Private Management, Inc.

P.O. Box 5907

Eugene, OR 97405
Tel: 541.510.2042
Changing the structure of health financing

15 February 2010

UNCONVENTIONAL WISDOM: UNIVERSAL HEALTH FINANCING

SUMMARY DESCRIPTION
HEALTH INSURANCE REVENUE BONDS® (HIRB®) PROGRAM

The HIRB® program is a financing management strategy through which working capital
becomes available to restructure any health care system and can generate a significant realized profit
to that health care system, AFTER paying all debt service on the borrowed monies, AFTER paying all
health care costs and AFTER paying the operating expenses for the HIRB® program. The HIRB®
program strategy injects billions of borrowed monies into a health care system but is not predicated
upon deficit spending or “mortgaging the future” nor upon changes in the benefits provided, the
service delivery model or reimbursements to health care providers. This structured financing utilizes,
in a different manner, the existing monies currently expended by the federal and state governments
under the State administered MEDICAID program and the monies currently spent as insurance
premiums/claim costs by employers and employees. The federal MEDICARE program may or may
not be incorporated into this financing strategy. The HIRB® program may be established such that
health care will no longer be tied to the participant’s employment thus making health care benefit
coverage simply and easily portable.

The HIRB® financing program is designed to fund health care benefits, initially for a three year
term. Under any scenario, new revenues are required (already included in pending legislative
proposals) slightly greater than what is required if health care is funded only for the current year.
This new revenue represents a relatively small amount to early fund a future anticipated liability
called health care costs. The HIRB® program aids the understanding that future health care costs are
a future liability much as pension funding mechanisms treat future pension liabilities. Thus, the
HIRB® program promotes the view that health care costs are more appropriately viewed as a
continuing cost rather than an annual operating expense.

Health Insurance Revenue Bonds® program

(patent pending)
© 2009-2010 Private Management, Inc., All Rights Reserved
Summary Description
15 February 2010
page 2

If the primary purpose of a health care system is to allow for providing health care services
when needed and to spread costs amongst all members of the risk pool (as well as making it more
affordable), then the existing structure of health financing operating throughout the U.S. is
dysfunctional by design.

The advantage of adopting the HIRB® financing program is it allows new revenues to
accumulate and earn interest at an interest rate equal to or less than the bond interest rate. The earned
interest is used to offset or reduce the cost of funding health care benefits on the back end of the
HIRB® program. This results in actually spending less to fund health care for the program term than
what would be spent funding health care as an annual operating expense each year over the same
conterminous and contemporaneous time period. A portion of the interest earned on the
accumulating new revenue is used to pay the interest on a revenue bond issue providing upfront
capitalization for the program. The primary purpose of this upfront capitalization is to accelerate the
expansion of health care to vulnerable populations. It circumvents having to gradually phase in
participation and/or benefit coverage over an extended period of time and it allows for the new
revenues to accumulate.

The fundamental structure of the HIRB® financing model has been through a great deal of
review by a wide variety of professionals e.g., public finance lawyers, actuaries, accountants,
economists, budget planners and bankers. To varying degrees, everyone was initially bewildered by
our work, commenting how counter intuitive the financing appeared to be. The reason the financing
structure is counter intuitive is because it involves borrowing money, paying interest on the money
borrowed, adding in a new stream of revenue, and yet at the end of the financing term there is a
significant net savings in the cost of funding. This does not fit conventional wisdom or thinking in
public finance or health financing. Nonetheless, it works. The HIRB® program is not represented as
a panacea though it will make significant strides toward resolving the problems with health care in
America.

Health Insurance Revenue Bonds® program

(patent pending)
© 2009-2010 Private Management, Inc., All Rights Reserved
Summary Description
15 February 2010
page 3

The public policy in support of the HIRB® financing program has been in existence throughout
the United States for the past one hundred years and is supported by an independent study
published by the World Bank in 2006. We can and will defend both the supporting public policy and
the financing strategy before anyone, regardless of their credentials or stature.

What exists in the U.S. are multiple health systems, some public sector and some private
sector, each with their own rules, regulations, processes and procedures to be followed by those who
provide the health care services and by the consuming patient. A great deal of the dysfunction that
exists with the current health financing structure is directly on point with the issue of severe
structural and systemic fragmentation and how many (though not all) health insurers operate and
manage their business. This is why health care in the U.S. is dysfunctional and that dysfunction is
the impetus for the collapse of the current health financing structure. Allocating and spending new
revenues in the existing health financing structure is simply throwing good money after bad. It only
perpetuates the existing dysfunctional and collapsing health financing structure even when including
the “insurance reforms” presently considered in legislative proposals. The insurance reform
measures currently contemplated, such as limitations on premium ratings, eliminating caps on
lifetime benefits, “guaranteed insurability” or “guaranteed to issue” do not require the commercial
health insurance industry to substantively change anything. Any additional risk exposures will
simply be incorporated into their premium rating structure.

There are different ways of configuring the HIRB® program. The one approach to proffer the
highest efficiency is similar to how a pension plan operates. It may offer any number of choices
amongst varying benefit plan designs. The HIRB® program is not tied to one health care plan design
but may be used to finance several different designs. The HIRB® program may or may not
incorporate a “checks and balances” mechanism more commonly called “managed care” separate
and independent of the financing assets.. This “checks and balances” mechanism may be provided
by a commercial health insurer or non-insurer managed care organization. Incorporating such a
mechanism eliminates the present conflict of interest (paying claims costs vs. health insurer
profitability) which exists under the current health financing structure. These preceding statements

Health Insurance Revenue Bonds® program

(patent pending)
© 2009-2010 Private Management, Inc., All Rights Reserved
Summary Description
15 February 2010
page 4

are not to be construed to mean that government (federal or state) has any control on private
decisions made by and between patients and their physicians.

In this new health care paradigm, the role, responsibilities and obligations of commercial
health insurers either change or they simply further their own obsolescence. Will commercial health
insurers like this change? Given their prior conduct and deceptive public relation practices, we doubt
it. Nonetheless, they need to adapt to a new American paradigm just like the rest of society. The
HIRB® program provides the means for health financing to be structured very much like the
financing of any other public capital project such as public water and sewer systems, public power
generation facilities, mass transportation, port facilities, airports, school buildings, toll roads and
bridges. This is exactly what the Health Insurance Revenue Bonds® program achieves. This is
“change you can believe in”.
The HIRB® program's genesis is in the private sector; it represents “the competition” and by
design, costs less to fund in comparison to the existing structure of health financing in the United
States.

Private Management, Inc. is a software development and licensing company which may also provide consulting services to
government relating to the adoption, implementation and the macro-administration of the financing program. The Company
does not provide investment advisory or money management services.

Health Insurance Revenue Bonds® program

(patent pending)
© 2009-2010 Private Management, Inc., All Rights Reserved