Special Report: Welfare Reform

Welfare reform is now almost six years old, and for many it barely shows up on the radar screen. Even some Washington insiders in the social service field regard it as a blip in history. And, service providers in the field seem to have largely accommodated its effects.

But from the perspective of nonprofit organizations – as distinct from welfare recipients and other clients — the Stealth Bomber-like effects of welfare reform will be felt for many decades. There are several aspects of this sea-change that make it one of the top developments of the last few years for nonprofit organizations. Considering the initial publicity surrounding the act, it’s ironic that most of them are all but invisible.

It’s managed care for welfare
The most profound aspect of welfare reform is this: managed care leaped up from the health care world and landed on the biggest social service program in the country. After decades of being the pre-eminent entitlement program, the welfare system was forced to accept many of the very management provisions that the health care system had been fighting for two decades. Consider the following changes, most of which have passed unseen by casual observers.

Cap on spending. The new law completed the Reagan Revolution by putting federal welfare funds into the same kind of block grant mechanism to the states that the federal government began using with other social programs in the 1980s.

The enabling legislation caps welfare benefits. There is a five-year lifetime limit on benefits (check your HMO’s coverages for similar-sounding limits), and most adults cannot receive benefits for more than two consecutive years.

Local control. Welfare policy that formerly was controlled federally is now in the hands of the 50 states. This means that public officials have new flexibility to tailor the program to local needs and political realities instead of being dictated to from Washington. A little known aspect of managed care in health care is that it operates in the same way. Managed care means different things in different localities. Even in similar managed care programs, hospitalization rates in the hospital-rich northeast are more than in the west or southeast. Even the strongest of managed care managers can’t overcome certain socio-economic realities, so we will see the same regionality play out in welfare in the future as states tinker with their benefit levels. Some even predict variation on a caseworker-by-caseworker basis.

Plummeting caseloads. One of the steps of all new managed health care programs is to drop providers and/or reduce caseloads. Welfare reformers exulted in the dramatic reduction in caseloads after 1996, which added up to a 52 percent drop during Bill Clinton’s presidency alone. The cash bump that many states received during this period as they paid less for welfare benefits than they budgeted for made them bigger believers than before.

For nonprofits involved in some way with welfare clients or the welfare system, this is a seismic shift. For one thing, state governors and legislators will now become the new welfare policy moguls. Unhappily, they’re not equipped for the role, which means that this block of social welfare decisions will become even more oriented to politics than to policy.

Nonprofits without political credibility will lose ground. Moreover, those same governors and legislators will be strengthened in dealing with nonprofits as they will now control purchasing decisions for a larger amount of funds than they had in the past. The big buyer of services from nonprofits just got bigger.

Other losers
Another big loser in welfare reform has been the cause of advocacy. The robust welfare rights advocacy of the 1970s and 1980s is now a part of the past, and the role of welfare rights advocacy as an anchor of progressive causes in general is severely diminished. But the real blow has been invisible, because part of welfare reform was a prohibition against test cases being filed by publicly supported attorneys. Advocacy lost its big gun in this fight.

The advocacy movement also lost in a profound way as the nature of advocacy shifted from systems-based to individuals. Now, instead of one (day-long) line at the welfare office to get benefits, recipients need to go in multiple directions to get child care benefits, training, and so forth. One frustrated shelter director was heard to say “you need a Ph.D. to navigate services now.” The burden of finding services falls on each individual; this is in line with similar changes in other fields, such as special education.

Readers of this publication who are active in such areas as mental health, domestic violence programs and homeless services already know how they and their clients have been affected. Research has long shown that welfare recipients have a disproportionately high amount of mental illness and substance abuse. But in many states, mental health and substance abuse programs started being cut even before 1996. Those providers have been squeezed as women who might have formerly been supported by the welfare system turn to them instead.

These types of programs have also been hit by another trend related to welfare reform — the 500 percent increase in women in prisons during the past two decades. While driven mainly by minimum sentencing and drug-related prosecutions, the rising number of women behind bars also suggests that jails are operating as a kind of crude alternative to welfare for a certain number of women.

The beneficiaries
There have been positive impacts on nonprofits arising from welfare reform, of course. Most important perhaps is that there has been a tacit consensus forming around the necessity of better supports for women trying to come off welfare.

The need for supports such as day care, vocational training and health care is coming to be accepted (although funded only grudgingly). This helps explain why overall spending on welfare has gone down while average spending on welfare recipients has gone up. It’s as though there has been an unspoken trade-off between lower caseloads in return for more spending on supports. Nonprofits that have already benefited from the new work-first mentality include vocational service providers as more federal funding flowed their way, at least in the beginning.

For-profits in the same field have also benefited. The increased acceptance of the need for services and support rather than just transfer payments is also further legitimizing the private nonprofit sector as a source of solutions for governmental problems, reinforcing the government’s tendency to look for private sector partners when solving social problems.

In the end, welfare reform’s biggest impacts will go largely unnoticed by all but those deeply involved in the system. Like an aircraft that comes and goes undetected, it has fundamentally changed the landscape.

The federal government now manages these social services with the techniques of managed health care instead of an entitlement. The law decimated an entire generation of social activists and funneled wholesale numbers of recipients to other social service providers. There are some winners, of course, but on the whole this is a change whose biggest impacts will be invisible for a long time.

Thomas A. McLaughlin is a not-for-profit management consultant with Grant Thornton LLP in Boston. He is the author of Nonprofit Mergers and Alliances: A Strategic Planning Guide and of the new Trade Secrets for Nonprofit Managers. His e-mail address is [email protected].


NPT staff writer Jeff Berger also contributed to this story