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In the midst of a global economic downturn, the world’s climate change negotiators will descend on Copenhagen in December to craft a post-2012 climate regime. But with the timing and impacts of climate change still uncertain—not to mention the ongoing transitions brought about by globalization and the increased cost of capital investment due to weak financial markets—tensions across countries are evident. Policy-makers must now think creatively to realize their goal of revitalizing the global economy through low carbon growth models.

In its sixth annual gathering, led by Kemal Derviş and co-chaired by Strobe Talbott and Richard C. Blum, the Brookings Blum Roundtable convened leaders from the climate change and global development communities from July 30 through August 1, 2009 to discuss and debate policy options to stimulate green, pro-poor growth. By examining the challenges and opportunities policymakers face, the roundtable forged sustainable solutions to solve the climate crisis in a way that revitalizes the global economy and lifts the lives of the poor.

Lunch Briefing: 

“Towards a Global Climate Agreement: Key Insights from Project Catalyst”

Keynote Sessions:

“A Blueprint for Transatlantic Climate Cooperation”

“Compounding Crises: How Can and How Are the Poor Protecting Themselves?”

“Greening Business: Engaging the Private Sector in Climate Change Solutions”

The Earned Income Tax Credit (EITC) provides a refundable tax credit to lower-income working families. In 2011, the EITC reached 27.9 million tax filers at a total cost of $62.9 billion. Almost 20 percent of tax filers receive the EITC, and the average credit amount is $2,254 (IRS 2013). After expansions to the EITC in the late 1980s through the late 1990s—under Democrat and Republican administrations—the EITC now occupies a central place in the U.S. safety net. Based on the Census Bureau’s 2012 Supplemental Poverty Measure (SPM), the EITC keeps 6.5 million people, including 3.3 million children, out of poverty (Center on Budget and Policy Priorities [CBPP] 2014a). No other tax or transfer program prevents more children from living a life of poverty, and only Social Security keeps more people above poverty.

Since the EITC is only eligible to tax filers who work, the credit’s impact on poverty takes place through encouraging employment by ensuring greater pay after taxes. The empirical research shows that the tax credit translates into sizable and robust increases in employment (Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). Thus, the credit reduces poverty through two channels: the actual credit, and increases in family earnings. This dual feature gives the EITC a unique place in the U.S. safety net; in contrast, many other programs redistribute income while, at least to some degree, discouraging work. Importantly, transferring income while encouraging work makes the EITC an efficient and cost-effective policy for increasing the after-tax income of low-earning Americans. Yet a program of this size and impact could be more equitable in its reach. Under the current design of the EITC, childless earners and families with only one child, for instance, receive disproportionately lower refunds. 

In 2014, families with two children (three or more children) are eligible for a maximum credit of $5,460 ($6,143) compared to $3,305 for families with one child. Married couples, despite their larger family sizes, receive only modestly more-generous EITC benefits compared to single filers. Childless earners benefit little from the EITC, and have a maximum credit of only $496—less than 10 percent of the two-child credit. 

Prominent proposals seek to mitigate these inequalities. President Obama’s fiscal year 2015 budget includes an expansion of the childless EITC, a concept outlined by John Karl Scholz in 2007 in a proposal for The Hamilton Project. Notably, MDRC is currently evaluating Paycheck Plus, a pilot program for an expanded EITC for workers without dependent children, for the New York City Center for Economic Opportunity (MDRC 2014). The recent Hamilton Project proposal for a secondary-earner tax credit addresses the so-called EITC penalty for married couples (Kearney and Turner 2013). And the more generous EITC credit for three or more children was recently enacted as part of the American Recovery and Reinvestment Act of 2009, and is currently scheduled to sunset in 2017. 

Considering this broad set of EITC reforms, and recognizing the demonstrated effectiveness of the program as an antipoverty program with numerous benefits, this policy memo proposes an expansion for the largest group of  EITC recipients: families with one child. In particular, I propose to expand the one-child schedule to be on par with the two-child schedule, in equivalence scale-adjusted terms. An equivalence scale captures the cost of living for a household of a given size (and demographic composition) relative to the cost of living for a reference household of a single adult, and is a standard component in defining poverty thresholds. The proposal expands the maximum credit for one-child families to $4,641, from $3,305 under current law, an increase of about 40 percent. The expansion will lead to a roughly $1,000 increase in after-tax income for taxpayers in the bottom 40 percent of the income distribution receiving the higher credit. As this paper outlines, the expansion is justified on equity and efficiency grounds. This expansion is anchored in the equity principle in that the generosity of the credit should be proportional to the needs of families of differing sizes; I use the equivalence scale implicit in the poverty thresholds of the Census SPM as a guide for household needs. This proposal is also supported by efficiency principles given the EITC’s demonstrated success at raising labor supply among single mothers. 

The target population for the proposal is low-income working families with children. Implementing this proposal requires legislative action by the federal government; it is important to note that altering the EITC schedule requires a simple amendment to the tax code, and not a massive overhaul of our nation’s tax system. The revenue cost of the proposal derives from additional federal costs of the EITC, less the additional payroll and ordinary federal income taxes. The private benefits include increases in after-tax income and reductions in poverty. The proposal would also generate social benefits through the spillover effects that the increase in income plays in improving health and children’s cognitive skills (Dahl and Lochner 2012; Evans and Garthwaite 2014; Hoynes, Miller, and Simon forthcoming).

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• Building on the Success of the Earned Income Tax Credit - Full Text

British debates about welfare reform have often been influenced by American ideas. The Clinton-era welfare reforms were echoed in some of Tony Blair’s alterations to British benefits. Gordon Brown, as Chancellor, introduced a new Working Tax Credit as a direct result of studying the Earned Income Tax Credit. Brown particularly liked the political advantages of a ‘tax cut for hard-working families’, as opposed to a ‘benefit handout to welfare families’.

But now the transatlantic traffic in ideas on welfare is going the other way. The U.K.’s introduction of a single, unified system of transfer payments – the Universal Credit – is getting quite a bit of attention in the wonkier regions of D.C. politics. Paul Ryan, at a Brookings summit on social mobility, mentioned the Universal Credit (UC) as a possible inspiration for a new round of welfare reform. (Ryan is giving a speech at AEI in a couple of weeks: we’re likely to hear more about his thinking then.) When the architect of the UC, Iain Duncan Smith, visited D.C. recently, he held a series of meetings with leading Republicans to discuss his reforms.

The main attractions of the Universal Credit are fourfold:

1. Simplicity. By unifying five cash benefits and an ‘in kind’ benefit (Housing Benefit) into a single, monthly payment, the complexity of the system from the point of view of the recipient will be greatly reduced.
   
   
2. Cost control. Housing Benefit is paid directly to the landlord, which reduces the tenant’s incentive to control costs.  Add that to the crazily overheated U.K. housing market, and should come as no surprise that Housing Benefit has become a major strain on the system, quintupling in cost in real terms over the last two decades to hit £24 billion a year (c. $41bn), to become the second-biggest element of the U.K.’s system, after pensions.  By including an allowance for housing in the single cash payment in UC, the recipient will be incentivized to control their own housing costs.
    
3. Stronger work incentives. The UC has a flatter ‘taper’ than existing benefits, meaning that cash payments are reduced more slowly as earnings rise. In particular, the UC will allow benefit recipients to work part-time (less than 16 hours a week), and still keep claiming. On the downside, incentives for second earners in two-adult families will be reduced. 
   
   
4. Tighter and more targeted work requirements. The UC will contain stronger requirements to seek work than existing benefits, and importantly, has a ‘sliding scale’ of requirements, depending on the position of the recipient. For example, parents with children under the age of 1 will be exempt from work requirements; those with children aged between  1 and 5 will be obliged to attend for interviews with a case worker to prepare for a return to work; those with children at school will be required to ‘actively seek work’.

Sounds pretty good, doesn't it? And in fact it is, on paper at least. In practice the introduction of UC has been marked with huge overspend and delay on the required new IT system. The whole exercise has also been made much harder by cuts in many of the relevant cash benefits, as well as the introduction of a ‘household cap’ on total welfare receipts. The Universal Credit as an idea has a lot of support. As so often, it has been putting the idea a reality that has been difficult.

What—if anything—can the U.S. take from the UC? Short answer: not much. 

Many of the problems the UC addresses do not really apply in the U.S. Work incentives are already pretty strong in the U.S., thanks to the relative generosity of the EITC, and the relative meanness of out-of-work welfare supports. Also, there are already much stronger work requirements in the U.S. system. Some want to go further, and add work requirements to the receipt of food stamps, for example. But this would not require a major overhaul.  As Melissa Boteach and her colleagues at the Center for American Progress write,“the primary problem that the Universal Credit is supposed to address in the United Kingdom—the lack of incentive for jobless workers to enter the labor force—is far less of an issue in the United States”.

The UC also further centralizes an already highly centralized system, by getting rid of Housing Benefit, which is currently administered by Local Authorities. The U.S. system is much less centralized, with states and cities having a high degree of control over the way TANF and SNAP are administered. It is hard to see how anything like a UC could work in the U.S. at anything higher than State level. A Wisconsin Universal Credit makes sense in a way that a U.S. Universal Credit does not.  But if shifting towards block grants to states is really what this is about (see Marco Rubio’s ‘flex fund’ idea),that’s a whole different debate.

A final point. Simplicity and ease of use for the recipient is a key goal of the UC, and a worthy one. The stress and difficulties faced by low-income families just in applying for assistance is unacceptable in the 21st century. But it is not clear that the whole system has to be upended to achieve this goal. Technology ought to allow a single access point to the system, with the complexity out of sight of the user. 

In the U.K. the Universal Credit has a strong rationale, despite the implementation challenges. In the U.S., it is a solution in search of a problem. 

Each year millions of low- to moderate-income Americans supplement their income by claiming the Earned Income Tax Credit (EITC) during tax season. Last year, 1 in 5 taxpayers claimed the credit and earned an average of nearly $2,400.

This tax season, some of those eligible for the EITC may also be able to claim, for the first time, a new credit created by the Affordable Care Act (ACA) to offset the cost of purchasing health insurance for lower-income Americans. It’s called the ACA premium tax credit.

To qualify for the ACA premium tax credit, filers need first to have an annual income that falls between 100 and 400 percent of the federal poverty line (between $11,670 and $46,680 for a single-person household in 2014). Beyond the income requirements, however, filers must also be ineligible for other public or private insurance options like Medicaid or an employer-provided plan.

Why the tax credit overlap matters

Identifying the Americans eligible for both credits is important because it sheds light on how many still need help paying for health insurance even after the ACA extended coverage options.

In a recent study of the EITC-eligible population, Elizabeth Kneebone, Jane R. Williams, and Natalie Holmes estimated what share of EITC-eligible filers might also qualify for the ACA premium tax credit this year.

Below, see a list of the top 10 states with the largest overlap between filers eligible for the EITC and those estimated to qualify for the ACA premium tax credit.* Notably, none of these states has expanded Medicaid coverage to low-income families after the passage of the ACA.

Nationally, an estimated 7.5 million people (4.2 million “tax units”) are likely eligible for both the ACA premium tax credit and the EITC. Nearly 1.3 million of those tax units are from the following ten states.

1. Florida

Overlap: 22.5 percent / 405,924 tax units
State-based exchange? No Expanded Medicaid coverage? No

2. Texas

Overlap: 21.4 percent / 513,061 tax units
State-based exchange? No Expanded Medicaid coverage? No

3. South Dakota

Overlap: 20.5 percent / 15,124 tax units
State-based exchange? No Expanded Medicaid coverage? No

4. Georgia

Overlap: 19.8 percent / 186,020 tax units
State-based exchange? No Expanded Medicaid coverage? No

5. Louisiana

Overlap: 19.6 percent / 86,512 tax units
State-based exchange? No Expanded Medicaid coverage? No

6. Idaho

Overlap: 19.3 percent / 28,855 tax units
State-based exchange? Yes Expanded Medicaid coverage? No

7. Montana

Overlap: 18.9 percent / 18,138 tax units
State-based exchange? No Expanded Medicaid coverage? No

8. Wyoming

Overlap: 18.4 percent / 7,276 tax units
State-based exchange? No Expanded Medicaid coverage? No

9. Utah

Overlap: 18.1 percent / 42,284
State-based exchange? No (Utah runs a small businesses marketplace, but it relies on the federal government for an individual marketplace) Expanded Medicaid coverage? No

10. Oklahoma

Overlap: 18.0% / 63,045 tax units
State-based exchange? No Expanded Medicaid coverage? No

* For the purposes of this list, we measured the overlap in “tax units,” not people. One tax unit equals a single tax return. If a family of four together qualifies for the ACA premium tax credit, they would be counted as one tax unit, not four, since they filed jointly with one tax return.

This originally appeared in “Insight,” a publication of Grantmakers for Children, Youth, and Families.

For many in the United States, American poverty conjures images of urban blight or remote Appalachian hardship that motivated the War on Poverty in the 1960s. But the geography of poverty in the U.S. has shifted well beyond its historical confines (Kneebone and Berube, 2013). During the first decade of the 2000s, the poor population living in suburbs of the nation’s largest metropolitan areas for the first time outstripped the poor population living in central cities, and poverty continues to grow faster today in the suburbs.¹ This trend has been even more pronounced for those living below twice the federal poverty line—equivalent to $48,500 for a family of four in 2015—which roughly mirrors the population eligible to receive the federal Earned Income Tax Credit (EITC).

Although it was not originally billed as an antipoverty program, in its 40 years, the EITC has become one of the nation’s most effective tools for lifting low-income workers and their families above the poverty line. In 2013 alone, Brookings estimates that the EITC lifted 6.2 million people, including 3.1 million children, out of poverty (Kneebone and Holmes, 2014). What follows is a discussion of the EITC’s growing importance to recipients in light of the new geography of poverty, its role in boosting local economies, and how expanding participation in the program and paying the credit differently could enhance its effectiveness as a local economic stabilizer.

The shifting geography of poverty challenges traditional approaches to combat poverty through investments in place.

When President Johnson declared a War on Poverty in 1964, poverty in the U.S. was primarily urban or rural. This was also the case in 1975 when the EITC was created: Nearly a million more low-income individuals at that time lived in rural areas or big cities than in the suburbs of major metropolitan areas.² Place-based antipoverty interventions dating to the War on Poverty were thus designed with these two geographies—especially cities—in mind. Brookings estimates that today, the federal government spends about $82 billion per year across more than 80 place-focused antipoverty programs, spread across 10 agencies (Kneebone and Berube, 2013). Many are not well-suited to suburban contexts, for several reasons.

First, suburban poverty is more geographically diffuse than urban poverty. Suburban communities tend to be less densely populated than cities and larger in size, and cover more total area. Whereas centralized services might be appropriate in an urban context because they are easily accessible to many in need, it is more difficult to achieve those economies of scale in the suburbs, where residents live farther apart and have limited access to transit. Many competitive federal grant programs allocate points based on population served and population density, implicitly favoring large central cities.

Second, suburban municipalities may lack the experience and administrative capacity needed to sustain services for low-income families and communities. Cities have dealt with poverty longer, and have had more time to develop strategies and structures to support their poor populations. Some of this capacity stemmed explicitly from Community Action Agencies, one of the original War on Poverty programs, which was intended to spur local innovation. Small suburban communities by and large did not have this same experience. Because of their relatively small size, suburban governments may not be able to achieve the administrative scale needed to deliver effective safety-net programs.

Third, many suburban communities lack the economic scale and fiscal structure needed to fund services for low-income residents. Because many small municipalities are limited in how they are permitted to raise revenues—typically through a combination of property and sales taxes—they are especially prone to financial instability caused by the very economic conditions that also generate greater need for services. As poverty suburbanizes, small suburban communities simultaneously face rising demand and falling tax revenues to support those services. Moreover, tax “competition” among many small suburbs within a metro area can further erode the fiscal capacity and political will for these jurisdictions to support people in need.

The new geography of poverty makes direct investments in low-income individuals and families—like the EITC—even more important.

The mismatch between existing place-based antipoverty strategies and the places where poverty is growing fastest heightens the importance of investing directly and effectively in low-income individuals and families through programs such as the EITC. Following its expansion in the mid-1990s, the EITC became the most significant cash transfer program available to low-income working families. The Internal Revenue Service (IRS, 2014) estimates that approximately 79 percent of EITC-eligible taxpayers nationally claim the credit each year—a remarkably strong participation rate among federal safety-net programs.

The high program participation rate and growth over time in EITC expenditures reflects both increases in the credit’s generosity and growing need. In 2000, according to our analysis of IRS Stakeholder Partnerships, Education and Communities (IRS-SPEC) data, total EITC expenditures topped $42 billion (in 2013 dollars). In 2013, they approached $65 billion, equivalent to approximately 80 percent of the amount spent by the federal government on place-based poverty interventions.³

Analysis of IRS-SPEC data further suggests that the EITC’s geographic incidence closely tracks the shifting geography of need. From 2000 to 2013, the number of suburban filers claiming the EITC rose by 62 percent, compared to 33 percent in cities. Changes in the distribution of EITC claims mirrored changes in the location of poor and near-poor populations, particularly growth in the suburbs.⁴ And because lower-income suburban communities (where at least 40 percent of residents are poor or near-poor) are becoming more diverse, too—60 percent of their residents are non-white or Hispanic—the EITC also effectively reduces growing race-based income gaps in suburbs.⁵

EITC dollars support local economies.

The EITC benefits not only low-income families, but also the wider communities in which they live. Although it is widely regarded today as one of the country’s most successful antipoverty programs, the EITC was originally designed to be a temporary economic stimulus measure, in the Tax Reduction Act of 1975 (Nichols and Rothstein, 2015). During the 2000s, more local and state governments made a concerted push to expand participation in the EITC among eligible filers, in part to inject more federal dollars into their local economies (Berube, 2006a).

There are several mechanisms through which the EITC could benefit local economies. California State University researchers categorize the local economic impact of EITC refunds as the sum of direct effects (EITC recipients spending their refunds), indirect effects (business spending in response to EITC recipient spending), and induced effects (changes in household income and spending patterns caused by direct and indirect effects). Together, these effects represent the local “multiplier” effect (Avalos and Alley, 2010). Their estimates for California counties suggest that, in many cases, the credit creates local economic impacts equivalent to at least twice the amount of EITC dollars received.

Direct economic effects result from EITC recipients spending a portion of their refund locally, supporting local businesses and jobs. Consumer surveys show that low-income families spend a relatively large share of their income on groceries and other necessities, which tend to be purchased locally. Analysis of those surveys links tax refund season to increased likelihood of consumer activity as well as larger purchases (Adams, Einav, and Levin, 2009). People spend more, and more frequently, during tax refund season.

The EITC also supports local communities in less obvious ways. The concept of “tax incidence” reflects that the party being taxed, or receiving a tax credit, may not bear its full costs (or reap its benefits) because others shift their behavior in response to the tax. Along these lines, Jesse Rothstein estimates that as much as 36 cents of every dollar of EITC received flows to employers, because by enabling workers to better make ends meet on low wages, the credit effectively lowers the cost of labor. Those lower labor costs may, in turn, allow local employers to hire more local workers (Nichols and Rothstein, 2015).

Finally, emerging evidence suggests that progressive tax expenditures like the EITC can enhance intergenerational income mobility for local children, possibly by counteracting credit constraints that many low-income families face (Chetty, Hendren, Kline, and Saez, 2015). In areas with larger state EITCs, low-income children are more likely to move up the income ladder over time.

The local impact of the EITC depends on how, and how many, eligible filers claim the credit.

The local impact of the EITC also depends on whether eligible workers and families file tax returns and claim the credit. As noted above, the IRS estimates that 79 percent of those eligible to receive the EITC nationally claim it. Given local variation in characteristics associated with uptake, there is likely also considerable local variation in EITC participation (Berube, 2005). Efforts to increase participation locally can thus increase the level of investment communities receive from the program.

Research has identified several factors associated with EITC participation rates among the eligible population. Eligible filers less likely to claim the credit include those who live in rural areas, are self-employed, do not have qualifying children, do not speak English well, are grandparents, or recently changed their filing status (IRS, 2015). One study suggests that communities with moderately sized immigrant populations may exhibit lower EITC participation rates, due perhaps to less robust social networks or more dispersed/heterogeneous populations that may limit awareness of the credit (Berube, 2006b).

Recent research also suggests that EITC participation is higher in areas with more tax preparers, who may promote greater local awareness of the credit (Chetty, Friedman, and Saez, 2012). While individuals who enlist the help of tax preparers are more likely to receive the EITC, they may face significant fees that blunt the credit’s overall impact (Berube, 2006a). Expanding access to volunteer tax preparation services or simple, free online filing could help preserve more of the credit’s value for low-income families and their communities.

To maximize the EITC’s role as a local economic stabilizer, we should consider periodic payment options.

 The EITC already functions as an important antipoverty tool for low-income workers and families, and a boon to local economic stability. Communities should nonetheless be interested in efforts to connect taxpayers to a portion of their EITC throughout the year, rather than only as a lump-sum refund at tax time.

Debt features significantly on the balance sheets of EITC recipients. Recent research finds that about 95 percent of EITC recipients have debt of some kind, and that large shares of refunds are dedicated to debt payments or deferred expenses (such as car repair). Recipients do not use the majority of EITC refunds to pay for monthly expenses, despite the fact that their wages typically cover only two-thirds of those expenses (Halpern-Meekin, Edin, Tach, and Sykes, 2015).

Paying a portion of filers’ anticipated EITC periodically (and directly, rather than through employers like the defunct Advance EITC program) in smaller amounts over the course of a year could help them cope with these spending constraints and avoid taking on debt (Holt, 2008). By enabling families to better keep up with spending on regular items most often purchased locally—rent, food, vehicle maintenance—periodic payments could also support local economies. And by improving families’ liquidity, such payments could reduce reliance on high-cost financial products such as payday loans.

The EITC continues to gain importance as place-based strategies lag behind poverty’s suburbanization, and communities seek ways to maximize public investment in the face of budget constraints at all levels. The program lifts millions of working individuals and families out of poverty each year regardless of their location, and in doing so also supports community financial stability. An expanded EITC—at the federal, state, or local level—with options for periodic payment and better alternatives to high-cost tax preparation could provide even stronger support to low-income families and the places where they live.

References

Adams, W., Einav, L., and Levin, J. (2009). Liquidity constraints and imperfect information in subprime lending. American Economic Review. 99(1), 49–84. Retrieved from http://web.stanford.edu/~jdlevin/Papers/Liquidity.pdf

Avalos, A., and Alley, S. (2010). The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy. 2(1). Retrieved from http://escholarship.org/uc/item/2jj0s1dn

Berube, A. (2005). Earned income credit participation—What we (don’t) know. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/metro/eitcparticipation.pdf

Berube, A. (2006a). Using the Earned Income Tax Credit to stimulate local economies. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/~/media/research/files/reports/2006/11/childrenfamilies-berube/berube20061101eitc.pdf

Berube, A. (2006b). ¿Tienes EITC? A study of the Earned Income Tax Credit in immigrant communities, Washington, DC: Brookings Institution. Retrieved from  http://www.brookings.edu/~/media/research/files/reports/2005/4/childrenfamilies-berube02/20050412_tieneseitc.pdf

Chetty, R., Friedman, J., and Saez, E. (2012). Using differences in knowledge across neighborhoods to uncover the impacts of the EITC on earnings (NBER Working Paper Series no. 18232). Retrieved from http://eml.berkeley.edu/~saez/chetty-friedman-saezNBER13EITC.pdf

Chetty, R., Hendren, N., Kline, P., and Saez, E. (2015). The economic impacts of tax expenditures: Evidence from spatial variation across the U.S. Retrieved from http://www.irs.gov/pub/irs-soi/14rptaxexpenditures.pdf

Halpern-Meekin, S., Edin, K., Tach, L., and Sykes, J. (2015). It’s not like I’m poor: How working families make ends meet in a post-welfare world, Oakland, CA: University of California Press.

Holt, S. D. (2008). Periodic payment of the Earned Income Tax Credit. Washington, DC: Brookings Institution. Retrieved from http://www.brookings.edu/research/papers/2008/06/0505-metroraise-supplement-holt

Internal Revenue Service. (2014). Statistics for tax returns with EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/eitcstats

Internal Revenue Service. (2015). About EITC. Retrieved from http://www.eitc.irs.gov/EITC-Central/abouteitc

Kneebone, E., and Berube, A. (2013). Confronting suburban poverty in America. Washington, DC: Brookings Institution Press.

Kneebone, E., and Holmes, N. Fighting poverty at tax time through the EITC. Retrieved from http://www.brookings.edu/blogs/the-avenue/posts/2014/12/16-poverty-tax-eitc-kneebone-holmes

Nichols, A., and Rothstein, J. (2015). The Earned Income Tax Credit (EITC) (NBER Working Paper Series no. 21211). Retrieved from http://www.nber.org/papers/w21211.pdf

From its modest beginnings in 1975, the Earned Income Tax Credit has grown into one of the nation’s most effective anti-poverty programs. Each year, the EITC supplements low-income workers’ earnings, encouraging work and lifting millions of people out of poverty.¹ It has positive lasting effects for parents, who have shown longer-run earnings increases and better health outcomes. At the same time, their children exhibit a host of benefits, from better school performance and higher rates of college enrollment to more hours worked and higher incomes in adulthood.² 

Moreover, the EITC supports economic stability in communities throughout the country where filers collectively receive millions of dollars in earnings supplements annually.³ These successes stem from a series of targeted expansions—supported by both Republicans and Democrats—over the EITC’s 40-year history, transforming it from a small credit into a significant income supplement for low-income working families.⁴

Yet more can be done to preserve and build on the effectiveness of the EITC, and a growing number of elected officials and policy experts have proposed  strengthening the credit. Three main recommendations have emerged from these proposals.

Preserve two key provisions of the EITC that are set to expire in 2017;

Expand the credit for workers without qualifying children; and

Offer filers options to receive a portion of the credit outside of tax time.

In this brief, we consider the first two recommendations, using our MetroTax model and detailed microdata from the 2014 American Community Survey to estimate the impact of these potential changes on workers and on the metropolitan areas and states where they live.⁵ A new analysis by Steve Holt will take an in-depth look at the issue of periodic payment.

If two key EITC provisions expire in 2017, 7.4 million filers would lose part or all of their EITC.

In 2009, Congress and the Obama administration enacted two targeted, but temporary, expansions to the EITC. The legislation reduced the “penalty” for married couples filing jointly by extending their eligibility for the credit $5,000 beyond that for unmarried filers, and it boosted the credit for families with three or more children (who are more likely to be low-income even when working).

If those provisions expire in 2017, the EITC would shrink for 6.7 million taxpayers, while a little under 700,000 filers would lose eligibility altogether. Two-thirds of filers who would be affected are married couples, 1.8 million of whom are also raising more than two kids (meaning they would be subject to both cuts). The remaining third are unmarried workers with at least three children. Most of these taxpayers (58 percent) have a high school diploma or less, and they are most likely to work in manufacturing, construction, and retail. The typical adjusted gross income of these filers is $28,000 a year, just above the poverty line for a family of four (roughly $24,000 in 2014).

States and metro areas in the Midwest and West would see the steepest cuts if these provisions expire. 

Every state stands to lose millions of dollars if these EITC provisions are not made permanent. States and metro areas with higher-than-average shares of married couples and larger families would be hardest hit. In the Intermountain West, Idaho and Utah could see a 10 percent drop in federal EITC dollars coming into the state (Table 1). The major population centers in those states—including metropolitan Provo and Ogden in Utah and Boise, Idaho—top the list of major metro areas that would experience the biggest cuts if these provisions expire.

While larger states like California and Texas would see their EITC claims drop by smaller percentages, the size of the EITC-eligible population in these states mean that the expiration of these two provisions would translate into a loss of more than half a billion dollars in California ($538 million) and over $400 million in Texas. Taxpayers in the Los Angeles metro area stand to lose an estimated $185 million in EITC receipts, while those in Dallas would forfeit nearly $100 million. (For detailed state and metro data see the appendix.)

Expanding the credit for workers without qualifying children would benefit more than 14.4 million filers. 

The EITC for childless workers is significantly smaller than the credit for families with children. In tax year 2013 (the most recent year for which detailed data are available), workers with qualifying dependents received $2,794 on average through the EITC, compared to the meager $281 claimed by the average childless worker.⁶ In fact, low-wage earning childless adults are the only group of taxpayers actually taxed into (or deeper into) poverty by the federal tax system.⁷

Both President Obama and House Speaker Paul Ryan have proposed expanding the EITC for these workers, as have legislators—including Sen. Patty Murray (D-Wash.), Rep. Richard Neal (D-Mass.), and Rep. Barbara Lee (D-Calif.)—and Republican presidential candidate Jeb Bush.⁸ (Republican presidential candidates Ted Cruz and John Kasich have also called for the EITC to be expanded but have not specified whom that expansion would target.⁹)

The proposals put forward by Obama, Ryan, Lee, and Bush are strikingly similar (although they differ considerably in how they would pay for it). These expansions would double the size of the credit for childless workers and the pace at which the credit phases in and out (Figure 1). They would also lower the minimum age of eligibility from 25 to 21.¹⁰

Together, these changes would boost the value of the credit for 8 million filers and extend eligibility to 6.4 million more taxpayers, increasing EITC dollars for these workers by $6.9 billion.¹¹

The filers who would benefit from these changes are largely unmarried workers (87 percent) who are most likely to be employed in service industries (retail, accommodation and food service, administrative services), health care, and construction. Half of these workers have a high school diploma or less. The typical adjusted gross income for these workers is just $8,300, well below the poverty threshold for individuals and married couples without children (e.g., $12,316 and $15,853, respectively, in 2014).

Several states and large metro areas in the Midwest and Northeast would see the number of childless workers eligible for the EITC more than double if the credit were expanded. 

The District of Columbia and Utah, each of which has above-average shares of the population between 21 and 24, would experience the largest percentage growth in the number of childless workers eligible for the EITC (135 and 134 percent, respectively). However, the bulk of states that would double their pool of eligible filers without qualifying children fall in the Midwest (North Dakota, Iowa, Nebraska, and Wisconsin) and Northeast (Rhode Island, Massachusetts, and Vermont), and tend have higher-than-average shares of one-person households and households without children.

Similarly, while the number of EITC-eligible childless workers in the Provo metro area would more than triple if the credit were expanded, most of the major metro areas that would at least double the number of eligible workers without qualifying children are in the Midwest (e.g., Grand Rapids, Milwaukee, and Toledo) and Northeast (e.g., Bridgeport, Boston, and Springfield) (Map 1).

In this era of partisan gridlock in Washington, it is rare to find a policy with the kind of bipartisan support the EITC has received—a testament to its effectiveness in encouraging work, alleviating poverty, and improving outcomes for workers and their children. By preserving key provisions of the EITC for working families and by making the EITC work better for workers without qualifying children, millions of Americans across the country stand to benefit.

Downloads

• State and Metro Data Appendix

Each year, one in five households filing a federal income tax return claims the Earned Income Tax Credit (EITC). Targeted primarily to lower-income workers with children, it is one of many credits and deductions filers take each year on their federal income tax forms. However, unlike typical credits and deductions, the EITC is a refundable credit, meaning that after offsetting what is owed to the government filers receive the remainder of the benefit as a refund.

By supplementing earnings for low- and moderate-income households, the EITC helps bridge the gap between what the labor market provides and what it takes to support a family. It encourages and rewards work and has become one of the nation’s largest and most effective anti-poverty programs. In contrast to other work support and poverty alleviation programs, it achieves this with very little bureaucracy beyond what otherwise exists to administer the tax code.

Although the EITC began in 1975 as a small credit (no more than $400), a number of targeted expansions in subsequent years mean that today the EITC’s assistance can be considerable. In 2015, a single parent with three children working full-time all year at the federal minimum wage ($7.25 an hour) is eligible for a credit of $6,242, a boost of more than 40 percent above her earnings of $15,080 (though combined it still leaves her 12 percent below the federal poverty level).

However, the only way to obtain these substantial benefits is to claim the EITC on the annual federal income tax return. While lump-sum payments have perceived benefits (such as being able to pay off debts, make larger purchases, or force savings), the EITC’s single annual disbursement can present a challenge for the working parent trying to make ends meet throughout the year. It can also be problematic for households wanting to stretch out their refund as an emergency savings reserve.

My 2008 paper, “Periodic Payment of the Earned Income Tax Credit,” proposed an option that would allow a family to receive a portion of the EITC outside of tax time, striking a balance between lump-sum delivery and the need for resources throughout the year. Specifically, half of the credit could be claimed in four payments spread out during the year, while the remaining credit would continue to be paid as part of the tax refund.

Since then, several significant developments have occurred. A little-used option for receiving some of the EITC in each paycheck ended in 2010. In 2014, the federal government initiated a new tax credit advance payment process to subsidize health insurance premiums through monthly disbursement of the Affordable Care Act’s Premium Tax Credit. Other countries providing assistance similar to the EITC have continued to innovate and offer access to benefits during the year. Finally, members of Congress and think tanks have proposed alternatives to a single lump-sum disbursement of the EITC, and others have begun to explore and experiment with alternatives, most notably in Chicago, where a 2014 pilot program made quarterly payments to 343 households.

In light of these developments, this paper reviews the author’s original EITC periodic payment proposal, examines emerging alternatives, and addresses the following key questions:

• What is the demand for periodic payment alternatives?
  
  
• What benefits will accrue from the availability of periodic payment?
  
  
• What risks are associated with periodic payment and how can they be managed?
  
  
• What is the administrative feasibility of periodic payment?

The emerging answers point a way forward for identifying different distribution options that would enhance the EITC’s value to low- and moderate-income working families.

Downloads

• Report

The Earned Income Tax Credit (EITC) supports millions of single parents and their children each year. Although the majority of these are single moms, Father’s Day provides a good reminder that single dads are also a significant part of the equation.

Using Brookings’ MetroTax model, we estimate that roughly half (49 percent) of all EITC-eligible tax filers in 2014 filed as head of household—a group that includes many single custodial parents. Of these estimated 13.1 million filers, 8.9 million were women, and 4.2 million were men. These female-headed households included an estimated 14.7 million qualifying children, while their male counterparts included 6 million qualifying children.

Although women head of household filers were more likely to be EITC-eligible (69 percent), male heads of household were not far behind, with an estimated 61 percent eligible to receive the EITC in 2014.

To learn more about the EITC-eligible population, visit Brookings’ EITC data interactive.

The full story of the killing of Michael Brown, a young, black, unarmed man shot by a policeman in Ferguson, Missouri, is still unfolding—and the truth will not be known for some time. It is only after full investigations are completed that an objective evaluation of the incident can be made. Nonetheless, there is no doubt that the killing of the young man was unfortunate and has generated a serious debate about race relations in America, and on the relations between police and the communities that they are supposed to protect. The riots and massive looting portrayed not only the extent of criminality in America’s inner cities, but also the economic marginalization of the minority communities.

Coming not long after the successful U.S.-Africa Leaders Summit held in Washington, the Ferguson incident and the follow-up demonstrations have been rather unfortunate in as far as how Africans view America—in a way questioning America’s standing as a protector of human rights. The hostility towards the United States in regard to its treatment of African-Americans has dominated social media with claims that the incident shows that America should not claim leadership when it comes to human rights. Such criticisms by many other countries, including Russia and China, are widespread.

I was particularly surprised by the comments in the Kenyan media coverage of this topic. Here are some statements on the topic by readers of the most popular paper there—the Daily Nation:

(This is an apparent reference to the fact that the United States government issues travel advisories to countries like Kenya when such incidents occur and there are riots.)

(This statement is in reference to the U.S. government’s actions following the 2007-2008 post-election violence in Kenya.)

As the two-year anniversary of the last round of conflict in Gaza approaches, the inhumane conditions to which 1.8 million Palestinians are being subjected threaten to reach boiling point by the summer months, when the lack of access to water and electricity - available for a maximum of eight hours a day - combined with the oppressive heat and the lack of a reconstruction progress, could exacerbate frustrations, culminating in a new cycle of violence.

Despite the relative calm since the August 26, 2014 ceasefire between Israel and Hamas, there have been more than 20 serious incidents that involved incursions, air raids, and missile exchanges with 23 Palestinians killed in the Gaza Strip since December 2015.

As antagonistic verbal exchanges between Hamas and Israel continued over the past few months, scenes of rising violence in the West Bank and Jerusalem - seemingly outside the control of Hamas and the Palestinian Authority (PA) - started to further fuel people's frustration, thus adding to the volatility of the situation.

Reconstruction of Gaza

The Israeli/Palestinian question has become notorious for the international community's inaction.

Nevertheless, the reconstruction of Gaza is one area where action is not only possible but is also badly needed from both strategic and humanitarian perspectives.

The estimates for how much construction has been completed vary depending on the source, and range from about 17 percent (3,000) of the approximately 18,000 homes destroyed or severely damaged in July/August 2014 according to the UN Office for the Coordination of Humanitarian Affairs; to 9 percent by the World Bank, or to "nothing" by the average Gazan.

Regardless of the exact figure, the fact remains that more than 75,000 people remain displaced across Gaza as a direct result of the July/August 2014 war, a problem made worse by insufficient funding.

There are many factors to explain the slow progress. Chief among them is the continued Israeli blockade; the underlying cause of all the wars in Gaza since Israel’s unilateral withdrawal in 2005.

Egypt's refusal to open the Rafah border crossing without the presence of the PA, along with the Palestinians' inability to activate a unity government, makes the situation even worse.

However, one controversial factor that has received little attention is the UN's Gaza Reconstruction Mechanism (GRM).

The GRM is a complicated system of surveillance intended to: "a. Enable the GoP to lead the reconstruction effort; b. Enable the Gazan private sector; c. Assure donors that their investments in construction work in Gaza will be implemented without delay; d. Address Israeli security concerns related to the use of construction and other 'dual use' material" (UN, October 2014).

By attempting to be both the humanitarian and the jailer at the same time, the UN has fast become the recognizable face of the blockade.

Moral legitimacy

Two years into the reconstruction process, it is now clear that the GRM not only poses difficulties for the people of Gaza seeking to rebuild their homes - as it forces them to wait for a long time before they receive any construction materials - but also, more importantly, erodes the moral legitimacy of the role of the United Nations in Gaza.

For more than 70 years, the UN in Gaza has been associated largely with the work of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA).

While the Palestinian people have come to accept that the UN cannot resolve their problems, they still expect that it should at least attempt to take an impartial position, and on occasions adhere to its own values by acting as a witness and speaking up against the atrocities that Palestinians face.

With the GRM, the role of the UN changed. The humanitarian imperative that the UN clings to as it delivers aid in the occupied Palestinian territory is no longer neutral.

In fact, in order to facilitate the flow of construction material under the GRM, the UN is increasingly seen as favoring the status quo and siding with the one with power - Israel.

Arguably, among the four main objectives behind the establishment of the GRM, the one related to Israel's security interest seems to take precedence all the time.

Under the current arrangements, a person seeking construction materials must first go to the GRM administrator to be placed on a list. Once their name reaches the top of the list, the Israeli Coordinator of Government Activities in the Territories (COGAT) must approve of the request before the distribution of any materials. The process between COGAT and the GRM can take weeks.

The sight of UN personnel in armored vehicles accompanying sacks of cement (to ensure delivery and use as proposed) incenses the population of Gaza, as they view this practice as the UN placing a higher value on the protection of construction commodities than on human life.

Complex politics of occupation

The inability of the GRM to engage the local population has alleviated tensions over the past two years. During the conception of the GRM, the civil society of Gaza did not participate in the formation of policies governing the distribution of reconstruction materials.

Only the United Nations, the Israeli government, and the PA devised the plan to rebuild Gaza. Due to their pre-determined position to deny Hamas any opportunity of engagement, the process effectively resulted in excluding citizens and civil society organizations, which was a big mistake.

Nickolay Mladenov and other senior UN officials understand well that the GRM has fallen victim to the complex politics of occupation and resistance.

It is being used every day to punish or "incentivize" Hamas and/or to frustrate any possibility of reaching an understanding between Gaza and the West Bank.

It has also provided a fig leaf to the Egyptian President Abdel Fattah el-Sisi which allowed him to close his borders while pursuing a doomed-to-fail securitization agenda in Sinai.

Its lack of effectiveness has also provided many donors with the excuse to not honor their pledges, thus compounding the suffering.

In short, the situation in Gaza requires immediate action. Regardless of whose fault it is that the GRM has not been able to alleviate the suffering of the people of Gaza, it seems appropriate for the United Nations to admit to the failure of the mechanism and even to withdraw its services.

In fact, a walkout by the UN from administering the crossing and use of construction material is not only the right thing to do morally, but might also force constructive action from Israel, EU governments, the Gulf states, and the US as well as Hamas and the PA.

Given the security concerns in Iraq, Syria, Egypt, and elsewhere, the international community would not stand by and allow for a complete meltdown in Gaza.

The alternative is to continue to deny the reality of the mechanism and to watch the grievances of Palestinians in Gaza reaching an unresolvable level that explodes into another violent round of conflict, worse than the last.

This piece was originally published on Al Jazeera English.

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As policy agendas for 2015 come into sharper focus, much of the national conversation is aimed at tackling challenges in biomedical innovation. The first two months of the year alone have seen landmark proposals from Congress and the Obama Administration, including the House’s 21^st Century Cures initiative, a bipartisan Senate working group focused on medical progress, President Obama’s Precision Medicine Initiative and a number of additional priorities being advanced by federal agencies and other stakeholders.

On March 13, the Engelberg Center for Health Care Reform hosted the State of Biomedical Innovation Conference to provide an overview of emerging policy efforts and priorities related to improving the biomedical innovation process. Senior leaders from government, academia, industry, and patient advocacy shared their thoughts on the challenges facing medical product development and promising approaches to overcome them. The discussion also examined the data and analyses that provide the basis for new policies and track their ultimate success.

 Join the conversation by following @BrookingsMed or #biomed

Video

• State of biomedical innovation conference: Panel 1
• State of biomedical innovation conference: Panel 2

Audio

• State of biomedical innovation conference

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150313_biomed_transcript
• 313 MASTER DECK2

Quickly following on the heels of the midterm elections, Senate Majority Leader Mitch McConnell (R-KY) indicated that the medical device tax was a key target for repeal in the 114th Congress. Today, the Senate Finance Health Care Subcommittee will hold a hearing about the effects of the 2.3 percent tax that was included in the Affordable Care Act. Many believe that a repeal is, in fact, possible. Below is a basic primer about the tax and its contentious history.

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Under the Food and Drug Administration Amendments Act (FDAAA) of 2007, the FDA has the authority to require pharmaceutical manufacturers to develop Risk Evaluation and Mitigation Strategies (REMS) for drugs or biologics that carry serious potential or known risks. Since that time, the REMS program has become an important tool in ensuring that riskier drugs are used safely, and it has allowed FDA to facilitate access to a host of drugs that may not otherwise have been approved. However, concerns have arisen regarding the effects of REMS programs on patient access to products, as well as the undue burden that the requirements place on the health care system. In response to these concerns, FDA has initiated reform efforts aimed at improving the standardization, assessment, and integration of REMS within the health care system. As part of this broader initiative, the agency is pursuing four priority projects, one of which focuses on improving provider-patient benefit-risk counseling for drugs that have a REMS attached.

Under a cooperative agreement with FDA, the Center for Health Policy at Brookings held an expert workshop on July 24 titled, “Risk Evaluation and Mitigation Strategies (REMS): Building a Framework for Effective Patient Counseling on Medication Risks and Benefits”. This workshop was the first in a series of convening activities that will seek input from stakeholders across academia, industry, health systems, and patient advocacy groups, among others. Through these activities, Brookings and FDA will further develop and refine an evidence-based framework of best practices and principles that can be used to inform the development and effective use of REMS tools and processes.

Event Materials

• REMS_PBRC_Meeting_Agenda
• REMS BR Speaker Bios
• REMS BenefitRisk Meeting Summary
• REMS BenefitRisk communication white paper

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The biomedical innovation ecosystem continues to evolve and enhance the processes by which treatments are developed and delivered to patients. Given this changing biomedical innovation landscape, it is imperative that all stakeholders work to ensure that development programs, regulatory practices, and the policies that enable them are aligned on and achieving a common set of goals. This will require a thorough reexamination of our understanding of biomedical innovation – and the subsequent ways in which we seek to incentivize it – in order to more effectively bridge research and analysis of the process itself with the science and policy underpinning it.

Traditional research into the efficiency and effectiveness of drug development programs has tended to focus on the ‘inputs’ and process trends in product development, quantifying the innovation as discrete units. At the opposite end of the research spectrum are potential measures that could be categorized as “value” or “outcomes” metrics. Identifying the appropriate measures across this spectrum – from inputs and technological progress through outcomes and value – and how such metrics can be in conversation with each other to improve the innovation process will be the focus of this expert workshop. On October 14, the Center for Health Policy at Brookings, under a cooperative agreement with the U.S. Food and Drug Administration, convened a roundtable discussion that engaged key stakeholders from throughout the innovation ecosystem to explore the factors and characteristics that could improve our understanding of what constitutes modern “innovation” and how best to track its progress.

Event Materials

• FINAL 1014 BrookingsFDA Agenda
• FINAL 1014 BrookingsFDA Participant List

It has been hailed as the most significant discovery in biology since polymerase chain reaction allowed for the mass replication of DNA samples. CRISPR-Cas9 is an inexpensive and easy-to-use gene-editing method that promises applications ranging from medicine to industrial agriculture to biofuels. Currently, applications to treat leukemia, HIV, and cancer are under experimental development.¹ However, new technical solutions tend to be fraught with old problems, and in this case, ethical and legal questions loom large over the future.

Disagreements on ethics

The uptake of this method has been so fast that many scientists have started to worry about inadequate regulation of research and its unanticipated consequences.² Consider, for instance, the disagreement on research on human germ cells (eggs, sperm, or embryos) where an edited gene is passed onto offspring. Since the emergence of bioengineering applications in the 1970s, the scientific community has eschewed experiments to alter human germline and some governments have even banned them.³ The regulation regimes are expectedly not uniform: for instance, China bans the implantation of genetically modified embryos in women but not the research with embryos.

Last year, a group of Chinese researchers conducted gene-editing experiments on non-viable human zygotes (fertilized eggs) using CRISPR.⁴ News that these experiments were underway prompted a group of leading U.S. geneticists to meet in March 2015 in Napa, California, to begin a serious consideration of ethical and legal dimensions of CRISPR and called for a moratorium on research editing genes in human germline.⁵ Disregarding that call, the Chinese researchers published their results later in the year largely reporting a failure to precisely edit targeted genes without accidentally editing non-targets. CRISPR is not yet sufficiently precise.

CRISPR reignited an old debate on human germline research that is one of the central motivations (but surely not the only one) for an international summit on gene editing hosted by the U.S. National Academies of Sciences, the Chinese Academy of Sciences, and the U.K.'s Royal Society in December 2015. About 500 scientists as well as experts in the legal and ethical aspects of bioengineering attended.⁶ Rather than consensus, the meeting highlighted the significant contrasts among participants about the ethics of inquiry, and more generally, about the governance of science. Illustrative of these contrasts are the views of prominent geneticists Francis Collins, Director of the National Institutes of Health, and George Church, professor of genetics at Harvard. Collins argues that the “balance of the debate leans overwhelmingly against human germline engineering.” In turn, Church, while a signatory of the moratorium called by the Napa group, has nevertheless suggested reasons why CRISPR is shifting the balance in favor of lifting the ban on human germline experiments.⁷

The desire to speed up discovery of cures for heritable diseases is laudable. But tinkering with human germline is truly a human concern and cannot be presumed to be the exclusive jurisdictions of scientists, clinicians, or patients. All members of society have a stake in the evolution of CRISPR and must be part of the conversation about what kind of research should be permitted, what should be discouraged, and what disallowed. To relegate lay citizens to react to CRISPR applications—i.e. to vote with their wallets once applications hit the market—is to reduce their citizenship to consumer rights, and public participation to purchasing power.⁸ Yet, neither the NAS summit nor the earlier Napa meeting sought to solicit the perspectives of citizens, groups, and associations other than those already tuned in the CRISPR debates.⁹

The scientific community has a bond to the larger society in which it operates that in its most basic form is the bond of the scientist to her national community, is the notion that the scientist is a citizen of society before she is a denizen of science. This bond entails liberties and responsibilities that transcend the ethos and telos of science and, consequently, subordinates science to the social compact. It is worth recalling this old lesson from the history of science as we continue the public debate on gene editing. Scientists are free to hold specific moral views and prescriptions about the proper conduct of research and the ethical limits of that conduct, but they are not free to exclude the rest of society from weighing in on the debate with their own values and moral imaginations about what should be permitted and what should be banned in research. The governance of CRISPR is a question of collective choice that must be answered by means of democratic deliberation and, when irreconcilable differences arise, by the due process of democratic institutions.

Patent disputes

More heated than the ethical debate is the legal battle for key CRISPR patents that has embroiled prominent scientists involved in perfecting this method. The U.S. Patent and Trademark Office initiated a formal contestation process, called interference, in March 2016 to adjudicate the dispute. The process is likely to take years and appeals are expected to extend further in time. Challenges are also expected to patents filed internationally, including those filed with the European Patent Office.

To put this dispute in perspective, it is instructive to consider the history of CRISPR authored by one of the celebrities in gene science, Eric Lander.¹⁰ This article ignited a controversy because it understated the role of one of the parties to the patent dispute (Jennifer Doudna and Emmanuelle Charpentier), while casting the other party as truly culminating the development of this technology (Feng Zhang, who is affiliated to Lander’s Broad Institute). Some gene scientists accused Lander of tendentious inaccuracies and of trying to spin a story in a manner that favors the legal argument (and economic interest) of Zhang.

Ironically, the contentious article could be read as an argument against any particular claim to the CRISPR patents as it implicitly questions the fairness of granting exclusive rights to an invention. Lander tells the genesis of CRISPR that extends through a period of two decades and over various countries, where the protagonists are the many researchers who contributed to the cumulative knowledge in the ongoing development of the method. The very title of Lander’s piece, “The Heroes of CRISPR” highlights that the technology has not one but a plurality of authors.

A patent is a legal instrument that recognizes certain rights of the patent holder (individual, group, or organization) and at the same time denies those rights to everyone else, including those other contributors to the invention. Patent rights are thus arbitrary under the candle of history. I am not suggesting that the bureaucratic rules to grant a patent or to determine its validity are arbitrary; they have logical rationales anchored in practice and precedent. I am suggesting that in principle any exclusive assignation of rights that does not include the entire community responsible for the invention is arbitrary and thus unfair. The history of CRISPR highlights this old lesson from the history of technology: an invention does not belong to its patent holder, except in a court of law.

Some scientists may be willing to accept with resignation the unfair distribution of recognition granted by patents (or prizes like the Nobel) and find consolation in the fact that their contribution to science has real effects on people’s lives as it materializes in things like new therapies and drugs. Yet patents are also instrumental in distributing those real effects quite unevenly. Patents create monopolies that, selling their innovation at high prices, benefit only those who can afford them. The regular refrain to this charge is that without the promise of high profits, there would be no investments in innovation and no advances in life-saving medicine. What’s more, the biotech industry reminds us that start-ups will secure capital injections only if they have exclusive rights to the technologies they are developing. Yet, Editas Medicine, a biotech start-up that seeks to exploit commercial applications of CRISPR (Zhang is a stakeholder), was able to raise $94 million in its February 2016 initial public offering. That some of Editas’ key patents are disputed and were entering interference at USPTO was patently not a deterrent for those investors.

Towards a CRISPR democratic debate

Neither the governance of gene-editing research nor the management of CRISPR patents should be the exclusive responsibility of scientists. Yet, they do enjoy an advantage in public deliberations on gene editing that is derived from their technical competence and from the authority ascribed to them by society. They can use this advantage to close the public debate and monopolize its terms, or they could turn it into stewardship of a truly democratic debate about CRISPR.

The latter choice can benefit from three steps. A first step would be openness: a public willingness to consider and internalize public values that are not easily reconciled with research values. A second step would be self-restraint: publicly affirming a self-imposed ban on research with human germline and discouraging research practices that are contrary to received norms of prudence. A third useful step would be a public service orientation in the use of patents: scientists should pressure their universities, who hold title to their inventions, to preserve some degree of influence over research commercialization so that the dissemination and access to innovations is consonant with the noble aspirations of science and the public service mission of the university. Openness, self-restraint, and an orientation to service from scientists will go a long way to make of CRISPR a true servant of society and an instrument of democracy.

Other reading: See media coverage compiled by the National Academies of Sciences.

¹Nature: an authoritative and accessible primer. A more technical description of applications in Hsu, P. D. et al. 2014. Cell, 157(6): 1262–1278.

³More about ethical concerns on gene editing here: http://www.geneticsandsociety.org/article.php?id=8711

⁴Liang, P. et al. 2015. Protein & Cell, 6, 363–372

⁵Science: A prudent path forward for genomic engineering and germline gene modification.

⁶Nature: NAS Gene Editing Summit.

⁷While Collins and Church participated in the summit, their views quoted here are from StatNews.com: A debate: Should we edit the human germline. See also Sciencenews.org: Editing human germline cells sparks ethics debate.

⁸Hurlbut, J. B. 2015. Limits of Responsibility, Hastings Center Report, 45(5): 11-14.

⁹This point is forcefully made by Sheila Jasanoff and colleagues: CRISPR Democracy, 2015 Issues in S&T, 22(1).

¹⁰Lander, E. 2016. The Heroes of CRISPR. Cell, 164(1-2): 18-28.

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On May 14, the Center on the United States and Europe at Brookings, in partnership with the Council for the United States and Italy, will host Italian Foreign Minister Federica Mogherini for an address on Italy’s foreign policy during a period of geopolitical turmoil. In her remarks, Mogherini will offer perspectives on recent developments on the frontiers of Europe and explore how Italy and the U.S. can work together, along with the European Union and NATO, to address the ongoing challenges in Ukraine, the Mediterranean and beyond.

Federica Mogherini has been minister for foreign affairs since February 2014. She was previously a member of the Foreign Affairs and Defense Committees of the Chamber of Deputies and chair of the Italian Delegation to the Parliamentary Assembly of NATO. She has been active in promoting nuclear disarmament in the Italian parliament, including a successfully adopted resolution supporting the nuclear disarmament visions and plans of President Obama and U.N. Secretary General Ban Ki-moon.

Brookings Acting Deputy Director for Foreign Policy Steven Pifer will introduce Minister Mogherini. Michael Calingaert of Brookings and the Council for the U.S. and Italy will moderate a question and answer session at the conclusion of the minister’s remarks.

Join the conversation on Twitter using #Mogherini

Five years ago, my mother needed an orthopedic surgeon for a knee replacement. Unable to find any data, we went with an academic doctor that was recommended to us (she suffered surgical complications). Last month, we were again looking for an orthopedic surgeon- this time hoping that a steroid injection in her spine might allay the need for invasive back surgery. This time, thanks to a recent data dump from CMS, I was able to analyze some information about Medicare providers in her area and determine the most experienced doctor for the job.  Of 453 orthopedic surgeons in Maryland, only a handful had been paid by Medicare for the procedure more than 10 times.  The leading surgeon had done 263- as many as the next 10 combined. We figured he might be the best person to go to, and we were right- the procedure went like clockwork.

Had it been a month prior to the CMS data release, I wouldn’t have had the data at my fingertips. And I certainly wouldn’t have found the most experienced hand in less than 10 minutes.

It’s been a couple of month since the release of Medicare data by the Centers for Medicare and Medicaid (CMS) on the volume and cost of services billed by healthcare providers, and despite the whiff of scandal surrounding the highest paid providers (including the now-famous Florida ophthalmologist that received $21 million) the analyses so far have been somewhat unsurprising. This week, coinciding with the fifth Health DataPalooza, is a good time to take stock of the utility of this data, its limitations, and what the future may hold.

The millions of lines of data was exactly as advertised: charges and paid services under traditional Medicare “fee-for-service,” including the billing provider’s ID and the costs to Medicare. The initial headlines touting “Medicare Millionaires” relied on some basic arithmetic and some sorting.  And the cautions piled up: the data could reflect multiple providers billing under a single ID; payments are not the same as a provider’s actual take home income; it’s not complete information as it doesn’t contain information about other insurers, or even Medicare Advantage, and so on.

But perhaps most damning was how little insight the data seemed to provide on the quality or value of care provided, as opposed to volume of services.  As Lisa Rosenbaum wrote in the New Yorker, “So much of that good isn’t captured by these numbers. You don’t bill for talking to a patient about how he wants to die. There’s no code for providing reassurance rather than ordering a test.”

Where is the value in the data?

Data bear witness to the fundamental flaw of the payment system that generates them. The absence of information on quality, safety, appropriateness, or outcomes appears to have been a genuine revelation to many, but it is in fact exactly the type of output that we should expect from this volume-based system that we have built. This is not a critique of the data release. It is an indictment of our payment system.

Data is revealing important trends in how we pay doctors differently. Not all physician payments are created equal, and the data certainly shows the disparities across specialties, primary care, and others. For example, the average total annual Medicare payment to geriatricians was less than $100,000, while dermatologists and radiation oncologists (who presumably also see non-elderly patients) received on average $200,000 and $360,000 respectively. The important question will be why and should it continue?

Figure 1: Distribution of Total Medicare Pay by Provider Type, 2012 

Source: Author's calculations based on Medicare data released in April 2014

Data is revealing important indicators of cost and pricing – a major contributor to rising health care costs. Why is it that a brief visit with a geriatrician is worth $13; a 45-minute visit with a geriatrician sorting through medications, educating family members, and developing a quality of life plan with a terminal cancer patient is worth $79; and a dermatologist treating suspected skin cancer can earn upwards of $600 for a procedure that takes them minutes?

Data sheds light on practice patterns. The data is also revealing important variances in utilization of drugs and treatments. For example, a block apart on Park Avenue, two ophalmologists differ significantly in their use of treatments for macular degeneration. One uses expensive injectable drugs and gets paid over $10,000 per injection, while the other receives less than $500 for the lower-cost equivalent.

A CBS News report looked at spinal fusion surgeries—a procedure where there is almost no evidence demonstrating a net benefit to patients compared to other conservative therapies. They observed that “while the average spine surgeon performed them on 7 percent of patients they saw, some did so on 35 percent.”

At the extremes, outlier “practice pattern” begins to raise questions of potential improper billing or outright fraud and abuse. For example, simply looking at the frequency and volume of services provided to individual beneficiaries can identify concerning outliers. This laboratory company billed for 28,954 blood glucose reagent strips in 2012- for 88 patients. And yes, that’s highly unusual.

Figure 2: "Outlier" Medicare Billing for Blood Glucose Reagent Strips, 2012

Source: Author's calculations based on Medicare data released in April 2014

One clinical social worker billed for 1,697 separate days of service on 28 patients (the size of the bubble is proportional to the total amount of reimbursement by Medicare in 2012).

Figure 3: "Outlier" Medicare Billing for Days of Service, 2012

Source: Author's calculations based on Medicare data released in April 2014

The most extreme outlier, Dr. Gary Ordog, was named by NPR and ProPublica in their examination of providers who are outliers on their pattern of coding for the highest intensity office. Ordog had previously lost the right to bill California’s state Medicaid program, and yet continued to charge Medicare for over $500,000 in billing in 2012. It’s important to caution however, that even in these extreme outliers, statistics alone cannot provide definitive evidence of abuse. There is a need for formal investigation.

Medicare and law enforcement officials will need to create new processes for dealing with a potential flood of outlier reports from amateur sleuths like me.

What's Next for Medicare Data?

Data can be trended. Updates of data releases can begin to show us not just snapshots, but moving pictures of our healthcare system as it undergoes rapid changes. The New York Times reported on the increase in charges for certain frequent causes of hospitalization between 2011 and 2012. It will be interesting to see whether the data release itself, and the Steven Brill landmark Time article on hospital charges, have an impact on reversing these trends.  

Data can be “mashed up”.  The value of open data is hugely greater than the sum of its parts. As more and more data becomes available, the files can be cross-linked and “mashed up” to be able to answer questions no one database could have.  ProPublica linked together cobbled together data on state actions and sanctions on physicians with the Medicare data release to ask why these physicians are still being paid by Medicare.

What does the future hold? Correlations with drug prescribing data, meaningful use, and referral patterns are possible today, Sunshine Act disclosures and quality reporting, and much more is soon to come.

As we get comfortable with the data, analysts can move past the basics of arithmetic and sorting, we have an opportunity to make more ‘meaningful use’ of this data. We can begin to identify practice patterns, overuse, variations in geography or demographics, and potentially even fraud and abuse. As more and more data becomes available, the files can be cross-linked and “mashed up” to be able to answer questions no one database could have addressed. What will determine the value of the Medicare data release will be the creativity of those data scientists, epidemiologists, and health services researchers (amateur as well as professional) who can ask the challenging questions that must be answered.

There are now more than 335 Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP) in 47 states, DC, and Puerto Rico. Early results show that most Medicare ACOs are succeeding at meeting their quality benchmarks, but only about a quarter of MSSP participants have been able to reduce their spending enough below projected financial targets to qualify for shared savings. While these results are encouraging, especially given the financial and practice transformation necessary to succeed as an ACO, they also suggest that more work is needed from both CMS and the providers to ensure continued sustainability of the MSSP ACOs.

Given that the first three year cycle of MSSP ends in 2015 and more providers will likely be entering the MSSP in the coming years , the Centers for Medicare and Medicaid Services (CMS) has indicated that they intend to release a Notice of Proposed Rulemaking (NPRM) that will establish the rule for participation in the Medicare ACO program. In anticipation of these coming changes, the Engelberg Center for Health Care Reform released an issue brief that identifies the "Top Eight ACO Challenges" to encourage further discussion and considerations for ensuring the continued success of ACOs. These potential policy alternatives build on discussions with ACO Learning Network members and other related stakeholders implementing accountable care across the country and include the following issues.

These issues, and many others, will be a focus of the discussions at the upcoming Fifth National ACO Summit later this week.

Top Eight Medicare ACO Challenges

1. Make Technical Adjustments to Benchmarks and Payments
In order for ACOs to qualify for shared savings, they must be able to hold spending below a financial benchmark set using historical spending patterns and meet a certain threshold of person and population-level quality metrics. A number of issues should be considered that affect the ACO’s chances of being able to attain shared savings and have more predictability about their performance: benchmark calculation methodology, how to adjust for regional variation in performance, and risk adjustment.

2. Transition to More Person-Based Payments
The ultimate goal of an ACO is to improve quality at the patient and population level and control the growth of health care costs. In order to successfully achieve this mission, ACOs must over time make a transition to payments that involve the assumption of more risk by the provider organization with a reward for better health outcomes for groups of patients. ACOs must have a clear transition path for increasing accountability and assumption of more risk for patient health outcomes.

3. Increase Beneficiary Engagement
Patients can play a critical role in helping to achieve the goals of an ACO. Health outcomes are determined by whether patients follow prescribed therapies. Increasing beneficiary engagement holds the potential to make patients more activated members of the ACO who can contribute to its success. A number of issues should be considered to improve beneficiary engagement, including adjusting attribution methods, creating more incentives for patients to seek care within the ACO, and finding opportunities to activate patients as part of the care team.

4. Enhance and Improve Alignment of Performance Measures
A central tenet of Medicare ACOs is delivering high quality health care as determined by performance on 33 measures established by CMS. ACOs must meet performance benchmarks in order to be eligible for shared savings, ensuring that these organizations are delivering high value, rather than simply cheaper, care. A number of barriers exist to achieving better performance measurement, including administrative burdens, lack of measure alignment among payers, lack of rewards for quality improvement, and concerns about measure selection.

5. Enable Better and More Consistent Supporting Data
In order to succeed as an ACO, organizations must be able to effectively collect, interpret, and use clinical and claims data to transform care of their patients. ACOs need to adopt new health IT systems and other technologies in order to collect and use the growing amount of data. ACOs currently struggle with reconciling data between different sources, dealing with patients who opt out of data sharing, lack of timeliness for receiving data, difficulty of tracking patients through the health system, and delays in performance feedback.

6. Link to Additional Value-Based Payment Reforms
ACOs are just one of many payment reforms that health care organizations across the country are implementing to improve quality and reduce costs. Aligning the vision and components of these other initiatives with ACO reforms has the potential to reinforce the shared goals and fundamentally change the health system. However, there are barriers to achieving this alignment such as lacks of linkages to bundled payments and other new payment models, multi-payer ACOs with different payment systems, and inability for organizations to participate in multiple CMS payment innovations.

7. Develop Bonus Payments and Other Incentives to Participate
In order to effectively transform clinical practice, ACOs must create or procure significant financial and human capital, as well as transform their information technology and delivery infrastructure. A recent survey estimates the average start-up cost for creating an ACO to be $2 million, with some ACOs investing significantly more in their first few years. Many ACOs, especially smaller ones, struggle to find sufficient start-up capital, are uncertain if they can assume the level of risk required for an ACO, and need significant staff and clinical change to effectively transform care.

8. Support Clinical Transformation
Becoming and succeeding as an ACO is a vast undertaking that requires immediately beginning to transform practice, finance, and operations. However, many providers, particularly those that are less experienced at systemic practice transformation, need more support in undertaking clinical transformation.

Downloads

• Issue Brief: Improving the Medicare ACO Program

Contributors: Alice M. Rivlin and Christine Dang-Vu

Recent data suggest that Accountable Care Organizations (ACOs) are improving important aspects of care and some are achieving early cost savings, but there is a long way to go. Not all ACOs will be successful at meeting the quality and cost aims of accountable care. The private sector has to date allowed more flexibility in terms of varying risk arrangements—there are now over 250 accountable care arrangements with private payers in all parts of the country—with notable success in some cases, particularly in ACOs that have been able to move farther away from fee-for-service payments. Future growth of the Medicare ACO program will depend on providers having the incentives to become an ACO and the flexibility to assume different levels of risk, ranging from exclusively upside arrangements to partial or fully capitated payment models.

Given that the first three year cycle of Medicare ACOs ends in 2015 and more providers will be entering accountable care in the coming years, the Centers for Medicare and Medicaid Services (CMS) has indicated that they intend to release a Notice of Proposed Rulemaking (NPRM) affecting the Medicare ACO program.

In anticipation of these coming changes, the Engelberg Center for Health Care Reform has identified the "Top Eight ACO Challenges" that warrant further discussion and considerations for ensuring the continued success of ACOs across the country. To support that discussion, we also present some potential alternatives to current Medicare policies that address these concerns. These findings build on the experiences of the Engelberg Center’s ACO Learning Network members and other stakeholders implementing accountable care across the country.  In some cases, the alternatives might have short-term costs, but could also improve the predictability and feasibility of Medicare ACOs, potentially leading to bigger impacts on improving care and reducing costs over time.  In other cases, the alternatives could lead to more savings even in the short term. In every case, thoughtful discussion and debate about these issues will help lead to a more effective Medicare ACO program.

Top Eight ACO Challenges

1. Make technical adjustments to benchmarks and payments
2. Transition to more person-based payments
3. Increase beneficiary engagement
4. Enhance and improve alignment of performance measures
5. Enable better and more consistent supporting data
6. Link to additional value-based payment reforms
7. Develop bonus payments and other incentives to participate
8. Support clinical transformation

Downloads

• Issue Brief: Improving the Medicare ACO Program

Erica has a history of cardiac issues. She visits her doctor for a regular checkup and her doctor writes a new prescription to better control her heart disease. Unfortunately, her doctor didn't mention any instructions, except to take it once a day. Erica thanks her doctor and heads to the pharmacy. At the check-out counter, the clerk hands Erica her new prescription drug, in addition to three documents stapled to the bag that he says "will explain everything you need to know about your medication." Later on, while reviewing the materials at home, Erica is overwhelmed by the information, which is in fine print and difficult to understand. She is frustrated and confused, and tosses the documents in the trash.

This scenario is not uncommon. Research suggests that about 50 percent of Americans find it difficult to read health information.[i] Consumers who cannot find the information they need, or who do not understand the information because it is presented in a convoluted manner, are less likely to use it to prevent unnecessary medical errors. In Erica’s case, she could have ended up in the emergency room because she missed some basic warnings about her prescription. For example, one warning might have been that she should not chew the medication because it was an extended release capsule. Chewing the capsule could release the entire day’s dose at once, resulting in an unintended overdose.

We know that consumers are receiving information – sometimes too much information. Not only are consumers receiving pages of medication information, the information they receive is uncoordinated and sometimes conflicting. Some documents are written by the drug manufacturer, and others are written by pharmacies or another third party. Some medication information documents are FDA-approved and others are not.

The real question is – could medication information be presented in such a way that it would be more useful for consumers? The answer is a resounding “yes.” One study found that just 75 percent of consumer medication information met the minimum criteria for usefulness.[ii] That number might be impressive as a field goal percentage in the NBA, but for consumers it represents an unmet need for high quality medication information.

The U.S. Food and Drug Administration (FDA) has spent the past several years working with stakeholders to determine the most effective methods for conveying medication information. One overarching principle that has emerged from FDA’s engagement with the health care community is the need for a single, standardized document to replace the numerous existing documents. This document is identified as Patient Medication Information (PMI).

PMI creates an easier way for consumers to access and understand their medication information. By presenting the most salient pieces of information – including drug uses, warnings, side effects, and directions – on a single page that is easy to navigate, PMI can be a useful tool for enhancing treatments and preventing avoidable medication errors or side effects. PMI holds promise both for consumers and the broader health care system. For consumers, PMI could contribute to better outcomes and an overall improvement in patient experience. For health systems, PMI’s positive impact on medication adherence could improve performance on quality measures, such as hospital readmissions, that could lead to shared savings or other rewards.

Through a cooperative agreement, the Engelberg Center for Health Care Reform at the Brookings Institution has worked in collaboration with FDA over the past few years to convene a series of workshops focused on identifying best PMI practices – for example, how to make PMI both more usable and accessible.  Workshop participants identified several guiding principles for improving the content, format, and distribution of PMI.

PMI Guiding Principles

PMI content should be consumer-friendly. Expert stakeholders identified a lack of consumer-friendly information as one of the most important barriers to effectively communicating critical medication information. To fix this problem, the language used in PMI will need to be simplified, patient-centric, and understandable across the entire spectrum of health literacy levels. The types of information that should be included in PMI must be essential for taking a medication properly. Extraneous information, such as a discussion of previous treatments a consumer must have previously tried and failed before receiving the new prescription, may be more confusing than helpful.

The best PMI formats are simple and easy to navigate. Consumers don’t want to be given a technical-looking instruction manual when they pick up their prescriptions. Participants at the workshops generally agreed that it would be ideal to keep PMI to a single page. They also agreed that actionable headers that help consumers locate the information they are looking for are preferable to the question and answer format (e.g., “Uses” and “Directions” are more effective than “What does the drug treat?” and “How do I use the drug?”). There was consensus on the point that consumers will ultimately decide the best format.

Access to PMI will be bolstered by multiple channels of distribution. Paper is still the primary source of medication information, and is preferred by certain demographics. However, technology is revolutionizing the way consumers receive information. This is generally good for society, but it introduces some challenges, including the fact that consumers now have more access to information of questionable quality.  One method for ensuring access to consistent and high quality PMI would be to have a central repository for all PMI documents. This approach could support distribution of both printed and electronic PMI. Access to PMI could be further enhanced by making it available on smartphones and via email.

On July 1, the Center will convene a public meeting that will provide an opportunity for the health care community to discuss the issues mentioned above. Researchers will give an update on progress made since the previous meetings and share the lessons they learned from recent studies. Diverse stakeholders – including patient advocacy groups, providers, pharmacies, and drug manufacturers – will provide their perspectives on the future of PMI and assess their role in making high quality PMI a reality. 

There are many issues that need to be addressed in exploring the promise of PMI. However, one thing that participants at the July 1 meeting should remember is this: Keep it simple, stakeholders.

Event Information

The Brookings Institution and the American Enterprise Institute (AEI) collaborated to ask: if you were to redesign Medicare without spending more money, what would you keep and what would you change? A new report on a Center for Healthcare Decisions program provided insight into the public’s willingness to restructure Medicare in the face of tightening budget constraints. Using an interactive, computer-based system, program participants faced the challenge of making Medicare more responsive to the needs of current and future beneficiaries.

Were participants willing to accept limits on their choice of provider or reduced coverage of low-value medical care? Would they accept the need for greater personal responsibility in their use of health services? Would they agree that Medicare should adopt other policies to promote fiscal responsibility?

Watch event video.

The Centers for Medicare and Medicaid Services (CMS) recently reported more optimistic news about the Medicare Accountable Care (ACO) Program, which began in 2012.  CMS released final first year financial and quality results for the Medicare Shared Savings Program (MSSP) ACOs and preliminary year two financial and quality results for the Pioneer ACO Model (Pioneer ACOs).

Financial Results: To date, the two programs have generated savings of $817 million—$372 million of which has been saved by Medicare and another $445 that has been returned to the ACOs through shared savings. While these savings are not final calculations, they suggest that both programs have produced modest savings in the first two years with some variability across ACOs.

Pioneer ACOs: Pioneers, generally considered more advanced ACOs, were able to generate more total program savings in year two than in year one ($96 million vs. $87 million), while also qualifying for shared savings payments of $68 million. The Medicare Trust Fund saved approximately $41 million in year two of the Pioneer program. In total, Pioneer ACOs were able to achieve an approximately 1% lower spending trend overall for the Medicare population than fee-for-service (1.4 vs. 0.45 percent lower per capita growth). Seventeen of the 23 Pioneer ACOs had positive or neutral financial performance, eleven of which were able to slow health spending enough to share in savings. On average, those ACOs saved $4.2 million in 2013, up from $2.7 million in 2012; shared savings grew from $1.2 million to $13 million. Six Pioneers generated losses, three of which were significant enough to require those Pioneer ACOs to share in the losses. While remaining Pioneers have been able to attain bigger savings in year two of the program, almost a third of original participants have left the program—some have moved to the lower risk MSSP, while others have focused on commercial ACO contracts or higher levels of risk in MA programs.

MSSP ACOs: MSSP ACOs were likewise able to reduce overall cost trend by slightly less than 1 percent. Of the 220 MSSP ACOs that started in 2012 or 2013, roughly one-quarter (53) were able to reduce spending enough to qualify for total shared savings of over $300 million. An additional 52 ACOs reduced spending compared to their benchmarks, but not enough to qualify for shared savings. One ACO that opted for track two (two-sided financial risk) overspent its benchmark by $10 million and owed shared savings of $4 million. MSSP ACOs as a whole were able to reduce spending by $652 million below their financial benchmarks and saved the Medicare Trust Fund $345 million, including repayment for the track 2 ACO losses.

Quality Results
Medicare ACOs continue to improve significantly on overall quality scores.  Both Pioneer ACOs and MSSPs have been able to attain higher average performance than quality benchmarks and better performance than Medicare fee-for-service on measures with data, such as colorectal screening, tobacco cessation, and depression screening.

Pioneer ACOs: All 23 Pioneer ACOs that remain in the program out of the initial 32 successfully reported their quality measures in their first two years.  The mean quality scores for Pioneer ACOs increased by 19 percent, from 71.8 percent in 2012 to 85.2% in 2013. Pioneer ACOs increased average improvement by 14.8 percent across all quality measures and overall improvement on 28 of 33 quality measures. Patients also report a positive experience receiving care from Pioneer ACOs—the ACOs improved average performance scores for patient and caregiver experience across 6 out of 7 measures.

MSSP ACOs: MSSP ACOs, as a group, posted even more improvement in quality scores than the Pioneer ACOs. MSSP ACOs starting in 2012 and 2013 were able to improve 30 of 33 quality measures, including measures such as patients’ rating of clinicians’ communication, beneficiaries rating of doctors, health promotion and education, screening for tobacco use and cessation, and screening for high blood pressure. In total, MSSP ACOs are experiencing higher CAHPS patient experience survey scores than Medicare fee-for-service, suggesting that patients are engaged and satisfied with being a part of an ACO. Additionally, MSSP ACOs achieved higher average performance rates on 17 of 22 Group Practice Reporting Option (GPRO) Web Interface measures reported by other large physician group fee-for-service providers.  Over 125,000 eligible providers or supplier members of ACOs qualified for incentive payments through PQRS (Physician Quality Reporting System) in 2013. Unfortunately, nine MSSP ACOs failed to successfully report their quality scores, four of which would have otherwise qualified for shared savings.

Digging Deeper into the Results
While program level analysis of financial performance is meaningful, a deeper analysis of the data and organizational characteristics of those MSSP ACOs that earned shared savings reveals some interesting trends. A little over half of those earning shared savings were physician-led ACOs (26/49) and more than a third of these physician led ACOs operate in Florida (10/26). The continued success of physician-led ACOs is consistent with previous findings that these ACOs may be better positioned than institutionally-based ACO to reduce overall costs. In addition, analysis by The Center for Medicare and Medicaid Innovation (CMMI) found that there is no relationship between savings/loss performances and whether the ACO included a hospital. Hospital-led ACOs were overall less likely to share in savings than physician-led ACOs. These two findings together suggest that ACOs can experience success even without an official hospital affiliation, paving the way for more physician practices to join and excel at accountable care.

Interesting regional trends are beginning to emerge from the data. Florida and Texas had the highest concentration of ACOs sharing in savings. Of the 30 Florida-based MSSP ACOs, more than a third (11) were able to share in savings, while almost half (7/15) Texas-based MSSP ACOs qualified for shared savings. Furthermore, the top two earning MSSP ACOs were from Texas (Memorial Herman with $28.34 million) and Florida (Palm Beach ACO with $19.34 million), respectively. The concentration of shared savings in these two states raises important questions about what is driving the high level performance. Are these MSSPs more likely to succeed because of a higher financial benchmark based on disproportionately greater regional Medicare spending? Do these ACOs have a leg up from the start because of their patient population and historical spending trend? Are physician ACOs more likely to form and succeed in these higher-cost areas? The success of these programs should not be understated, but further analysis may be needed to better understand performance drivers so appropriate program adjustments may be considered to level the playing field among MSSP ACOs across all regions.

Next Steps
While these latest Medicare ACO results are encouraging, more work needs to be done. The Pioneer Program recently lost its tenth program participant, Sharp Healthcare, bringing the total number of Pioneers down to 22. Like some other Pioneers that have exited the program, Sharp was dissatisfied with the benchmark and payment methodology and was no longer willing to assume financial risk that they felt was too great. This is just one among many policy and implementation issues with which Medicare ACOs are struggling. In June, we published a set of recommendations to ensure the long-term sustainability of the Medicare ACO program by addressing eight major ACO challenges. These results seem to reinforce the need for several of these recommendations for change in the Medicare ACO Program.

CMMI, which administers the Pioneer ACO Program, has recognized some of these challenges and has begun giving ACOs some greater flexibility in operating within the program. These changes include allowing them to move to population-based payments, waiving the 3-day hospitalization rule to allow ACOs to directly admit qualified patients to skilled nursing facilities, and experimenting with “voluntary alignment” to allow beneficiaries to attest to a primary care physician to offset some of the limitations of the existing attribution process. These are moves in the right direction; however CMS must continue to engage providers across the country to make sure the program remains viable.

Meanwhile, the MSSP will add another round of participants in January 2015 and CMS is expected to release a notice of proposed rulemaking that will amend the current operating requirements for the MSSP program later this year. The scope and nature of changes could dramatically impact the interest of new organization, as well as the continued participation of current MSSP and Pioneer ACOs.  Medicare ACOs will likely be encouraged to continue innovating to improve quality and reduce costs in the Medicare program, but the Medicare ACO program must continue to evolve to meet provider and beneficiary needs to ensure continued success.

Note: This blog has been corrected since its original posting on September 22 to reflect more accurate data.

Downloads

• Changes to Medicare ACO Program

Event Information

Many clinicians have terrific ideas for improving the quality and cost of health care, but often don’t know how to navigate the frequently baffling landscape of payment and delivery reform options. To address this need in clear, practical terms, we are pleased to announce the third MEDTalk event in the “Merkin Series on Innovations in Care Delivery.” The series is designed to support clinicians and policymakers who’ve always wondered how delivery reform occurs, but didn’t know where to begin.

Our third case drew on the experiences of the Community Asthma Initiative, an enhanced pediatric asthma intervention, and their efforts in sustainability. The event featured seven brief “TED-style” talks that consider the challenges of delivering pediatric care, while tackling non-medical factors that drive suboptimal care, improving patient and family quality of life, and reducing costs. The agenda included firsthand experiences from patients, payers, policymakers, and clinical leadership from Massachusetts and Arkansas. Sustainable improvement strategies and the financial mechanisms available to encourage innovations in asthma were explored.

Video

• MEDTalk: Pediatric Asthma and Transforming Care for the Most Vulnerable
• A Day in the Life: The Patient Experience
• Challenge Accepted: Delivery of Asthma Care in a Triple Aim World
• The Community Asthma Initiative: A Case Study in Clinical Innovation
• Paying for Asthma Care: Options for Tackling Challenges
• State Medicaid Innovation: Opportunities and Barriers
• A Tale of Success: How to Get the Payer on Board
• Lessons Learned and the Path Forward
• Question and Answer Session

Event Information

In its 50th year, the Medicare program currently provides health insurance coverage for more than 49 million Americans and accounts for $600 billion in federal spending. With those numbers expected to rise as the baby boomer generation ages, many policy experts consider this impending expansion a major threat to the nation’s economic future and question how it might affect the quality and value of health care for Medicare beneficiaries.

On June 5, the Center for Health Policy at Brookings and the USC Leonard D. Schaeffer Center for Health Policy and Economics hosted a half-day forum on the future of Medicare. Instead of reflecting on historical accomplishments, the event looked ahead to 2030—a time when the youngest Baby Boomers will be Medicare-eligible—and explore the changing demographics, health care needs, medical technology costs, and financial resources available to beneficiaries. The panels focused on modernizing Medicare's infrastructure, benefit design, marketplace competition, and payment mechanisms. The event also included the release of five policy papers from featured panelists.

Please note that presentation slides from USC's Dana Goldman will not be available for download. For more information on findings from his presentation download the working paper available on this page or watch the event video.

Video

• Challenges and opportunities facing Medicare in 2030
• Eligibility, benefit design, and financial support
• Could improving choice and competition in Medicare Advantage be the future of Medicare?
• Improving provider payment in Medicare

Audio

• Strengthening Medicare for 2030

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• Burtless Slides
• 20150605_medicare_2030_transcript

Editor’s Note: The National Perspectives on Global Leadership (NPGL) project reports on public perceptions of national leaders’ performance at important international events. This fifth installation of the NPGL Soundings provides insight on the issues facing leaders at the Seoul G-20 Summit and the coverage they received in their respective national media. Read the other commentary »

The week before the Seoul G-20 Summit was one in which the main newspapers read in Washington (The New York Times, The Washington Post and Financial Times) all focused their primary attention on the “currency war,” global imbalances, the debate on quantitative easing (QE 2), the struggle over whether there would be numerate current account targets or only words, and the US-China relationship. As early as Wednesday, November 10, The Washington Post front-page headline read: “Fed move at home trails U.S. to Seoul; Backlash from Europe; Obstacles emerge for key goals at G-20 economic summit.” By Thursday, November 11, things had gotten worse. “Deep fractures hit hopes of breakthrough; governments are unlikely to agree on a strategy to tackle economic imbalances” read the Financial Times headline on Alan Beattie’s article from Seoul. Friday, November 12, The New York Times front-page headline declared: “Obama’s Economic View is Rejected on World Stage; China, Britain and Germany Challenge U.S.; Trade Talks with Seoul Fail, Too.” By Saturday, the Financial Times concluded in its lead editorial: “G-20 show how not to run the world.”

From these reports, headlines and editorials it is clear that conflicts over policy once again dwarfed the progress on other issues and the geopolitical jockeying over the currency and imbalances issues took centre stage, weakening G-20 summits rather than strengthening them. Obama was painted as losing ground, supposedly reflecting lessening U.S. influence and failing to deliver concrete results. China, Germany and Brazil were seen to beat back the U.S. initiative to quantify targets on external imbalances. Given the effort that Korean leaders had put into achieving positive results and “consolidating” G-20 summits, it was, from this optical vantage point, disappointing, to say the least.

How was the Rebalancing Issue Dealt With?

At lower levels of visibility and intensity, however, things looked a bit different and more positive. Howard Schneider and Scott Wilson in Saturday’s edition of The Washington Post (November 13) gave a more balanced view of the outcomes. Their headline read: “G-20 nations agree to agree; Pledge to heed common rules; but economic standards have yet to be set.” They discerned progress toward new terrain that went beyond the agreement among G-20 finance ministers in October at Gyeongju, which other writers missed.

“By agreeing to set economic standards, the G-20 leaders moved into uncharted waters,” they wrote. “The deal rests on the premise that countries will take steps, possibly against their own short-term interests, if their economic policies are at odds with the wider well-being of the world economy. And leaders are committing to take such steps even before there’s an agreement on what criteria would be used to evaluate their policies.”

They continued: “In most general of terms, the statement adopted by the G-20 countries says that if the eventual guidelines identify a problem, this would ‘warrant an assessment of their nature and the root causes’ and should push countries to ‘preventive and corrective actions.’”

The Schneider-Wilson rendering went beyond the words of the communiqué to an understanding of what was going on in official channels over time to push this agenda forward in real policy, rather than declarative terms. As the Saturday, November 13, Financial Times’ editorial put it, “below the headline issues, however, the G-20 grouping is not completely impotent,” listing a number of other issues on which progress was made including International Monetary Fund (IMF) reform which the Financial Times thought might actually feed back into a stronger capacity to deal with “managing the global macroeconomy.”

The Role of President Barack Obama

Without doubt, the easy, simple, big-picture message coming out of Seoul was that Obama and the United States took a drubbing. And this did not help the G-20 either. The seeming inability of the U.S. to lead the other G-20 leaders toward an agreement in Seoul on global imbalances, the criticism of U.S. monetary easing and then, on top of it all, the inability to consummate a US-Korea trade deal, made it seem as if Obama went down swinging.

But again, below the surface of the simple, one got a different picture. Obama himself did not seem shaken or isolated at the Seoul summit by the swirl of forces around him. At his press conference, he spoke clearly and convincingly of the complexity of the task of policy coordination and the time it would take to work out the policies and the politics of adjustment.

“Naturally there’s an instinct to focus on the disagreements, otherwise these summits might not be very exciting,” he said. “In each of these successive summits we’ve made real progress,” he concluded. Tom Gjeltin, from NPR news, on the Gwen Ifyl Weekly News Roundup commented Saturday evening that the G-20 summits are different and that there is a “new pattern of leadership” emerging that is not quite there yet. Obama seems more aware of that and the time it takes for new leadership and new patterns of mutual adjustment to emerge. He may have taken a short-run hit, but he seems to have the vision it takes to connect this moment to the long-run trajectory.

Reflections on the Role of South Korea

From a U.S. vantage point, Seoul was one more stop in Asia as the president moved from India to Indonesia to Korea to Japan. It stood out, perhaps, in higher profile more as the locus of the most downbeat moments in the Asia tour, because of the combination of the apparent lack of decisive progress at the G-20 along with the needless circumstance of two presidents failing to find a path forward on something they both wanted.

From a Korean vantage point, the summit itself was an event of immense importance for Korea’s emergence on the world stage as an industrial democracy that had engineered a massive social and economic transformation in the last 50 years, culminating in being the first non-G8 country to chair the G-20 summit. No one can fault Korea’s efforts to reach significant results. However, the fact is that the Seoul Summit’s achievements, which even in the rebalancing arena were more significant than they appeared to most (see Schneider and Wilson), but included substantial progress on financial regulatory reform, international institutional reform (specifically on the IMF), on development and on global financial safety nets, were seen to be less than hoped for. This was not the legacy the Koreans were looking for, unfortunately.

Conflicts among the major players on what came to be seen as the major issue all but wiped out the serious workmanlike progress in policy channels. The leaders level interactions at G-20 summits has yet to catch up to the highly significant degree of systemic institutionalization of the policy process of the G-20 among ministers of finance, presidents of central banks, G-20 deputies and Sherpas, where the policy work really goes on. On its watch, Korea moved the agenda in the policy track forward in a myriad of significant ways. It will be left to the French and French President Nicolas Sarkozy to see if they can bring the leaders into the positive-sum game arrangements that are going on in the policy channels and raise the game level of leaders to that of G-20 senior officials.

From 2006 to 2011, Qatar was highly active as a conflict mediator within the greater Middle East, seeking political consensus in Lebanon as well as securing a key peace agreement regarding the Darfur conflict. What were the drivers of Qatari mediation during this time, and how successful were Qatari negotiators in their efforts? How has Qatar’s foreign policy during the Arab Spring affected its ability to act as a mediator? How might Qatar expand its mediation capacity in the future?

In an Analysis Paper, Sultan Barakat weighs the prospects for renewed Qatari mediation efforts in a changing regional landscape. He holds that Qatar’s turn towards a more interventionist foreign policy during the Arab Spring shifted the country’s focus away from mediation, while backlash against the country’s positions has limited its ability to engage with the region’s conflicts.

Drawing on interviews with government officials, Barakat concludes that Qatar’s efforts were much aided by financial resources and wide-ranging political ties which helped drive initial mediation efforts, yet were hampered by a lack of institutional capacity to support and monitor such mediation.

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Event Information

China’s outbound investment is expected to increase by leaps and bounds in the next decade. Chinese companies are poised to become a major economic force in the global economy. Outbound direct investment by Chinese companies presents unprecedented opportunities for both Chinese companies and their global partners.

The relatively brief history of Chinese companies’ outbound investment indicates, however, that Chinese outbound FDI faces many hurdles both at home and in the destination countries. How can we assess the regulatory, financial, labor, environmental and political risks faced by Chinese multinational companies? What remedies can mitigate such risks for the Chinese firms, for the host countries of Chinese investment and for the Chinese government and people?

The Brookings-Tsinghua Center for Public Policy co-hosted with the 21st Century China Program at UC San Diego, and in collaboration with the Enterprise Research Institute and Tsinghua’s School of Public Policy and Management, a two-day conference at Tsinghua University in Beijing, China, on September 23 and 24, 2013. The conference gathered leading experts, policy makers and corporate leaders to examine the latest research on trends and patterns of Chinese outbound direct investments; the regulatory framework and policy environment in China and destination countries (particularly, but not only in the U.S.); and the implications of Chinese outbound direct investment for China’s economic growth and the global economy. Keynote speakers of each day were Jin Liqun, chairman of China International Capital Corporation, and Gary Locke, U.S. ambassador to China. Mr. Jin suggested that China’s foreign direct investment companies should cooperate with local firms and be willing to talk to the local governments about their problems. Ambassador Locke, on the other hand, introduced the advantages of the U.S. as an investment destination country. He also agreed that investors were supposed to get local help to achieve success.

The audiences included major Chinese companies, service providers in the area of overseas direct investment, policy makers and scholars.

Read more about the speakers and the conference agenda »

Video

• Overview of China's Overseas Investments: Trends, Patterns and Comparison
• Chinese ODI: Motivation and Policy Environment
• Risk Management in Chinese ODI
• China's Outbound Direct Investment - Gary Locke Keynote Address
• Regulatory Environments in Destination Countries (Non-U.S.)
• Regulatory Environments in Destination Countries (Focusing on the U.S.)
• Labor, Environment, and Community Relations in Destination Countries

Transcript

• Keynote speech of U.S. Ambassador to China Gary Locke (.pdf)

Event Materials

• Remarks of Ambassador Locke
• Brian Beglin slides
• Daniel Levine slides
• Jiang Heng slides
• LIU Qian
• Matt Ferchen slides
• Steve Olson slides
• Tang Xiaoyang slides
• Thilo Hanemann slides
• Weiyi Shi slides
• Kang Rongping slides
• Duan Zhirong slides

2014 was a relatively friendless year for the Democratic Republic of Korea (DPRK or North Korea). It publicly lost its best friend and patron, China, to its erstwhile nemesis, the Republic of Korea (ROK or South Korea), when Presidents Park Geun-hye and Xi Jinping celebrated their growing friendship at the July summit in Seoul. Recently, retired PLA General Wang Hongguang wrote in the Chinese language site of Global Times, which is closely linked to the Chinese Communist Party, that China tired of cleaning up North Korea’s “mess” and would not step in to “save” North Korea if it collapses or starts a war.[1] And there is a vigorous debate in Beijing on whether the DPRK should be treated on a “normal” basis with China’s interests as the sole guide and purpose or be treated as a special case needing China’s indulgence and protection.[2] Since the Sony hack of November, North Korea has been under tighter scrutiny, both real and virtual, by Seoul, Beijing and Washington, accompanied by tighter sanctions in the new year. Bludgeoned by global condemnation of its atrocious human rights record, Pyongyang’s pariah status has intensified. Only Russia has been warming up to North Korea out of its own economic and political self-interest.

Is there any sizable country with good intentions for the region that is not giving up or beating up on North Korea? Is there any country Pyongyang likes and possibly even trusts? Mongolia stands out as the sole candidate, and it is friendly with both the East and the West.

Since the 2000s, Mongolia has played an increasingly constructive and steady role in in its bilateral ties with the DPRK and in its promotion of peace and cooperation in Northeast Asia. President Tsakhiagiin Elbegdorj, who visited Pyongyang in 2013, was the first head of state to reach out to the DPRK since Kim Jung Un assumed power and helped author the “Ulaanbaatar Dialogue on Northeast Asia Security,” which held its first meeting in June, 2014. It is a unique forum that combines official (track one) and unofficial academic/think tank/NGO (track two) participants, on a variety of important regional issues. The goals are to decrease distrust among nations and increase cooperation and peace. Both the DPRK and the ROK (Republic of Korea or South Korea) were represented at the inaugural meeting, as were the United States, China, Russia, Japan, and some European nations.

The UB Dialogue, as a consultative mechanism, has the potential to bring together policymakers, international organizations such as the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), and civil society entities and facilitate a range of initiatives related to economic cooperation; military transparency; environmental issues; non-traditional security threats; regional stability, cultural and educational exchange among the participants, including the two Koreas. These are official agenda items and goals of the UB Dialogue. With the Six-Party Talks nearly defunct and inter-Korean relations unable to address regional issues that affect the peninsula, Mongolia may be able to serve as a “Geneva or Helsinki of the East” as some observers have suggested.

Mongolia’s expanding global presence

Mongolia is uniquely positioned as the only country in Northeast Asia that enjoys good relations not only with North Korea but also South Korea, the United States, China, Russia, and Japan.

Mongolia’ relations with the United States, Canada, and Western Europe have steadily improved and deepened since the late 1980s. In recent decades, both Democratic and Republication administrations in Washington have enjoyed mutually warm and collaborative relations with Mongolia. President George W. Bush was the first sitting U.S. president to visit the country in 2005; he thanked the Mongolians for sending troops to join U.S.-led forces in Iraq and Afghanistan and for supporting anti-terrorism initiatives. Former Secretary of Defense Donald Rumsfeld also visited in the same year. In 2007, President Nambaryn Enkhbayar visited Washington to co-sign the Millennium Challenge Corporation Compact with President Bush. The next (and current) leader, President Elbegdorj, met U.S. President Barack Obama at the White House in 2011, as did the first civilian Minister of Defense, L. Bold. Vice President Joe Biden included Mongolia on a three-country Asia visit in August, 2011; China and Japan were the other two. A year later, Secretary of State Hilary Clinton took her turn in Ulaanbaatar. The most recent visit by top-level U.S. officials to Mongolia was by Secretary of Defense Chuck Hagel in April 2014.

Mongolia’s pursuit of the “third neighbor” policy allows the country to develop cooperative relations with the United States, Western Europe, ASEAN nations and others partly as “an air pocket” from its economic and security reliance on Beijing and Moscow. The softer side of this diplomatic push has been demonstrated by Ulaanbaatar’s membership in the Organization for Security and Cooperation in Europe and its previous chairmanship of the Community on Democracies.”[3]

Western experts on Mongolia applaud the way the country has developed a unique “peacekeeping niche” that facilitates participation in UN peacekeeping activities, international anti-terrorism measures, and humanitarian actions. For its small population of about three million, Mongolia takes on a heavy load of peacekeeping activities, ranking 26^th on the UN’s list of contributing nations.[4]

Since 2003, Mongolia annually hosts the “Khaan Quest” peacekeeping exercises for the purpose of tactical advancement and capacity building for its Mongolian Armed Forces (MAF) and for the improvement of regional confidence building. Although the United States and NATO play prominent roles, the Quest has attracted more diverse participants over the years so that by 2012, the number of interested parties expanded to include representatives from China and India as well as an array of developing nations such as Vietnam and Cambodia. These exercises are acknowledged as gatherings devoted to strengthening international cooperation and interoperability on peacekeeping initiatives around the world.[5]

On the economic side, Mongolia has been diversifying its external relations, with the maintenance of sovereignty and the related desire to reduce its overwhelming dependence on China as important goals. Expansion of economic relations is driven in part by a desire to participate in and benefit from global standards investment funds, and market access is a national priority. In that context, Mongolia’s relations with the West have been constructive and collaborative. For example, in 2013, the United States Trade Representative Michael Froman and Mongolia's Minister for Foreign Affairs, Luvsanvandan Bold, signed the Agreement on Transparency in Matters Related to International Trade and Investment between the United States of America and Mongolia. The Agreement commits the parties to provide opportunities for public comment on proposed laws and regulations and to publish final laws and regulations in Mongolian and English in order to facilitate access, openness, fairness, and procedural coherence in international trade and investment between Mongolia and other countries. “Additional commitments address the application of disciplines on bribery and corruption.” This type of administrative and legal modernization and the incorporation of measures to prevent and correct corruption are exemplary measures that could be helpful to the DPRK and other countries that are unfamiliar with or lagging in appropriate frameworks for doing business with diverse international actors.

Maintaining sovereignty between giants

China and Russia have vied for influence over Mongolia for many decades, from the time when Mongolia was in the Soviet sphere in influence to the present. Although 89 percent of foreign trade in 2013 was with China and Russia provides about 75 percent of Mongolia’s gasoline and diesel fuel and much of its electricity, Ulaanbaatar is assertively broadening and deepening its economic interests with the two big neighbors, especially greater transportation access and cheaper costs (vital to the landlocked nation), participation in the development of the New Silk Road corridor, and the construction of a Russian oil and gas pipeline through Mongolia that reaches China. All three countries have mutual interests and investments in developing Mongolia’s well-endowed mining industry.

But being sandwiched between two giants means Mongolia has to be prudent in preserving its sovereignty and independence, and Ulaanbaatar has done so in practical ways, balancing the two large powers’ interests with its own. The 2010 National Security Concept’s “One-Third Clause” sets a clear limit on the proportion of foreign direct investment from any one country: one-third. Legislation limits (foreign) state-owned companies from gaining control of strategic assets. And as numerous bilateral security and military cooperation agreements link Mongolia with China and Russia, UB has strategically and legally created elbow room for its autonomy. The government’s National Security and Foreign Policy Concepts outline a specific policy of not allowing foreign troops the use of its territory. Such preservationist measures to maintain sovereignty and independence in economic and security terms would be welcome examples to a North Korea which zealously prioritizes national sovereignty.

Mongolia and the Korean peninsula

Mongolia’s potential role as a non-nuclear peace broker in the region was further evidenced by its successful hosting of DPRK-Japan negotiations since 2012, which have yielded bilateral progress on longstanding abduction issues. In March 2014, Ulaanbaatar hosted the first-ever reunion between the parents of one of the abductees, Megumi Yokota (whom North Korea claims is dead), and her daughter, son-in-law, and their child who live in North Korea. Mongolia also served as a neutral venue for high-level talks on normalizing Japan-DPRK relations back in September 2007 as part of the Six-Party Talks framework. Asia Times reported that “arranging this recent meeting reflected Ulaanbaatar's ‘contribution to satisfy regional stability in Northeast Asia’ and how it could play a role in deepening understanding and normalizing DPRK-Japan relations.” President Elbegdorj's administration took particular care in staging the negotiations, including the use of the official state compound in Ikh Tenger as the meeting place. According to Alicia Campi, an American expert on Mongolia and the author of the AT article, Ikh Tenger was requested by the North Koreans.[6]

Mongolian President Elbegdorj is often described as an activist head of state, both for his focused efforts on developing Mongolia internally and advancing the country’s role and contributions internationally. One of his main foreign policy priorities is to promote regional economic integration and cooperation and peace and security. Dialogue and trust-building, two key components of his approach, coincide with ROK President Park Geun-hye’s emphasis on trustpolitik and the proposed Northeast Asia Peace and Cooperation Initiative (NAPCI). Both NAPCI and the UB Dialogue seek to chip away at distrust among Northeast Asian countries and increase collaboration and cooperation through multi-layered activities, including mutually reinforcing Track 1, 1.5 and 2 gatherings. Both emphasize multilateral cooperation on non-traditional security issues and people-to-people exchanges as ways to help build trust and resolve regional problems step by step. NAPCI held a track 1.5 forum in October 2014 in Seoul. In sharp contrast to its reaction to the first UB Dialogue of June that year, the DPRK flatly rejected the invitation to participate in the Seoul dialogue and criticized NAPCI as a cover for pressuring Pyongyang to relinquish its nuclear program and for reunification by absorption.[7]

There is no reason why the Ulaanbaatar Dialogue and NAPCI cannot be complementary and mutually reinforcing. Given that trust in inter-Korean relations is non-existent while Mongolia has gained deeper trust with both Koreas over the past two decades, NAPCI activities could benefit from Mongolia’s unique position in its relations with the DPRK. Ulaanbaatar potentially can serve as a neutral meeting ground, literally and metaphorically, for Pyongyang and Seoul. Moreover, given that the NAPCI seeks to maintain a cooperative relationship with other multilateral bodies and places emphasis on complementarity and inclusiveness, working with and supporting successful rounds of the UB Dialogues would be a principled move on the part of South Koreans. Moreover, engagement with North Korea through the UB Dialogue most likely represents an easier path to increasing inter-Korean trust than bilateral efforts and even easier than the NAPCI. South Korea’s domestic divisions and bitter left-right infighting tend to weaken the government’s position in approaches to the North. Seoul’s military standoff and competition with the North, its alliance with the United States, and participation in international sanctions regimes all cause suspicion in Pyongyang. In short, Seoul’s complex list of concerns and goals, some of which are contradictory to the spirit and practice of trust-building and cooperation with North Korea, create difficult conditions for progress through NAPCI alone.

In addition to lacking this baggage, Mongolia has unique standing with both North and South. It is a former Soviet satellite state that asserted full independence in 1990, and it is notable for successfully transitioning from a communist state to a vibrant democracy without civil war or bloodshed. President Elbegdorj’s 2013 speech in Pyongyang contained strong enunciation of the tenets of liberty. At the elite Kim Il Sung University in Pyongyang, he addressed students with these bold words: "No tyranny lasts forever. It is the desire of the people to live free that is the eternal power." And the Mongolian government has been keeping its border open to North Koreans who risk the arduous journey out of the DPRK and has permitted its airlines to transport them to South Korea.

Additionally, Mongolia has become a model of economic modernization and prosperous participation in the global economy. Although it faces some economic imbalances, its GDP rate was sky-high at 11.7 percent in 2013. There are good lessons to share with North Korea, and President Elberdorgj has made it clear that Mongolia would be very willing to work with the DPRK on economic development, IT, infrastructure, the management of mining precious earth resources and refineries. The two countries also engage in a worker exchange program, affording DPRK citizens the opportunity to breathe the air of freedom and to be exposed to South Korean television programming while they reside in Mongolia.

In recent years, Mongolia has pursued multiple types of people-to-people activities involving North Koreans, including academic exchanges, northeast Asian mayoral forums, and women’s parliamentary exchanges including female leaders from both Koreas. In June 2015, the second Track 2 conference of the UB Dialogue will convene in Ulaanbaatar with scholars from across the region and the United States with the theme of “Energy, Infrastructure, and Regional Connectivity.”

Sports and cultural initiatives in the past years have included international boxing matches in Ulaanbaatar with boxers from the DPRK, ROK, Mongolia, Russia and China. In 2013, Mongolia established an International Cooperation Fund which has supported children’s summer camps, basketball training and other exchanges with the DPRK in order to promote positive peace and people-to-people development in the region.

In the humanitarian arena, food aid to the DPRK has been channeled through international organizations, and the two countries have cooperated on physician exchanges. Prior research by Caprara and Ballen, conducted in cooperation with United Nations Special Envoy for Financing the Health Millennium Development Goals and for Malaria, has noted the additional soft power benefits of cooperative service development projects.

A recent global development forum hosted at the United Nations Asia-Pacific headquarters in Bangkok launched an Asia Pacific Peace Service Alliance which could build on these bilateral and regional exchanges in the critical area of humanitarian action and development in North Korea. An International Youth Leaders Assembly has been proposed in Ulaanbaatar for June, 2015, which would further the role of youth in fostering track two initiatives of service and dialogue.

Dr. Tsedendamba Batbayar, Mongolia’s Director of Policy Planning in the Ministry of Foreign Affairs and Trade, visited Washington in November, 2014 and noted the broad range of Mongolia-DPRK exchanges. Together with Mongolia Ambassador Bulgaa Altangerel, he emphasized his country’s desire to serve as a fair broker and mediator for the Northeast Asia region and to pursue prudent and practical measures to help build bridges of understanding between the people of North Korea and other parties.

But despite its uniquely constructive approach to dealing with the DPRK and other regional neighbors, Mongolia faces unique challenges in the mediator role it seeks to achieve. First, Ulaanbaatar has been able to gain Pyongyang’s trust because of the quiet diplomacy it has pursued, staying behind the scenes and out of the limelight. This has enabled a steady channel to the Pyongyang elite, and a focus on bilateral interests has been maintained. In short, drama has been avoided. But if Mongolia plays a more high-profile role with North Korea and multilateral actors, it will most likely be difficult to avoid some drama—posturing, rhetoric, and standoffs—emanating from various parties. Second, any increased or intensified involvement of China, Russia, and the United States in UB-led dialogue could come with the headache of big power arrogance and competition over leadership. The value of Mongolia’s role and activities for regional cooperation and peace stems from the fact that Ulaanbaatar does not assume airs or seek to dominate others. Whether China, Russia, and the United States would be able to refrain from seeking leadership and disproportionate influence in UB-led initiatives is highly questionable. Third, with respect to peninsular issues, for the UB Dialogues to gain more acceptance and credibility regionally and internationally requires that the DPRK become a consistent and collaborative presence at gatherings. Whether any nation or actor has the capacity to deliver consistent and collaborative participation by Pyongyang is an open question.

In addition, some observers believe that the impasse between North Korea and other nations is not simply the result of a trust deficit, but reflects mutually exclusive goals. While Mongolian mediation may not be able to solve the nuclear issue, it can be an effective channel – among others – for increasing communication, finding common ground, and beginning to ease tension.

Mongolia is the one Northeast Asian country that has kept its emotional cool and balanced policy interests with North Korea and other regional actors. It has not tripped over its own feet by politicizing historical grievances with its neighbors. Rather, it has exercised a calm can-do approach while its neighbors have engulfed themselves in hyper-nationalistic and ideological mire. And it has smartly used diplomacy and entrepreneurship to make friends and develop its own economy and people. These are significant assets that can be of benefit not only to UB but also to the region.

Recommendations

1. The Obama administration should actively support the Ulaanbaatar Dialogue process and encourage Seoul to find common cause in advancing greater regional dialogue and collaboration with the Mongolians through Track 2 and 1.5 processes. A precedent for this can be found in the case of Oman, which the current administration effectively tapped for back channel dialogue with Iran, kick-starting the present nuclear talks. Also, support by Washington would build on a prior exchange with Mongolia hosted by the Korea Institute for National Unification (KINU), where scholars noted potential benefits from three-way economic cooperation and the possibility of providing the North Koreans with a proven model of transformation from a closed statist system to a prosperous and more open system.

2. ROK President Park’s proposed regional cooperation mechanism should receive serious attention together with the Ulaanbaatar initiative. The two parallel efforts could benefit from being part of inter-connected strategies to defuse regional tension and forge greater trustpolitik.

3. The UN ESCAP headquarters can serve as an important multilateral bridge for humanitarian aid together with the multi-stakeholder Asia Pacific Peace Service Alliance (APPSA), which was launched at the UN headquarters in Bangkok last October. The U.S. Agency for International Development (USAID) could partner with UN ESCAP and the World Food Program to establish a verifiable humanitarian aid regime, building on prior food aid oversight protocols developed during the Bush administration. Mongolia also would be an excellent candidate for the training of an international volunteer corps for potential disaster and humanitarian relief and economic development projects concerning the DPRK and the broader Northeast Asia region. Mongolia has excellent working relations with the U.S. Peace Corps, which also helped facilitate the recent launch of the APPSA.

4. In the context of peninsula unification planning, regional economic cooperation on private and multi-stakeholder investment projects and the enabling of market-friendly policies could be further explored with Mongolia and other Northeast Asian partners in areas such as infrastructure, energy, and technology.5. Cultural and educational exchanges between Mongolia and the DPRK could be expanded on a multilateral basis over time to include the ROK, China, Russia, Japan and ASEAN nations together with UNESCO to further cultural bases and norms of peace.

Introduction

Ninety years after the foundation of the Turkish Republic, Ankara appears to be on the verge of a paradigmatic change in its approach to the Kurdish question. It is too early to tell whether the current negotiations between Ankara and the Kurdish Workers’ Party (PKK) will manage to accommodate Kurdish cultural and political demands. Yet, for perhaps the first time in its history, the Turkish Republic seems willing to incorporate Kurds into the political system rather than militarily confront them. For decades, Turkey sought to assimilate its sizable Kurdish minority, about 15 million people, or around 20 percent of its total population. From the mid-1920s until the end of the Cold War, Ankara denied the ethnic existence of Kurds and their cultural rights. It took a three-decade-long PKK-led insurgency – which started in 1984 and caused a death toll of 40,000 – for the republic to start accepting the “Kurdish reality” and introduce cultural reforms. This perhaps explains why the PKK’s jailed leader Abdullah Öcalan is a national hero in the eyes of significant segments of Kurdish society.

Of the approximately 30 million Kurds in the Middle East, about half live in Turkey. Kurds also constitute a significant minority in neighboring Iraq, Iran and Syria. The Palestinians are often referred to as the most famous case of a “nation without a state” in the Middle East. But the Kurds, who outnumber the Palestinians by a factor of five, are by far the largest ethnic community in the region seeking national self-determination. The future of Turkey - and the Middle East - is therefore intimately linked to the question of Kurdish nationalism.

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• Turkey and the Kurds: From Predicament to Opportunity