The Federal-State Public Welfare Programs: 1935-1995

By John E. Hansan, Ph.D.

May 30, 2012

Introduction

The history of public welfare in the United States has been one of continuing change and growth.  Prior to the 1900’s local governments shared with private charitable organizations major responsibility for public assistance or as it was often termed, “public relief.”  As the nation’s economy became more industrial and the population more concentrated in urban areas, the need for public relief often grew beyond the means, and sometimes the willingness, of local public and private authorities to provide needed assistance.  During the Progressive Era, some state governments began to assume more responsibility for helping the worthy poor.  By 1926, forty states had established some type of public relief program for mothers with dependent children. A few states also provided cash assistance to needy elderly residents through old-age pensions. The programs and the size of the benefits varied widely among the states.

State financed public assistance programs were often inadequate to meet the challenges of large-scale unemployment and urban poverty that often afflicted states and urban areas.  But it was the Great Depression of the 1930’s that led to the collapse of state financed public relief programs.  State systems of public relief were simply unprepared to cope with the volume of requests for help from individuals and families without jobs. On top of that, the economic depression reduced state and local revenues.  Conditions were so grave it became necessary for the federal government to step in and help with the costs of public relief.

The Federal Government Begins To Help States With the Burden of Public Relief

The national government’s first significant initiative to help bail out state governments was the enactment of the Emergency Relief and Construction Act of 1932.  On signing this legislation, President Herbert Hoover said:

“Its three major features are–

“First–through provision of $300 million of temporary loans by the Reconstruction Corporation to such States as are absolutely unable to finance the relief of distress, we have a solid backlog of assurance that there need be no hunger and cold in the United States. These loans are to be based upon absolute need and evidence of financial exhaustion. I do not expect any State to resort to it except as a last extremity.

“Second–through the provision for $1,500 million of loans by the Reconstruction Corporation for reproductive construction work of public character on terms which will be repaid, we should ultimately be able to find employment for hundreds of thousands of people without drain on the taxpayer.

“Third–through the broadening of the powers of the Corporation in the character of loans it can make to assist agriculture, we should materially improve the position of the farmer…”

Immediately after assuming office in 1933, President Franklin D. Roosevelt proposed and then signed the Federal Emergency Relief Act (FERA), which, in its first year enabled the national government to distribute more than $1 billion to the states to shore up their existing public relief programs.  The language of the enabling legislation included these sections:

Sec. 4. (a) Out of the funds of the Reconstruction Finance Corporation made available by this Act, the Administrator is authorized to make grants to the several States to aid in meeting the costs of furnishing relief and work relief and in relieving the hardship and suffering caused by unemployment in the form of money, service, materials, and/or commodities to provide the necessities of life to persons in need as a result of the present emergency, and/or to their dependents, whether resident, transient, or homeless.

(b) Of the amounts made available by this Act not to exceed $250,000,000 shall be granted to the several States applying therefore, in the following manner: Each State shall be entitled to receive grants equal to one third of the amount expended by such State, including the civil subdivisions thereof, out of public moneys from all sources for the purposes set forth in subsection (a) of this section; and such grants shall be made quarterly, beginning with the second quarter in the calendar year 1933, and shall be made during any quarter upon the basis of such expenditures certified by the States to have been made during the preceding quarter.

Sec. 5. Any State desiring to obtain funds under this Act shall through its Governor make application therefore from time to time to the Administrator. Each application so made shall present in the manner requested by the Administrator information showing (1) the amounts necessary to meet relief needs in the State during the period covered by such application and the amounts available from public or private sources within the State, its political subdivisions, and private agencies, to meet the relief needs of the State, (2) the provision made to assure adequate administrative supervision, (3) the provision made for suitable standards of relief, and (4) the purposes for which the funds requested will be used.

Sec. 7. As used in the foregoing provisions of this Act, the term ”State” shall include the District of Columbia, Alaska, Hawaii, the Virgin Islands, and Puerto Rico; and the term ”Governor” shall include the Commissioners of the District of Columbia.

The Social Security Act of 1935

FERA was only a temporary measure.  The Roosevelt administration understood more fundamental reforms were needed to prevent a recurrence of what had happened when the nation’s economy failed to provide the jobs and public relief necessary to meet the financial needs of unemployed workers and their families.  President Roosevelt sent a message to Congress on June 8, 1934 in which he outlined what he believed was necessary.

“Our task of reconstruction does not require the creation of new and strange values.  It is rather the finding of the way once more to known, but to some degree forgotten, ideals and values.  If the means and details are in some instances new, the objectives are as permanent as human nature.

“Among our objectives I place the security of the men, women, and children of the Nation first.

“This security for the individual and for the family concerns itself primarily with three factors.  People want decent homes to live in; they want to locate them where then can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this man-made world of ours…”

An Executive Order was issued June 29, 1934 that delegated to five Cabinet officers the responsibility to study methods of providing “security against the hazards and vicissitudes of life” with the primary purpose of developing a workable social insurance system.  Named the Committee on Economic Security it was headed by Secretary of Labor Frances Perkins. She selected as key staff Arthur J. Altmeyer, the Assistant Secretary of Labor, and Edwin E. Witte, a professor of economics at the University of Wisconsin.  A final 50-page committee report was filed on January 15, 1935 and sent to the Congress for hearings two days later, accompanied by draft legislative language. Following seven months of Congressional hearings and negotiations, on August 14, 1935 President Roosevelt signed the Social Security Act into law. The law was a landmark piece of legislation that created, among other things, the basic framework that guided the nation’s public welfare system for sixty years.

The Social Security Act consisted of 11 separate “titles” and it established three distinct types of programs designed to provide economic protections to different populations in different ways: 1) a system of state administered Unemployment Insurance programs designed to provide temporary financial assistance to able-bodied workers who lose their jobs through no fault of their own; 2) the Old Age and Survivors Insurance Program, a universal and contributory social insurance program for eligible wage-earners who retired or died, leaving a spouse or family; and, 3) a system of state-federal public assistance programs for aged, blind, and dependent children deemed unable to earn wages and therefore participate in the social insurance programs.

The Public Welfare Titles

Introduction: The Social Security Act of 1935 initially authorized federal financial participation in three state administered cash assistance programs: Title I: Grants to States for Old-Age Assistance (OAA); Title IV: Grants to States for Aid to Dependent Children (ADC); and Title X: Grants to States for Aid for the Blind (AB). The framers of the Act also recognized that certain groups of people had needs for particular services which cash assistance alone could not or should not provide.  To meet these needs small formula grants for the states were authorized in relation to: Maternal and Child Health, Crippled Children, Child Welfare, and medical assistance for the aged. A fourth program of public assistance — Aid to the Disabled (AD) — was added in 1950.

The basic shape of the state-federal public welfare system formed by the Social Security Act of 1935 remained largely intact until 1973 when Congress combined the cash assistance programs serving needy adults (Aid for the Aged, Blind, and Disabled) into the Supplementary Income (SSI) program, making it a federally administered program under the U.S. Social Security Administration.  In 1975, Title XX of the Act was enacted, consolidating most of the social services provisions of the various cash assistance titles into a single program of social services for needy citizens. In 1996, the Temporary Assistance for Needy Families (TANF) program, a federally funded block grant program, was enacted to replace AFDC.

Under the terms of the Social Security Act of 1935, each state had to first choose whether or not to participate in one of the new public welfare programs. After a state chose to participate in the new federal-state public assistance programs, it was required to submit a “state plan” that demonstrated to the federal government that its proposed program adhered to the minimal standards set out in the law, e.g., state-wideness, no residency requirements for recipients.  States retained major control over setting the requirements governing client eligibility and the level of cash benefits paid to recipients.  Federal financial participation in the cost of benefits distributed to recipients was determined according to a formula that fixed federal reimbursement to the level of benefits established by a state. The original le ernment also agreed to pay fifty percent of administrative costs, including social services provided eligible recipients.

In addition to being limited to helping very poor persons, the state-federal welfare programs, i.e., Aid for the Aged, Blind, Disabled and Dependent Children, were “categorical” in nature.  Under these conditions, it was not sufficient for an individual to be eligible simply on the basis of very low income and assets. Applicants for cash assistance also had to be a member of one of the established categories, i.e., aged, blind or disabled or a minor child living in a household without a father. This categorical nature of the nation’s public assistance programs effectively denied any federal financial help to poor men or women less than 65 years of age or poor couples with minor children. For many years, this limitation of public assistance programs contributed to the phenomenon of fathers voluntarily leaving a family so their children could receive public assistance.

Aid to Dependent Children

Aid to Dependent Children (ADC) was established by the Social Security Act of 1935 as a grant program to enable states to provide cash welfare payments for needy children who had been deprived of parental support or care because their father or mother was absent from the home, incapacitated, deceased, or unemployed. All 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands operated an ADC program. States defined “need,” set their own benefit levels, established (within federal limitations) income and resource limits, and administered the program or supervised its administration. States were entitled to unlimited federal funds for reimbursement of benefit payments, at “matching” rates that were inversely related to state per capita income. States were required to provide aid to all persons who were in classes eligible under federal law and whose income and resources were within state-set limits.

The 1935 Social Security Act, however, was not the first government income support provided to poor children in the United States. In most cases, ADC added federal aid to state mothers’ pension programs, which were already assisting “deserving” poor lone mothers. Several features of the new ADC program kept states from abandoning their efforts following the passage of the Social Security Act. Federal ADC aid was contingent on state contributions, and states were given considerable discretion to determine ADC eligibility and grant levels. For example, a state could continue to require that only children living in so-called “suitable homes” could receive assistance. Until they were struck down in 1960, these requirements were used to exclude “undesirable” families from aid, particularly children of never-married or African-American mothers.

Although the ADC subsidy was originally intended to allow mothers to stay at home to care for their children, a series of cultural, demographic, and policy shifts related to marriage, poverty, and women’s employment began to undermine public support for that goal. Concerns about whether the ADC subsidy inadvertently encouraged unwed motherhood arose early on in some states. From a federal perspective, these concerns were short-circuited by the perception that ADC was a program for families headed by widows. In 1939, however, Survivors Benefits were added to the mainstream Social Security program that separately aided widows—the most “deserving” of mothers—and left the ADC program to serve a caseload of apparently less deserving single mothers.

The original title of the program was Aid to Dependent Children. The stated purpose of Title IV was to provide financial assistance to needy dependent children. The federal program made no provision for assisting a parent or other relative in the household although it did specify that the child must live with a parent or other close relatives to be eligible for federal aid. It was not until 1950 that the federal government began to share in the maintenance costs of a caretaker relative the child of an unemployed parent and that parent (AFDC-Unemployed Parent), effective in 1961; a second parent in a family with an incapacitated or unemployed parent was allowed effective in 1962 and the name of the program was changed to Aid to Families with Dependent Children (AFDC)

The growth which characterized AFDC during the 1960’s and early 1970’s has greatly slowed in recent years, though not stopped.  In FY 1982 an average 11.1 million persons per month, of whom 7.5 million were children, received AFDC benefits at a cost for the year of about $13.5 billion, of which states paid $6 billion.  Assistance levels are largely determined by the states.  Consequently, AFDC benefit levels vary widely.  In 1980 the average monthly payment per person ranged from $29.83 to $162.61.  The actual disparity of these amounts has been narrowed by the availability of food stamp benefits for public assistance recipients.  Food stamp benefits are inversely related to AFDC income.

Supplemental Security Income

The federal and state governments now provide assistance to the needy aged, blind, and disabled through the Supplemental Security Income (SSI) program.  A person who is 65 years of age or older, legally blind, or permanently or totally disabled, and who meets prescribed income and resource requirements, can receive a basic federal cash grant of up to $264.70 per month.  In FY 1981, some four million persons received SSI payments, amounting to $8.3 billion in state and federal funds.  The states’ share, composed of mandatory and optional supplements, was approximately 22 percent, or $1.8 billion.

The SSI program (Title XVI of the Social Security Act) is administered by the federal government within the Social Security Administration.  This agency assumed responsibility for SSI in 1974.  Prior to that time, public assistance for the aged, blind, and disabled was administered by the states as adults counterpart to AFDC.  The federalization of the adult welfare categories mandated by P.L. 92-603, was designed, among other things, to reduce the variations in benefit levels among the states by providing  a uniform national minimum benefit, and to streamline administration by lodging it in the existing social security system which had for many years ably managed the social insurance program.  Though states were originally mandated to supplement the basic federal benefit up to the level of assistance they were providing in December 1973, and could provide optional supplements to higher levels, it was anticipated that state financial participation in SSI would decline over time as the federal benefit rose

Actually, the Congress has effectively frozen some states into having to continue to supplement SSI benefits.  This was achieved in 1976 under provisions of P.L. 94-566 which mandated the “pass-along” of increased federal SSI benefits to recipients.  This change prohibits states from offsetting federal benefit increases by reducing their optional supplementation.  It was enacted to assure all SSI recipients actually receive an increase in their total income when the basic federal grant us periodically adjusted for inflation.  One result is that the levels of SSI benefits still differ widely among states eighty years after the federal government took over the program.

While most states that supplement SSI benefits would have probably adopted such a pass-through policy anyway, several have questioned whether federal government can legally mandate that they expend state funds.  For all states, the experience with SSI supplementation is a recent reminder that what Congress proposes is not always consistent with the end result.

The Food Stamp Program

The food stamp program, began in 1965, grew from earlier federal efforts to distribute surplus food commodities to needy people.  Major control over the food stamp program rests with the Agriculture Committee of Congress.  It is financed and administered at the national level by the United Stated Department of Agriculture (USDA).  States administer the food stamp program under contract with USDA and agree to pay 50 percent of the costs of administration within their state.  In almost every state food stamps are administered through the state department of public welfare.

Until 1977, food stamps were actually purchased by eligible needy people.  Under that arrangement, a standard allotment of stamps, based on family size, was purchased at a  discount determined by the recipient’s income.  The difference between the purchase price and the allotment was known as the bonus value.  This agreement was changed when it became evident that many needy persons, particularly the elderly, did not always have the amount of cash on hand to make the required initial purchase.

Now eligible recipients receive stamps for only the bonus value to which they are entitled based on their income and family size.  Unlike public assistance, food stamps are not restricted to certain categories of needy people.  One qualifies for food stamps based on whether or not ones income is below the standard set by USDA.  This is partially the reason food stamps have become such a large problem.  For 1982 it is estimated 22 million people (one out of every ten persons in the United States) will benefit from food stamps.  In FY 82 the costs of food stamps are estimated to be $11.3 billion.

An interesting feature of the food stamp program is often overlooked is the extent to which food stamps have been used to supplement low public welfare benefits paid to some states.  For example, since the bonus value for food stamps is established on the basis of income, and AFDC family of three with $200 income a month will receive a bonus value of $159.00.  In a different state, an AFDC family of three with $400 income a month will receive $110.00 in food stamps.  Because food stamp dollars are entirely federal funds, whereas AFDC dollars are usually only 50 percent federally funded, states with low AFDC payments are actually receiving greater federal subsidies for their welfare programs and there is a built-in fiscal disincentive to raising the level of AFDC payments.

The Medicaid Program

Medicaid (Title XIX of the Social Security Act) was created with little debate in 1965.  Its purpose was to provide federal financial assistance to states in providing health care for public assistance recipients.  Similar to other state-federal public welfare programs, states had to choose whether or not to participate in the medicaid program.  Eventually all states adopted the medicaid program, but it was not until 1981 that Arizona agreed to provide medicaid, and then only in a very restricted form.

Under the terms of Medicaid states receive federal reimbursement for 55 percent of the costs od allowable health services or products provided to eligible recipients.  States were required to offer a number of basic health services, such as in-patient and out-patient hospital care, nursing home care, and physicians’ services.  Some other health services, such as eye exams, glasses and dentistry were optional and could be reimbursed if the state chose to provide them.

Initially, the Medicaid program covered only public assistance recipients.  Soon after enactment the federal government liberalized Medicaid by permitting federal reimbursement for health care provided by states to the “medically needy.”  With this new policy, states were able to extend coverage to individuals and families who were categorically related to public welfare (i.e., aged, blind, disabled, and families with dependent children), but whose spendable income was above the level permitted for cash assistance but did not exceed 133 percent of the standard.  Thirty-seven states have elected to have Medicaid coverage for the medically needy.

In 1966, the costs for Medicaid were $362 million and by 1977 had grown to $17 billion, an average increase of 15 percent a year.  For 1982, Medicaid costs are estimated to be $32 billion, of which amount states will pay approximately $15.6 billion.

Nationally, for 1980, 21.6 million persons received Medicaid assistance, including 10.5 million children and 3.4 million elderly persons over 65 years of age.

The growth in Medicaid is due in part to the fact that it is the only source of public funds available to pay the costs of health care for individuals who require lengthy stays in hospitals or nursing homes.  It is estimated 67 percent of Medicaid funds are used by only 28 percent of the recipients.  What often happens is that the elderly or frail are placed in a nursing home because they are unable to live independently and there is no one available to care for them in their own home.  Some persons have enough income and assets to pay the full cost of required care; however, many do not.  Also, it is common that an individual has the money for a limited stay in a hospital or nursing home, but their condition requires them to be there a long time.  It is in such instances that the “spend down” occurs.  In the instance of a spend down, and individual’s income and assets are first applied to the cost of care, but, as frequently happens, the actual costs are greater than their income.  Under these circumstances the individual requiring care is officially pauperized and therefore eligible to have the remainder of the actual costs picked up by the state through Medicaid.

Medicaid regulations allow states fairly broad discretion in determining program benefits, eligibility levels, and administrative procedures.  As a result, program administration varies widely from state to state.  Some states have more generous benefits; some have more sophisticated management systems.

The greatest problem facing Medicaid is containment of costs.  A number of strategies have been proposed to curb the growth of expenditures, primarily focused on changes in reimbursement of providers, particularly hospitals.  Experiments in prospective reimbursement, rate review, and capital expenditure control have been undertaken – all designed to move away from the inflationary method of cost- related reimbursement (where virtually all costs are covered).  Other programs have been developed to control inappropriate utilization of services.

Another target of cost containment efforts is elimination of fraud and abuse within Medicaid.  The Office of the Inspector General/HHS and the states have launched massive efforts to uncover and prosecute fraudulent providers, while at  the same time attempting to deter reportedly widespread abuse.  It is generally acknowledged that one of the keys to ongoing cost containment is improved program management.  Numerous programs have been developed to enhance state administration of eligibility determination, claims processing, fraud and abuse detection, utilization control, and data collection.

On of the most ambitious efforts to actually assure provision of health services under the medicaid program is the Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program.  EPSDT mandates that all eligible AFDC children undergo health screening and, if necessary, treatment on periodic basis.  The requirement was initially included in the 1967 amendments to the Social Security Act.  However, only in the last several years have broad implementation efforts been undertaken.  Current provisions require active participation of state Medicaid agencies in several EPSTD areas: outreach, scheduling, transportation, and documentation of both treatment and screening procedures.

General Assistance

In addition to the various federal-state programs of income assistance, most states and many localities operate programs of general assistance.  These programs are funded and administered exclusively by state/or local governments and vary greatly among the states in terms of eligibility standards, benefits, and administration.  Sometimes the aid is only on an emergency,  one-time basis.  By and large, general assistance is used to aid persons who are not eligible of AFDC and SSI benefits.  According to estimates by the U.S. Congressional Budget Office, general assistance was provided to approximately one million persons at a cost of nearly $1.2 billion in FY  1976.

Conclusion

Through the years, public welfare programs have been subjected to many different pressures and criticisms.  Essentially, they represented the only social safety net for millions of Americans who, for different reasons (e.g., age, disability, low income) were unable to maintain themselves or their children without government aid.  Unlike government aid which is provided through Unemployment Insurance, Social Security, veterans pensions and myriad subsidized programs and benefits for which most Americans are eligible (e.g., subsidized private and public retirement programs, tax credits and allowable deductions), public welfare is means tested.  One only receives the “benefit” when it can be proved one is truly poor.  Recipients of public welfare are required or submit to conditions most people find personally repulsive and degrading.