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Should Drug Patents Apply in Poor Countries?

Thomas A. Hemphill - October 9, 2015

The World Trade Organization's TRIPS Council (short for "Trade-Related Aspects of Intellectual Property Rights") will meet next week in Geneva. At this meeting, representatives of "least developed countries," or LDCs, will request that they be exempted from having to enforce pharmaceutical patent rights for as long as they remain classified as LDCs.

LDCs have an exemption under current law, but it will expire at the beginning of 2021. They sought a permanent extension two years ago, but were denied owing to opposition from the U.S. and EU.

Supporters of a permanent extension include over 140 non-governmental organizations, the majority from developing countries; the United Nations Development Programme and the Joint UN Programme on HIV/AIDS; and the European Commission, which opposed the 2013 request. In a letter to WTO members, the NGOs argue that "the public health crisis in LDCs is a long-term challenge that will endure at least as long as these countries remain LDCs." According to European Commission head Cecilia Malmstrom, intellectual-property rules should "be a non-issue when the world's poorest are in need of treatment." Furthermore, Malmstrom said that the TRIPS exemption "will give the least developed countries the necessary legal certainty to procure or to produce generic medicines."

In contrast, the International Federation of Pharmaceutical Manufacturers & Associations does not support a permanent extension of the LDC exemption, arguing that it does "not appear to be necessary at this stage, as the current waiver is in force until 2021." It further notes that "the vast majority of essential medicines are not protected by intellectual property (IP) and therefore IP plays no role in limiting access to these medicines." When it comes to patented medications, the IFPMA writes that "intellectual property may be one of many factors to be taken into account in policies to expand access."

For most developing and least-developed countries, the domestic pharmaceutical industry consists of small and medium-size companies focused on generic (off-patent) manufacturing and traditional and herbal medicines. (Exceptions to this trend, however, can be found in Brazil, India, and Thailand, all of which have substantial industrial capacity to manufacture generic pharmaceuticals.) As the IFPMA says, IP enforcement cannot be not what's keeping these countries from expanding generic manufacturing capacity. Instead, the problem is that there are few incentives for foreign direct investment by the leading multinational pharmaceutical manufacturers, which are based in France, Germany, Switzerland, the United Kingdom, and the U.S.

The issue of LDCs' low-cost access to patent-protected pharmaceuticals is much thornier. Under the current TRIPS agreement, when a national government needs to use a pharmaceutical in a health-care emergency, it has the option of compulsory licensing, where domestic companies are allowed to manufacture a patented medication without the IP owner's consent. Nations also decide their own policies on "parallel importing"; this is when a country imports drugs sold elsewhere rather than buying them through the manufacturer's official channels. (It's useful when drug makers charge different prices in different nations.)

There is evidence that the USTR has consulted with representatives of LDCs on this request, and it's possible the U.S. will depart from the position it took in 2013, as the European Commission has. Alternatively, the USTR may signal that it (with pharmaceutical industry support) will be favorably disposed to support granting another lengthy LDC extension of the pharmaceutical patent enforcement exemption in 2021? Or will the status quo prevail, with the USTR affirming its support of the existing extension? By next week, we should have our answer.

Thomas A. Hemphill is a professor of strategy, innovation and public policy in the School of Management, University of Michigan-Flint and a senior fellow at the National Center for Policy Analysis.

'Reforming' the Toxic Substances Control Act

Angela Logomasini - October 9, 2015

As early as this week, the Senate is slated to take up a bill to reform the Toxic Substances Control Act. Supposedly, the proposal has enough bipartisan support to sustain a filibuster. So are the proposed changes to TSCA good or bad for consumers? There are plenty of reasons to be skeptical.

As I have explained numerous times, the current TSCA has what is probably the best standard for evaluating environmental risks that the U.S. has on the books. In particular, one provision requires the Environmental Protection Agency to apply the "least burdensome" rule necessary to achieve safety goals, which holds the agency accountable.

This provision prevents the agency from issuing regulations that are likely to do more harm than good. For example, it prevented a proposed ban of asbestos in automobile brakes, a usage that has not been shown to affect human health. A court held the ban would likely have led to a net loss of life by increasing highway fatalities.

You would think that a regulatory policy that prevents needless deaths is a good thing. Yet both House and Senate TSCA-reform proposals would eliminate the "least burdensome" requirement. The new law would also give EPA lots of power to demand expensive data collection and impose needless bureaucratic red tape on industry, and charge business high fees on top of it all.

But the chemical industry is willing to take this medicine in exchange for a provision that may partly preempt a host of utterly insane state chemical regulations, such as those that will emerge in California as it continues implementation of its "green chemistry" law. The industry's position is understandable. After all, in addition to these laws' being bad in themselves, it's not easy to do business when you have to comply with 50 different sets of laws.

But is it really worth the gamble? The preemption provisions could eventually be rendered meaningless, while business sacrifices the already tested TSCA standard. The bill contains provisions that will allow EPA to give states "waivers" so that they can avoid preemption altogether. How EPA will apply and interpret these provisions is a big question mark.

The current legislation recently cleared a major hurdle. The bill's main Democratic sponsor, Sen. Tom Udall, has negotiated some changes to the legislation to gain support from two more Democrats, bringing total Senate support up to 60, enough to prevent a filibuster led by Barbara Boxer, who remains critical of the bill.

If the Senate bill has any redeeming qualities left after floor passage, it will likely suffer yet more assaults in conference, as it must be reconciled with an even less desirable bill that passed the U.S. House of Representatives last June. That bill also has a preemption provision, but it's notably weaker, requiring the EPA to finalize rules on specific chemicals before state laws are preempted for those chemicals. Let's face it: Government processes are notoriously slow, and it's not uncommon for agencies to miss statutory deadlines. EPA may amass power while businesses wait years and even decades before they gain preemption for any chemicals.

There is one thing we can be sure about. TSCA "reform" won't make us any safer because the public risks TSCA regulates are by and large insignificant: those posed by trace chemicals found in consumer products. Industry itself already has systems in place to address health risks, merely because there's no in gain poisoning your customers.

The most unfortunate part about this entire debate is the potential for real harm. TSCA reform promises empower EPA to go after valuable chemicals that have important public health and safety benefits that could be lost. For example, if regulators undermine the use of BPA-based resins for food cans, which are used to prevent pathogen development, we might see increased food-borne illnesses. If regulators ban certain flame retardants, we could see more fire-related deaths. And bans on preservatives in cosmetics can translate into product spoilage and increased skin irritation and infections

These are the real costs of dumb regulatory powers.

Angela Logomasini is a senior fellow with the Competitive Enterprise Institute, a free-market public-policy group in Washington, D.C.

Medicare Does a Bad Job Setting Fees

Bryan Dowd - October 8, 2015

Traditional "fee-for-service" (FFS) Medicare — which pays providers a fee for each service delivered — is the nation's largest health-insurance program, enrolling 38.1 million aged and disabled beneficiaries in 2014. The program pays more than 200 million claims for inpatient hospital admissions and home-health-care visits each year, and 1 billion claims for doctors' services. There are about 10,000 different services for doctors alone, and each of these fees is set through an administrative process that attempts to discern the cost of producing that service — called the "relative value" — in terms of the costs of physician work, practice expenses, and liability insurance.

Not surprisingly, Medicare fees substantially influence the prices that private-sector insurers pay for services. To save time and effort in developing their own fee schedules, many private payers have adopted the Medicare fees outright. And when Medicare raises its fees, private insurers have to go along to some degree, or else providers will become less likely to see privately insured patients.

But FFS Medicare does a bad job of setting these fees. A new analysis that we conducted for the Mercatus Center at George Mason University explains why — and suggests how to fix the system.

We focused on the fees for doctors' services, although much of our analysis applies to the fees that Medicare pays for hospital admissions as well. For doctors, the program has struggled for many years to increase the value of "evaluation and management" services — think of these as "primary care" — in relation to tests and procedures. Evaluation and management services are vital for managing the health of aged and disabled Medicare beneficiaries, many of whom have multiple chronic health problems.

In principle, Medicare could collect fine-grained data on medical costs from a representative sample of physicians. Instead, the data are collected, and updates to the fees are recommended, by a private body whose committees are drawn disproportionately from the major specialty societies. This body, known as the Relative Value Scale Update Committee or RUC, resists rebalancing the fees, despite advances in technology that have reduced the cost of tests and procedures.

Conflicts of interest are not the only problem with the fee-setting process. The RUC relies on flawed surveys to determine the relative values of different services. It sometimes cherry-picks the results if the data are deemed to be flawed or incomplete. And it often uses unrealistic assumptions that inflate the cost of the equipment that is used for diagnostic testing.

Part of the blame can be laid at the door of the Centers for Medicare and Medicaid Services, the government agency that oversees Medicare and reviews the recommendations coming from the RUC, though its performance has improved in recent years. In the past, CMS almost always accepted the RUC's recommendations, but substantial changes in the oversight process have given the agency more authority and funding. It now accepts only about half of the RUC's recommendations.

But even if CMS could collect unbiased data and evaluate it in a neutral manner, the fee-setting process still would be flawed until its deeper assumptions were challenged. Most important is the assumption that physicians' fees should be based on administrative data, in an attempt to create a semblance of market prices.

Medicare fees indeed should reflect market prices. Unfortunately, it's impossible for a government agency to set prices that replicate those resulting from millions of independent transactions between buyers and sellers in a competitive market. But CMS can do better, by harnessing the power of actual competition instead of relying on administrative data.

We suggest having providers bid on the fee schedule or bundles of services, and then using the bids to set Medicare fees. Providers could set their prices wherever they liked, but those with higher bids would be placed in higher tiers. Medicare beneficiaries would pay higher out-of-pocket costs for providers in higher tiers — a strategy that has worked in the private sector. This already happens to some extent with hospital admissions, but it could be extended to bundles of services that include outpatient care.

For this system to be effective, beneficiaries would have to care about the higher cost of higher-tier providers. This form of exposure has been difficult in the past, because many FFS Medicare beneficiaries buy "Medigap" policies that cover some out-of-pocket costs. A key part of any reform must be to prevent these policies from insulating beneficiaries from the added cost of more expensive providers — providers we know are more expensive because they have told us so, in their bids.

Medicare needs to find a new way to set fees. A bidding system could be the solution — but for this to be successful, beneficiaries must have some skin in the game.

Roger Feldman is the Blue Cross professor of health insurance and professor of economics at the University of Minnesota. Robert Coulam is professor of practice in health policy and management at the Simmons College School of Management. Bryan Dowd is the Mayo professor in the Division of Health Policy and Management at the School of Public Health, University of Minnesota. All are coauthors of new research on "Medicare's Role in Determining Prices Throughout the Health Care System" published by the Mercatus Center at George Mason University.

President Obama's Climate Change Power Grab

Rachel Bovard - October 8, 2015

It's almost winter in Paris, and soon the City of Lights will be blanketed beneath a heavy layer of foreign bureaucrats and climate-change negotiators. On November 30, hundreds of unelected representatives of the international powers will descend under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC).

According to recent press reports, the mission of the U.S. delegation will be to bind its government to multi-billion-dollar climate regulations — regulations the administration has no intention of sending to Congress for approval.

This is no trifling issue of executive-legislative disagreement. Rather, it's the latest salvo from an executive intent on centralizing power in the White House.

When Congress refuses to enact policies he desires, President Obama takes "executive action," putting those policies in place unilaterally. This continued executive overreach — and Congress's failure to respond to it — is a grave threat to the fundamental nature of the separation of powers that guides our government.

In Federalist No. 51, James Madison wrote on the necessity of separated powers: "The accumulation of powers legislative, executive, and judiciary, in the same hands ... may justly be pronounced the very definition of tyranny." His solution was to endow the three branches of government with co-equal power, thus ensuring that "ambition counteracts ambition." That is, each branch would jealously guard its power from being usurped by the others, thereby keeping the three branches distinct and America free from tyranny.

Under this president, the slow accumulation of power in the executive branch has gone unchecked by a bumbling and ineffective Congress. That once-powerful body has raised nary a whisper over the steady dilution of its authorities.

When Congress refused to pass his amnesty legislation, the president moved ahead with it on his own, effectively implementing the DREAM Act. When he decided he didn't like the Defense of Marriage Act, he unilaterally decreed it to be unconstitutional and directed his Justice Department to simply stop enforcing it. More recently, he flat-out ignored Congress and struck a deal with the terrorist state of Iran, opting to seek approval from the United Nations rather than from the lawmakers of his own country.

The administration's intention to bypass Congress yet again when it comes to the Paris Protocol demonstrates how bold this president has become in dismissing the checks ascribed to his office. When asked if the protocol constituted a document worthy of review by the Senate, the president's spokesman flippantly dismissed Congress as a body "hard to take seriously," and suggested that, by holding a different opinion on climate change, Congress somehow forfeits its right to approve new climate regulations — costing Americans billions upon billions of dollars — that the administration is expected to try to impose.

This abject dismissal of the role of the people's representatives in constitutional governance should deeply unsettle anyone with even a passing concern for the rule of law.

The Paris Protocol represents a crucial test for Congress, which has continuously responded ineffectually to President Obama's executive ambitions. How lawmakers use the powers of their branch — particularly the power of the purse — in response to this agreement will in many ways determine the relationship between the executive and the legislature for years to come.

In terms of constitutional governance, this is perhaps the most consequential circumstance to confront Congress in decades — one that gets to the nature of liberty and to what it means to be American. If Congress willingly cedes its power, it becomes habitual. Should future Congresses wish to reclaim their rightful role, they will have to go to extraordinary lengths to restore balance among the branches.

It is incumbent upon this Congress to use this opportunity to right what has become a very lopsided ship of state. If lawmakers once again abdicate the authorities granted to them by the Constitution, America could quickly find itself in a democracy that has begun to resemble, in the words of the Founders, "the very definition of tyranny."

A ten-year veteran of congressional policy battles, Rachel Bovard is the Heritage Foundation's director of policy services.

Nicholas Buffie - October 7, 2015

On August 2, 2011, Congress passed the Budget Control Act, which aimed to reduce federal spending through 2021. In the months preceding passage of the act, members of Congress debated what percentage of spending cuts should come from the military. Implicit in this debate was a subtler question: How do we determine what level of military spending is appropriate?

The U.S. may want to learn from the answers provided by other countries. We can compare military spending in the U.S. with military spending throughout the rest of the world to determine if our military spending is abnormally high, abnormally low, or about what we’d expect given our national income.

I obtained data on military spending for 142 countries through the Stockholm International Peace Research Institute. Using data from the International Monetary Fund (IMF), I was able to convert each country’s spending to Purchasing Power Parity-adjusted dollars.

I then obtained data on each country’s PPP-adjusted GDP from the IMF, which has estimates for all SIPRI countries except North Korea. Combining the two datasets, I am left with 141 countries which together account for 97 percent of world GDP.

The 140 countries other than the U.S. spent a combined $1.9 trillion on their militaries in 2014; this amounted to 2.14 percent of their aggregate GDP ($87.3 trillion). Military spending was much higher in U.S. at 3.50 percent of GDP.

U.S. military spending totaled $610 billion in 2014. Had the U.S. spent 2.14 percent of GDP on the military, in line with the average from the rest of the world, military spending would’ve been $373 billion. Cutting military spending to this level would’ve amounted to over $237 billion in savings for the federal government.

We might wonder if the U.S. should be expected to spend more on its military because of its high level of GDP per capita. If the governments of poor countries spend much of their income fighting poverty and alleviating extreme financial hardship, military spending as a percentage of GDP could conceivably go up as incomes increase. However, it appears that the opposite is actually true: In 2014, military spending amongst the other six G-7 countries (Canada, France, Germany, Italy, Japan, and the United Kingdom) was 1.4 percent of GDP. If the U.S. spent a similar portion of GDP on its military, last year’s military budget would’ve been just $248 billion.

In terms of spending tradeoffs, it is worth noting that the extra $237 billion spent on the military is greater than the combined costs of SNAP, unemployment benefits, all federal tax credits, and the annual gap between Social Security Disability Insurance spending and revenues.

Nicholas Buffie is a junior research associate at the Center for Economic and Policy Research.

Cybersecurity: While We're Waiting on Congress

Javier Ortiz - October 6, 2015

Cybersecurity dominates the headlines after large, high-profile attacks, such as the hack of over 22 million personnel records from the Office of Personnel Management (OPM) or the theft of 70 million records from Target in 2013. But it's not long before the media and public once again become complacent, and despite multiple attempts, over the past five years Congress has failed to pass adequate legislation on the issue.

Partisan bickering, debate over the scope and breadth of regulations, and privacy concerns have abounded. But this problem isn’t going away. In fact, if the past few years are any indication, it’s only going to get worse. When financial institutions, global trade, commerce, and governments all rely on cyberspace for the free flow of capital and ideas, it’s crucial our cyber highways remain as secure as possible.

Legislation is needed to provide clear guidance on how companies should compare and respond to cyberattacks. Robust policies must allow collaboration and the sharing of threats and risks between both the government and private sector. Currently, companies in the private sector are hesitant to share cyber threat information out of fear of a lawsuit; thus protection from liability is crucial.

But in the interim, companies and legislators alike should familiarize themselves with the National Institute of Standards and Technology (NIST) cybersecurity framework. In 2013, President Obama issued an executive order titled “Improving Critical Infrastructure Cybersecurity,” directing NIST to engage stakeholders and develop voluntary guidelines for reducing the risk of cyberattacks to critical infrastructure, in both the public and the private sector. NIST proposed the framework in February of 2014, and today organizations big and small are using it.

The framework combines best practices across multiple sectors to create a flexible, cost-effective roadmap of sorts for CEOs and corporate boards. When 66 percent of public-company directors do not have confidence their companies are properly secured against a cyberattack, the NIST framework can prove helpful for many.

The framework could one day serve as a baseline for legislation, too, so companies that adopt it now will likely be better positioned to comply with future regulation — and less likely to be considered negligent and held liable in court in the event of a breach.

The good news is that C-suite executives are beginning to bring these critical issues up in the boardroom, taking inventory of their security efforts and identifying where they are vulnerable. But Congress must get its act together and pass cybersecurity legislation. Understanding the NIST framework is a must, both for businesses trying to address this problem voluntarily and for legislators trying to craft a policy solution.

Javier Ortiz is a partner at Falcon Cyber Investments, the first multi-stage investment vehicle exclusively focused on investing in cybersecurity companies, and a strategist and an adviser on cyber policy and regulations for a D.C. based global law firm.

Samuel Bieler, Urban Institute - October 5, 2015

UpdateAfter publishing this post, we received new information identifying far more mass shootings in the United States than we originally counted. In addition to the UCC shooting, there were thirteen other mass shootings in the United States from January 2015 to July 2015. Including UCC, these acts claimed the lives of 76 victims and injured 32 more. Since 2009 there have been at least 133 mass shootings in the United States. In at least 73 of those cases, the shooter was not legally prohibited from purchasing a firearm, further demonstrating that in a majority of recent mass shootings, current firearm laws would not have prevented shooters from obtaining a gun.

Another mass shooting
. For those keeping tally, that's our third this year and the toll for 2015 now stands at 23 dead and 12 more injured.

The violence outrages us, but when pressed for solutions, you can feel a palpable sense of hopelessness from our leaders. After all, if the deaths of 20 children and 6 adults in Newtown couldn't drive federal firearm policy reform, what chance do 10 community college students have?

But maybe we are ready to hold ourselves accountable and acknowledge that we can, if we are willing, reduce this violence. Maybe 23 is enough.

For mass shooters like the one who attacked Umpqua Community College, permit to purchase (PTP) laws may be our best tool for cutting would-be shooters off from access to firearms. Background checks are important, but alone, they will not deter enough shooters: both Dylann Roof, who shot killed people in Charleston, and Elliot Rodger, who killed six people in Isla Vista, were able to successfully pass background checks.

These checks rely on records that background examiners may not have ready access to, or that may be incomplete. There may also be warning signs that, while worrying, do not rise to the criteria defined by the national standards: Elliot Rodgers's history of troubling behavior was well known, but did not provide grounds to prevent his purchases. Indeed, from 1982 to 2015, at least 77 percent of mass shooters (people who killed four or more people in a single incident) have been able to purchase their weapons legally.

That's why PTP laws are a necessary supplement to secondary market controls. PTP laws require that firearm buyers obtain a license before purchasing certain types of firearms. The requirements for licenses are different by state, but frequently require prospective buyers to undergo more extensive background checks or interviews with local police, who may have a better understanding of their community and be better able to identify warning signs in potential purchasers than a national computer system.

It is still not clear where the Umpqua shooter got his guns, but it is abundantly clear that he was able to evade the systems put in place to stop him. PTP laws might help ensure the next would-be shooter is not able to do so.

These measures would not end gun violence or mass shootings. In a country where there is just about one gun per every citizen, there will always be a few damaged people who manage to inflict a terrible toll on our country. But we are not helpless — we have the tools to intercept many of these killers before they strike. All we need is the will to enact them.

Samuel Bieler is a research associate in the Justice Policy Center at the Urban Institute. This piece originally appeared on the Urban Institute's blog.

Should Medicaid Recipients Have to Work?

Michael Ollove, Stateline - October 2, 2015

If Arizona gets its way, its able-bodied, low-income adults will face the toughest requirements in the country to receive health care coverage through Medicaid.

Most of those Medicaid recipients, and new applicants, would have to have a job, be looking for one or be in job training to qualify for the joint federal-state program for the poor. They would have to contribute their own money to health savings accounts, which they could tap into only if they met work requirements or engaged in certain types of healthy behavior, such as completing wellness physical exams or participating in smoking cessation classes. And most recipients would be limited to just five years of coverage as adults.

Despite its conservative bent, Arizona already has expanded Medicaid under the Affordable Care Act. In October, however, Republican Gov. Doug Ducey will ask the federal agency that oversees Medicaid to approve changes in the state's program that are designed to promote healthy behavior in a traditionally unhealthy population, while encouraging people to become less economically dependent on the state.

"The governor wants to help them move from a place of dependence on the state to independence and to be able to take care of their own health needs," said Christina Corieri, the governor's health care adviser. (The proposals would not apply to several categories of beneficiaries, including children, pregnant women, the disabled and the elderly.)

Some of Arizona's proposals have been made in other states, and the federal government has signed off on them. It has rejected work requirements, however, and has never allowed lifetime limits on eligibility.

The work requirement and lifetime limit originated in legislation passed by the Arizona Legislature earlier this year. The law requires the governor to submit the same proposals every year, apparently in the hope that a future Republican presidential administration would look at them more favorably.

Critics say denying health care to people who don't meet the new standards punishes them for being poor.

"I think in some of [the proposals], we see a punitive strain and an assumption that, left to themselves, people will make bad choices and that we the government will make better choices for them," said Joan Alker, executive director of the Center for Children and Families at Georgetown University.

The Center on Budget and Policy Priorities, a nonpartisan research organization in Washington, D.C., notes that 60 percent of Medicaid recipients live in a family with at least one full- or part-time worker.

Health Savings Accounts
Though Arizona passed its Medicaid expansion in 2013, more recently a number of states have used expansion as an opportunity to gain greater flexibility from the federal Centers for Medicare and Medicaid Services (CMS) in how they administer the program.

For example, CMS has allowed Arkansas, Indiana and Michigan to require or encourage beneficiaries to contribute to tax-advantaged HSAs. Beneficiaries can use the accounts toward copays — the portion of their medical bills not paid by Medicaid — or for health-related services not covered by Medicaid, such as dental, vision or chiropractic care. The idea is to force enrollees to build their own safety net to help cover their health care costs.

In Arizona, beneficiaries would have to contribute up to 2 percent of their annual household income to their HSAs.

But only beneficiaries who meet Arizona's work requirements or health behavior goals — such as completing well-patient visits or adhering to regimens for patients with chronic conditions — would be permitted to access their HSAs. And beneficiaries earning above the poverty level — $11,770 for an individual — who failed to make their HSA contributions could be suspended from Medicaid benefits for a period of six months; those earning less than the poverty level would be deemed to owe the state a debt.

Other states have received permission to impose similar penalties. For example, Indiana charges a premium to all Medicaid recipients and can cancel the enrollment of those making more than the poverty level for six months if they fail to make their premium payments. The poorest Indiana beneficiaries do not owe a debt to the state if they don't pay their premiums, but they lose eligibility for enhanced medical services, such as vision or dental care.

Arkansas imposes a debt on the poorest beneficiaries who do not make payments into their HSAs and it can deny Medicaid services to those making above the poverty level for failure to do so.

Arizona, which has 1.7 million Medicaid beneficiaries, also isn't the first state to try to encourage beneficiaries to adopt healthy behaviors. Several states — such as Indiana, Iowa, Michigan, Minnesota and New York — include what are called healthy behavior incentives in their Medicaid programs, to nudge people to lose weight or stop using tobacco.

In Iowa, for instance, participants are asked to have a wellness examination once a year. People who meet their health targets in Indiana, Iowa and Michigan will see their premiums or HSA payments reduced or eliminated altogether.

Minnesota gives cash or debit cards to beneficiaries with pre-diabetes who participate in a YMCA diabetes prevention program. In New York, beneficiaries can receive cash or lottery tickets for keeping doctor's appointments or filling prescriptions for nicotine replacement therapy or drugs to manage high blood pressure or diabetes.

If approved by CMS, Arizona's Medicaid plan would be the first to use deterrents, rather than incentives, to push healthy habits. Those who don't meet established goals could be shut out from access to their HSAs. (They'd also forgo the chance to reduce their mandatory HSA contributions in the future.)

Working for Coverage
Arizona is asking permission for two provisions that CMS has not granted to any other state: establishing employment requirements and imposing a lifetime limit on Medicaid coverage.

Indiana proposed a work requirement, but it was shot down by CMS in January. The agency said that while states may promote employment through state programs operated outside of Medicaid, they could not do so under the Medicaid program.

Instead of being able to impose work requirements, Indiana and New Hampshire have had to settle for referring Medicaid applicants to jobs and job training as a requirement for receiving coverage.

Several health advocacy organizations in Arizona object to policies to exclude otherwise eligible people from Medicaid, which they say are contrary to the program's intent.

"We see some of these proposals as inconsistent with the Medicaid law, which is to have a safety-net program to provide access to health care to a population that doesn't otherwise have that," said Tara McCollum Plese, a senior director with the Arizona Alliance for Community Health Centers. "To take these people out of Medicaid at a time they still need health care services is not prudent."

Some national groups, such as Families USA, agree.

"Medicaid is designed to be an affordable option for people and putting a time limit on it is poor public policy in keeping people covered and healthy," said Dee Mahan, Medicaid director for Families USA, which advocates for affordable health care. "Lots of people are working at low-wage jobs, and at low-wage jobs on a part-time basis, and their incomes are not necessarily going to increase to the point where they can get out of Medicaid."

Others question the effectiveness of some restrictions. The Urban Institute, a nonpartisan policy research organization, found that HSAs have high administrative costs. It also said that wellness programs have not been shown to be effective.

On the other side, Americans for Prosperity, the conservative advocacy organization co-founded by billionaires Charles and David Koch, strongly favors the Arizona proposals, particularly the work requirement.

"It reduces dependency on government and encourages able-bodied folks to work," said Boaz Witbeck, the organization's Arizona policy analyst.

After Arizona submits its proposals to CMS, there will be a monthslong review process, during which there will be room for negotiation between the state and the federal agency.

When then Gov. Jan Brewer, a Republican, won approval for Medicaid expansion in 2013, Arizona's plan did not include these provisions. The current governor is not threatening to pull back from expanded Medicaid coverage if the federal government rebuffs the state's proposals, according to Dan Scarpinato, his communications deputy.

"The focus right now is on getting approval on this waiver, and we are hopeful," Scarpinato said.

This piece originally appeared at Stateline, an initiative of the Pew Charitable Trusts, where Michael Ollove is a senior health policy reporter.

Robert VerBruggen - September 30, 2015

That's the claim of scholar John Pfaff, and it's rather intriguing considering all the attention lavished on mandatory minimums. (He says the rise in incarceration can instead be blamed on prosecutors' becoming much more likely to file felony charges after arrests.) The theory has been getting a lot of attention lately, including from David Brooks.

Here's the main contention from one of Pfaff's papers:

In practice, sentence lengths have generally remained relatively short, and evidence suggests that sentence lengths do not explain much of the increase in the U.S. prison population. For example, I have shown that in eleven predominantly northern states (chosen solely due to limitations in the data) median time spent in prison hovered around one year from the late 1980s through the early 2000s, with lows of six months in states like California and Illinois. 

Furthermore, in a recent paper I demonstrate that these findings are generalizable to the country as a whole. Moreover, data from these states clearly demonstrate that trends in admissions, not releases, drove their prison growth. Changes in sentence lengths had no noticeable effects on prison populations in these states, but prison populations in all eleven states would have flattened, and sometimes even fallen, by the mid- to late-1990s had admissions levels not grown. There is actually a fairly simple way to show that increased severity is unlikely to be the primary engine of population growth. Figure 3 plots annual admissions and releases from prison. If sentences were getting significantly longer, we should expect to see the dotted releases line grow more slowly relative to the solid admissions line — the gap between the two should widen. But except for a brief period in the early 1990s, that simply does not happen; as we enter the 2000s, the gap actually narrows.

Here's the chart (and here's the paper it comes from, which features some interesting simulations):

Pfaff is a law professor and I'm a journalist, and I'm more than willing to accept that aggressive prosecutors played a huge role. But I'm hesitant to dismiss the role of sentence length entirely.

First, his findings don't jibe with the (admittedly imperfect) official statistics collected by the Justice Department. The DOJ has numbers on the time served by people released from state prisons for the first time (as opposed to returning after being released to community supervision). These are broken down into a whopping 31 categories, from the broad (violent offenses) to the specific (nonnegligent manslaughter). Between 1993 and 2009, the mean time served for all offenses climbed from 21 to 29 months, an increase of almost 40 percent, which is comparable to the rise in incarceration during that period. Strikingly, there was an upward trend in each of these measures individually as well. Here's all the data dumped onto one messy, ugly graph with the 1993 numbers set to 1; the crime with the weird dip in the middle is "unspecified homicide":

(On a side note, I do I think we should focus on the mean time served, not the median. The mean counts every year served equally, and thus is skewed if a few people serve very long sentences. We want to factor in that skew if we're concerned about our total prisoner count, because someone serving a long sentence will contribute to the incarceration rate for a longer period of time.)

You can see time-served data that reaches farther back here from Vox, via the National Academies. The National Academies report cites an estimate splitting the blame for the rise of incarceration in state institutions about 50-50 between longer sentences and higher admissions, with admissions playing a bigger role during the '80s and sentences pulling more weight during the '90s. Pew also found a 36 percent increase in time served from 1990 to 2009. 

How to reconcile this with Pfaff's chart that fails to show a widening gap between admissions and releases? Here's my theory: Precisely because most sentences are short, changes to sentences won't show up as a gap for very long. Imagine 100 people commit a crime every year and are sentenced to two years each. 100 people will be admitted every year and 100 more — those who committed the crime two years ago — will be released. If you change the sentence to three years, no one will get out two years later, but the following year you'll be right back to 100 people being admitted and 100 people released (those who committed the crime three years before). And yet the number of people imprisoned for the crime will have permanently grown by 50 percent right along with the sentence. At any given time you'll be imprisoning three years' worth of offenders instead of two years'.

Simply put, the higher level of incarceration stays even when the admissions/releases gap closes back up. You don't need a widening gap, but just a sustained gap — which is what we see — to keep adding prisoners to the total, because the gap accumulates year after year.

Importantly, this gap can be created by rising admissions or lagging releases, so it's not a very useful way to distinguish between the two. One quick-and-dirty test, however, might be to look at each year's gap during the time the incarceration rate was growing the fastest, and see how much of it is explained by a rise in admissions since the previous year. On average during the period 1980-2000, rising admissions explained about 55 percent of the gap each year — if the gap was 100, indicating that the prison population grew by 100, admissions grew by just 55 — leaving a whole lot that might result from longer sentences. And some admissions growth is just U.S. population growth, and therefore doesn't contribute to a rising per-capita rate.

There's obviously no question that admissions rose, as seen in Pfaff's chart above. But he may overstate his case when he minimizes the additional role played by longer sentences.

Spreadsheets here and here.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Are Cities, States Prepared for More Refugees?

Sophie Quinton, Stateline - September 30, 2015

The U.S. plans to increase the number of refugees it takes from 70,000 to 100,000 over the next two years. New York, Los Angeles and 16 other cities have urged President Barack Obama to accept even more refugees from Syria.

But is the country — along with the aid groups that help in resettlement and local communities that receive refugees — ready for an increase in arrivals? And where will the new arrivals go?

The increase could strain America’s sprawling refugee admissions program, a partnership between the federal government, international organizations like the United Nations, nine national nonprofits and their hundreds of local affiliates.

Cities and states may need to spend more money on social services for refugees, particularly if Congress doesn’t approve additional federal funding for resettlement. The Obama administration actually requested some $600 million less for migration and refugee assistance this fiscal year than it did last year.

Still, it can be done, say the groups that help refugees adjust to their new lives in America. "In 1980 we airlifted more than 200,000 Vietnamese refugees, and they are now very, very much interwoven in the fabric of our communities," said Jen Smyers of Church World Service, one of the nine aid groups.

Who Decides Where Refugees Land?
The United States already accepts more refugees than any other country in the world. In fiscal 2015, 13,831 people came from Myanmar alone. Other top origin countries were Iraq, Somalia and the Democratic Republic of the Congo.

Less than 1,300 refugees came from Syria, of the more than 4 million Syrian refugees registered by the U.N. The Obama administration’s announced increase in refugee admissions will include at least 10,000 Syrians in fiscal 2016.

Parceling out tens of thousands of refugees to U.S. communities takes advance planning. Each week, representatives of the nine nonprofit groups meet in the Rosslyn, Virginia, offices of the Refugee Processing Center, a State Department contractor. Some groups attend via conference call.

Staffers sit around a table and review a thick packet of refugee case files. The files contain the addresses of any family members the refugee wants to join in the U.S., medical information and other personal data. The nine staffers then talk through the cases and match each refugee (or refugee family) with a city and a local nonprofit that can help them adjust to new lives in America.

The U.S. defines refugees as people who cannot return to their country of national origin because of persecution or a well-founded fear of persecution due to race, religion, nationality, social group or political opinion. Before refugees are cleared to enter the U.S., they must undergo a rigorous security check to make sure they’re not affiliated with a terrorist organization or a rebel group.

To decide how many refugees to send to, say, Allentown, Pennsylvania, each year, the State Department considers how many people local nonprofits say they can resettle there. Philadelphia-based Lutheran Children and Family Service (LCFS) settled between 100 and 200 refugees in Allentown, Lancaster and Philadelphia this year; Allentown’s allotment included 39 Syrians.

Every state except Wyoming has a partnership with the federal government and local nonprofits to provide aid to refugees (and Wyoming Gov. Matt Mead, a Republican, has supported starting such a resettlement program).

In fiscal 2015, 2,288 refugees were settled across Pennsylvania, according to the Refugee Processing Center. Compared to Pennsylvania’s population, that’s not a high number. States such as Washington, Minnesota and Michigan take more refugees per 100,000 residents, according to calculations made by The Washington Post.

Allentown is a good place for refugees for a number of reasons, said Janet Panning, program director at LCFS. "Compared to Philadelphia, Allentown has affordable housing. And there are all these good employers who pay more than the minimum wage," Panning said. It’s also a diverse town, where 40 percent of residents speak a language other than English at home, according to the U.S. Census Bureau.

Most importantly for Syrians: Allentown has a large and well-established Syrian-American population. There’s a Syrian grocery store in town, mosques and an Antiochian Orthodox Christian church. Panning can think of at least one Syrian refugee who was hired right away by a Syrian-American businessman.

LCFS tries to listen to what local leaders — political, medical and educational — say about its efforts. It also consults with Pennsylvania’s state refugee coordinator, a federal employee housed within the state’s Department of Human Services, who distributes federal grants for programs that promote employment, from job placement to day care. 

Although cities and states have the opportunity to weigh in on the resettlement process, they don’t have much control over how many refugees are settled where. "We really don’t have any say, to be honest with you," said Allentown Mayor Ed Pawlowski, a Democrat.

The mayor’s office in Dearborn, Michigan — where, according to the Refugee Processing Center, 112 refugees have been resettled this year, including 52 Syrians — told Stateline it couldn’t recall any formal discussions about refugee placement.

And once refugees arrive in the U.S., they’re free to move about the country like any other resident. Although Wyoming doesn’t have a process for resettling and supporting refugees, they are finding their way to the state anyway, Gov. Mead wrote in an editorial last year.

Straining the System?
The big national nonprofits that select and resettle refugees have called for the U.S. to help even more people: 200,000 refugees in fiscal 2016, including 100,000 from Syria.

If Germany says it can handle 800,000 asylum seekers from Syria this year, Smyers and others argue the U.S. can certainly accept more.

Local affiliates, such as the LCFS, say they can manage the increase the Obama administration has planned. For Allentown, the about 40 percent national increase might mean 30 additional refugees.

Lutheran Social Services of Michigan — a sister organization of LCFS — expects to resettle Syrians to the Dearborn area, which also has a large Arab-American population. There may not be enough housing available to settle more refugees in Dearborn proper, so refugees may be housed in surrounding cities like Sterling Heights and Warren, said Cheryl Kohs, the Michigan group’s marketing director.

What’s less clear is where the money to resettle more refugees will come from. As of early September, the U.S. Senate planned to cut funding for migration and refugee assistance by 14 percent, while the House would leave it flat, according to CQ Roll Call

The federal government spends a lot of money processing refugees overseas and then helping them to resettle. The State Department spent over $3 billion to assist and process refugees overseas in fiscal 2015 (including through grants to the U.N.) and to settle refugees in the U.S. (through grants to the nine nonprofits).

The $1,975 per refugee local nonprofits receive from the State Department covers 30 to 90 days of furnished housing, help buying food and clothing, and a case manager who can shepherd refugees through what can be bewildering first days in their new country, including tasks like applying for a Social Security card.

The U.S. Department of Health and Human Services also spent over $1.5 billion in fiscal 2015 on grants that fund employment, health and other social services for refugees and protected groups, like victims of human trafficking. Each state’s refugee coordinator receives the funds and may contract them out to community-based organizations. School districts that serve significant numbers of refugee children can also apply for additional funding through an HHS grant.

Where Does the Money Come From?
Federal aid doesn’t cover everything. "Refugees would never be able to resettle based on what’s available in the refugee resettlement pot of funding," said Charles Shipman, state refugee coordinator for Arizona.

Private donations bolster the services local nonprofits provide. And states and local communities help pick up the tab, too, because refugees — who arrive with little more than the clothes on their backs — are immediately eligible for mainstream benefit programs like food stamps, Medicaid and cash assistance for low-income families. States play a role in funding some of those programs.

When the refugee resettlement program began, in 1980, the federal government reimbursed states for providing cash assistance, Medicaid and supplemental Social Security benefits to refugees for their first three years in the country, said Ann Morse of the National Conference of State Legislatures.

Now, the federal government only repays states for one service: providing eight months of cash and medical assistance to childless refugee couples or single adults, who don’t qualify for family-based benefits.

When refugees first arrive, they virtually all depend on government assistance. But refugees become less dependent the longer they’re in the U.S., said Randy Capps, director of research for U.S. programs at the Migration Policy Institute.

Federal benefits to refugees dry up fast, and programs are geared toward helping newcomers find jobs. When MPI researchers looked at the overall U.S. refugee population in years 2009-11, they found that refugee men were more likely to work than men born in the U.S., while refugee women were just as likely to work as U.S.-born women.

But although many refugees attain self-sufficiency, they remain slightly more dependent on government assistance than U.S.-born residents even after 20 years, the MPI report found. That may be because refugees sometimes lack the education or English skills they need to compete in the labor market, and wind up working low-wage jobs.

New arrivals from Syria, however, are likely to arrive prepared to compete. "Syrian refugees come with a lot of advantages. They’re a very well-educated population, and they often speak multiple languages," Capps said.  

Allentown’s Pawlowski, for one, isn’t worried about more refugees.

His city is among those that have said it would welcome more Syrians. Refugees arrive eager to build new lives, Pawlowski said. Many have an entrepreneurial spirit and start small businesses. On balance, he thinks the families that have arrived over the years have added to the local economy. "I welcome these refugees," he said.

This piece originally appeared at Stateline, an initiative of the Pew Charitable Trusts, where Sophie Quinton is a staff writer.


Marco Rubio's Parental Leave Plan

Robert VerBruggen - September 28, 2015

In a speech at the Values Voter Summit on Friday, Marco Rubio offered a proposal for family leave. Under current law, most new parents (and those caring for the sick) are allowed to take twelve weeks off, but employers aren't required to pay for the time. To encourage paid leave, Rubio would offer businesses a 25 percent tax credit for any wages paid, provided the business offers all employees full pay during leave and allows them to take at least four weeks. The credit is capped at twelve weeks and $4,000. 

I've explained my thoughts on parental leave before: If the government wants to use taxpayer money to help new parents, it would be easiest and fairest to just collect the money through taxes, divide it up, and give it to the parents whether they take leave or not. This would enable parents to take time off without bribing them to, and each family could decide for itself what arrangement is best. Stay-at-home parents wouldn't be left out of the benefit, and neither would those who wanted to return to work as soon as possible — and in the latter case, those parents could be rewarded with higher pay for doing more work, rather than getting paid the same whether they went to work or not.

Even if we're going to fund parental leave, however, I don't understand why we'd do it the way Rubio proposes.

The normal way of doing this — the way endorsed by the Democratic candidates and actually enacted in a few states — is to collect money through a payroll tax and use it to replace some percentage of employees' income when they're off. This approach has much to recommend it. All workers pay in, all workers have access to leave when they need it (though not everyone will), and higher payouts for the rich simply reflect the fact that they pay more into the system. It functions much the way Social Security and disability insurance do.

Everyone will pay for Rubio's system, too — when the government collects less tax revenue, taxpayers need to make up the difference eventually — but not everyone will be able to benefit, even if they are employed, have a baby, and want to take leave. Currently, a strong majority of companies don't offer paid leave to both parents. And since the credit covers only 25 percent of the cost, many employers will still decide against giving everyone at least four weeks, as Jonathan Cohn has emphasized.

Essentially, we'll all be subsidizing parental leave for just a haphazard subset of workers, with bigger subsidies going to the richer ones, because the size of the credit depends on the worker's wage. Richer workers are also more likely to have paid leave to begin with.

Another problem is that the credit isn't refundable, meaning that businesses that don't owe taxes can't benefit from it, and thus will have no added incentive to offer paid leave. It's hard to say exactly how big the problem will be, considering that the bill the plan is based on delivers the subsidy through the "General Business Credit" — which can be "carried" to other tax years when it isn't fully used, meaning the subsidy is often delayed rather than lost when it can't be used right away. But it's worth noting that only about half of businesses subject to corporate income taxes had net income in 2012, and of those with income, more than 41 percent still had no tax liability.

This is a curious and somewhat convoluted way of implementing paid leave. It will be interesting to see how it plays with voters, especially relative to the Democrats' more comprehensive and straightforward approach.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Ife Floyd - September 28, 2015

Safety-net programs like the Earned Income Tax Credit and SNAP (formerly food stamps) lifted millions of Americans out of poverty last year, new Census data show, and the nation made historic gains in health coverage. However, severe poverty has worsened in the last couple of decades, reflecting the weakening of the safety net for individuals who can't work, are unable to find work, or can find only part-time, sporadic work.

An important new book by Kathryn Edin and Luke Shaefer — $2.00 a Day: Living on Almost Nothing in America — offers a sobering account of parents and children living in desperate poverty and shows how the welfare reform of the mid-1990s has left millions behind. The authors intimately portray families from places as diverse as Chicago and the Mississippi Delta, finding that the number of households with monthly cash incomes equivalent to less than $2 per person per day — a standard of poverty usually associated with poor countries — has more than doubled since 1996, to 1.5 million.

Part of the problem, Edin and Schaefer explain, is Temporary Assistance for Needy Families (TANF), the cornerstone of 1996's welfare-reform law. Created as part of a dramatic shift in income-assistance policies for low-income families with children, TANF replaced Aid to Families with Dependent Children (AFDC), which had chiefly served families with little or no earnings. TANF offers cash assistance to far fewer families than AFDC did and includes time limits and stricter work requirements. 

At the same time, policymakers expanded assistance for moderate-income working families. Most notably, they strengthened the Earned Income Tax Credit and medical and child-care programs and created (and later expanded) the Child Tax Credit.

The evidence suggests that while many parents moved from welfare to work in the strong economy of the late 1990s and child poverty declined, the percentage of children in deep poverty — defined as cash income below half of the poverty line, or less than $12,115 a year for a family of four — rose by more than one-third between 1995 and 2005. And TANF has weakened significantly as a safety net for the nation's neediest families. In 1995, AFDC lifted out of deep poverty some 62 percent of the children who would otherwise have been below half of the poverty line. By 2010, this figure for TANF was only 24 percent.

By 2014, TANF provided a temporary safety net in the form of cash benefits to only 23 families with children for every 100 families in poverty, down substantially from 68 assisted families in 1996.

In some states, TANF barely exists as a safety net for poor families. In twelve states, fewer than ten out of every 100 families living in poverty receive TANF cash assistance. 

Even as families struggled financially during and after the Great Recession, many states made policy and administrative changes that significantly cut their TANF caseloads. And even though the goal of welfare reform was to move families from welfare to work, states spent only 8 percent of their state and federal TANF funds on work activities in 2013, with 14 states spending less than 5 percent.

Policymakers should strengthen existing programs — or create new ones — to help the $2-a-day poor and other families with extremely low incomes. They can start by reforming TANF. Specifically, they should 1) create a new accountability measure that encourages states to serve more families in need; 2) reward states that place more TANF recipients in jobs, not those that simply reduce their caseloads; and 3) require states to spend a specified share of federal and state TANF resources on TANF's core purposes — cash assistance, employment assistance, and work supports.

Ife Floyd is a policy analyst at the Center on Budget and Policy Priorities.

Fund the Government for a Whole Year

Rachel Bovard - September 25, 2015

Once again, the specter of a government funding fight haunts the halls of Congress. Lawmakers must pass a Continuing Resolution (CR) by month's end to keep the wheels of government moving full-speed ahead.

Funding government is the most basic administrative task of Congress, one that is always fraught with political landmines and partisan headaches. This time around, the job is complicated by outrage over funding for Planned Parenthood (currently under fire for allegedly selling fetal body parts for profit), the need to raise the debt limit, and deep disagreement over whether Congress should exceed its self-imposed spending limits.

That's a lot of thorny issues to untangle in a very short period of time.

Folks concerned with fiscal responsibility know these end-of-year funding fights are dangerous indeed. Frequently they end up as pork-laden fun-fests — thousand-page bills filled with sweetheart line items for K Street lobbyists, corporations, and political allies. Often they turn on backroom deals where middle-class priorities are chucked out the window without so much as a consultation with rank-and-file members.

The government must be funded at all costs, we are told. Unfortunately, it's taxpayers who must bear all those costs.

This year's go-round appears to be no different. What makes it worse is that the plan now under discussion by congressional leadership — a very short-term CR — would land Congress in an even hotter, more dangerous funding crucible just three months down the line.

Forget April. December is the cruelest month for responsible funding decisions — a time when wills wane and the desire to get out of town for the holidays prevails over any impulse to put up a protest on behalf of the taxpayer. 'Tis the season of the very worst backroom deals.

Yet that's the path that Senate Republican leadership seems intent on pursuing. They've announced their intent to negotiate with Harry Reid to determine how the government will be funded — and a short-term CR would certainly give the Democrats more leverage when fiscal pressures ratchet up again in December. It all but guarantees that spending restraint and conservative fiscal priorities will be seriously compromised.

Here's the scenario: Extensive horse-trading with congressional liberals and the White House results in Republican leaders' agreeing to raise the debt limit and bust congressional spending caps in a short-term CR. Along the way, policies that benefit Main Street will be weakened or abandoned, and future Congresses will be encumbered with higher spending precedents — all in the name of having President Obama sign a bill.

Remember, the Republican leadership now so willing to accommodate liberal priorities in spending negotiations spent much of this last year telling conservatives that their priorities needed to wait.

Earlier this month, Majority Leader Mitch McConnell told a hometown radio station that defunding Planned Parenthood was an issue that "awaits a new president" — one who won't veto the legislation. Yet earlier, the Senate spent two and a half weeks passing legislation to authorize the Keystone Pipeline, knowing full well that President Obama would veto it.

For some reason, leadership feels principled legislation should be jettisoned if it would "complicate" CR negotiations. Yet must-pass bills are the perfect vehicle for principled — and popular — provisions that might otherwise be vetoed.

Rather than cave in while pleading urgency and expedience, congressional leadership should leverage that urgency and expedience to advance its own priorities. Forget about a 90-day, Obama-driven, short-term funding vehicle. Instead, Congress should pass a year-long CR that ends Planned Parenthood subsidies while funding the rest of the government at existing levels. 

A one-year CR would carry the federal government through almost to that "new president" Senator McConnell anticipates. He's told conservatives to hold out for the prospect of a conservative president in 2017. It's time the Republican leadership started heeding their own advice.

A ten-year veteran of House and Senate policy battles, Rachel Bovard is the Heritage Foundation's director of policy services.

New Data Reveals Stark Gaps in Graduation Rates Between Poor and Wealthy Students

Annie Waldman, ProPublica - September 25, 2015

A new report released Thursday provides a detailed look at the graduation rates of low-income college students. At many colleges, low-income students graduate at much lower rates than their high-income peers.

At the University of Missouri-Kansas City, only 35 percent of Pell Grant recipients graduate college, a rate that is more than 20 percentage points lower than that of their wealthier peers. And at St. Andrews, a liberal arts college in Laurinburg, North Carolina, only 13 percent of Pell Grant recipients graduate, more than 50 percentage points less than students who don't receive the grants.

The study found 51 percent of Pell students graduate nationwide, compared to 65 percent of non-Pell students. The average gap between wealthy and poor students at the same schools is much smaller: an average of 5.7 percentage points. That's because many Pell students attend schools with low graduation rates. (You can now look up whether poor students are graduating at the same rate as their classmates in our newly updated interactive database, Debt by Degrees.)

Ben Miller, the senior director for postsecondary education at the Center for American Progress, said that schools with large graduation gaps deserve greater scrutiny.

"Colleges have responsibility to ensure that the students they enroll are well served," said Miller. "If you're going to enroll someone, you should do the absolute best you can to graduate them, or else don't take their money."

The new report comes on the heels of recently released federal education data that has brought new focus on how low-income students fare at college, including how much federal debt they take on and how much they earn after graduation. The graduation rates of low-income students were not included in that data.

The group behind the new report, the Education Trust, collected the graduation rates of Pell Grant recipients 2014 typically students whose families make less than $30,000 a year 2014 for a selection of more than 1,000 colleges across the country.

A spokesman for University of Missouri-Kansas City said many of their students are low-income and that the school is working to do better. "We are not satisfied with that gap," said John Martellaro. "We are investing more resources in our student success programs in an effort to narrow that gap." (Read their full statement.)

St. Andrews did not immediately respond to requests for comment.

At more than a third of the colleges studied, schools were able to serve their Pell students almost as well as non-Pell students, with a gap of less than 3 percentage points.

Other schools have managed to graduate Pell students at an even higher rate than their non-Pell peers. According to the new data, nearly 90 percent of Pell recipients are able to graduate Smith College, compared with an 85 percent graduation rate of non-Pell students. And at Western Oregon University, Pell recipients have a graduation rate of 50 percent 2014 nearly 10 percentage points better than their peers.

Both schools worked hard to ensure high graduation rates, including improving admissions policies and bolstering financial aid, as well as increasing advising and support services for students at school, says the new report.

The Pell Grant program is the nation's largest need-based student grant program, giving out billions of dollars annually. Yet for years, the data on Pell recipient graduation rates was mostly hidden from the public eye.

Although colleges are required to give the government graduation-rate data that's broken down by gender and race, the data is not required to be reported by income or Pell Grant status. Since 2008, schools are required to disclose Pell graduation rate data if it's requested by prospective students.

"It's kind of astounding when you think about how much money is spent on the Pell Grant program," said Andrew Kelly, the director of the Center on Higher Education Reform at the American Enterprise Institute. "We don't have any idea about how much of that money goes to producing degrees. We don't know what happens to Pell recipients after they enroll."

In order to collect Pell graduation rates, the Education Trust filed requests for data through state higher education systems as well as with the schools themselves. Some of the data was purchased from U.S. News and World Report. However, only around 1,150 schools were included in the report, out of the more than 7,000 institutions in the country. The survey also did not include data from for-profit colleges, where many Pell-recipients attend school.

This piece originally appeared at ProPublica, where Annie Waldman is a senior reporting fellow. Sisi Wei contributed to this report. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

How Uncle Sam Uses Behavioral Science

Sherzod Abdukadirov - September 24, 2015

President Obama has issued an executive order urging federal agencies to use behavioral-science insights in designing government policies and regulations. The order argues that such insights have the potential to improve consumer welfare through better policy design.

When most people think of behaviorally informed policymaking, they think of the "nudge" — in which the government doesn't mandate a desired behavior, but instead gently encourages it, for example by making it the default. For example, some have suggested making retirement savings and organ donation opt-out rather than opt-in.

This may sound innocuous, but there are two major concerns. First, even with a nudge, regulators must assume the role of arbiters in deciding what constitutes consumers’ best interests. And second, the president's order is not restricted to nudges; regulators reserve the right to impose choices on consumers, even against consumers’ wills, if they deem consumers irrational and unable to make the right decisions.

One can easily see how this may lead to mischief and politically motivated reasoning. The evidence shows that behavioral science is often used to advance political agendas or ineffective policies, rather than consumer welfare.

Consider the Department of Energy, which has been at the forefront of using behavioral science in policymaking. The DOE routinely mandates higher energy-efficiency standards for a wide range of appliances and justifies the regulations using behavioral insights. Specifically, it claims that more efficient appliances are a good buy, making up for their higher prices through energy savings, and blames consumer myopia for the fact that cheaper, less efficient appliances are more popular.

Unfortunately, the evidence marshaled by the agency for consumer myopia is highly dubious. For example, the latest standard for residential dishwashers promises consumers a savings of $3 over 15 years — it takes twelve years just to cover the higher up-front price — while the standard for clothes dryers delivers $14 in savings over 16 years, with the higher price covered after five years.

That DOE would declare consumers irrational for not chasing trivial, long-term savings defies common sense. And when one considers the fact that another objective for energy-efficiency regulations is to reduce greenhouse-gas emissions, it becomes clear that the agency’s motivation may have less to do with improving consumer welfare and more to do with hitting its environmental goals. The use of behavioral insights in policy opens the door for agencies to impose more stringent regulations that aim to advance the administration’s agenda rather than consumer welfare.

Even when the estimated savings are substantial, the regulations may not benefit consumers. Studies show that DOE’s estimates are typically based on engineering models that overestimate energy savings. In addition, consumers may be rationally concerned about the large up-front costs of more efficient appliances, especially in the face of uncertain future savings. Consequently, what looks like an irrational choice to a regulator could in fact be the optimal choice for consumers.

Importantly, economists Ted Gayer and Kip Viscusi point out that restricting consumer choice is a cost, not a benefit to consumers. The DOE’s practice of counting such restrictions as benefits — and therefore fudging the cost-benefit analysis numbers — has no precedent in traditional economics.

Other policies borne out of behavioral insights do not fare better. Health advocates similarly blame consumer myopia for the consumers’ failure to choose healthier foods. Consequently, they advocate policies restricting or manipulating consumer choices, even if there is no evidence for the effectiveness of these policies. For example, the ban on large soda containers, proposed under New York’s ex-mayor Michael Bloomberg, so infuriated New Yorkers that it produced a backlash against the policy and was rejected by the courts. Another New York City regulation, which required restaurants to post calorie counts on their menus, failed to reduce caloric consumption. Despite that fact, the policy was adopted by the federal government and is now imposed on the rest of the nation. Ironically, proponents of these policies viewed their failure as evidence to justify even more intrusive regulations.

Interestingly, the executive order notes the need to streamline government processes by “removing administrative hurdles, shortening wait times, and simplifying forms.” This certainly sounds like a good idea. After all, who could argue against reducing government bureaucracy? Yet one need not appeal to the newly fashionable branch of social science to come to this conclusion — it’s simply common sense. In fact, successive administrations have advocated reducing bureaucratic procedures.

At the same time, bureaucracy only grew larger.

My colleagues Patrick McLaughlin and Oliver Sherouse have measured the number of regulatory restrictions imposed by each administration since President Carter. They found that the number of restrictions has increased by 83 percent since the Carter administration, including an 11 percent increase under President Obama. So while the sentiment expressed in the executive order is laudable, evidence shows that agencies are unlikely to take the directive to heart.

Behavioral insights can lead to better policies, but the government’s track record is not encouraging. Regulators are likely to use behavioral science to justify more stringent and intrusive regulations that serve political agenda and not consumers’ needs. Thus, any promise of better policies should be taken with a grain of salt.

Sherzod Abdukadirov is a research fellow in the Regulatory Studies Program at the Mercatus Center at George Mason University.

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