Win McNamee/Reuters

The latest effort to amend America’s health care laws may be dead, but the small-government philosophy animating it is very much alive. Senators Graham and Cassidy chose to pursue their health-care reform plan through a block grant, a policy that takes a big chunk of federal money—in this case, Medicaid spending—and hands it over to the states to let them run new programs. Block grants have been created for a number of smaller policies, but the biggest example to date remains the program created under the 1996 bipartisan welfare reform program, called Temporary Assistance for Needy Families. To understand how that effort worked out, I tracked down two policymakers who were intimately involved in the creation of TANF in 1996.


In 1996, President Bill Clinton was elected in part on a promise to reform welfare, but he disagreed with the changes proposed by the newly empowered Republican majority. In the end, Clinton signed what he saw as a compromise bill, ending a program that allowed needy families to receive cash payments if they met the right criteria. (That, technically, is the definition of an entitlement: a benefit the government is required to pay out for anyone who meets the criteria.) In its place, TANF distributed billions of federal dollars to the states, which were allowed to spend the money largely as they saw fit. Cash was to be provided to working families for a limited time, so long as they tried to keep a job.

For Peter Edelman, then an assistant secretary at the Department of Health and Human Services, that plan was a disaster. “I was horrified that the president had signed this bill that I knew then was absolutely terrible,” Edelman told me. He resigned from the Clinton administration in protest, along with two other Clinton appointees. Their departure made front-page news, and the next year, he wrote a scathing cover story for The Atlantic.

Edelman had several objections to the bill, but he singled out the block grant as a problem. State governors who backed the bill were delighted to receive a large new allocation of federal money. “But what they are not telling their voters is that the federal funding will stay the same,” Edelman wrote at the time, “with no adjustment for inflation or population growth.” For many Republicans, limiting federal spending on welfare was a feature, not a bug. “The point of block grants is to save the government money,” the Heritage Foundation’s Robert Record has said. That may not have been the guiding principle for one of the bill’s architects, House Republican staffer Ron Haskins, who spoke to me by phone this week, but it’s certainly the way it worked out in practice. “So the block grant in the first year, in 1997, was worth $16.5 billion, and today it’s worth $16.5 billion,” said Haskins. “Just taking inflation to an account, its value has declined by about a third.”

Flexible Cash Produces Flexible Results

What has been done with that money? The motivation behind the reform was to encourage people to work, by tying cash assistance to employment. The block grant was intended to achieve that goal by allowing states to create their own local responses to poverty. States had significant freedom to spend the money broadly within the area of work and poverty. While the economy was booming at the end of the Clinton years, said Edelman, the program seemed to be working, as many more poor people entered the workforce. “People would write that I was kind of a nutcake,” Edelman said.

But fast-forward to today, two recessions later, and most states have taken advantage of that flexibility to simply stop giving out nearly as much cash to poor people. According to the Center for Budget and Policy Priorities, in 1996, just before the reform, 68 out of 100 poor families with children nationwide received cash assistance; by 2015, under TANF, only 23 out of every 100 families under the poverty line with children received cash. Haskins attributes this decline in welfare rolls in part to the emphasis TANF and other later reforms put on work. Programs like the Earned Income Tax Credit attach more benefits to having a job, so having any job becomes more attractive. “A low-income worker can do a lot better,” said Haskins.

But Haskins is troubled by the small numbers of people who receive cash benefits today. A group he calls “disconnected mothers,” who have neither cash benefits nor earnings, has doubled in size since 1996. “When you give states flexibility, they will take advantage of it. And they will do things you didn’t expect,” Haskins said. When the law was passed, he explained, “the governors were deeply committed to welfare reform.” But over time, those governors were replaced, and the law became less popular. “States started diverting money from the TANF block grant to pay for things like foster care,” he said. “Once you divert money, given the condition of the state budgets, it’s unlikely you’ll ever get it back.”

A 20-Year Race to the Bottom

None of this surprised Edelman, who in 1997 predicted states wouldn’t want to be seen as offering more generous benefits than their neighbors. Governors, he said, signed up for a “Faustian bargain.” The definition of a block grant, he said, is that there’s “basically no criteria” for how the money must be spent. As Heritage Foundation scholar Peter Germanis wrote in an informal but widely circulated analysis in 2015, the flexibility written into the law allowed it to be converted over time “to a giant slush fund with minimal reporting and accountability provisions.” The result? States like Wyoming give cash assistance to less than 5 percent of the families that are eligible. (Those families also receive noncash benefits, like food stamps and child care.)

The effort over the past few weeks to convert Medicaid funding isn’t going anywhere. But there’s every reason to think the idea will return, sooner or later. Republicans have been pursuing the idea since the Nixon administration, Edelman pointed out, and before Clinton signed the welfare bill Edelman resigned over, the president vetoed one that included block grants for Medicaid. Their appeal is their ability to shrink federal government expenditures. But the evidence from welfare makes Republicans like Haskins wary of using block grants to do it. “The idea that the block grant is a terrific policy innovation,” Haskins said this week, “I just don’t think that’s true.”          


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