Here in the Untied States, people have decided that the elderly are entitled to a modest level of retirement income and health care, and the young to an education, at public expense. Those who want the government to be “smaller” often argue that these services should be delivered in a different way, with the government financing the benefits but the private sector providing them. But they dare not overtly challenge the right to receive these universal entitlements, so universally popular are they with the American people. In other developed societies, those with “bigger” governments, additional human needs are also considered the responsibility of society as a whole, rather than of each individual person or family. In those societies, for example, virtually everyone receives government-funded health care, not just the elderly. One example is Canada, right next door. Government-funded housing is also more common in other places.
While the United States does not provide universal food, clothing, and health care via government programs, however, few Americans are willing to see people in their own communities starve for lack of food, freeze to death for lack of shelter, or die or become crippled by readily preventable diseases and easily treated injuries. The American compromise has been to assume that most non-elderly people will buy food, housing and health care for themselves, but for the government to provide for those who do not have the means to afford them. Means-tested benefits are thus a substitute for universal benefits, and a way to avoid deprivation at, theoretically, a lower public cost.
In 1998, 12.1 percent of U.S. public spending was on public services with eligibility restricted based primarily on means; that is, income and wealth. Of this amount, 2.7 percent was spent on services with eligibility based on age as well as means. The most costly programs for the low-income young, at $10 billion each, were free or reduced price school lunches and breakfasts, and college student loans and grants. The most costly program for the low-income elderly, by far, is Medicaid at $40 billion in 1998 and far more today. The remaining 9.4 percent was spent on programs that benefit working-age adults and their families based on their means alone. The most expensive are Medicaid payments to private health care providers, at 1.4 percent of total spending, and public health and hospital services, at 3.9 percent of total spending. The latter tend to be directed to the poor and located in poor communities, and today are funded primarily by Medicaid. Other means-tested public benefits that cost more than $15 billion in 1998 include the Earned Income Tax Credit, Food Stamps, unemployment insurance payments, Temporary Assistance to Needy Families (welfare), and Section 8 housing rent subsidies.
The criteria used to determine eligibility for means-tested benefits are varied and complex, but generally consist of limits on the income one may earn, and on the wealth or possessions one may have, while receiving benefits. To be eligible for food stamps at the time I researched this question, for example, a household must have had $2,000 or less in bank accounts and other liquid financial resources, though it may have a home and lot of any value and one motor vehicle per adult or working teen (if used for work or school). In addition, a household must have less than a prescribed amount of income, which varies with household size — $960 per month for a one-person household, $1,961 per month for a four-person household, and so on at the time. Additional tests permit money to be excluded from income if used for medical care, shelter, and fuel in excess of a certain percent of one’s income.
With allowances and deductions, eligibility for food stamps can be complex, and most means-tested programs have criteria that are similar to, or even more complex, than food stamps. And some programs, in order to prevent a family with $12,000 in income per year from receiving extensive benefits while a family with $12,001 receives none, also vary the level of benefit by income, phasing it out as income rises. The level of benefit, therefore, often has an additional formula separate from the determination of eligibility, and the combination of eligibility and benefit regulations can be as complicated as the tax code. And in general, one only receives means-tested benefits if one knows where and how to apply.
Means-tested public benefits for the poor are not popular. Indeed, one might argue that for the past 25 years politics has been driven by, and a political realignment has occurred due to, rising anger at the cost of these benefits and at their beneficiaries. There are several reasons for this hostility, and these reasons are in some ways mirror images of the reasons why age-restricted benefits are popular.
First, means tested benefits are not universal. While everyone expects to be old or young, few believe that they may end up poor. Most Americans will go through their entire lives without ever receiving food stamps, Section 8 housing assistance, or “welfare” as it is traditionally known, so they are less willing to pay for those who do receive them. The hostility to the recipients of “welfare” is so great that a mid-1990s panel on Social Security reform failed to reach a consensus over the possibility of means-testing the program. One of the panel’s members, Richard Trumka the president of the Mine Workers’ Union, said that means testing social security would turn it into a “welfare” program not a retirement program, and would thus undermine its support. (As I have discussed elsewhere, one of they ways that age-restricted benefits such as Social Security and Medicare can be made less generous for future generations is, in fact, means testing, with higher and higher insurance premiums for the latter until future middle class become poor by paying for almost all their health care themselves).
Second, means-tested benefits are not universal even among the poor. In 1998 only 40 percent of those living in poverty received Medicaid, the health care program for the poor, while those in poverty only accounted for half of all Medicaid recipients. Often, though not always, means-tested benefits exclude the working poor, those doing the most to help themselves. That is because those who receive cash welfare benefits through programs like Temporary Assistance to Needy Families (TANF) or SSI automatically qualify for programs like Food Stamps, Medicaid, and Section 8 housing. Others must apply, and are seldom recruited. Thus, means tested benefits are thought of as the enemy of self-reliance and the work ethic. The duty to work and earn one’s own living in lieu of receiving public benefits is, as well, a separate issue in itself. It is worth noting, however, that over the past 30 years it has become accepted single parents must work rather than care for their children, while anyone over the age of 65, no matter how healthy, able, and free of family responsibilities, should not have to. The estate tax repeal, as well, may be considered as an acceptance of idleness among some, in contrast with the hostility toward idleness by others.
Third, means tested benefits are easier to scam. Like age, one’s income or wealth is specific and objective. Unlike age, however, it is difficult for someone other than the applicant to verify income or wealth with certainty. People believe, therefore, that many of those who receive means-tested benefits are not, in fact, eligible – that they have, in fact, income or wealth that is not reported. On the other hand, because the factors that determine eligibility and benefit levels are so personal, the prevention of fraud requires extensive intrusion into people’s lives. For example, one way to become illegitimately eligible for welfare and food stamps is to pretend that a working, unmarried partner is not a member of the household. Prior to the “welfare rights” crusade in the 1960s, it was common for social service agencies to conduct middle-of-the-night bed checks, to see if a single mother in fact had a man present in the household, a man who ought to have been supporting her rather than shifting that burden to the government. After going out of style, such intrusion has come back into style during the anti-welfare crusade. Beginning in 1995, for example, the City of New York reinstated home visits and required applicants to be fingerprinted, among other measures. While these measures help to drive illegitimate applicants off the welfare rolls, they are humiliating for those legitimately in need. As a result, means-tested benefits are not popular with many of their beneficiaries, either.
Finally, the complicated formulae for means-tested benefits can be gamed legally by arranging one’s life in order to qualify for benefits, and having those benefits become a substitute for other means of improving that life. The oft-repeated quote, from former New York City welfare commissioner Blanche Bernstein, is that “there is no reason to believe that the poor are less adept at manipulating welfare than the rich are at manipulating the income tax system.” The possibility that people arrange their lives to qualify for means-tested benefits is the basis of an argument that such benefits actually make people worse off. In order to qualify, persons must forgo options — such as marriage and gainful employment — that would make them better off in the long run. With benefits phasing out, and taxes phasing in, the poor often lose up to 80 percent of any additional income they earn. During the anti-welfare crusade, therefore, some conservatives presented restricting eligibility for means-tested benefits as a way to improve the lives of the poor, rather than to give them the punishment they “deserve.”
Means-tested benefits present a public policy dilemma. The American people don’t want truly needy people to suffer deprivation. If they pay to provide assistance through a government program, however, at least some people who could otherwise make it on their own will either obtain benefits fraudulently, or will arrange their lives to take advantage of that assistance. This is, in fact, the first of a series of such dilemmas that will be identified. And in each case it will be shown that the political response to the dilemma has been hypocrisy – de-linking essentially similar programs and policies with the same dilemma, but that benefit different types of people, and treating them differently. Rather than face the means-testing dilemma honestly, different attitudes and different policies are employed for those in essentially similar circumstances.
For example, the rules for Medicaid eligibility for the elderly follow essentially the same criteria, and present the same dilemma, as pre-1996 welfare. One only qualifies for Medicaid if one has both limited income and limited wealth, so most middle- and upper-income elderly people who require extensive nursing home or home health care are theoretically unable to qualify — until all their own resources are exhausted. Yet millions of formerly middle- and upper-income people are receiving benefits today, at a cost that dwarfs that of traditional cash welfare in even its open-ended “welfare rights” heyday. And they are doing so shamelessly, with virtually no objection from anyone in politics, based on financial machinations designed to meet the eligibility criteria for the program.
Some of these machinations were described in a February 25th, 2002 Wall Street Journal article on the subject (“Getting Poor on Purpose.”). Early on, people simply transferred all their assets to their children the day before they entered a nursing home, so none of that money would be used to pay nursing home bills. The federal government responded by giving state’s permission to “look back” at such asset transfers for 36 months; lawyers and Medicaid “planners” interpreted this as making such asset transfers “legal” if they occur 36 months ahead. Since the penalty for illegal transfers is a period of ineligibility for Medicaid, however, many people now transfer half their assets to family members the day before entering a nursing home, using the other half to pay for this period of ineligibility. Others buy mansions to shelter assets, since one’s home is exempt from Medicaid wealth limits regardless of its value. Still others use all the money to purchase an annuity for the benefit of the healthy spouse, thus reducing the income of the sick spouse to a point where he or she qualifies for Medicaid. Or the sick spouse signs all the common assets over to the healthy spouse, who then refuses to pay for the sick spouse’s health care, making him or her eligible for Medicaid coverage. Or the couple gets divorced, with the divorce agreement transferring the bulk of the money to the healthy spouse. Very recent laws have cut back on some of these ruses, but once they start to bite an outcry is likely.
While it is widely known that many financially well-off people are arranging their lives to qualify for Medicaid, it is also possible that many are receiving Medicaid without bothering to make such arrangements. The intrusive investigations now used to discourage illegitimate applicants for welfare are not applied to applicants for Medicaid, especially middle-income elderly applicants. No fingerprinting. No surprise home visits to try to catch senior citizens who really could be getting by without those home health aides. No investigators pouring over financial records to try to catch applicants in a lie. And virtually no one arrested and sent to prison.
College financial aid is another means-tested benefit that is commonly, and shamelessly, mined by the middle class and even the affluent. While much of this aid is privately, rather than publicly funded, many scholarship programs follow same federal criteria as federal Pell Grants – the Free Application for Federal Financial Aid — with which they are coordinated. Moreover, even private scholarship funds are tax-subsidized though charitable deductions and the exemption of their investment return from taxes, on the assumption that scholarships benefit the less well off. As for Medicaid, there are lawyers, accountants, financial planners and how-to books to tell people how to qualify for college financial aid. They advise similar gambits – stashing assets in a bigger and fancier home or in trusts, “disowning” a child and refusing to pay for their college so only the child’s assets count, etc. As the cost of college continues to rise, the amount of “financial aid planning,” and the share of college students receiving some form of financial aid, keeps rising. Over time, financial aid has become available to those from more and more wealthy suburban towns. But recently, the share of low-income students going on to college has been going down.
Why this difference in tone between “welfare” for the poor and the other means-tested benefits for the non-poor?
Part of it is a legalistic middle- and upper-middle class assumption, or rationalization, that if it is legal, or can be interpreted as legal, it must not be wrong. The Medicaid Planning Handbook by Alexander A. Bove, Amazon.com’s best seller on the subject at time I last looked, asserted that “taking advantage if allowed by law to qualify for Medicaid is no more immoral than arranging assets to legally qualify for income tax or estate tax savings.” Amazon’s top listed book on financial aid planning, also written by a “financial planner,” is College Financial Aid: How to Get Your Fair Share. The middle-class professionals who earn a living advising middle-class people on how to access public benefits for the poor are considered respectable — far more respectable, in fact, that the “leftish” organizations that work to help poor people to access public benefits for the poor. One can imagine the response of conservative commentators to books entitled The Welfare Planning Handbook and Welfare: How to Get Your Fair Share. All these machinations put a different spin on Blanche Bernstein’s quote — there is no reason to believe that the rich are less adept at manipulating public benefit programs for the poor than the rich are at manipulating the income tax system. They are adept, in part, because they can afford a cadre of lawyers, accountants and estate planners to help them.
Part of the difference is that Medicaid for the disabled old and student aid for the young are increasingly thought of as age-based benefits for everyone, even if they are, in a legal sense, means-tested benefits for the less well off. There is a general sense that the old and the young, unlike “able bodied adults,” are entitled to public assistance. When the need arises for themselves (but not necessarily when thinking about how much they have to pay in taxes for others), many middle- and upper-income people decide that college and nursing home or home health care should in fact be universal age-related benefits, not means tested benefits. As the Medicaid Planning Handbook says “it is not is not Medicaid planners who are immoral but the system itself…we have a system that will pay virtually all the bills of a multi-millionaire who has cancer (covered under Medicare, which everyone gets), while stripping a working, middle class elderly couple or virtually everything if one or both have to enter a nursing home.” If put to a vote, it is possible that most Americans would agree that the “spend down” of assets required to qualify for nursing home care should be eliminated, though perhaps unwilling to pay higher taxes to ensure this. They may be willing to force future generations to pay those taxes.
This difference, however, is unconvincing. The original federal “welfare” program, Aid to Families With Dependent Children (AFDC), was also thought of as a program for children. It was intended to permit a poor single mother, then assumed to be a widow rather than the mother of an illegitimate child, to have enough income to stay at home and care for the children, rather than being overwhelmed by the combination of work and family obligations. Today, however, people are more likely to blame the parents for the circumstances of the children, and assert that welfare broke up families by providing an alternative to marriage. Yet far fewer conservative commentators have been willing to criticize benefits for non-poor seniors.
In addition, it is not true that Medicare does not cover the medical treatment of a condition like Alzheimer’s, just as it would cover the medical treatment for cancer. It is the personal care of a person debilitated by disease, a burden not unlike caring for a very young child, that is not covered by Medicare. Feeding them. Bathing them. Changing them. Transporting them to and from the doctor. From a “conservative” point of view, Medicaid planning could be described as a way for one’s heirs to use public benefits to avoid caring for their own parents in old age, or spending their inheritance to care from them, just as “welfare” came to be described as a way from shiftless men to avoid financial responsibility for their own children. It could be blamed for destroying the extended family, just as “welfare” was blamed for destroying marriage. Except that conservative commentators do not describe it this way, and do no accuse middle income suburbanites of not having family values, because saying so would be politically unpopular with people who matter.
Moreover, the “middle-class, elderly person” who may be forced to lose “virtually everything” if forced to enter a nursing home is probably not “working.” An actual working poor person, if too powerless in the labor market to obtain a job with health benefits, or if laid off from a job with health benefits, very well might lose “virtually everything” is he or a family member becomes ill, since those under age 65 are not eligible for Medicare. Health care crises are the leading cause of personal bankruptcies in the United States. There is little evidence that the American Association of Retired People (AARP) would be willing to support a universal health care program that would benefit the still-working people that provide for its members. Not if it would cost the retired anything in diminished benefits or higher taxes.
In reality, the difference in attitude toward different types of means-tested benefits has to do with the background and social characteristics of their assumed beneficiaries. It is only those poverty programs that actually benefit the poor that are unpopular. Perhaps the most telling moment of the anti-welfare crusade came in a 1998 political commercial for former New York Republican Senator Alphonse D’Amato. While many of New York’s (predominately Democratic) politicians supported, and still continue to support, and open-ended right to receive public assistance with few obligations or contributions in return, D’Amato championed the 1996 welfare reform. Hard working people from suburban areas like Long Island, his political base, were tired of paying for non-working urban welfare mothers. While running for office in 1998, however, D’Amato’s took credit for getting a special exception built into the law that allowed an elderly, suburban White homeowner, who had immigrated from Italy as a child and never naturalized, to receive home health care benefits under Medicaid, rather than rely on her children or sell her home to pay for care.
Few middle- and upper-middle income people expect to be poor, but many expect their parents to end up on Medicaid, or their children to qualify for financial aid in college. And while they may not think much of the minorities and immigrants who dominate the welfare rolls, they do think of themselves as having done the best they can, and as entitled to assistance in return. The real difference is not philosophy or circumstances, it is a difference between people like “us” and people like “them.” The “us” are more numerous and influential. Arranging one’s circumstances to qualify for Medicaid and college financial aid may be, in reality, similar to relying on welfare rather than a married partner or a job, but most Americans simply refuse to acknowledge the similarities. And no one is willing to force them to, even though for reasons of moral consistency both “liberals” and “conservatives” might want to.