Our safety net is a sieve with large rents

May 1, 2020

Topics: Quote of the Day

By Marianne Bitler, Hilary Hoynes, Diane Whitmore Schanzenbach
Milbank Quarterly, April 30, 2020

Over the past two months, the United States has seen a historic increase in unemployment. While some of these jobs quickly will be regained when the public health measures needed to manage the crisis can be relaxed, the unemployment rate will likely remain elevated for several years.

History teaches us that those with low levels of education and earnings, as well as disadvantaged ethnic and racial minorities, tend to suffer more during recessions. They experience larger increases in unemployment and regain jobs more slowly than more advantaged groups. For example, even ten years after the 2007-2008 Great Recession, those with less than a college degree had not recovered to their prerecession employment levels. Rates of poverty and food insecurity spiked and remained elevated for at least five years.

In addition to Medicare, Medicaid, and the other important safety net programs that provide health insurance and health care, the United States has a patchwork of programs designed to help families meet their basic needs. Over the past two decades, since President Clinton made good on his pledge to “end welfare as we know it,” our safety net for the nonelderly (and nondisabled) has shifted primarily to a work-based safety net. And this has implications for how the safety net responds to economic downturns like the one we now face.

A core component of the safety net is the Earned Income Tax Credit (EITC), which pays annual refundable tax credits to low-earning working families—but provides no benefit to those who are unemployed. Research has shown that the EITC draws workers into employment, boosting their incomes and lifting millions of people above the poverty line annually. Another core program—the Supplemental Nutrition Assistance Program (SNAP)—provides monthly vouchers to low-income families regardless of employment status that can be used to purchase food at grocery stores. Overall, more families who participate in safety net programs are also working. In fact, our research has found that all of the increase in overall safety net spending on families with children during the past 25 years has gone to working families.

A well-functioning safety net automatically and quickly responds to increased need, ramping up payments when families face income losses and, in turn, stimulating the economy. SNAP offers a good example: When a family suffers a drop in earnings—due to job loss or reduced hours—its SNAP benefits increase. If the family already is receiving SNAP benefits, its monthly benefit increases to help offset the income loss. Other families that become newly eligible for benefits can enroll and generally will receive initial payments within one month. Importantly, SNAP is an entitlement program and, as demand for the program increases, there are no funding limits due to block grants or other restrictions. Owing to these factors, aggregate SNAP spending expands and contracts with the unemployment rate, providing resources to needy families while also helping stabilize the economy.

One drawback is that relatively few safety net programs are designed like SNAP to increase automatically when unemployment increases, so that those with incomes (after taxes and transfers) near the poverty level are harmed more during recessions than those at higher income levels. Furthermore, with the transition to a work-based safety net, incomes among the most disadvantaged decrease more when unemployment increases, and deep poverty increases more during recessions.

What do we know about the stabilizing effects of other elements of the social safety net? Unemployment insurance (UI) payments have increased well beyond historic levels during the COVID-19 pandemic, but many low-income workers do not qualify for UI benefits because of insufficient work histories. The EITC—the cornerstone of the safety net during good economic times—is not very responsive to economic downturns. Among single-parent families, who form the majority of EITC recipients, a decline in work generally leads to a loss of EITC eligibility or a decline in EITC payments. Among married filers, there is a modest countercyclical response—that is, a decline in family earnings makes them EITC eligible. Prior to welfare reform, the poorest out-of-work families received cash benefits through the Aid to Families with Dependent Children (AFDC) program, which expanded in response to increased need like SNAP does today. AFDC was block-granted in the mid-1990s as part of federal welfare reform, with the result that cash welfare was completely unresponsive to need during the Great Recession. With the powerful exception of SNAP, many low-income families fall through holes in the safety net during recessions.

More recently, there has been growing interest in expanding work requirements in SNAP (and in introducing them in Medicaid). Adults ages 18 to 49 can only receive SNAP for three months unless they also are working at least 20 hours per week. Putting aside the question of whether this is sensible during good economic times, it is unconscionable to withhold basic food assistance (and health care) from the unemployed during a recession. Recognizing this, Congress has long established the ability for states to waive work requirements for SNAP when the unemployment rate is high or when insufficient jobs are available. Work requirements in SNAP were suspended during the Great Recession and SNAP benefits were quickly paid out to the unemployed. The Trump administration, however, has argued that the waivers to work requirements are too permissive and has proposed tightening them to such an extent that the economy would have to be substantially worse before work requirements could be waived. As we face the beginning of a new recession, the acute spike in need underscores the importance of having safety net programs that can provide assistance to the unemployed. Congress has suspended SNAP work requirements until the end of the national health emergency.

In addition to these known drawbacks of a work-based safety net during a recession, there are new factors during the COVID-19 era that raise additional concerns. The widespread school closures deprive approximately 25 million children of subsidized school breakfasts and lunch—programs that typically are the front line of defense against childhood hunger. Because subsidized school meals have higher income eligibility thresholds than SNAP, these programs reach families that are SNAP-ineligible. While many school districts have attempted heroically to feed students despite school closures, only a small number of meals are being distributed at school sites. This loss is undoubtedly putting additional strain on family resources on top of the normal stresses caused by recessions.

Congress wisely authorized a program to address this shortfall named “Pandemic-EBT,” which provides approximately $110 per month in grocery vouchers to families who would have received subsidized school meals if school were in session. States must apply and receive approval from the US Department of Agriculture to implement this important backstop program, which is modeled after a summer feeding program which has been shown to be effective via randomized controlled trials. To date, only a few states have implemented these payments, but the program should remain in place as long as social distancing recommendations are in effect—through summer, when food insecurity spikes as students lose access to school meals, to fall, or beyond.

Another challenge has been the tidal wave of job losses that have come all at once, with states struggling to process new applications for safety net programs. This has been compounded by the surge in demand coupled with states needing to protect the health of their social service workforce through social distancing practices and transitioning to telework. Congress has authorized some temporary measures that states can adopt to help streamline application processes. For example, states may automatically extend eligibility for those currently on SNAP who would have had to recertify during the pandemic, and states may temporarily award participants the maximum SNAP benefit, which reduces the need to collect detailed information about usual expenses that are normally factored into benefits calculations. Unfortunately, these smart policy responses have been authorized for only two to three months but need to be extended to allow states to catch up on their backlogs. This crisis also highlights challenges with having a lean public workforce to manage and determine eligibility for programs like SNAP in times of crisis when needs are greatest and state budgets are shrinking.

The current pandemic is exposing the inadequacy of our social safety net for the most disadvantaged Americans. A safety net built around employment provides incomplete insurance against labor market shocks. Stay-at-home orders, loss of work, and their implications for declines in income require responsive government action. It is urgently necessary to expand the available programs, perhaps increasing SNAP benefit levels as was done in the 2009 stimulus and eliminating all work requirements to meet this challenge.

https://www.milbank.org…

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Comment:

By Don McCanne, M.D.

The COVID-19 pandemic is bringing home the reality that it is imperative that our government always be at the ready to provide safety net functions in times of need, whether individual or societal.

This discussion reveals how ill-considered policies such as work requirements and block grants actually impair the safety net functions that our government should be providing. And it is not just the Republicans; a Democratic administration made good on the pledge to “end welfare as we know it” as a remedy to the fictional “welfare queen” popularized under a previous Republican administration. When the policies should be to ensure that people with needs can have them met, then why do we introduce policies that create large rents in the safety net?

In our arena of health care, even though welfare programs exist such as Medicaid, the safety net leaks worse than a sieve. With the current pandemic and the loss of employment and of employer-sponsored insurance that goes with it, the need for government sponsorship of comprehensive health care has greatly expanded, though the need was already there before the coronavirus was on the scene. Just think of how it would be if we had a universal single payer Medicare for All already in place permanently. There would be no need for a health care safety net because there would be no holes in the health care financing system.

Be careful when you vote. It can be a matter of life or death, though, unfortunately, that prized “choice” we value so much may not be on the ballot.

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