Allow Our ‘Laboratories Of Democracy’ To Help People Escape Poverty

The political world changed in August 1996 when a Democratic president signed a welfare reform law that ended a federal entitlement to cash benefits created by the New Deal.

President Bill Clinton’s decision to “end welfare as we know it” was a political anomaly much like Nixon going to China.

Early in his first term, Clinton had launched an unsuccessful plan to enlarge the welfare state through a massive reshaping of the health care system.  Four years into his term, Clinton changed course and signed an historic reform of the federal cash welfare program that scaled back Washington’s control.

The welfare reform law ended the personal entitlement to cash benefits for families with dependent children in favor of a block grant and placed limits on how long individuals could continue receiving benefits.

The law also contained another game-changing provision: It required people who received these benefits to engage in work activity.  That activity could include training for jobs or seeking work, as well as actual employment.

More than 20 years later, a Republican Congress is reviving talk of work requirements, this time in its proposal to overhaul Medicaid.

Like the old cash welfare program, the Medicaid law creates an individual entitlement to benefits for certain populations, including pregnant women, children, people with disabilities, and seniors in nursing homes.  Low income people who fall into certain categories are entitled to participate.

But ObamaCare expanded Medicaid by making able-bodied, non-pregnant adults eligible.  Although the Supreme Court found that Congress could not require states to cover this new category of recipients, the federal government provides very generous matching funds to the 31 states and the District of Columbia that do.

The House bill to repeal and replace ObamaCare proposes reducing these higher matching payments for able-bodied adults.  It is hard to justify why the federal government picks up 95% of the medical costs incurred by a nondisabled 26-year-old with $15,000 in wages, but only 50% of the costs for a person with developmental disabilities who earns half that amount.

More recently, some members of Congress have begun to question why able-bodied adults in this new eligibility category shouldn’t be required to work.  Currently, if a state wants to impose such requirements, it must obtain a waiver from the federal government.

This is very much at odds with the way cash welfare works.  To get benefits, most adults in single parent and two-parent families are required to work, improve their job skills, or seek work.  It seems reasonable to also allow states to apply work requirements to childless, nondisabled adults.

As Congress explores this option, it should keep federalism in mind.  One of the reasons welfare reform has been so successful is that it permits great diversity among states.  Instead of having to ask the federal government’s permission, states can pursue new and innovative approaches to supporting low-income people while also tamping down on welfare dependency.

The House bill would apply this approach to Medicaid.  Beginning in 2020, the federal government would provide per capita allotments to states for eligible individuals.  These allotments would differ between populations—the federal per capita payment for someone with developmental disabilities would be much higher than for a healthy 8-year-old child—and would grow with medical inflation over time.  The federal government would save money over the long run because its payments are capped on a per-person basis, rather than being open-ended.

In exchange, states would be given far broader latitude to design, administer, and reform their programs, freed from the dead hand of federal regulations.

This state-centered approach could be applied to work requirements as well.  Instead of the current mother-may-I arrangement, in which states must ask their federal overlords for permission to establish work requirements, states would be free to reform their own programs.  Some might test it in portions of their state first.  Others might want to launch it statewide.

Either way, laboratories of democracy would be set free to look for new, better and more efficient ways not only to provide medical care to people in poverty but to help and encourage them to develop the work habits necessary to escape poverty.

In modernizing the Medicaid program, Congress should consider allowing states flexibility to reform their own programs, including having the authority to establish work requirements for nondisabled, non-pregnant adults.

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About the author

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform. Full biography