As many financial advisors know, the rising cost of health care is one of the biggest challenges their clients face, especially in retirement. Now two professors – one from MIT and the other from Harvard Medical School – are proposing a new type of securitized asset that can help finance expensive medical treatments while delivering relatively high returns to investors.
Under the strategy developed by professors Andrew Lo of MIT and David Weinstock of Harvard Medical School and MIT research associate Vahid Montazerhodjat, individual health care loans, or HCLs, would be pooled, then securitized and sold as bonds or stocks to investors.
“The basic concept is to convert a large upfront medical expense into a series of more affordable payments, akin to getting a mortgage when buying a house,” the professors wrote in a recent column in The Boston Globe.
The loans would help patients pay for expensive therapies that can cure, rather than just treat, diseases, which they otherwise could not afford. That could increase the sales of such “curative” therapies, providing funds for biopharmaceutical companies to develop other new therapies.
Investors, meanwhile, could profit from substantial returns — a large diversified fund of HCLs generated hypothetical annual returns of 12%, according to the professors – from an asset that is “not likely to be highly correlated with the stock market,” said Lo in a press release.
“Our solution is far from perfect,” the professors wrote in The Boston Globe. “The very idea of mortgaging health care is distasteful … A law that mandates full coverage for curative therapies and allows for price negotiation would likely be economically more efficient than our approach. Unfortunately such a saw has yet to be enacted. Rather than charge at windmills like Don Quixote, we propose a market-based solution to get patients the medications they desperately need right now.”