Federalism for Blockheads

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During the late recession (ended, we are reliably informed, eons ago), welfare enrollment barely budged. The rates have remained low, despite a lousy labor market. How is that possible? More proof that the heralded 1996 welfare-to-work reform worked?

Not really. NPR (yes, NPR) has a series of reports on the disability system, which has rapidly swollen to 17 million (!) individuals. Among the things that are going on here, covered in yesterday’s must-hear segment: states have taken aggressive steps to transfer individuals from (partially) state-financed welfare system into the disability system, which is 100 percent federal. Consulting firms are paid $2,300 for every transferred individual. The firms identify the eligibles, fill in the forms for them, procure medical records, etc. Call it one-stop, market-based federalism.

Two quick lessons here:

  • The 1996 welfare reform, which replaced the traditional system with a block grant for states that adopt welfare-to-work systems of their own design (more or less), is widely and wildly celebrated as a (conservative) federalism model.  Question: why did state welfare bureaucracies welcome the reform? Answer, because states converted cash grants to poor people into labor- and employment-intensive workfare services: drug rehab, employment counseling, day care, etc. (All these people are unionized and vote Democratic. That may be good or bad, but it’s not a success for Republicans.) Question: what happened to all those people whose cash grants disappeared and who went off the rolls—did they die in the streets? Nope. Did they all find work? Nope. For the most part they migrated to other, federally financed welfare and support systems: food stamps, housing subsidies, Head Start (where unemployed mothers babysit each other’s children), and (as seen) disability. Expenditures for many of these and other programs exploded. The 1996 reform may have been the right thing to do. But its reputation as a model is grossly inflated.
  • Welfare is to health care what a paddle boat is to a destroyer. If states pay $2,300 for transferring a welfare client, what should the rate be for transferring a state or local employee or retiree from the state-financed system into the federally financed Medicaid system or the federally subsidized exchanges? Do we have any idea what’s coming down the pike here?

Not really.