In new Urban-Brookings Tax Policy Center analysis of Earned Income Tax Credit (EITC) take-up at the county level, Benjamin Harris, a fellow in Economic Studies, and Research Assistant Lucie Parker use zip-code level data on taxes and demographics to take a "fresh look" at the EITC. "Since its creation in 1975," they write, "the Earned Income Tax Credit has played a major role in the U.S. safety net." Earlier this year, Harris presented EITC take-up using IRS data from 2007. Compare that to the new list of ten counties with the highest share of EITC recipients below:

"The regional variation EITC claiming is stark," Harris and Parker conclude. "The counties with the highest share of taxpayers claiming the EITC are overwhelming located in the Southeast. ... [O]ver half the taxpayers in a large share of counties in Alabama, Georgia, and Mississippi claim the EITC. With few exceptions, almost all counties with high EITC claiming are located in the South. Relative to the South, the Northeast and the Midwest have much lower claiming rates. Moreover, average EITC benefit closely follows the pattern for share of taxpayers taking up the credit: in counties where more taxpayers claim the credit, the credit is larger on the whole."

Visit this U.S. map interactive to get county level data on share of taxpayers claiming EITC as well as average EITC amount, in dollars, per county.

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.

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As the holiday season rolls around each year, it often carries a hefty price tag that can strain family budgets. In a survey of low-income taxpayers using volunteer tax preparation services, three-quarters of respondents listed December as a time of year when it’s hardest to make ends meet. But it’s not the only one. Low-income families go through a constant year-round balancing act of juggling bills, going without, asking family and friends for help, and taking on debt when they fall behind.

Many of these families benefit from the Earned Income Tax Credit, which supplements earnings for low-income workers. The EITC has proven to be one of the nation’s most effective anti-poverty programs, and for some families can represent up to 40 percent of their annual income. For the one in five American households that receive the EITC in their refunds, tax time gives them a chance to catch up financially as they start the New Year. But by summer, many recipients once again find themselves struggling paycheck to paycheck to shore up budget gaps, or scrambling to deal with unforeseen financial shocks, like a car breaking down or an unplanned medical expense.

Providing alternative payment options that deliver the credit outside of tax time would go a long way toward boosting economic stability year round for these families. In his new paper “Periodic payment of the Earned Income Tax Credit revisited,” Steve Holt explores the range of proposals that have emerged in recent years to provide more options for delivering the EITC during the year, and shares some lessons learned from early experiments to test those options.

Most notably, the Center for Economic Progress in Chicago recently completed a year-long pilot which offered 343 households the option of receiving half of their expected EITC in four payments in advance of tax time. The results of the pilot were overwhelmingly positive. Compared to EITC recipients in the control group, participants who received periodic payments missed fewer bills and racked up fewer late fees. They were less likely to resort to payday lenders or have to borrow money from family and friends. And they reported less food insecurity and decreased financial stress throughout the year. What’s more, after completing the pilot, 90 percent of the participants reported a preference for periodic payment over the standard lump sum.

More experimentation needs to be done to determine effective ways to replicate and expand on the advanced-payment pilot in Chicago. And future experimentation should also include pilots that test proposals for deferred savings mechanisms. These options, like CFED’s Rainy Day EITC proposal, would allow EITC filers to put a portion of their credit in a savings account and receive a bonus match as an incentive to save. Though structured differently than advanced payment options, the end goal of deferred savings proposals is the same: providing greater financial stability to low-income families outside of tax time.

A growing share of our economy’s jobs are in the low-wage industries and occupations in which many EITC-eligible taxpayers work (as illustrated by new national, state, and metro data from Brookings MetroTax model on characteristics of the EITC-eligible population). The EITC is an incredibly effective policy tool that helps bridge the gap between what the labor market provides and what it takes to support a family. But we can make the EITC work better for working families by offering alternative payment options that can help promote economic security year round.

Editor's note: This article appears in the April 2015 issue of Global Forum. Click here to view the full publication.

Since passage of the Affordable Care Act in 2010, the last several years have seen a groundswell in physician payment and delivery reforms designed to achieve higher value health care through incentivizing higher quality care and lower overall costs. Accountable care models, for example, are achieving marked progress by realigning provider incentives toward greater risk-sharing and increased payments and shared savings with measured improvements in quality and cost containment. Medical homes are introducing greater care coordination and team-based care management, while the use of episode-based or bundled payments is removing perverse incentives that reward volume and intensity.

These reforms are coming just as the number of highly targeted, highly priced treatments continues to expand. The U.S. Food and Drug Administration (FDA) approved a decade-high 41 novel new drugs in 2014, many of them targeted therapies approved on the basis of increasingly sophisticated progress in genomics and the understanding of disease progression. In areas like oncology, such targeted treatments have grown as a percentage of global oncology market size from 11% in 2003 to 46% in 2013. New brand specialty drug spending in the U.S. is estimated to have been $7.5 billion in 2013, or 69% of total new drug spending. The growing prevalence of these drugs and their cost to the health system are setting the stage for significant flashpoints between industry, payers, and providers, seen most clearly in the debate over hepatitis C treatment costs that roiled stakeholder interactions for most of the past year. 

More of these targeted treatments are in the development pipeline, and a growing number of public policy efforts taking shape in 2015 are focused on accelerating their availability. The House of Representatives' 21st Century Cures Initiative, for example, has released a slew of legislative proposals aimed at promoting breakthrough innovation by increasing the efficiency of drug development and regulatory review. These efforts have significant downstream implications for the pace at which targeted and specialty therapies will become available, their associated costs, and the growing importance of demonstrating value in the postmarket setting.

As payers and providers continue their push toward increased value-based care, more innovative models for connecting such reforms to drug development are needed. Earlier collaboration with industry could enable more efficient identification of unmet need, opportunities to add value through drug development, and clearer input on the value proposition and evidentiary thresholds needed for coverage. Equally important will be unique public-private collaborations that invest in developing a better postmarket data infrastructure that can more effectively identify high value uses of new treatments and support achieving value through new payment reforms.

Stronger collaboration could also improve evidence development and the coverage determination process after a targeted  treatment has gained regulatory approval. Facilitated drug access programs like those proposed by the Medicare Administrative Contractor Palmetto GBA create access points for patients to receive targeted anti-cancer agents off-label while payers and industry gather important additional outcomes data in patient registries. More systematic and efficient use of policies like Medicare's Coverage with Evidence Development (CED), which allows for provisional coverage for promising technologies or treatments while evidence continues to be collected, could enable industry and payers to work together to learn about a medical product's performance in patient populations not typically represented in clinical studies. A CED-type model could be especially useful for certain specialty drugs: data collected as a condition of payment could help payers and providers develop evidence from actual practice to improve treatment algorithms, increase adherence, and improve outcomes. 

Finally, collaborations that support stronger postmarket data collection can also support novel drug payment models that further reward value. Bundled payments that include physician-administered drugs, for example, could encourage providers to increase quality while also incentivizing manufacturers to help promote evidence-based drug use and lower costs for uses that generate low value. Outcomes-based purchasing contracts that tie price paid to a medical product's performance could be another promising approach for high-expense treatment with clearly defined and feasibly measured outcomes.

Many of these ideas are not new, but as manufacturers, payers, providers, and patients move into an increasingly value-focused era of health care, it is clear that they must work together to find new ways to both promote development of promising new treatments while also making good on the promise of value-based health care reforms.

Although advancements in medical science have greatly improved overall life expectancy and the ability for many to survive a cancer diagnosis, a recent study predicts that cancer care alone will cost the American health system $157 billion by 2020. It is well known that a major driver of these surmounting costs is the rising cost of chemotherapy and other treatments, in addition to the variation in how these treatments are used across the health care system.  However, there are several ways that providers, payers, and patients can work together to establish a more medically and financially effective cancer care model that also reduce costs and inefficiencies in the system.

Figure 1: Estimates of the national expenditures for cancer care in 2010 and estimated increase in cost in 2020

Source: Journal of the National Cancer Institute

Develop “Clinical Pathways” to Reduce Inappropriate Use
For many cancers, there are multiple drugs that can be equally effective in treating a patient’s condition, but the price of these treatments can differ in cost by tens of thousands of dollars. Currently, oncologists are responsible for purchasing their own chemotherapy drugs, processing and maintaining them in a specialized pharmacy-like set up, and then administering them to their patients. Insurers then reimburse the oncologists for the cost of the drugs plus a margin to defray the price of maintenance and administration. Since oncologists receive a share of their income from the margins on the drugs they prescribe, insurers assert that there is an incentive to prescribe the pricier drugs, even when lower cost options of equal effectiveness exist.

One mechanism for ensuring that the most evidence-based treatment is used in the care of cancer patients is to use a set of “clinical pathways.” These pathways are based on clinical guidelines available to the public, but tailored for a particular set of patients or a type of oncology practice. Many professional societies have contributed to these guidelines and are working on developing more advanced tools to manage a patient’s care. The American Society of Clinical Oncology (ASCO) is developing a system to rate drugs for advanced cancer based on a combination of benefit, side effects and price.

Several health plans and providers are already showing results. A Pennsylvania-based collaboration with the University of Pittsburgh Medical Center and commercial payers achieved savings of more than $1 million in only six months by controlling and reducing the use of Avastin through clinical pathways. A Washington-based health plan also achieved $1 million in cost savings through a partnership with 22 medical oncologists.[i] Most recently, one of the nation’s largest health plans announced a new clinical pathways program that provides oncologists with $350 per patient per month (PMPM) for adhering to specific chemotherapy regimens. The program will be rolled out in July across six states with potential for expansion after its first year.

Develop Appropriate Value-Based Incentives that Improve Care and Reduce Costs
It will also be essential to develop alternative payment models that move away from a volume-based fee-for-service model that only pay oncology practices for traditional face-to-face office visits and parenteral medications. Instead, payers should support the transition to value-based models that reward non-traditional care, such as telephone and e-mail clinician support, patient education, and counseling services with a social worker.

ASCO also released a comprehensive payment reform proposal to transition to an episode-based payment system. The proposal outlines five types of flexible, bundled payments built around (1) taking on new patients; (2) providing treatment during a given month; (3) actively monitoring patients when they are not being actively treated; (4) the progression or recurrence of a patient’s disease that requires significant treatment regimen changes; and (5) a patient’s participation in a clinical trial. Additional recommendations include adding penalties or bonuses of up to 10 percent based on the quality of care provided, and complementing other payment reforms such as primary care medical homes and accountable care organizations (ACOs). A number of potential methods of reforming the oncology payment system have been explored elsewhere, including implementation of the Community Oncology Alliance (COA) Oncology Medical Home.

Replicate value-based models across the private and public sectors. Even with momentum from private insurers, comprehensive change must involve the public sector. When Medicare, the largest health insurer in the country, changes policies, many commercial insurance companies follow suit. Cancer care would be an ideal arena to launch a program like Medicare’s Comprehensive Primary Care Initiative, a multi-payer public sector-private sector collaboration to strengthen primary care.

In many ways, insurers’ decisions to take direct action to minimize variations in care and excessive costs sets the stage for what is to come next in health care reform. Not only does this represent a step toward broad payment reform in oncology, but marks a trend toward exploring new methods of payment in other specialties, and to align those efforts with primary care payment reforms.

To learn more about the Engelberg Center's efforts to reform payment in the field of oncology, join us on July 9th from 10:30 AM to 12:30 PM EST for MEDTalk: Reinventing Patient-Centered Cancer Care.

Editor’s note: This post is adapted from a forthcoming full-length case study; the second in a series from the Engelberg Center’s Merkin Initiative on Physician Payment Reform and Clinical Leadership designed to support clinician leadership of health care delivery, payment, and financing reform. The case study will be presented during the Merkin Initiative’s “MEDTalk” event on July 9 from 10:30 AM to 12:30 PM EDT, featuring live story-telling and knowledge-sharing from patients, providers, and policymakers.

Oncology practices and hospitals across the nation struggle with providing sustainable, comprehensive, and coordinated cancer care. Clinical leaders with strategies and models to improve the quality and value of health care often don’t know how to navigate the landscape of payment and delivery reform options to sustain their innovations.

We use a case study approach to investigate and tell the story of the New Mexico Cancer Center (NMCC), an independent cancer center that is experimenting with innovative ways to improve patient-centered oncology care. We identify challenges for creating sustainable and supportive payments models, and we share the broader strategic and policy lessons for adopting alternative payment models.

The Clinical Scenario: Living With Cancer

Vicky Bolton, a 58-year-old full-time medical legal coordinator from Albuquerque, has stage 4 adenocarcinoma lung cancer. She started chemotherapy in 2003 and has consistently received treatments over the last 11 years. Vicky is one of 13 million Americans currently living with cancer, with more than 1.6 million new diagnoses added each year.

Although Vicky’s condition is currently stable, she is at high risk for venous thrombosis (blood clots), life-threatening infections, and other complications, which put her at high risk for repeated hospitalizations. In the past six months, she has taken advantage of “after hours” care on three occasions as an outpatient at NMCC. Fortunately, each of her providers and services — oncology, radiation therapy, labs, x-rays, and internal medicine — are centralized in a single location at NMCC, reducing the need for emergency room (ER) visits or hospitalizations for these episodes.

The Challenge: Controlling Spending While Improving Patient-Centered Care

Cancer is the second leading cause of death in the U.S. Forty-one percent of Americans will be diagnosed with cancer during their lives. Cancer care is also expensive, accounting for $125 billion of total health care spending annually. In 2011, Medicare alone spent nearly $35 billion in fee-for-service (FFS) payments for cancer care, representing 9 percent of all Medicare FFS payments.

The high costs of cancer care are driven by issues that plague the entire health system: uncoordinated care delivery, duplication of services, fragmentation, and volume-based payments. A common impact of these drivers in oncology is the use of the ER to relieve symptoms associated with adverse effects of chemotherapy or other treatments that can also result in hospitalization.

For example, research shows that the most common reasons for cancer patient ER admissions are pain, respiratory distress, nausea, and vomiting. More than half of the ER visits occurred on weekends or in the evening, and over 60 percent resulted in hospital admission. This suggests that if a patient’s symptoms could be managed at home or in the community, costly hospital admissions could be avoided. ER visits, where patients are exposed to germs and infections as they wait — often hours — to be admitted, can have catastrophic outcomes for patients that are actively in treatment since they have weakened immune systems and are more prone to infections.

In addition to the inherent issues with fee-for-service (FFS) payments — with payments incentivizing volume of procedures rather than the value of care delivered — the current payment system further exacerbates problems: If a practice provides higher-value care to patients at a lower cost to the overall system (that is, they perform fewer services and have lower revenue), the financial winner is the payer who reimburses fewer services, not the practice (which merely has less revenue). This combination of the misaligned incentives of FFS and the lack of financial benefit for improving care while reducing costs means that many practices simply cannot afford to make the transformations needed without other funding mechanisms.

The Real World: How Has An Independent Cancer Center Responded To These Challenges?

NMCC delivers care to roughly 2,700 patients and provides care to one in three New Mexicans with cancer. The changes that the center has made have focused on reducing the impact of fragmentation of care on their patients (Table 1).

A key innovation was enhancing comprehensive after-hours and weekend care on site and creating a telephone and urgent care triage program to avoid expensive emergency room and inpatient care, which NMCC termed the COME HOME model.

As part of its redesign process in 2012, NMCC – along with six community oncology practices — secured a $20 million Center for Medicare and Medicaid Innovation (CMMI) Health Care Innovation Award (HCIA), for a three-year period. The award has an explicit aim of reducing ER visits by 50 percent and hospitalizations by 20 percent to justify the program costs.

Table 1: Care Redesign Elements Undertaken by NMCC

The Key Levers: How Can COME HOME Be Sustained?

On the heels of the Affordable Care Act (ACA) and numerous quality and payment focused initiatives in the private sector, health care organizations need to enhance the competitiveness and efficiency of their systems in the marketplace.

Alternative payment models (APMs) such as Accountable Care Organizations (ACOs), bundled payments, and patient-centered oncology medical homes (PCOMH) are just a few of the initiatives supported by public and private payers to align care redesign and payment reform and encourage continuous improvement. (Clinical pathways, a strategy recently embraced by WellPoint, offer PCOMH-like incentives to encourage adherence to practice guidelines, a strategy primarily geared to encourage higher-value chemotherapy practice.)

Broader or larger case-based payments may also provide stronger incentives to limit costs, to help assure that promising delivery reforms actually lead to cost reduction, but this exposes oncologists to greater levels of financial risk, as shown in Table 2. Consequently, implementing payment reforms that are viewed as feasible and desirable by both providers and payers is difficult.

Table 2: Comparison of Alternative Payment Models for Oncology

The Path Ahead: How Can These Models Assist NMCC?

NMCC currently receives approximately $70,000 per month from the CMMI grant and has not yet identified a clear strategy to sustain the delivery reforms in the COME HOME care model past the end of the grant (July 2015). As for payment reform options, NMCC has been unable to contract as part of a comprehensive ACO due to local health care market conditions.

Clinical pathways are geared primarily to guidelines and chemotherapy adherence, and are not designed to provide funding for after-hours care or triage programs that are intended to achieve offsetting savings through avoiding costly complications. Possible remaining options include:

• PCOMH: Using the data it gathers, NMCC intends to quantify the additional costs the COME HOME model requires, and the savings that it achieves. Based on that estimate, NMCC could suggest a per-member per-month (PMPM) payment from a private insurer to cover the costs of providing higher quality care. To encourage participation, NMCC could also enter into a risk-sharing agreement, in which overall costs of inpatient care and ER visits would be compared against a target. The PMPM payment could be at-risk if the targets are not achieved after a certain period of time.

• Bundled Payments: NMCC could potentially use the medical home approach with risk sharing (described above) as a first, interim step toward a bundled payment system, NMCC’s long-term preferred model. Computing actuarially sound expected costs for the bundled payments would require merging claims data with clinical data (for example, ICD-9 codes fail to distinguish between subtypes of breast cancer that have radically different treatments). A bundled payment pilot might be performed for high volume cancers, such as breast and lung.

Lessons Learned

The experience of innovative pioneers like NMCC can shed some light on potential barriers to conceptualizing and implementing sustainable clinical redesign. The lessons learned have been sorted into three main categories: relationships with payers and networks, payment model selection, and data collection and quality improvement considerations.

Relationships with payers and networks. Though counterintuitive, merely demonstrating significant value from care design, perhaps from lower utilization of inpatient and emergency department utilization, does not automatically create a financial pathway for sustainable delivery reform. To do so, innovative providers should consider involving lead payer partners early on to help identify end-points of interest to payers and potential payment strategies that may emerge later.

Providing support for health care delivery reforms requires new activities by payers towards aligning their payments with value, rather than volume and intensity of services. However, fragmented health care markets face the challenge of the “free rider” problem: payers may be unwilling to shoulder delivery transformation costs that may benefit other payers’ clients while they wait for CMS or others to make the financial investment, pay for the program evaluation, and enact policy change). Other challenges include payer inertia and long lag times between care redesign and subsequent data demonstrating results.

Large ACOs and other integrated payer-provider plans, including those large enough to form Medicare Advantage plans, are moving forward on negotiating payment and delivery reforms. This may be more difficult for innovative, smaller practices, even if they can provide higher-value clinical services. In turn, this may have anti-competitive consequences, such as discouraging delivery innovation that leads to “demand destruction” of high-cost hospital-based services. Private and public payers should be particularly interested in developing models that enable smaller, specialized providers like oncology practices to undertake key delivery reforms.

Sustainable Payment Model Selection. While substantial attention has been paid to primary care focused APMs, specialty-focused APMs are needed for practices like NMCC. Their development should be a high priority for public and private payers. Clinical transformation grants, such as those offered by CMMI, should include clear pathways for transitioning to APMs if initial cost savings targets or projections are met. Otherwise, delivery system innovations are at high risk of failure despite evidence of improved value.

Data Collection and Quality Improvement Considerations. Timely sharing of actionable information from claims and other administrative data remains a major challenge, with complex and varied procedures for obtaining claims from payers; smaller practices are particularly challenged in interpreting the claims data. Some states, such as Maryland, Massachusetts, Vermont, and Colorado (among others) are proceeding with creating all-payer claims databases. (Maryland, for example, offers almost instantaneous provider feedback from claims through their CRISP database.)

Others, such as Minnesota, are using “distributed” approaches in which multiple payers and systems produce measures in consistent ways. As NMCC’s early efforts illustrate, practices can produce more clinically sophisticated performance measures. Strategies to achieve consistent methods for sharing key data on cost and quality need to be expanded to encourage quality improvement and payment reform.

Payment reform in health care is confusing, but the goal is simple: How can health care providers change their economic incentives to encourage value over volume? If you've wondered about how these new payment models work, we’re here to help. And if you want to see Dr. Patrick Conway, the head of the Center for Medicare and Medicaid Innovation, talk about it more in depth at our most recent MEDTalk event about oncology care reform, click here.

Where are we now?

Fee-for-Service. Traditionally, health care providers are paid in a "Fee-for-Service" (FFS) model. This is exactly what it sounds like: every time you have a blood test, a doctor's visit, a CT scan, or any other service, you (and your insurance company) pay separately for what you have received. Over the course of a long treatment or a chronic condition, that can add up to a huge expense.

The Fee-For-Service System

It is well known that FFS is draining the entire health care system. When paying for volume, a sick patient is worth more than a healthy patient , and this status quo results in uncoordinated care, duplication of services, and fragmentation. After all, the more doctors and providers do, the more they get paid.

Reformers hope to replace the traditional FFS model with something better, and they’ve come up with many different models of payment that could allow this to happen. (Note to reader:  these are simplified explanations; policy enthusiasts can learn much more about them through the Engelberg Center’s Merkin Initiative).

Here are four widely proposed and increasingly popular alternative payment models:

Accountable Care Organizations (ACOs) are groups of providers across different settings– primary care, specialty physicians, hospitals, clinics, and others – who chose to come together to jointly share responsibility for overall quality, cost, and care for a large patient population. These providers recognize that poorly coordinated care from these entities can lead to increased costs from things like redundant tests and overlapping care.

Accountable Care Organization Model

Here’s how it works in basic terms: the ACO physicians bill the way they always do, but the total costs get compared to an overall target. Plus, they have to measure some of their patient outcomes, to prove that they hit certain quality benchmarks. If costs are higher than the target, the ACO may get penalized. In the end, if they are under the cost target and satisfy their quality measures, they get a share of the savings.

By bringing all of these providers under the umbrella of an ACO, caregivers can all be on the same page, and the patients ideally receive coordinated care with a focus on prevention – since providers are encouraged to keep their patients healthy and not just earn more by doing more tests and procedures.

Bundles: A health care bundle estimates the total cost of all of the services a patient would receive per episode over a set time period for a certain problem, like a knee replacement or heart surgery. For example, a payer such as Medicare or an insurance company could calculate that a hypothetical 30-day bundle for a knee replacement surgery costs $10,000.

Without Bundled Payment...

The payer reduces the total cost of the episode by 2-3%, and hands the bundle over to the provider – in the knee surgery example, that becomes $10,000 minus 2%, so $9,800. The provider is then responsible for all costs of treatment – whether or not it exceeds the amount of money they were originally given. This encourages the provider (collaborating with the entire care team) to help the patient avoid preventable complications like a hospital readmission by better managing a patient’s care.

With a Bundled Payment...

If the provider keeps costs low, they can keep the margin on the bundle, while the insurance company already saved by reducing the cost of the episode by a small percentage when they created the bundle. So, in our example, if the provider was able to meet quality benchmarks and the total cost of the 30-day episode was $9,000, they get to keep the extra $800.

Patient-Centered Medical Homes set themselves apart by providing set monthly payments on top of existing funding models, in order to fund a highly coordinated team of primary care professionals, which may include, depending on the patient’s needs, physicians, nurse practitioners, medical assistants, nutritionists, psychologists, and possibly even specialists. The team works closely to build a strong relationship with each other,with their patients and their caregivers.

Patient-Centered Medical Home Model...

This extra money can be used to hire nurses or agencies to give special care and attention (by phone or home visits, for example) to high-risk patients, with the goals of reducing emergency room visits and other preventable problems in the long run. Other enhancements might include email communication with patients, more time to call and coordinate care between primary care doctors and specialists, and so on. In the end, the savings from better coordinated care make the extra monthly payments worthwhile.

Pathways, an idea which has gained traction in oncology care, provides a system of choices and decision making tools for providers and patients in order to prescribe the most effective and least costly treatment. For example, let’s say there are two cancer drugs proven to have the same effectiveness, with no differentiation in side effects, but one of them costs less than the other.

Same Effectiveness, Different Cost...

Like the medical home, the pathways model uses a “per-patient” add on fee (often much larger than for medical homes focused on primary care, since cancer patients need intensive treatment) that might encourage the provider to prescribe the less expensive of two equally effective treatments.

How Pathways Creat Savings...

When this is implemented on a broad scale, the savings could add up for payers, and defray the cost of the add-on fees.

Please feel free to use any of these images in your own work, presentations, or educational efforts, and to view and download the interactive versions here.  The images should be attributed to The Merkin Initiative on Clinical Leadership and Payment Reform at Brookings.

It is well recognized across the health care industry that the major goals of the Affordable Care Act (ACA) include not only expanding health insurance coverage, but also improving the quality of care and the patient health care experience. A key strategy in achieving these goals is improving the efficiency and delivery of care through innovative financing mechanisms and new delivery models, such as Accountable Care Organizations (ACOs), patient-centered medical homes (PCMHs), bundled payments for acute and post-acute care, and population-based models that aim to improve the health of entire communities. These alternative models emphasize quality and outcomes, while moving care away from the traditional and predominant method of fee-for-service (FFS).¹

The Frontline Work Force
Many conversations focused on the implementation of these models typically emphasize the role of physicians. However, the success of these models relies heavily on the support and manpower of a multidisciplinary team; particularly "frontline health care workers." Frontline workers may include medical assistants (MAs), medical office assistants, pharmacy aides, and health care support workers. Oftentimes, they provide routine, critical care that does not require post-baccalaureate training.²

For example, MAs can play an important role in a medical home model. Upon discharge from the hospital, frontline workers can provide direct outreach to patients that are at high risk for readmission, and discuss any lingering symptoms, worsening of conditions, or medication issues. If necessary, MAs can assign a high-risk patient to a social worker, care coordinator or nurse.³

In a team care environment, frontline health care workers are essential for taking over routine tasks and allowing physicians to employ their specialized skills on their most complex patient cases, which allows all team members to work at “the top of their license”.⁴ Frontline workers can also bridge the gap between patients and a multitude of providers and specialists; help deliver care that is culturally and linguistically appropriate; and provide critical patient education and outreach outside of regular office visits. 

A Workforce in Need of Reform
While team-based care is widely accepted as an industry norm, its current infrastructure is not well-supported. While the frontline workforce represents nearly half of all health care professionals, they are markedly underpaid, underappreciated, and lack formal training to transition into higher-skilled and/or higher paid positions.

A recent study by the Brookings Metropolitan Policy Program “Part of the Solution: Pre-Baccalaureate Healthcare Workers in a Time of Health System Change” demonstrates this glaring disparity between current frontline workforce investment and its value to health reform efforts. The study analyzes the characteristics of the top ten ‘pre-baccalaureate health care workers’ (staff that holds less than an associate’s degree) within the US’s one-hundred largest metropolitan areas (see Table 1).

Table 1: Top ten pre-baccalaureate health care workers in the US’s top one-hundred metropolitan areas

Personal care aides represent a striking example of the underinvestment in frontline workers. The study shows that personal care aides have the lowest levels of educational attainment compared to their peers (32% have no more than a high school diploma), and have the lowest median earnings ($20,000 annually). Meanwhile, The Center for Health Workforce Studies’ (CHWS) estimates that this profession is among the top three national occupations with the highest projected job growth between 2010 and 2020. They are also in highest demand: between 2010 and 2020 there will be an estimated 600,000 personal aide vacancies.⁵ According to this study, MAs are also among the least educated and lowest paid frontline professions. Ninety percent lack a bachelor’s degree and a significant share (29%) are classified as ‘working poor.’

Policy Solutions

A number of policy solutions can be applied to enhance the frontline worker infrastructure. Our recommendations include:

Invest in front line health care workforce training and education. Case studies from a recent Engelberg Center toolkit, outlines how providers are training their frontline workforce to master fundamental skills including care management, patient engagement, teamwork, and technological savviness.

For example, a New Jersey ACO carried out clinical transformation by investing in new frontline staff, and by redefining the role of medical assistants to include health coaching. The return on investment for employers is potentially large. After injecting a substantial initial investment into this project, this ACO saw a 12.3% decrease in net health care costs within the first year of the program’s implementation; as well as significantly improved efficiency, quality of care and patient experience. As the educational curricula for frontline professions are largely variable, more attention should also be spent on the quality of educational content to train these occupations, as well as on developing an understanding of how delivery systems are augmenting traditional educational curricula.

2. Active inclusion of frontline health care workers in payment reform. Although the services of frontline health care workers are beginning to play a role in new payment models, typically frontline staff does not benefit directly from any bonus payments or shared savings incentives. However, their increasingly valuable role in the care team may warrant allowing frontline health care staff to be included in the receipt of shared savings and/or bonus payments based on the achievement of specifically tailored performance and outcomes targets.

The increasing demand for frontline health care workers, driven in part by the ACA’s payment and delivery reforms, will likely spell out a brighter future for these occupations, whose services had routinely been undervalued and underpaid. Future policy efforts should be focused on extending educational grants that have been aimed at primary care and nursing to frontline workers, as well as considering dedicating portions of shared savings to enhancing the earning potential for frontline workers. Some efforts, such as the U.S. Department of Labor’s recent rule to grant wage and overtime protections to home health and personal care aides, are early suggestions of a shift toward greater respect and empowerment for these occupations. It is yet to be seen what effects the continuation of such efforts will have on their high projected attrition trends.

“This is about governments using data for performance rather than compliance” was a resounding message coming out of the U.S. Department of Education’s conference on June 10 on the use of Pay for Success contracts in education. These contracts, known globally as social impact bonds, continue to be at the forefront of global conversations about results-based financing mechanisms, and have garnered significant momentum this week with passage of the Social Impact Partnerships for Pay for Results Act in the U.S. While limitations certainly exist, their potential to revolutionize the way we fund social projects is tremendous.

A social impact bond (SIB) is a set of contracts where a government agency agrees to pay for service outputs or outcomes, rather than funding defined service inputs, and an investor provides upfront risk capital to the service provider. The investor is potentially repaid principal and interest contingent on the achievement of the predetermined outputs or outcomes.

In our research on impact bonds at the Center for Universal Education, we have analyzed the use of SIBs for education in the U.S., other high-income countries, and low- and middle-income countries. Practitioners in each of these contexts are having far more similar conversations than they may realize—all are united in their emphasis on using SIBs to build data systems for performance. There is tremendous potential for lessons learned across these experiences and across the broader discussions of results-based financing mechanisms for education globally.

Current SIBs for education globally

There are currently five SIBs for education worldwide: two in the U.S. for preschool education, one in Portugal for computer science classes in primary school, and one each in Canada and Israel for higher education. In addition, a number of countries have used the SIB model to finance interventions to promote both education and employment outcomes for teens—there are 21 such SIBs in the U.K., three in the Netherlands, and one in Germany. There is also a Development Impact Bond (DIB), where a donor rather than government agency serves as the outcome funder, for girls’ education in India. The Center for Universal Education will host a webinar to present the enrollment and learning outcomes of the first year of the DIB on July 5 (register to join here).

U.S. activities to facilitate the use of SIBs for education

At the June 10 conference at the Department of Education, the secretary of education and the deputy assistant to the president for education said that they saw the greatest potential contribution of SIBs in helping to scale what works to promote education outcomes and in broadening the array of partners involved in improving the education system. Others pointed out the value of the mechanism to coordinate services based on the needs of each student, rather than a multitude of separately funded services engaging the student individually. In addition to using data to coordinate services for an individual, participants emphasized that SIBs can facilitate a shift away from using data to measure compliance, to using data to provide performance feedback loops.

The interest in data for performance rather than compliance is part of a larger shift across the U.S. education sector, represented by the replacement of the strict compliance standards in the No Child Left Behind Act of 2002 with the new federal education funding law, the Every Student Succeeds Act, signed into law in December of 2015. The law allows for federal outcome funding for SIBs in education for the first time, specifically for student support and academic enrichment programs. The recently passed Social Impact Partnerships for Pay for Results Act also allows for outcome funding for education outcomes. The Department of Education conference explored potential applications of SIBs across the education sector, including for early home visiting programs, programs to encourage completion of higher education programs, and career and technical education. The conference also analyzed the potential to use SIBs for programs that support specific disadvantaged populations, such as dual language learners in early education, children of incarcerated individuals, children involved in both the child protection and criminal justice systems, and Native American youth. Overall, there was a focus on areas where the U.S. is spending a great deal on remediation (such as early emergency room visits) and on particular levers to overcome persistent obstacles to student success (such as parent engagement).

To help move the sector forward, the Department of Education announced three new competitions for feasibility study funding for early learning broadly, dual language learners in early education, and technical education. The department is also facilitating connections between existing evaluation and data system development efforts and teams designing SIBs. The focus on early childhood development by the Department of Education is reflective of the national field as a whole: Programming in the early years is becoming a particularly fast-growing sector for SIBs in the U.S. with over 40 SIBs feasibility and design stages.

SIBs for education in low- and middle-income countries

There is only one DIB for education in low- and middle-income countries; however, there are a number of SIBs and DIBs for education in design and prelaunch phases. In particular, the Western Cape Province of South Africa has committed outcome funding for three SIBs across a range of health and development outcomes for children ages 0 to 5.

Though the number of impact bonds may be relatively small, a significant amount of work has been done in the last 15 years in results-based financing for education. The U.K. Department for International Development (DfID), the Dutch Ministry of Foreign Affairs, the Asian Development Bank, the World Bank, the Global Partnership for Output-Based Aid, and Cordaid had together funded 24 results-based financing initiatives for education as of 2015. Of particular interest, DfID is funding results-based financing projects through a Girls Education Challenge and the World Bank launched a new trust fund for results-based financing in education in 2015. As with impact bonds in the U.S., a primary aim of results-based financing for education in low- and middle-income countries is to strengthen data and performance systems. Early childhood development programs and technical and vocational and training programs have also been identified as sub-sectors of high potential. Here are a few final takeaways for those working on results-based financing for education in low- and middle-income countries from the U.S. Department of Education conference:

1. The differences between the No Child Left Behind Act and the Every Student Succeeds Act should be analyzed carefully to ensure other data-driven education performance management systems promote both accountability and flexibility.
2. In building data systems through results-based financing, ensure services can be coordinated around the individual, feedback loops are available for providers, and data on early education, child welfare, parent engagement, and criminal justice involvement are also incorporated.
3. There are potential lessons to be learned from the U.S. Department of Education’s effort to conduct more low-cost randomized control trials in education and the U.S. Census Bureau’s data integration efforts.
4. SIBs provide an opportunity to work across agencies or levels of government in education, which could be particularly fruitful in both low- and middle-income countries and the U.S.

As the global appetite for results-based financing continues to grow and new social and development impact bonds are implemented throughout the world, we’ll have an opportunity to learn the true potential of such financing models.

ABSTRACT

This study analyzes the willingness to pay for health insurance and hence the potential market for new low-cost health insurance product in Namibia, using the double bounded contingent valuation (DBCV) method. The findings suggest that 87 percent of the uninsured respondents are willing to join the proposed health insurance scheme and on average are willing to insure 3.2 individuals (around 90 percent of the average family size). On average respondents are willing to pay NAD 48 per capita per month and respondents in the poorest income quintile are willing to pay up to 11.4 percent of their income. This implies that private voluntary health insurance schemes, in addition to the potential for protecting the poor against the negative financial shock of illness, may be able to serve as a reliable income flow for health care providers in this setting.

Read the full paper on ScienceDirect »

November's U.S. Bureau of Labor Statistics (BLS) employment report showed continued improvement in the job market, with employers adding 211,000 workers to their payrolls and hourly pay edging up compared with its level a year ago. The pace of job growth was similar to that over the past year and somewhat slower than the pace in 2014. For the 69^th consecutive month, private-sector payrolls increased. Since the economic recovery began in the third quarter of 2009, all the nation’s employment gains have occurred as a result of expansion in private-sector payrolls. Government employment has shrunk by more than half a million workers, or about 2.5 percent. In the past twelve months, however, public payrolls edged up by 93,000.

The good news on employment gains in November was sweetened by revised estimates of job gains in the previous two months. Revisions added 8,000 to estimated job growth in September and 27,000 to job gains in October. The BLS now estimates that payrolls increased 298,000 in October, a big rebound compared with the more modest gains in August and September, when payrolls grew an average of about 150,000 a month.

Average hourly pay in November was 2.3 percent higher than its level 12 months earlier. This is a slightly faster rate of improvement compared with the gains we saw between 2010 and 2014. A tighter job market may mean that employers are now facing modestly higher pressure to boost employee compensation. The exceptionally low level of consumer price inflation means that the slow rate of nominal wage growth translates into a healthy rate of real wage improvement. The latest BLS numbers show that real weekly and hourly earnings in October were 2.4 percent above their levels one year earlier. Not only have employers added more than 2.6 million workers to their payrolls over the past year, the purchasing power of workers' earnings have been boosted by the slightly faster pace of wage gain and falling prices for oil and other commodities.

The BLS household survey also shows robust job gains last month. Employment rose 244,000 in November, following a jump of 320,000 in October. More than 270,000 adults entered the labor force in November, so the number of unemployed increased slightly, leaving the unemployment rate unchanged at 5.0 percent. In view of the low level of the jobless rate, the median duration of unemployment spells remains surprisingly long, 10.8 weeks. Between 1967 and the onset of the Great Recession, the median duration of unemployment was 10.8 weeks or higher in just seven months. Since the middle of the Great Recession, the median duration of unemployment has been 10.8 weeks or longer for 82 consecutive months. The reason, of course, is that many of the unemployed have been looking for work for a long time. More than one-quarter of the unemployed—slightly more than two million job seekers—have been jobless for at least 6 months.  That number has been dropping for more than five years, but remains high relative to our experience before the Great Recession.

If there is bad news in the latest employment report, it's the sluggish response of labor force participation to a brighter job picture. The participation rate of Americans 16 and older edged up 0.1 point in November but still remains 3.5 percentage points below its level before the Great Recession. About half the decline can be explained by an aging adult population, but a sizeable part of the decline remains unexplained. The participation rate of men and women between 25 and 54 years old is now 80.8 percent, exactly the same level it was a year ago but 2.2 points lower than it was before the Great Recession. Despite the fact that real wages are higher and job finding is now easier than was the case earlier in the recovery, the prime-age labor force participation rate remains stuck well below its level before the recession. How strong must the recovery be before prime-age adults are induced to come back into the work force? Even though the recovery is now 6 and a half years old, we still do not know.

For more than a decade, the economy’s rate of productivity growth has been dismal, which is bad news for workers since their incomes rise slowly or not at all when this is the case. Economists have struggled to understand why American productivity has been so weak. After all, with all the information technology innovations that make our lives easier like iPhones, Google, and Uber, why hasn’t our country been able to work more productively, giving us either more leisure time, or allowed us to get more done at work and paid more in return?

One answer often given is that the government statisticians must be measuring something wrong – notably, the benefits of Google and all the free stuff we can now access on our phones, tablets and computers. Perhaps government statisticians just couldn’t figure out how to include those new services in a meaningful way into the data?

A new research paper by Fed economists throws cold water on that idea. They think that free stuff like Facebook should not be counted in GDP, or in measures of productivity, because consumers do not pay for these services directly; the costs of providing them are paid for by advertisers. The authors point out that free services paid for by advertising are not new; for example, when television broadcasting was introduced it was provided free to households and much of it still is.

The Fed economists argue that free services like Google are a form of “consumer surplus,” defined as the value consumers place on the things they buy that is over and above the price they have paid. Consumer surplus has never been included in past measures of GDP or productivity, they point out. Economist Robert Gordon, who commented on the Fed paper at the conference where it was presented, argued that even if consumer surplus were to be counted, most of the free stuff such as search engines, e-commerce, airport check-in kiosks and the like was already available by 2004, and hence would not explain the productivity growth slowdown that occurred around that time.

The Fed economists also point out that the slowdown in productivity growth is a very big deal. If the rate of growth achieved from 1995 to 2004 had continued for another decade, GDP would have been $3 trillion higher, the authors calculate. And the United States is not alone in facing weak productivity; it is a problem for all developed economies. It is hard to believe that such a large problem faced by so many countries could be explained by errors in the way GDP and productivity are measured.

Even though I agree with the Fed authors that the growth slowdown is real, there are potentially serious measurement problems for the economy that predate the 2004 slowdown.

Health care is the most important example. It amounts to around 19% of GDP and in the official accounts there has been no productivity growth at all in this sector over many, many years. In part that may reflect inefficiencies in health care delivery, but no one can doubt that the quality of care has increased. New diagnostic and scanning technologies, new surgical procedures, and new drugs have transformed how patients are treated and yet none of these advances has been counted in measured productivity data. The pace of medical progress probably was just as fast in the past as it is now, so this measurement problem does not explain the slowdown. Nevertheless, trying to obtain better measures of health care productivity is an urgent task. The fault is not with the government’s statisticians, who do a tremendous job with very limited resources. The fault lies with those in Congress who undervalue good economic statistics.

Gordon, in his influential new book The Rise and Fall of American Growth, argues that the American engine of innovation has largely run its course. The big and important innovations are behind us and future productivity growth will be slow. My own view is that the digital revolution has not nearly reached an end, and advances in materials science and biotechnology promise important innovations to come. Productivity growth seems to go in waves and is impossible to forecast, so it is hard to say for sure if Gordon is wrong, but I think he is.

Fortune reported in June 2015 that 70% of its top 500 CEOs listed rapid technological change as their biggest challenge. I am confident that companies will figure out the technology challenge, and productivity growth will get back on track, hopefully sooner rather than later.

Editor’s note: This piece originally appeared in Fortune.

Led by presidential candidate Bernie Sanders, one-time supporters of ‘single-payer’ health reform are rekindling their romance with a health reform idea that was, is, and will remain a dream.  Single-payer health reform is a dream because, as the old joke goes, ‘you can’t get there from here.

Let’s be clear: opposing a proposal only because one believes it cannot be passed is usually a dodge.One should judge the merits. Strong leaders prove their skill by persuading people to embrace their visions. But single-payer is different. It is radical in a way that no legislation has ever been in the United States.

Not so, you may be thinking. Remember such transformative laws as the Social Security Act, Medicare, the Homestead Act, and the Interstate Highway Act. And, yes, remember the Affordable Care Act. Those and many other inspired legislative acts seemed revolutionary enough at the time. But none really was. None overturned entrenched and valued contractual and legislative arrangements. None reshuffled trillions—or in less inflated days, billions—of dollars devoted to the same general purpose as the new legislation. All either extended services previously available to only a few, or created wholly new arrangements.

To understand the difference between those past achievements and the idea of replacing current health insurance arrangements with a single-payer system, compare the Affordable Care Act with Sanders’ single-payer proposal.

Criticized by some for alleged radicalism, the ACA is actually stunningly incremental. Most of the ACA’s expanded coverage comes through extension of Medicaid, an existing public program that serves more than 60 million people. The rest comes through purchase of private insurance in “exchanges,” which embody the conservative ideal of a market that promotes competition among private venders, or through regulations that extended the ability of adult offspring to remain covered under parental plans. The ACA minimally altered insurance coverage for the 170 million people covered through employment-based health insurance. The ACA added a few small benefits to Medicare but left it otherwise untouched. It left unaltered the tax breaks that support group insurance coverage for most working age Americans and their families. It also left alone the military health programs serving 14 million people. Private nonprofit and for-profit hospitals, other vendors, and privately employed professionals continue to deliver most care.

In contrast, Senator Sanders’ plan, like the earlier proposal sponsored by Representative John Conyers (D-Michigan) which Sanders co-sponsored, would scrap all of those arrangements. Instead, people would simply go to the medical care provider of their choice and bills would be paid from a national trust fund. That sounds simple and attractive, but it raises vexatious questions.

• How much would it cost the federal government? Where would the money to cover the costs come from?
• What would happen to the $700 billion that employers now spend on health insurance?
• How would the $600 billion a year reductions in total health spending that Sanders says his plan would generate come from?
• What would happen to special facilities for veterans and families of members of the armed services?

Sanders has answers for some of these questions, but not for others. Both the answers and non-answers show why single payer is unlike past major social legislation.

The answer to the question of how much single payer would cost the federal government is simple: $4.1 trillion a year, or $1.4 trillion more than the federal government now spends on programs that the Sanders plan would replace. The money would come from new taxes. Half the added revenue would come from doubling the payroll tax that employers now pay for Social Security. This tax approximates what employers now collectively spend on health insurance for their employees...if they provide health insurance. But many don’t. Some employers would face large tax increases. Others would reap windfall gains.

The cost question is particularly knotty, as Sanders assumes a 20 percent cut in spending averaged over ten years, even as roughly 30 million currently uninsured people would gain coverage. Those savings, even if actually realized, would start slowly, which means cuts of 30 percent or more by Year 10. Where would they come from? Savings from reduced red-tape associated with individual insurance would cover a small fraction of this target. The major source would have to be fewer services or reduced prices. Who would determine which of the services physicians regard as desirable -- and patients have come to expect -- are no longer ‘needed’? How would those be achieved without massive bankruptcies among hospitals, as columnist Ezra Klein has suggested, and would follow such spending cuts? What would be the reaction to the prospect of drastic cuts in salaries of health care personnel – would we have a shortage of doctors and nurses? Would patients tolerate a reduction in services? If people thought that services under the Sanders plan were inadequate, would they be allowed to ‘top up’ with private insurance? If so, what happens to simplicity? If not, why not?

Let me be clear: we know that high quality health care can be delivered at much lower cost than is the U.S. norm. We know because other countries do it. In fact, some of them have plans not unlike the one Senator Sanders is proposing. We know that single-payer mechanisms work in some countries. But those systems evolved over decades, based on gradual and incremental change from what existed before. That is the way that public policy is made in democracies. Radical change may occur after a catastrophic economic collapse or a major war. But in normal times, democracies do not tolerate radical discontinuity. If you doubt me, consider the tumult precipitated by the really quite conservative Affordable Care Act.

Editor's note: This piece originally appeared in Newsweek.

Today marks Equal Pay Day. How are we doing? We have come a long way since I wrote my doctoral dissertation on the pay gap back in the late 1960s. From earning 59 percent of what men made in 1974 to earning 79 percent in 2015 (among year-round, full-time workers), women have broken a lot of barriers. 

There is no reason why the remaining gap can’t be closed. The gap could easily move in favor of women. After all, they are now better educated than men. They earn 60 percent of all bachelor’s degrees and the majority of graduate degrees. Adjusting for educational attainment, the current earnings gap widens, with the biggest relative gaps at the highest levels of education:

If we want to encourage people to get more education, we can't discriminate against the best educated just because they are women.

One source of the current gap is the fact that women still take more time off from work to care for their families. These family responsibilities may also affect the kinds of work they choose. Harvard professor Claudia Goldin notes that they are more likely to work in occupations where it is easier to combine work and family life. These divided work-family loyalties are holding women back more than pay discrimination per se. This should change when men are more willing to share equally on the home front, as Richard Reeves and I have argued elsewhere.  

But there is much to be done while waiting for this more egalitarian world to arrive. Paid family leave and more support for early child care and education would go a long way toward relieving families, and women in particular, of the dual burden they now face. In the process, the pay gap should shrink or even move in favor of women. 

The Economic Policy Institute (EPI) has just released a very informative report on these issues. They call for an aggressive expansion of both early childhood education and child care subsidies for low and moderate income families. Specifically, they propose to cap child care expenses at 10 percent of income, which would provide an average subsidy of $3,272 to working families with children and much more than this to lower-income families. 

The EPI authors argue that child care subsidies would provide needed in-kind benefits to lower income families (check!), boost women’s labor force participation in a way that would benefit the overall economy (check!), and reduce the gender pay gap (check!). In short, childcare subsidies are a win-win-win.

For present purposes I want to focus on the likely effects on the pay gap. In the mid-1990s, the U.S. had the highest rate of female labor force participation compared to Germany, Canada, and Japan. Now we have the lowest. One reason is because other advanced countries have expanded paid leave and child care support for employed mothers while the U.S. has not:

If we want to eliminate the pay gap and perhaps even reverse it, the primary focus must be on women’s continuing difficulties in balancing work and family life. We should certainly attend to any remaining instances of pay discrimination in the workplace, as called for in the Paycheck Fairness Act. But the biggest source of the problem is not employer discrimination; it is women’s continued double burden.