When the Senate passed its welfare bill, the vote was a lopsided 87-12. The bill imposes a five-year lifetime limit for anyone to receive benefits under the Aid to Families With Dependent Children (AFDC) program. Hardly anyone talks any longer about “ending poverty.” Some imagine curbing or containing it, but the whole subject is slipping from the national agenda and program responsibilities are being assigned to states. Writes Isabel Sawhill of the Urban Institute in Washington:
“The fundamental question here is whether we should abandon the broad national purpose of reducing poverty. Those who argue for a continuing federal role do not necessarily assume that the states are uncharitable. . . . They only assume that any one state, acting generously, risks the possibility that its neighbors will not follow suit and will be left with a disproportionate responsibility for the poor.”
In effect, Congress has dismissed such anxieties. Barring a dramatic reversal, the “entitlement” status of both AFDC and Medicaid will end: the federal government will no longer pay benefits to anyone who qualifies. Instead, Congress will convert these programs into “block grants” that give the states fixed amounts. Future spending, though sizable, will fall below levels now anticipated for today’s programs. Under the Republican plan, federal Medicaid spending in 2002 is projected to be $124 billion. That’s up nearly 40 percent from 1995 levels, but it’s $54 billion below what’s estimated for the present Medicaid program.
This marks the century’s third great upheaval in social-welfare policy. The first occurred in the early decades in response to industrialization; states enacted workmen’s compensation (insurance against industrial accidents) and widows’ benefits for mothers. The second was triggered by the Great Depression, which drew the federal government into creating massive job programs, unemployment insurance, social security and AFDC. This phase climaxed with LBJ’s war on poverty, the passage of Medicare and Medicaid in 1965 and Nixon’s expansion of food stamps.
In the third upheaval, there’s a new division of labor. States assume more responsibility for the nonelderly poor; the federal government keeps most responsibility for the elderly and the disabled. (On this, Medicaid poses a problem. Although about 70 percent of its beneficiaries are women and children, nearly 70 percent of its spending goes for the poor elderly and the disabled, much of it for nursing homes.) The shift results both from the failure of the present system to reduce long-term dependence and from its rising costs. Between 1988 and 1994, Medicaid spending grew 166 percent. True, the state and federal governments already share costs for AFDC and Medicaid. But perverse political incentives have spurred higher spending, notes Michigan Medicaid director Vernon Smith.
Consider why. Congress could expand Medicaid benefits without bearing the full costs; it had only to cover the federal fraction of spending (now about 57 percent). In the 1980s, Medicaid eligibility was repeatedly enlarged, and states complained about “unfunded mandates.” But states were hardly innocent. They, too, “gamed” Medicaid-using gimmicks to raise spending artificially and collect more money from Washington. Everyone tried to shift costs, not control them.
Block grants would shatter this system. States would set eligibility and coverage rules; but they couldn’t win more federal dollars by manipulating spending. They would simply get a fixed grant. Michigan’s Smith thinks spending can be slowed without cutting needed care. States, he says, will use more “managed care,” trim overhead costs and “emphasize personal responsibility so that the health system is used appropriately.”
Maybe. But skeptics abound. Last week Hillary Rodham Clinton accused Republicans of cutting health “coverage for millions of children.” Critics think Congress will slowly reduce spending on the poor and that states-driven by what political scientist Paul Peterson calls “the race to the bottom”-won’t compensate. The fear: high benefits will lure too many of the poor or high taxes will repel too many businesses. Already, state and local taxes are near record levels, says Steven Gold of the Center for the Study of the States. In 1994, they totaled 11.7 percent of personal income, slightly below the peak of 12.4 percent in 1978.
On the other hand, some critics don’t think the cuts in social spending will much affect the poor. In The Wall Street Journal, Michael Tanner and Stephen Moore of the Cato Institute write that existing welfare benefits– AFDC, Medicaid, food stamps and a few others- can easily reach $17,500 for a family of three: more than the unskilled can earn from work. The present proposals won’t sharply reduce these amounts, say Tanner and Moore, and long-term dependency won’t decline unless benefits are cut “substantially” to make work more attractive.
In truth, no one knows whether the new policies will victimize the poor, hardly affect them or do something else. Even estimating “cuts” is hard, because spending projections are iffy. For example, Medicaid estimates presume that the number of beneficiaries is about a third higher in 2002 than in 1994. That’s not certain.
What is certain is that the old politics of poverty are dead. We’ve started a long reappraisal. Romantic visions are gone; cost control is driving change. Perhaps Medicaid will ultimately be scrapped. Its mix of basic care for poor families and nursing-home care for the elderly is messy. Someday there may be a political exchange. States may assume all costs for the young and the federal government may assume all costs for the old. The new welfare system is a work in progress, and only time will tell whether it’s a work of progress.
