Increased Flexibility for States Has Meant Reduced Assistance for Low-income Families

Some conservative lawmakers want to use the welfare reform block grant program known as Temporary Assistance for Needy Families (TANF) as a model for major changes to Medicaid. The law creating the TANF block grant turns 20 this month, which makes this an opportune time to review the effects of TANF and to examine why it should not be used as a template for changes to Medicaid.

As I explained in a WI Budget Project blog post late last week, TANF’s 20^th anniversary is not a cause for celebration among advocates for low-income families. Some conservatives have also criticized it, including Peter Germanis, who wrote early this year that TANF “has failed to provide an adequate safety net or an effective welfare-to-work program.”

The block grant gives states a lot more flexibility, but also significantly less funding and a lot less accountability, and the result has been a sharp decline in assistance for the families that the federal funds are supposed to assist.  A recent column in the Economist commented, “For those who believe that allowing states to decide for themselves what works best will usually lead to better policies, this has been depressing to watch.”

Here are some of the key problems with the TANF program and its block grant structure:

• The funding level has been frozen since TANF was created, and the fixed appropriation has lost 35 percent of its value.
• States are able to use TANF funds in ways that supplant money the state had had previously spent from its own coffers, as illustrated by Wisconsin’s use of TANF funds to help finance the state Earned Income Tax Credit.
• And as the column in the Economist points out, the block grant funding “does not vary according to the overall health of the economy.”

As a result of those problems and others, funding from the TANF block grants is no longer providing much in the way of direct assistance to low-income families. An analysis by the Center on Budget and Policy Priorities (CBPP) found that only 26% of Wisconsin families below the poverty level were getting direct TANF assistance in 2013/14, compared to the 96% of families in poverty who received assistance in 1994/95 from Aid to Families with Dependent Children (AFDC).

Not all of the effects of the TANF law have been negative. One positive effect of the shift to a work-centered approach to cash support for needy families is that it opened the door for improvements in access to health care.  After Governor Thompson and the legislature approved Wisconsin’s welfare reforms in the mid-1990s, they followed that up with the creation of BadgerCare. That was a huge expansion in Medicaid eligibility for parents, which resulted from the fact that state lawmakers understood that for Wisconsin Works to succeed, parents going into jobs or training programs needed to have health insurance.

Unfortunately, in 2014 Wisconsin policymakers cut in half the income eligibility limit for parents, and the creation of a Medicaid block grant would be an even more significant reversal of access to health care, and a huge blow to low-wage workers.

One reason why the block grant approach would be a huge blow to Medicaid is that health care costs typically increase much faster than other measures of inflation. One reason for that is because advances in health care tend to increase costs more quickly than the general inflation rate. Although some proposals for block granting or capping Medicaid spending have included modest adjustments for inflation, none of the proposals to date have accounted for a bigger cost driver – the rapid growth in the elderly population that will significantly increase the average cost per Medicaid enrollee.

Keep in mind that states currently have quite a bit of flexibility to change their Medicaid programs. Although block grants would ostensibly give states more latitude, the practical reality is that federal caps on allocations to states would force them to make unpopular cuts that hurt Medicaid participants. As a short factsheet from Families USA explains:

“Turning Medicaid into a block grant would put states and Medicaid enrollees at financial risk, and it would make it harder for states to serve their residents’ health care needs.”

Analysis of TANF’s record reveals a number of valuable lessons and points to many ways that the law could be improved.  A new report by CBPP contains good recommendations for addressing TANF’s failures.  But the most important lesson is that TANF should not be used as a model for changes to critical safety net programs like Medicaid and Food Share.

Jon Peacock