Why United Health, CVS, Humana and others are investing in affordable housing

UnitedHealth Group (UNH) is investing another $25 million into an affordable housing fund, adding to more than a decade and $630 million of such investments.

The company announced its new investments will be in Boston. Partners Conservation Law Foundation and Massachusetts Housing Investment Corporation will finance mixed-use developments near public transportation. United Health benefits from such endeavors through wraparound health care services with partners, surveying of residents, and the return on investments.

Housing insecurity has been directly linked to poorer health and health outcomes in recent years, spurring health companies to invest in multiple pilots. But so far, nothing has yielded scalable solutions, with each investment unique to the project and neighborhood.

United Health Group took an early interest in championing such efforts nearly 12 years ago, creating positions to focus on housing and other social determinants of health — external factors that play a role in health outcomes.

Andy McMahon, UHG's vice president of Health and Human Services Policy, told Yahoo Finance the company tries to find the best way to serve tenants, whether they be low-income or seniors.

In 2016, United Health found measurable impacts from the housing program. That included reduction in Medicaid spend paired with a decrease in emergency room visits. In developments where there were health services provided, United Health saw a reduction in costs by $115 per member per month.

It's why the company has invested in 18,000 affordable homes and communities across the country to date, and intends to reach $800 million in investments by the end of the year.

United isn't alone, as other insurers like CVS (CVS) and Humana (HUM), and even some larger hospital systems, have also been investing. CVS invested $185 million in 2021 alone, but has invested more than $1 billion since 1997. Humana announced another $25 million investment in April.

So are health insurers and hospitals moonlighting as developers? No, but they are moonlighting as investors, thanks to federal and state low income housing tax credits.

How it works

The publicly traded health insurance behemoths have portfolios for investments. Housing has become a part of that diversified portfolio.

The federal government has allotted low income housing tax credits to states and local agencies since 1986, with an annual total of roughly $10.9 billion. But it is up to the developers to find investors to purchase and utilize them, and take the risk to fund the projects.

In some instances, states are unable to find willing investors and end up leaving money on the table. It's why 22 states have developed their own tax credit programs, in addition, to help spur interest.

Pennrose, a Philadelphia-based affordable housing developer, is one such company that utilizes the credits and is partnering with health care companies.

Tim Henkel, principal and president, told Yahoo Finance that it's still a work in progress as a strategy, but insurers understand they have the scale and resources to fund the projects. To that point, most hospitals and insurers that are interested in investing have hired affordable housing project managers.

"They're hiring people because they know there's something there and they want to explore it," Henkel said.

In some instances, state housing authorities agree to match funds for the developer if they can find investors — like the insurers — to put down a significant amount to move the projects forward.

With United Health's latest investment in Boston, the Healthy Neighborhoods Equity Fund II was able to close on three properties that will create 102 mixed-income homes, of which roughly half will be for low- and moderate income tenants, as a result of the $25 million infusion.

Business value

These efforts lie in stark contrast to the news of affordable housing shortages that exist for myriad reasons across the country.

But they could help improve health outcomes in addition to growing business for the health care companies.

They are either looking to increase their customer base in some way or find a way to help keep costs down.

In United Health's plans, the focus for new projects is largely determined by where the company knows there is a need based on the data it can track from Medicaid members, according to McMahon.

The company has never shied away from the fact that the program is profitable— which McMahon termed "moderate" — from the effort, and it does so without catering solely to its own plan members. The program is plan-agnostic, according to the company, and even the wraparound health services aren't necessarily provided by United. It could be a federally qualified health care center, like one project in Mississippi, or it could be having a screening center on site for chronically ill patients.

"On the investment side, we're trying to go upstream," McMahon said.

"We're trying to...say how can we help build healthier and better communities with more affordable housing for the people who need it. So that we can improve their health outcomes in the community."

Beyond that, the projects continue to be experiments for the health players, even as they are able to track tangible results. But McMahon said the company continues to put its money where its mouth is, and hopes it will influence policy that can increase the amount of affordable housing in the country.

"From where we sit, when you think about the end game, I think we're going to continue to explore opportunities to expand and diversify our housing investments," he said.

"I'm not sure about the exact end game, but I would tell you that another part of this for us is ...civic stewardship. We know this is a challenge. We're going to learn a lot through these ....on the outcome side that we hope will continue to drive the kind of public policy discussion about the need for affordable housing and its linkages to health care," McMahon said.

Follow Anjalee on Twitter @AnjKhem

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