Loans and Loan Guarantees in the Health Sector
Health Sector Direct Loan Programs
In the case of direct loans, the government lends money directly to the borrower and services the loan by collecting repayments. When the government offers direct loans at below market interest rates, or terms more generous than what private markets would provide, there is a subsidy. The government estimates the subsidy conveyed through such credit programs as the net cost to the government of a loan or loan guarantee, calculated by summing all the expected future cash flows to and from the government; this is the cost the government is required to present under the 1990 Federal Credit Reform Act (FCRA).1
Many argue that there is also an implicit subsidy, not measured by the government under FCRA, that results from excluding the costs of program administration and market risk (which arises from volatility in the economy).2 This implicit subsidy is generally the difference between the terms the recipient would get in a competitive market and those offered by the government.
Using Subsidyscope's methodology for identifying loans, there are no direct loan programs that fit into the Health sector in the Federal Credit Supplement (FCS) portion of the President’s Budget for fiscal year 2010 or fiscal year 2011.
Health Sector Loan Guarantees
In the case of a government loan guarantee, a private lender disburses the loan to the borrower, and the government acts as the guarantor of the loan by agreeing to make payments should the borrower fail to do so. Such a guarantee often allows a borrower to secure a loan at a lower interest rate than the borrower could otherwise obtain. Even if the interest rate is a market rate and the loan is repaid in full, there could be a subsidy if the borrower did not pay an upfront fee for the guarantee as may be the case with a private lender. In addition, a government guarantee encourages lenders to offer loans to borrowers to whom they might otherwise not extend credit because they are more of a credit risk. As with loans, the government does not include administrative costs or market risks in the subsidy calculation.
In Table 1 below, Subsidyscope provides information about loan guarantee programs. The "commitments" column illustrates the breadth of the government's role in the sector, but it does not measure the subsidy costs that will ultimately be incurred. The "subsidy rate" column presents the government’s reported subsidy rate for these programs, as required by FCRA, which can be broadly defined as the ratio of the subsidy to the disbursement.3
Table 1: Loan Guarantees in the Health Sector, Fiscal Years 2009 and 2010
|Program||Agency||2009 Subsidy Rate (%)||2009 Commitments ($ millions)||2010 Subsidy Rate (%)||2010 Commitments ($ millions)|
|Health Facilities Construction Loans||HHS - Health Resources and Services Administration||2.42||6||......||......|
|Managed Care Network Loans (called HMO Network Loans in 2009)||HHS - Health Resources and Services Administration||8.73||2||9.61||2|
|Managed Care Plan Loans (called HMO Plan Loans in 2009)||HHS - Health Resources and Services Administration||5.49||4||5.72||4|
|Facilities Renovation Loans||HHS - Health Resources and Services Administration||......||......||2.92||10|
|Hospitals [Section 242]||HUD - Housing Programs (FHA)||-2.51||1,400||-4.28||3,450|
Note: Two health-related programs were previously presented in Subsidyscope's Housing sector and are therefore not listed here. They are Health Care and Nursing Homes and Health Care Refinance, both part of HUD’s Federal Housing Administration's (FHA) General Insurance and Special Risk Insurance (GI/SRI) Fund. (See Subsidyscope’s Risk Transfers page in the Housing sector for more information.)
Loan guarantees in the Health Sector are administered through the Department of Health and Human Services (HHS) and the Department of Housing and Urban Development (HUD). In fiscal year 2010, the largest loan guarantee program was for Section 242 Hospitals, which provides mortgage insurance to finance construction or rehabilitation of public or private nonprofit and proprietary hospitals.4
- Congressional Budget Office (CBO). "Estimating the Value of Subsidies for Federal Loans and Loan Guarantees." August 2004. p. 1.
- Federal Credit Supplement (FCS). FY2010. p.iii. The Federal Credit Supplement includes four components that sum together to create the subsidy rate: defaults as a net of recoveries, interest accrued, fees, and an "all other" category. A positive subsidy rate indicates there is a net cost to the government, and that a subsidy is being provided to the borrower. A negative subsidy rate by contrast means that the government predicts it will receive more money than it pays out in a particular program. However, as noted at the top of this page, the government does not take into account the implicit subsidy in these calculations, potentially making government estimates an undercount of the subsidy. See this page for more on how the government calculates subsidy rates for loans and loan guarantees.
- U.S. Department of Housing and Urban Development (HUD). "Housing: General and Special Risk Insurance Fund." 2011.