Welfare Block Grants as a Guide for Medicaid Reform

March 29, 2013

President Clinton reformed the nation's welfare system by replacing the Aid to Families with Dependent Children (AFDC) program with the Temporary Assistance to Needy Families (TANF) program, which gives block grants to states. TANF also eliminated the entitlement to cash assistance and imposed work requirements on recipients. The success of welfare reform suggests that block grants should be experimented with in addressing other entitlement reform, says Daniel Sutter of the Mercatus Center.

  • Since welfare reform was passed, the number of recipients has decreased by more than 66 percent, while benefit levels and child poverty have remained relatively constant.
  • Welfare reform encouraged AFDC recipients to transfer to the workforce, which has permanently reduced the number of recipients and workload.
  • Between 1996 and 2002 the welfare caseload fell by 59 percent, and by 2006 there were 10 million fewer recipients than in 1994.
  • During the Great Recession, the welfare caseload rose by only 10 percent.

Welfare reform has been successful primarily because of block grants, which have provided flexibility to states so they can reform the welfare model to adapt to their specific needs.

  • Block grants incentivize states to create programs that are more effective and efficient at spending tax dollars.
  • Block grants also allow each state to act as a mini-experiment that can be replicated on a nationwide basis if successful.
  • In the case of TANF, caseload declines varied significantly from state to state due to a variety of different policy innovations that were tested.

Because block grants create a better incentive for states to spend tax dollars more efficiently, they can be extended to Medicaid. If block grants are broad, they would minimize the possibility that recipients switch between one of the federal government's 80 poverty assistance programs. Most importantly, states need to be given the ability to experiment with Medicaid waivers and block grants.

Source: Daniel Sutter, "Welfare Block Grants as a Guide for Medicaid Reform," Mercatus Center, March 21, 2013.

 

Browse more articles on Tax and Spending Issues