (SOCs)

Social outcomes contracting, also known as outcomes funds, is a novel mechanism for investment in health promoting services. Social outcomes contracting (SOC), also knows as outcomes funds, are contracts in which payments are made only when pre-agreed social (or health promoting) outcomes are achieved by the funded programme/organisation.

Click here to learn more about social outcome contracting.

Socially responsible investing (SRI)

Solidarity-based finance

Two-fold asset class

About this guide

The Guide for Financing Health Promotion is designed to support health and social care planners, public authorities, and policymakers at all levels — local, regional, and national — to make the case for greater investment in health promotion and disease prevention. It offers guidance for mobilising resources and driving system change that supports both human and planetary health.

Drawing from real-world examples across Europe and beyond, the Guide combines evidence, tools, and strategies to help you build smarter, fairer, and more sustainable approaches to health and wellbeing.

To learn more about the concepts mentioned above, check out these pages.

How to finance prevention and health promotion

for concepts on systemic change and practical examples showing how to smarter mobilise existing resources and new funding for health promotion.

Read

How you can get started

for practical guidance and tools to help you conceptualise and implement alternative financing approaches for health promotion and disease prevention.

Read

Case-studies

for real-life examples of how authorities and other public health actors are finding innovative and practical ways to finance health promotion and disease prevention.

Read

About EuroHealthNet

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EuroHealthNet is the Partnership of public health agencies and organisations building a healthier future for all by addressing the determinants of health and reducing inequalities. Our focus is on preventing disease and promoting good health by looking within and beyond the health system.

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