Assignment Help 1 & 2

5 Health and Welfare The Search for Rational Strategies

Rationality and Irrationality in the Welfare State

Why does poverty persist in a nation where total social welfare spending is many times the amount needed to eliminate poverty? The answer is that the poor are not the principal beneficiaries of social welfare spending. Most of it, including the largest programs—Social Security and Medicare—goes to the nonpoor. Only about one-sixth of federal social welfare spending is “means-tested” (see Figure 5–1), that is, distributed to recipients based on their low-income or poverty status. The middle class, not the poor, is the major beneficiary of the nation’s social welfare spending.

“Entitlements.”

Entitlements are government benefits for which Congress has set eligibility criteria—age, income, retirement, disability, unemployment, and so forth. Everyone who meets the criteria is “entitled” by law to the benefit.

Most of the nation’s major entitlement programs were launched either in the New Deal years of the 1930s under President Franklin D. Roosevelt (Social Security, Unemployment Compensation; Aid to Families with Dependent Children [AFDC], now called Temporary Assistance to Needy Families [TANF], and Aid to Aged, Blind, and Disabled, now called Supplemental Security Income or SSI); or the Great Society years of the 1960s under President Lyndon B. Johnson (food stamps, Medicare, Medicaid).

Today nearly one-third of the population of the United States is “entitled” to some form of government benefit. Social insurance entitlements may be claimed by persons regardless of their income or wealth. Entitlement to Social Security and Medicare is determined by age, not income or poverty. Entitlement to unemployment compensation benefits is determined by employment status. Federal employee and veterans’ retirement benefits are based on previous government or military service. These non–means-tested programs account for the largest number of recipients of government benefits. In contrast, public assistance programs (including cash welfare assistance, Medicaid, food stamps, and so forth) are means-tested: benefits are limited to low-income recipients (see Table 5–1). Because many programs overlap, with individuals receiving more than one type of entitlement benefit, it is not really possible to know exactly the total number of people receiving government assistance. But it is estimated that over half of all families in the nation include someone who receives a government check.

FIGURE 5–1 Federal Entitlement Spending for the Poor and Nonpoor

Entitlement spending exceeds 60 percent of the federal budget, but most entitlement spending goes to the nonpoor.

SOURCE: Budget of the United States Government, 2009.

Rational Strategies, Irrational Results.

It is not possible in this chapter to describe all the problems of the poor in America or all the difficulties in developing rational social welfare policies. But it is possible to describe the general design of alternative strategies to deal with welfare and health in America, to observe how these strategies have been implemented in public policy, and to outline some of the obstacles to a rational approach to social welfare problems.

TABLE 5–1 Major Federal Entitlement Program Nearly one-third of the nation’s population receives some kind of direct government entitlement.

SOURCE: Statistical Abstract of the United States, 2008.

Defining the Problem: Poverty in America

A rational approach to policymaking requires a clear definition of the problem. But political conflict over the nature and extent of poverty in America is a major obstacle to a rational approach to social welfare policy.

Proponents of programs for the poor frequently make high estimates of that population. They view the problem of poverty as persistent, even in an affluent society; they contend that many millions of people suffer from hunger, exposure, and remedial illness. Their definition of the problem virtually mandates immediate and massive public welfare programs. (Dye 88-91)

TABLE 5–2 Poverty in America In recent years, approximately 12 to 13 percent of the population has lived below the poverty line; poverty is most prevalent among female-headed households; blacks and Hispanics experience more poverty than whites. (Dye 91)

SOURCE: U.S. Bureau of the Census (2008), www.census.gov .

In contrast, others minimize the number of poor in America. They believe that the poor are considerably better off than the middle class of fifty years ago and even wealthy by the standards of most other societies in the world. They believe government welfare programs cause poverty, destroy family life, and rob the poor of incentives to work, save, and assume responsibility for their own well-being. They deny that anyone needs to suffer from hunger, exposure, or remedial illness if they use the services and facilities available to them.

How Many Poor?

How much poverty really exists in America? According to the U.S. Bureau of the Census, there were between 35 and 40 million poor people in the United States in recent years (see Table 5–2), or approximately 12 to 13 percent of the population.1 This official estimate of poverty includes all those Americans whose annual cash income falls below that which is required to maintain a decent standard of living. (The dollar amount of the “poverty line” is flexible to take into account the effect of inflation; the amount rises each year with the rate of inflation. In 2008 the poverty line for a family of four was approximately $21,834 per year.)

Liberal Criticism.

This official definition of poverty has many critics. Some liberal critics believe that poverty is underestimated because (1) the official definition includes cash income from welfare and Social Security, and without this government assistance, the number of poor would be much higher, perhaps 20 percent of the total population; (2) the official definition does not count the many “near poor”; there are 50 million Americans, or about 17 percent of the population, who live below 125 percent of the poverty level; (3) the official definition does not take into account regional differences in the cost of living, climate, or accepted styles of living; and (4) the official definition does not consider what people think they need to live adequately.

Conservative Criticism.

Some conservative critics also challenge the official definition of poverty: (1) it does not consider the value of family assets; people (usually older) who own their own mortgage-free homes, furniture, and automobiles may have current incomes below the poverty line yet not suffer hardship; (2) there are many families and individuals who are officially counted as poor but who do not think of themselves as such—students, for example, who deliberately postpone earning an income to secure an education; (3) many persons (poor and nonpoor) underreport their real income, which leads to overestimates of the number of poor; and (4) more importantly, the official definition of poverty excludes “in-kind” (noncash) benefits given to the poor by governments, for example, food stamps, free medical care, public housing, and school lunches. If these benefits were costed out (calculated as cash income), there may be only half as many poor people as shown in official statistics. This figure might be thought of as the “net poverty” rate, which refers to people who remain poor even after counting their in-kind government benefits. The net poverty rate is only about 8 percent, compared to over 12 percent for the official poverty rate.

Latent Poverty.

How many people would be poor if we did not have government Social Security and welfare programs? What percentage of the population can be thought of as “latent poor,” that is, persons who would be poor without the assistance they receive from federal programs? Latent poverty is well above the official poverty line. It has ranged from about 19 to 22 percent in recent years. So, in the absence of federal social welfare programs, about one-fifth of the nation’s population would be poor.

Who Are the Poor?

Poverty occurs in many kinds of families and all races and ethnic groups. However, some groups experience poverty in proportions greater than the national average.

Family Structure.

Poverty is most common among female-headed families. The incidence of poverty among these families has ranged between 25 and 30 percent in recent years, compared to only 5 to 7 percent for married couples (see Table 5–2). Nearly half of all female-headed families with children under 18 live in poverty. These women and their children make up more than two-thirds of all the persons living in poverty in the United States. These figures describe “the feminization of poverty” in America. Clearly, poverty is closely related to family structure. Today the disintegration of the traditional husband–wife family is the single most influential factor contributing to poverty.

Race.

Blacks experience poverty in much greater proportions than whites. Over the years the poverty rate among blacks in the United States has been over twice as high as that among whites. Poverty among Hispanics is also significantly greater than among whites.

The relationship between race and family structure is a controversial topic. About 50 percent of all black families in the United States in 2008 were headed by females, compared with about 18 percent of all white families.2

Age.

The aged in the United States experience less poverty than the nonaged. The aged are not poor, despite the popularity of the phrase “the poor and the aged.” The poverty rate for persons over sixty-five years of age is well below the national average. Moreover, the aged are much wealthier than the nonaged. They are more likely than younger people to own homes with paid-up mortgages. A large portion of their medical expenses are paid by Medicare. With fewer expenses, the aged, even with relatively smaller cash incomes, experience poverty in a different fashion than a young mother with children.

Temporary versus Persistent Poverty.

Most poverty is temporary, and most welfare dependency is relatively brief, lasting less than two years. Tracing poor families over time presents a different picture of the nature of poverty and welfare from the “snapshot” view taken in any one year. For example, we know that over recent decades 11 to 15 percent of the nation’s population had been officially classified as poor in any one year (see Figure 5–2). However, over a decade as many as 25 percent of the nation’s population may have fallen below the poverty line at one time or another.3 Only some poverty is persistent: about 6 percent of the population remains in poverty for more than five years. This means that most of the people who experience poverty in their lives do so for only a short period of time.

FIGURE 5–2 Persons below Poverty Line (Percentage)

Poverty in America declined significantly prior to the 1960s. The enactment of many Great Society programs may have encouraged the continuation of poverty by promoting social dependency. Poverty has varied between 12 and 15 percent of the population since 1970.

SOURCE: U.S. Census Bureau, Poverty in the United States: 2003 (Washington, DC: Government Printing Office, 2004), pp. 40–45; and www.census.gov .

However, the persistently poor place a disproportionate burden on welfare resources. Less than half of the people on welfare rolls at any one time are persistently poor, that is, likely to remain poor for five or more years. Thus, for most welfare recipients, welfare payments are a relatively short-term aid that helps them over life’s difficult times. But for some, welfare is a more permanent part of their lives. (Dye 91-94)

Why Are the Poor Poor?

Inasmuch as policymakers cannot even agree on the definition of poverty, it comes as no surprise that they cannot agree on its causes. Yet rationality in public policymaking requires some agreement on the causes of social problems.

Low Productivity.

Many economists explain poverty in terms of human capital theory. The poor are poor because their economic productivity is low. They do not have the human capital—the knowledge, skills, training, work habits, abilities—to sell to employers in a free market. Absence from the labor force is the largest single source of poverty. Over two-thirds of the poor are children, mothers of small children, or aged or disabled people, all of whom cannot reasonably be expected to find employment. No improvement in the general economy is likely to affect these people directly. Since the private economy has no role for them, they are largely the responsibility of government. The poorly educated and unskilled are also at a disadvantage in a free labor market. The demand for their labor is low, employment is often temporary, and wage rates are low.

Economic Stagnation.

Economists also recognize that some poverty results from inadequate aggregate demand. Serious recessions with increases in unemployment raise the proportion of the population living below the poverty line. According to this view, the most effective antipoverty policy is to assure continued economic growth and employment opportunity. Historically, the greatest reductions in poverty have occurred during prosperous times.

Discrimination.

Discrimination plays a role in poverty that is largely unaccounted for by economic theory. We have already observed that blacks are more likely to experience poverty than whites. It is true that some of the income differences between blacks and whites are a product of educational differences. However, blacks earn less than whites even at the same educational level. If the free market operated without interference by discrimination, we would expect little or no difference in income between blacks and whites with the same education.

Culture of Poverty.

Yet another explanation focuses on a “culture of poverty.” According to this notion, poverty is a “way of life,” which is learned by the poor. The culture of poverty involves not just a low income but also indifference, alienation, apathy, and irresponsibility. This culture fosters a lack of self-discipline to work hard, to plan and save for the future, and to get ahead. It also encourages family instability, immediate gratification, and “present-orientedness” instead of “future-orientedness.” All of these attitudes prevent the poor from taking advantage of the opportunities available to them. Even cash payments do not change the way of life of these hard-core poor very much. According to this theory, additional money will be spent quickly for nonessential or frivolous items.

Opponents of this idea argue that it diverts attention from the conditions of poverty that foster family instability, present-orientedness, and other ways of life of the poor. The question is really whether a lack of money creates a culture of poverty, or vice versa. Reformers are likely to focus on the condition of poverty as the fundamental cause of the social pathologies that afflict the poor.

Disintegrating Family Structure.

Poverty is closely associated with family structure. As we have seen, poverty is greatest among female-headed households and least among husband–wife households. It may be fashionable in some circles to view husband–wife families as traditional or even antiquated and to redefine family as any household with more than one person. But no worse advice could be given to the poor.

Of all age groups, children are most likely to be poor; about 20 percent of America’s children live in poverty. Disintegrating family structure explains most of this: only about 10 percent of children living with married parents currently live in poverty, whereas over 40 percent of those living with single mothers do so.4 Major increases up through 1995 in births to unmarried women occurred among both blacks and whites, but rates among blacks were especially high (see Figure 5–3). This upward trend may now have leveled off.

FIGURE 5–3 Births to Single Women

Poverty is greatest among female-headed households; births to single women leveled off in recent years, perhaps as a result of welfare reform.

SOURCE: National Center for Health Statistics, 2008.

The Preventive Strategy: Social Security

The administration of President Franklin D. Roosevelt brought conscious attempts by the federal government to develop rational programs to achieve societal goals. In the most important piece of legislation of the New Deal, the Social Security Act of 1935, the federal government undertook to establish the basic framework for welfare policies at the federal, state, and local levels and, more important, to set forth a strategy for dealing with poverty. The Great Depression of that era convinced the nation’s leadership that poverty could result from forces over which the individual had no control—loss of job, old age, death of the family breadwinner, or physical disability. One solution was to require individuals to purchase insurance against their own indigency resulting from any of these misfortunes.

Social Insurance.

The social insurance concept devised by the New Deal planners was designed to prevent poverty resulting from uncontrollable forces. Social insurance was based on the same notion as private insurance—sharing risks and setting aside money for a rainy day. Social insurance was not to be charity or public assistance; it was to be preventive. It relied on the individual’s compulsory contribution to his or her own protection. In contrast, public assistance is only alleviative and relies on general tax revenues from all taxpayers. Indeed, when the Roosevelt administration presented the social insurance plan to Congress in the Social Security Act of 1935, it contended that it would eventually abolish the need for any public assistance program because individuals would be compelled to protect themselves against poverty.

OASDI.

The key feature of the Social Security Act of 1935 is the Old Age Survivor’s and Disability Insurance (OASDI) program, generally known as Social Security.* This is a compulsory social insurance program financed by regular deductions from earnings, which gives individuals a legal right to benefits in the event of certain occurrences that cause a reduction of their income: old age, death of the head of household, or permanent disability. OASDI now covers about nine out of every ten workers in the United States, including the self-employed. The only large group outside its coverage are federal employees, who have their own retirement system. Both employees (through payroll deductions) and employers pay equal amounts into the Federal Insurance Contributions Act (FICA) toward the employees’ insurance. The total FICA tax on wages, including Medicare, is 15.3 percent of earnings up to a specified amount ($102,000 in 2008) that increases each year.

Retirement Benefits.

Upon retirement, an insured worker is entitled to monthly benefit payments based on age at retirement and the amount earned during his or her working years. Retirees may choose reduced benefits at age 63 or full benefits at age 65. In 1972 Congress ordered automatic cost-of-living adjustments (COLAs) indexed to inflation. The formula for calculating COLAs increases benefits faster than actual cost of living for the elderly.

*The original Social Security Act of 1935 did not include disability insurance; this was added by amendment in 1950. Health insurance for the aged—Medicare—was added by amendment in 1965; this is discussed later in the chapter. (Dye 94-97)

Survivor and Disability Benefits.

OASDI also provides benefit payments to survivors of an insured worker, including a spouse if there are dependent children. But if there are no dependent children, benefits will not begin until the spouse reaches retirement age. OASDI provides benefit payments to persons who suffer permanent and total disabilities that prevent them from working for more than one year.

Unemployment Compensation.

A second important feature of the Social Security Act of 1935 was that it induced states to enact unemployment compensation programs through the imposition of the payroll tax on all employers. A federal unemployment tax is levied on the payroll of employers of four or more workers, but employers paying into state insurance programs that meet federal standards may use these state payments to offset most of their federal unemployment tax. In other words, the federal government threatens to undertake an unemployment compensation program and tax if the states do not do so themselves. This federal program succeeded in inducing all fifty states to establish such programs. However, the federal standards are flexible and the states have considerable freedom in shaping their own programs. In all cases, unemployed workers must report in person and show that they are willing and able to work in order to receive unemployment compensation benefits. In practice, this means that unemployed workers must register with the U.S. Employment Service (usually located in the same building as the state unemployment compensation office) as a condition of receiving their unemployment checks. States cannot deny workers benefits for refusing to work as strikebreakers or for rates lower than prevailing rates. But basic decisions concerning the amount of benefits, eligibility, and the length of time that benefits can be drawn are largely left to the states.

Intended and Unintended Consequences of Social Security

The framers of the Social Security Act of 1935 created a “trust fund” with the expectation that a reserve would be built up from social insurance premiums from working people. The reserve would earn interest, and the interest and principal would be used in later years to pay benefits. Benefits for an individual would be in proportion to his or her contributions. General tax revenues would not be used at all. It was intended that the system would resemble the financing of private insurance, but it turned out not to work that way at all.

The “Trust Fund.”

The social insurance system is now financed on a pay-as-you-go, rather than a reserve system. Today, the income from all social insurance premiums (taxes) pays for current Social Security benefits. Today, this generation of workers is paying for the benefits of the last generation, and it is hoped that this generation’s benefits will be financed by the next generation of workers. Social Security “trust fund” revenues are now lumped together with general tax revenues in the federal budget. Indeed, Social Security payments now comprise over 40 percent of total federal revenues.

Social Security taxes are shown in the federal budget as current revenues (see Chapter 8). Today, Social Security taxes continue to exceed the payments made to beneficiaries. This Social Security “surplus” helps to hide deficits in overall federal spending. The “trust fund” is merely an accounting gimmick; current Social Security taxes are being used to finance current government spending, and future retirement benefits will have to be paid from future government revenues.

The Generational Compact.

Taxing current workers to pay benefits to current retirees may be viewed as a compact between generations. Each generation of workers in effect agrees to pay benefits to an earlier generation of retirees, in the hope that the next generation will pay for their own retirement. But low birth rates (reducing the number of workers), longer life spans (increasing the number of retirees), and generous benefits are straining workers’ ability to pay. The generational compact is likely to break sometime in the future. Currently, Social Security trust fund income from workers’ taxes exceeds benefit payments to retirees and other eligible recipients. Federal deficits are reduced by these surplus Social Security tax receipts. But it is estimated that around 2016, payments to retirees and others will exceed income from Social Security taxes (see Figure 5–4). The Social Security trust fund (actually general revenues of federal government) will be obliged to make up the difference. By 2040, the trust fund will be exhausted.

FIGURE 5–4 The Future of Social Security

The Social Security fund may be exhausted as the “baby-boom” generation ages; Social Security reform has been put off again and again by Congress.

SOURCE: Social Security Administration Trustee Report, 2005.

The Dependency Ratio.

Since current workers must pay for the benefits of current retirees and other beneficiaries, the dependency ratio becomes an important component of evaluating the future of Social Security. The dependency ratio for Social Security is the number of recipients as a percentage of the number of contributing workers. Americans are living longer, thereby increasing the dependency ratio. A child born in 1935, when the Social Security system was created, could expect to live only to age 61, four years less than the retirement age of 65. The life expectancy of a child born in 2005 is 78 years, 13 years beyond the retirement age.5 In the early years of Social Security, there were ten workers supporting each retiree—a dependency ratio of 10 to 1. But today, as the U.S. population grows older—because of lower birth rates and longer life spans—there are only three workers for each retiree, and by 2030 the dependency ratio will rise to two workers for each retiree.

Tax Burdens.

Congress has gradually increased the Social Security payroll tax from 3 percent combined employee and employer contributions to 15.3 percent combined contribution today. The maximum contribution has grown from $30 to over $15,600 (in 2008) since the beginning of the program. The Social Security tax is now the second-largest source of federal revenue. Today most workers pay more in Social Security taxes than in federal income taxes.

Generous COLAs.

Currently Social Security annual COLAs (cost-of-living adjustments) are based on the consumer price index (CPI), which estimates the cost of all consumer items each year. There are serious problems with the use of the CPI to provide annual values in Social Security benefits. First of all, cost estimates in the CPI include home buying, mortgage interest, child rearing, and other costs that many retirees do not confront. Most workers do not have the same protection against inflation as retirees, that is, average wage rates do not always match the increases in cost of living. Over the years, the COLAs have improved the economic well-being of Social Security recipients relative to American workers. Second, the CPI has been shown to overestimate rises in the real cost of living. (It does so by ignoring quality improvements in goods as well as shifts of consumers to cheaper products and discount stores when prices rise.) Overestimates in the CPI result in more generous COLAs each year.

Wealthy Retirees.

Social Security benefits are paid to all eligible retirees, regardless of whatever other income they may receive. There is no means test for benefits. The result is that large numbers of affluent Americans receive government checks each month. Of course, they paid into Social Security during their working years and they can claim these checks as a legal “entitlement” under the insurance principle. But currently their benefits far exceed their previous payments.

Since the aged experience less poverty than today’s workers (see Table 5–2) and possess considerably more wealth, Social Security benefits constitute a “negative” redistribution of income, that is, a transfer of income from poorer to richer people. The elderly are generally better off than the people supporting them.

Social Security Reform?

Without significant reform, Social Security will become increasingly burdensome to working taxpayers in the next century. The “baby boom” from 1945 to 1960 produced a large generation of people who crowded schools and colleges in the 1960s and 1970s and who will be retiring beginning in 2010. Changes in lifestyle—less smoking, more exercise, better weight control—as well as medical advances, may increase the aged population even more.

“Saving” Social Security.

“Saving” Social Security is a popular political slogan in Washington. But agreement on exactly how to reform the system continues to evade lawmakers. (Dye 97-100)

Social Security is such a politically volatile topic that presidents have resorted to independent and nonpartisan commissions to recommend reform, rather than undertake to initiate reforms themselves. In 1983 a National Commission on Social Security Reform, appointed by President Ronald Reagan and made up of equal numbers of Democrats and Republicans, recommended increases in Social Security taxes to build a reserve for the large number of baby-boom generation retirees expected after the year 2010. The commission also recommended, and Congress enacted, a gradual increase in the full retirement age from 65 to 67, beginning in 2000. The Social Security tax was also increased to its current combined employer and employee 15.3 percent. However, no real “reserve” was ever created, other than as an accounting gimmick.

Reform Options.

There is no lack of reform proposals for Social Security.6 The problem is that no particular proposal enjoys widespread popular support. In theory, Congress could limit benefits in several ways, for example, by raising the eligibility age for full retirement to 68 or 70, by limiting COLAs to the true increases in the cost of living for retirees, or by reducing benefits for high-income retirees. Or, Congress could increase Social Security revenues by raising the payroll tax rate, or by eliminating the cap on earnings that are taxed. But politically, such reforms are very controversial.

Various proposals to “privatize” all or part of Social Security represent yet another approach to reform. One idea was to allow the Social Security trust fund to invest in the private stock market with the expectation that stock values will increase over time. But if stock market investment decisions were made by the government itself, presumably the Social Security Administration, controversies would be bound to arise over these decisions. Critics object to the idea of government making private investment decisions for Americans. A related idea is that American workers be allowed to deposit part of their Social Security payroll tax into individual retirement accounts to buy securities of their own choosing. Of course, such a plan would expose workers to the risk of bad investment decisions. None of these reforms appear to be very popular with the American people.

The “Third Rail” of American Politics.

Social Security is the most expensive program in the federal budget but also the most politically sacrosanct. Politicians regularly call it the “third rail” of American politics—touch it and die.

Senior citizens are the most politically powerful age group in the population. They constitute 28 percent of the voting-age population, but more important, because of their high turnout rates, they constitute nearly one-third of the voters on election day. Moreover, seniors are well represented in Washington; the American Association of Retired Persons (AARP) is the nation’s single largest organized interest group, with heavy 80 million members. Most seniors, and their lobbyists in Washington, adamantly oppose any Social Security reforms that might reduce benefits.

The Alleviative Strategy: Public Assistance

The Social Security and unemployment compensation programs were based on the insurance strategy to prevent poverty, but in the Social Security Act of 1935 the federal government also undertook to help the states provide public assistance to certain needy people.

This strategy was designed to alleviate the conditions of poverty. The original idea was to provide a minimum level of subsistence to certain categories of needy adults—the aged, blind, and disabled—and to provide for the care of dependent children.

Supplemental Security Income.

Supplemental Security Income (SSI) is a means-tested, federally administered income assistance program that provides monthly cash payments to needy elderly (65 or older), blind, and disabled people. A loose definition of “disability”—including alcoholism, drug abuse, and attention deficiency among children—has led to a rapid growth in the number of SSI beneficiaries.

Medicaid.

Medicaid is a joint federal–state program that provides health services to low-income Americans. Women and children receiving public assistance benefits qualify for Medicaid, as does anyone who gets cash assistance under SSI. States can also offer Medicaid to the “medically needy”—those who face crushing medical costs but whose income or assets are too high to qualify for SSI or Temporary Assistance for Needy Families, including pregnant women and young children not receiving other aid. Medicaid also pays for long-term nursing home care, but only after beneficiaries have used up virtually all of their savings and income.

Food Stamps.

The food stamp program provides low-income households with coupons that they can redeem for enough food to provide a minimal, nutritious diet. The program is overseen by the federal government, but is administered by the states.

Temporary Assistance for Needy Families.

Today the largest cash assistance program is a federal block grant to the states for needy families with dependent children. A result of welfare reform legislation passed by a Republican-controlled Congress in 1996 and signed by President Bill Clinton, this program replaces Aid to Families with Dependent Children (AFDC). Its major provisions include the following:

Work requirements. Adults receiving welfare benefits are required to begin working within two years of receiving aid. States may exempt from this work requirement a parent of a child 12 months of age or younger. States were required to have at least 50 percent of their welfare caseload engaged in work by 2002.

Restrictions on aid. Federal funds cannot be used for adults who have received welfare for more than five years, although state and local funds could be used. States can exempt up to 20 percent of their caseload from this time limit. States can also opt to impose a shorter time limit on benefits. None of the funds can be used for adults who do not work after receiving welfare for two years. In addition, states have the option to deny welfare to unwed parents under age 18 unless they live with an adult and attend school.

Welfare Reform

Developing a rational strategy to assist the poor is hampered by the clash of values over individual responsibility and social compassion. As Harvard sociologist David Ellwood explains,

Welfare brings some of our most precious values—involving autonomy, responsibility, work, family, community and compassion—into conflict. We want to help those who are not making it but in so doing, we seem to cheapen the efforts of those who are struggling hard just to get by. We want to offer financial support to those with low incomes, but if we do we reduce the pressure on them and their incentive to work. We want to help people who are not able to help themselves but then we worry that people will not bother to help themselves. We recognize the insecurity of single-parent families but, in helping them, we appear to be promoting or supporting their formation.7

The social insurance programs that largely serve the middle class (Social Security, Medicare, unemployment compensation) are politically popular and enjoy the support of large numbers of politically active beneficiaries. But public assistance programs that largely serve the poor (cash aid, SSI, food stamps, Medicaid) are far less popular and are surrounded by many controversies.

Public Policy as a Cause of Poverty?

Can the government itself encourage poverty by fashioning social welfare programs and policies that destroy incentives to work, encourage families to break up, and condemn the poor to social dependency?

Poverty in America steadily declined from 1950, when about 30 percent of the population was officially poor, to 1970, when about 12 percent of the population was poor. During this period of progress toward the elimination of poverty, government welfare programs were minimal. But the downward trend in poverty ended in the 1970s and early 1980s (see Figure 5–2). This was a period in which AFDC payments were significantly increased and eligibility rules were relaxed. The food stamp program was initiated in 1965 and became a major new welfare benefit. Medicaid was initiated in the same year and by the late 1970s became the costliest of all welfare programs. Federal aid to the aged, blind, and disabled were merged into a new SSI program (Supplement Security Income), which quadrupled in numbers of recipients. The greatest increases in poverty occurred in families headed by working-age persons. Policymakers became obliged to consider the possibility that policy changes—new welfare programs, expanded benefits, and relaxed eligibility requirements—contributed to increased poverty.8

Welfare Reform Politics.

A consensus grew over the years that long-term social dependency had to be addressed in welfare policy. The fact that most nonpoor mothers work convinced many liberals that welfare mothers had no special claim to stay at home with their children. And many conservatives acknowledged that some transitional assistance—education, job training, continued health care, and day care for children—might be necessary to move welfare mothers into the work force.

Although President Bill Clinton had promised “to end welfare as we know it,” it was the Republican-controlled Congress elected in 1994 that proceeded to do so. The Republican-sponsored welfare reform bill ended the 60-year-old federal “entitlement” for low-income families with children—the venerable AFDC program. In its place the Republicans devised a “devolution” of responsibility to the states through federal block grants—Temporary Assistance to Needy Families—lump sum allocations to the states for cash welfare payments with benefits and eligibility requirements decided by the states. Conservatives in Congress imposed tough-minded “strings” to state aid, including a two-year limit on continuing cash benefits and a five-year lifetime limit; a “family cap” that would deny additional cash benefits to women already on welfare who bear more children; the denial of cash welfare to unwed parents under 18 years of age unless they live with an adult and attend school. President Clinton vetoed the first welfare reform bill passed by Congress in early 1996, but as the presidential election neared, he reversed himself and signed the welfare reform act establishing the Temporary Assistance to Needy Families program (described earlier). Food stamps, SSI, and Medicaid were continued as federal “entitlements.” (Dye 100-103)

FIGURE 5–5 Evaluating Welfare Reform

Since the passage of welfare reform in 1996, the percentage of the population receiving cash benefits has declined dramatically.

SOURCE: U.S. Department of Health and Human Services.

Evaluation: Is Welfare Reform Working?

If welfare reform is evaluated in terms of the numbers of people receiving cash welfare payments, then TANF has been a stunning success. Welfare recipients dropped by two-thirds in the years following welfare reform (see Figure 5–5). Yet during this same period recipients of food stamps, SSI, and Medicaid increased.

Continuing Welfare Needs.

While nearly everyone agrees that getting people off of welfare rolls and onto payrolls is the main goal of reform, there are major obstacles to the achievement of this goal. First of all, a substantial portion (perhaps 25 to 40 percent) of long-term welfare recipients have handicaps—physical disabilities, chronic illnesses, learning disabilities, alcohol or drug abuse problems—that prevent them from holding a full-time job. Many long-term recipients have no work experience (perhaps 40 percent) and two-thirds of them did not graduate from high school. Almost half have three or more children, making day-care arrangements a major obstacle. It is unlikely that any counseling, education, job training, or job placement programs advocated by liberals could ever succeed in getting these people into productive employment. Policymakers argue whether there are 4 million jobs available to unskilled mothers, but even if there are such jobs available, they would be low-paying, minimum-wage jobs that would not lift them out of poverty.

The Working Poor

Significant numbers of people who work part-time or even full-time still fall below the poverty line. These “working poor” constitute about 10 percent of the nation’s work force.

The Minimum Wage.

The Fair Labor Standards Act of 1937, an important part of President Franklin D. Roosevelt’s New Deal, set a standard 40-hour workweek and minimum hourly wage for American workers. Congress periodically raises the minimum wage. (For 2009 the federal minimum wage is set at $7.15 per hour.) Over time, however, larger numbers of workers have become independent “contractors” or “managers” or other classifications of employees that fall outside the protection of federal wage and hour laws.

The Earned Income Tax Credit.

Low-income workers in America currently benefit more from the Earned Income Tax Credit (EITC) than the minimum wage. The EITC was enacted in 1975 to provide an incentive to work. The credit does more than eliminate the burden of the federal income tax for low-income people; rather, it results in a “refund” check for those who claim and qualify for the credit. (In 2008 families with two or more children and incomes below $40,000 qualified for the credit and received a check from the government.) The maximum check in 2008 was $4,700. The EITC may be thought of as a “negative income tax.” It results in government payments to low-income workers.

The EITC is now the largest means-tested program other than Medicaid. Over 20 million families receive EITC checks. Nonetheless, it is estimated that about one-third of qualifying families fail to take advantage of their EITC benefits.

Homelessness and Public Policy

Homeless “street people” may be the most visible social welfare problem confronting the nation. The homeless suffer exposure, alcoholism, drug abuse, and chronic mental illness while wandering the streets of the nation’s larger cities. No one really knows the true number of homeless.9 The issue has become so politicized that an accurate assessment of the problem and a rational strategy for dealing with it have become virtually impossible.10 The term homeless is used to describe many different situations. There are the street people who sleep in subways, bus stations, parks, or the streets. Some of them are temporarily traveling in search of work; some have left home for a few days or are youthful runaways; others have roamed the streets for months or years. There are the sheltered homeless who obtain housing in shelters operated by local governments or private charities. As the number of shelters has grown in recent years, the number of sheltered homeless has also grown. But most of the sheltered homeless come from other housing, not the streets. These are people who have been recently evicted from rental units or have previously lived with family or friends. They often include families with children; the street homeless are virtually all single persons.

Who Are the Homeless?

Among all homeless, both street people and sheltered homeless, single men make up 41 percent, families with children 44 percent, single women 13 percent, and unaccompanied youth 5 percent.11 Among single people living on the streets, close to half are chronic alcohol and/or drug abusers, and an additional one-fourth to one-third are mentally ill. Families with children were found among the sheltered homeless, and many of the sheltered homeless are employed. The sheltered homeless remain for an average of six months. Single street people may remain homeless for years.

Public Policy as a Cause of Homelessness.

The current plight of many of the street homeless is a result of various “reforms” in public policy, notably the “deinstitutionalization” of care for the mentally ill, the “decriminalization” of vagrancy and public intoxication, newly recognized rights to refuse treatment, and the renewal of central cities and the elimination of low-rent apartments and cheap hotels.

Deinstitutionalization.

Deinstitutionalization was a reform advanced by mental health care professionals and social welfare activists in the 1960s and 1970s to release chronic mental patients from state-run mental hospitals. It was widely recognized that aside from drugs, no psychiatric therapies have much success among the long-term mentally ill. Drug therapies can be administered on an outpatient basis; they usually do not require hospitalization. So it was argued that no one could be rightfully kept in a mental institution against his or her will; people who had committed no crimes and who posed no danger to others should be released. Federal and state monies for mental health were to be directed toward community mental health facilities that would treat the mentally ill on a voluntary outpatient basis. The nation’s mental hospitals were emptied of all but the most dangerous patients.

Decriminalization.

“Vagrancy” and public intoxication are no longer crimes. Involuntary confinement has been abolished for the mentally ill and for substance abusers, unless a person is adjudged in court to be “a danger to himself or others,” which means a person must commit a serious act of violence before the courts will intervene. For many homeless this means the freedom to “die with their rights on.” The homeless are victimized by cold, exposure, hunger, the availability of alcohol and illegal drugs, and violent street crimes perpetrated against them, in addition to the ravages of their illness itself.

The Failure of Community Care.

Community-based care is largely irrelevant to the plight of the chronic mentally ill and alcohol and drug abusers in the streets. Many are “uncooperative”; they are isolated from society; they have no family members or doctors or counselors to turn to for help. For them, community care is a Salvation Army meal and cot; a night in a city-run refuge for the homeless; or a ride to the city hospital psychiatric ward for a brief period of “observation,” after which they must be released again to the streets. The nation’s vast social welfare system provides little help. They lose their Social Security, welfare, and disability checks because they have no permanent address. They cannot handle forms, appointments, or interviews; the welfare bureaucracy is intimidating.

Health Care in America

There is no better illustration of the dilemmas of rational policymaking in America than in the field of health. Again, the first obstacle to rationalism is in defining the problem. Is our goal to have good health—that is, whether we live at all (infant mortality), how well we live (days lost to sickness), and how long we live (life spans and adult mortality)? Or is our goal to have good medical care—frequent visits to the doctor, well-equipped and accessible hospitals, and equal access to medical care by rich and poor alike? (Dye 103-106)

Perhaps the first lesson in health policy is understanding that good medical care does not necessarily mean good health. Good health correlates best with factors over which doctors and hospitals have no control: heredity, lifestyle (smoking, obesity, drinking, exercise, worry), and the physical environment (sewage disposal, water quality, conditions of work, and so forth). Most of the bad things that happen to people’s health are beyond the reach of doctors and hospitals. In the long run, infant mortality, sickness and disease, and life span are affected very little by the quality of medical care. If you want a long, healthy life, choose parents who have lived a long, healthy life, and then do all the things your mother always told you to do: don’t smoke, don’t drink, get lots of exercise and rest, don’t overeat, relax, and don’t worry.

Leading Causes of Death.

Historically, most of the reductions in infant and adult death rates have resulted from public health and sanitation, including immunization against smallpox, clean public water supply, sanitary sewage disposal, improved diets, and increased standards of living. Many of the leading causes of death today (see Table 5–3), including heart disease, stroke, cirrhosis of the liver, accidents, and suicides, are closely linked to personal habits and lifestyles and are beyond the reach of medicine.

Access to Medical Care.

Americans now generally view access to medical care as a right. No one should be denied medical care or suffer pain or remedial illness for lack of financial resources. There is widespread agreement on this ethical principle. The tough questions arise when we seek rational strategies to implement it.

TABLE 5–3 Leading Causes of Deatha Many of the leading causes of death today are closely linked to personal habits and life styles; the overall death rate has declined significantly since 1960. (Dye 106)

aDeaths per 100,000 population per year.

SOURCE: Statistical Abstract of the United States, 2008, p. 83. Center for Disease Control, www.cdc.gov/nchs .

Medicare: Health Care as Government Insurance.

Medicare, was enacted in 1965 as an amendment to the nation’s basic Social Security Act. Medicare provides prepaid hospital insurance and low-cost voluntary medical insurance for the aged, directly under federal administration. Medicare includes HI—a compulsory basic health insurance plan covering hospital costs for the aged, which is financed out of payroll taxes collected under the Social Security system—and SMI—a voluntary, supplemental medical insurance program that will pay 80 percent of “allowable” charges for physicians’ services and other medical expenses, financed in part by contributions from the aged and in part by general tax revenues.

Only aged persons are covered by Medicare provisions. Eligibility is not dependent on income; all aged persons eligible for Social Security are also eligible for Medicare. No physical examination is required and preexisting conditions are covered. The costs of SMI are so low to the beneficiaries that participation by the elderly is almost universal.

Medicare requires patients to pay small initial charges or “deductibles.” The purpose is to discourage unnecessary hospital or physician care. HI generally pays the full charges for the first 60 days of hospitalization each year after a deductible charge equivalent to one day’s stay; but many doctors charge higher rates than allowable under SMI. Indeed, it is estimated that only about half of the doctors in the nation accept SMI allowable payments as payment in full. Many doctors bill Medicare patients for charges above the allowable SMI payments. Medicare does not pay for eyeglasses, dental expenses, hearing aids, or routine physical examinations.

Medicaid: Health Care as Welfare.

Medicaid is the federal government’s largest single welfare program for the poor. Its costs now exceed the costs of all other public assistance programs—including family assistance, SSI, and the food stamp program. Medicaid was begun in 1965 and grew quickly.

Medicaid is a combined federal and state program. The states exercise fairly broad administrative powers and carry almost half of the financial burden. Medicaid is a welfare program designed for needy persons: no prior contributions are required, monies come from general tax revenues, and most recipients are already on welfare rolls. Although states differ in their eligibility requirements, they must cover all people receiving federally funded public assistance payments. Most states also extend coverage to other “medically needy”—individuals who do not qualify for public assistance but whose incomes are low enough to qualify as needy.

States also help set benefits. All states are required by the federal government to provide inpatient and outpatient hospital care, physicians’ services, family planning, laboratory services and X-rays, and nursing and home health care. They must also develop an early and periodic screening, diagnosis, and treatment program for all children under Medicaid. However, states themselves generally decide on the rate of reimbursement to hospitals and physicians. Low rates can discourage hospitals and physicians from providing good care. To make up for low payments, they may schedule too many patients in too short a time, prescribe unnecessary tests and procedures designed to make treatment more expensive, or shift costs incurred in treating Medicaid patients to more affluent patients with private insurance.

SCHIP: Health Care for Children.

Under the State Children’s Health Insurance Program (SCHIP) the federal government provides grants to states to extend health insurance to children who would not otherwise qualify for Medicaid. The program is generally targeted toward families with incomes below 200 percent of the poverty level. But each state may set its own eligibility limits and each state has flexibility in the administration of the program. States may expand their Medicaid programs to include children or develop separate child health programs.

The Uninsured.

Approximately 85 percent of the population of the United States is covered by either private or government health insurance. But about 15 percent of the population (about 45 million people) has no medical insurance. Most of the uninsured are working Americans and their families—people who are not poor enough to qualify for Medicaid nor old enough to qualify for Medicare. Young adults are the least insured age group.

FIGURE 5–6 Health Care Costs and Benefits: A Cross-National Comparison

The United States spends a larger proportion of its GDP on health care than any other nation, yet many other nations enjoy better overall health than Americans.

SOURCE: Statistical Abstract of the United States, 2008, pp. 831, 834.

Health Care Access and Costs

The United States spends more of its resources on health care than any other advanced industrialized nation, yet it ranks below other nations in many key measures of the health of its people (see Figure 5–6). Life expectancy in the United States is lower, and the infant death rate is higher, than in many of these nations. The United States offers the most advanced and sophisticated medical care in the world, attracting patients from countries that rank ahead of us in these common health measures. The United States is the locus of the most advanced medical research in the world, drawing researchers from all over the world. This apparent paradox—the highest quality medical care, combined with poor health statistics for the general public—suggests that our nation’s health care problems center more on access to care, education, and prevention of health problems than on the quality of care available.

FIGURE 5–7 Health Care Coverage and the Uninsured

SOURCE: Statistical Abstract of the United States. 2008, p. 107.

Access to Health Care.

While Medicare covers the aged and Medicaid covers the poor, many working Americans and their dependents have no health insurance. These people may postpone or go without needed medical care or be denied medical care by hospitals and physicians except in emergencies. Confronted with serious illness they may be obliged to impoverish themselves to become eligible for Medicaid. Their unpaid medical bills must be absorbed by hospitals or shifted to paying patients and their insurance companies. Many uninsured people work for small businesses or are self-employed or unemployed (see Figure 5–7).

Nursing-Home Care.

As the number and proportion of the elderly population grow in the United States (80 years and over is the fastest-growing age group in the nation), the need for long-term nursing-home care grows. Medicare does not pay for long-term care or catastrophic illness. It covers only the first 60 days of hospitalization and nursing-home care for 100 days only if the patient is sent there from a hospital. Medicaid assistance to the needy is paid to nursing-home patients, but middle-class people cannot qualify for Medicaid without first “spending down” their savings. Long-term nursing-home care threatens their assets and their children’s inheritance. Private insurance policies covering long-term care are said to be too expensive. So senior citizen groups have lobbied heavily for long-term nursing-home care to be paid for by taxpayers under Medicare.

Health Care Costs.

The United States spends over $2 trillion on health care each year—almost $8,000 per person. These costs represent approximately 16 percent of the GDP and they are growing rapidly. It is estimated that by 2017 almost 20 percent of the GDP—more than $4 trillion—will be spent on health care. The enactment of the Medicare and Medicaid programs in 1965 and their growth throughout the 1970s contributed to this inflation of health care costs. But there were many other causes as well. Advances in medical technology have produced elaborate and expensive equipment. Hospitals that have made heavy financial investment in this equipment must use it as often as possible. Physicians trained in highly specialized techniques and procedures wish to use them. The threat of malpractice suits forces doctors to practice “defensive medicine”—to order multiple tests and consultations to guard against even the most remote medical possibilities. Pharmaceutical companies have driven up spending for drugs by advertising expensive brand-name prescription drugs on television, encouraging patients to ask their doctors for these drugs. (Prior to 1997 direct advertising for prescription drugs was not permitted.) Cheaper generic versions of the same drugs receive no such publicity.

The Aging Population.

In the not-too-distant future, an aging population will drive up medical care costs to near astronomical figures. Currently, one-third of all health care expenditures benefit the aged. When the baby-boom generation reaches 65 and over (see Figure 5–8), neither the current Medicare or Medicaid programs will be able to provide them adequate medical care. The fastest-growing cost now in the Medicaid program is nursing-home care. Medicare does not pay nursing-home costs, but Medicaid does. But to qualify for Medicaid nursing-home assistance, the elderly must first exhaust all of their financial resources—improverishing themselves to be eligible for assistance.

FIGURE 5–8 The Aging of America

Increases in the nation’s aged population increase health care costs and threaten to exhaust Medicare funds.

SOURCE: U.S. Census Bureau Projections of the Population by Selected Age Groups. www.census.gov . (Dye 108-111)

Managed Care Programs.

Skyrocketing costs have caused both governments and private insurance companies to promote various types of “managed care” programs. Both Medicare and Medicaid have shifted many of their beneficiaries to managed care programs.

Health maintenance organizations (HMOs) are the most common type of managed care program. They try to control costs by requiring patients to use a network of approved doctors and hospitals, and by reviewing what these “preferred” caregivers do. For example, a managed care organization might insist that doctors prescribe cheaper generic drugs in place of brand-name products. In many cases, patients must get the organization’s approval before undergoing operations or other treatments. And patients have to pay more to visit a doctor who is not in the network. In contrast, under traditional “fee-for-service” health insurance plans, the patient chooses a doctor, gets treated, and the bill is sent to the insurance company. The patient may have to pay a deductible for a percentage of the total bill—a “co-pay.”

Controversies over Managed Care.

But efforts of both private insurers and government to control costs have created new political controversies. Many of the cost-control regulations and restrictions instituted by insurance companies and HMOs frustrate both patients and physicians. For example, both doctors and patients complain that preapproval of treatment by insurance companies removes medical decisions from the physician and patient and places them in hands of insurance company administrators. And patients complain that HMOs refuse to allow them to see specialists, limit the number and variety of tests, and even encourage doctors to minimize treatment.

Health Care Reform Strategies

Health care reform centers on two central problems: controlling costs and expanding access and benefits. These problems are related: expanding access to Americans who are currently uninsured and closing gaps in coverage require increases in costs, even while the other thrust of reform is to slow the growth of overall health care costs.

Single-Payer Plans.

Liberals have pressed for a Canadian-style health care system in which the government would provide health insurance for all Americans in a single national plan paid for by increases in taxes. In effect, a single-payer plan would expand Medicare, now available to only the aged, to everyone. The plan boasts of simplicity, savings in administrative costs over multiple insurers, and direct federal control over prices to be paid for hospital and physician services and drugs. Single-payer universal coverage would require major new taxes.

Obama Healthcare Transformation.

President Obama has proposed a major overhaul of the nation’s health care system, a project attempted unsuccessfully by past presidents including Franklin Delanor Roosevelt, Harry Truman and Bill Clinton. In the president’s words, “moving to provide all Americans with health insurance is not only a moral imperative, but it is also essential to a more effective and efficient health-care system.”12 Among the many health-care proposals on the Obama agenda: expanding SCHIP program for children, computerizing the nation’s health records, and expanding COBRA health insurance to unemployed workers. Obama promises that in this healthcare transformation the Medicare, Medicaid, and Veterans Administration healthcare programs will remain unchanged. The transformed system will continue to rely primarily on private health insurance companies. However private insurers will no longer be permitted to deny insurance for pre-existing conditions, or to drop coverage when patients get stick, and they will be required to provide for routine checkups and preventative care. These particular reforms face no serious opposition.

• National Health Insurance Exchange. The president also has proposed a National Health Insurance Exchange that will bring together individuals and small businesses as a group to better negotiate with insurance companies in a competitive marketplace. Individuals and small businesses will be able to bargain for affordable insurance in the fashion of large businesses and government employees.

• “The Public Option”. The central reform in the Obama health care agenda is the creation of a government-run “public option” as part of the national health insurance exchange. This public not-for-profit health insurance program would function side-by-side with private health insurance. Premiums are likely to be based on a sliding scale according to income. This public plan would not put private insurers out of business, but according to the president “keep them honest” by offering reasonable coverage at affordable prices.

• Critics view the public option as a “government takeover” of the nation’s health care system. As a not-for-profit government-run agency, the public plan would enjoy a competitive advantage over private insurers. Gradually private insurance companies would lose out to this public program, over time creating a single national health insurance system or “socialized medicine”. (Indeed, some critics believe this is the true intent of President Obama.)

• Cost. President Obama asserts that the costs of health care reform can be found in savings to be made in the existing health-care system—“a system that is currently full of waste and abuse”. The President claims that eliminating waste and inefficiency in Medicare and Medicaid will pay for most of his plan. But critics doubt that such savings exist. Indeed, the proposal to cut waste and abuse in Medicare has inspired critics to claim that health-care reform is going to come at the expense of the elderly. The Congressional Budget Office estimates the cost of Obama’s health care reform proposals at one trillion dollars.

The Interest Group Challenges.

Rational reform strategies confront the reality of interest group politics, and interest group battles over the details of health care reform have been intense. Virtually everyone has a financial stake in the nation’s health care system.

• Employers, especially small businesses, are fearful of added costs of government-mandated insurance.

• Physicians strongly oppose price controls and treatment guidelines, as well as programs that take away a patient’s choice of physician.

• Drug companies want to see prescription drugs paid for, but they vigorously oppose price controls on drugs.

• Hospitals want all patients to be insured but oppose government payment schedules.

• Insurance companies, oppose a government-run “public election” that would compete with private insurers.

• The powerful senior citizens lobby wants added benefits, including coverage for drugs, eyeglasses, dental care, and nursing homes, but it fears folding Medicare into a large health care system.

• Veterans groups want to retain separate Veterans Administration (VA) hospitals and medical services.

• Opponents of abortion rights are prepared to do battle to keep national coverage from including such procedures, whereas supporters of abortion rights argue that abortion must be included.

• Trial lawyers oppose any limits on patients’ rights to sue doctors, hospitals, HMOs, or anyone else, and they oppose any limits on monetary awards from these suits.

SUMMARY

A rational approach to social welfare policy requires a clear definition of objectives, the development of alternative strategies for achieving them, and a careful comparison and weighing of the costs and benefits of each. But there are seemingly insurmountable problems in developing a completely rational policy:

1. Contrasting definitions of poverty constitute one obstacle to rational policymaking. Official government sources define poverty in terms of minimum dollar amounts required for subsistence. In recent years about 12 to 15 percent of the population has fallen below the official poverty line. Latent poverty refers to people who would fall below the poverty line in the absence of government assistance; about 20 percent of the population falls within this definition of poverty. Net poverty refers to people who remain poor even after receiving government assistance; about 8 percent of the population falls within this definition.

2. Contrasting explanations of poverty also make it difficult to formulate a rational policy. Is poverty a product of a lack of knowledge, skills, and training? Or recession and unemployment? Or a culture of poverty? Certainly the disintegration of the traditional husband–wife family is closely associated with poverty. How can the government devise a rational policy to keep families together, or at least not encourage them to dissolve?

3. Government welfare policies themselves may be a significant cause of poverty. Poverty in America had steadily declined before the development of Great Society programs, the relaxation of eligibility requirements for welfare assistance, and the rapid increase of welfare expenditures in the 1970s. To what extent do government programs themselves encourage social dependency and harm the long-term prospects of the poor?

4. The social insurance concept was designed as a preventive strategy to insure people against indigence arising from old age, death of a family breadwinner, or physical disability. But the Social Security “trust fund” idea remains in name only. Today each generation of workers is expected to pay the benefits for each generation of retirees. Sometime after the year 2020 the dependency ratio will rise to a point where it will become increasingly difficult for workers to support the large number of Social Security recipients. (Dye 111-114)

5. The federal government also pursues an alleviative strategy in assisting the poor with a variety of direct cash and in-kind benefit programs. The SSI program provides direct federal cash payments to the aged, blind, and disabled. As a welfare program, SSI is paid from general tax revenues, and recipients must prove their need. The largest inind welfare programs are the federal food stamp and Medicaid programs.

6. Welfare reform in 1996, including a two-year limit on cash assistance and work and/or school requirements, appears to have reduced welfare rolls substantially. But some people are not capable of moving from welfare to work; further cuts in welfare rolls may create real hardship.

7. “Rational” strategies sometimes produce unintended consequences. Deinstitutionalization of the mentally ill and decriminalization of public intoxication produced many homeless people. It is often difficult to reach these people through conventional welfare programs.

8. The paramount objective in national health policy has never been clearly defined. Is it good health, as defined by lower death rates, less illness, and longer life? Or is it access to good medical care? If good health is the objective, preventive efforts to change people’s personal habits and lifestyles are more likely to improve health than anything else.

9. Medicare for the aged and Medicaid for the poor, together with private and employer-provided insurance, guarantee access to health care for about 85 percent of the population. But about 15 percent, including many workers and their families, have no health insurance; many other Americans worry about loss of insurance with unemployment or job changes.

10. Health care reform centers on two conflicting goals—expanding access to all Americans while containing costs. Comprehensive, rational reform is threatened by the multiple demands of interest groups. (Dye 114)