Social Welfare In The United States
Recently, I got a chance to get invovled in a discussion about the status of social welfare programs and policies adopted by the US and other major economic powers. And so, here’s an article that runs through a brief history of social welfare in the United States.
Though social welfare is a very common term that we often come across while discussing the socio-economic situation of any country it is not easy to have a one precise definition.
So, what does social welfare actually mean?
To understand social welfare we have to understand a very important term called “Welfare Economics”.
The term social welfare is inspired by the concept of welfare economics. Welfare Economics refers to the optimal allocation of resources and distribution of goods and services. It is a study of resource distribution across various social and income groups in an economy.
Because the homogeneous allocation of resources is very important for the economic development of a nation, “social welfare” is adopted and practiced by almost all governments and also by prominent organizations across the world.
We may agree that Social welfare means an “organized public or social service to help individuals or families and other demographic categories like the senior citizens, differently abled, homeless people, single woman, and others”.
To ensure Social Welfare, almost all democratic countries have well defined Welfare Policies which they implement through their various social welfare programs.
For example, let’s suppose that a government provides scholarships to students who cannot afford higher education. In this case, the provision for the scholarship would be the government’s social welfare program under their education policy with a goal to help improve the condition of students who belong to a poor socioeconomic background and hence, cannot afford to bear the increasing costs of education.
History Of Social Welfare in the U.S
Now that we know what welfare economics and social welfare mean, let’s get started with Social Welfare in The U.S.
The well defined social welfare programs that we see in the United States today have not been there forever. In fact, if we just go 80 years behind we see that there were absolutely no well-defined policies for the poor and needy, no healthcare support and definitely no Medicare or Medicaid.
So how did it all start in the US?
To begin with, it is important to know the history behind social welfare in the United States. This would help us understand how their modern day social welfare policies and programs came into existence and what factors shaped and contributed to these socioeconomic developments.
The Great Depression
From the year 1929 to 1939 the American economy witnessed its biggest economic crisis which had a major impact on the American society — The Great Depression. The great depression in the US is also known to be the biggest economic crisis that occurred post-industrialization.
Okay! So here’s what happened…
In October of 1929, the American stock markets crashed, as a result of which the consumer spending and investments plummeted to a record low. It created massive unemployment.
Statistics suggest that in the year 1933, when the crisis was at its peak, over 15 million Americans, nearly 20% of the Americans were totally unemployed
The unprecedented inflation and unemployment led to increased poverty. The people had no option but to borrow money from banks and other financial institutions.
But well, that did not solve the problem either.
Adding to the misery, the situation worsened further when thousands of banks closed down. They simply failed to recover the massive lending which the people borrowed because of rampant unemployment and failed businesses. The American Population was in debt like never before and there was no source of income as there were no jobs.
I’m sure it is not difficult to understand what would have happened when the crisis struck.
Because of the Great Depression, there was a significant percentage of the population that was now poor and had to rely on some kind of aid or external help. So.. they desperately started looking forward up to the government.
It was in the middle of this colossus crisis that in the year 1933 when Franklyn Roosevelt was elected as the President of the United States. He started taking some immediate measures to steer the economy out of the crisis — and slowly but steadily they worked.
With his efforts and visionary policies, the American economy gradually recovered from the crisis. He allowed for new legislation including programs and policies focussing on creating employment, introduced new regulations, and also supported the re-opening of many of the closed banks.
Though the economy recovered, it was not easy. Now the government had an additional responsibility and it was to take care of a big group of “poor population” that was created as a result of The Great Depression.
Getting things back to normal was really difficult and it definitely wasn’t something that could have been restored in a day.
The fact is re-strengthening of the economy and the country itself required well-defined policies and programs to ensure the well-being of the poor and homeless. And thus, for the first time in American history, the government realized a need for specific social welfare programs and policies.
This entire episode explains how the modern day social welfare policies in the US began to take shape, which in the coming years would only get more refined and consolidated.
Social Security Act: Foundation of Social Welfare in the US.
On August 14, 1935, President Roosevelt passed the milestone “Social Security Act”. It is this act which laid the foundation of Social Welfare in modern day the United States.
The Social Security Act was based on the principles of “Social Insurance”. The concept of social insurance originated in Europe and when it was adopted by the United States in the year 1935, it was already being practiced in 34 other countries.
Social Insurance principles fundamentally advocated that the government provides insurance for the economic well being of the citizens. In effect, it meant providing coverage to various groups like elderlies and senior citizens, disabled, and unemployed.
The Social Security Act marked a new era of organized and government-sponsored social welfare in the US. The major provisions of the act were:
- Providing a state welfare program for the senior citizens and a federal old-age benefit. The benefits included a pension for those who retired from work at the age of 65.
- There were different kinds of old age pensions and support programs which were initiated for the economic security of the elderlies.
- A special social security boardconstituted with the task of providing all employers and employees along with public at large about the procedures of how the income was to be reported to the agencies and how the benefits would be distributed. In short, making the people aware of the provisions and methods of the new social security provisions.
While the initial social security act provided for pensions only to the retired workers it was amended very soon. In the year 1939, two new provisions were added to the original social security act.
- The benefits were extended to the spouse and minor children of the retired workers. This is known as dependent benefits.
- The survivor benefits would also be paid to the dependents in case of a premature death of a worker.
In coming years, the Social Security Act was amended a number of times and more provisions were added to it. Let’s take a look at two important amendments which expanded the US social welfare program to other social groups:
- The 1956 Amendment — In the year 1956, the Social Security Act was amended further to include benefits to disabled workers aged 50–64 and disabled adult children.
- The 1961 Amendment — The 1961 Amendment of the Social Security Act lowered the age of beneficiaries from 65 to 62. This resulted in more people getting enrolled in the social security program and increased social security expenditure for the government.
While these were some important changes the most significant one was the signing of the Medicare Bill in 1965 by President Lyndon Johnson.
On July 30, 1965 President Lyndon Johnson signed the Medicare bill which marked a new era in the history of social welfare in the United States.
The Medicare Program had two main parts and provision:
- Hospital Insurance — With Medicare, all American citizens above the age of 65 got financial support to pay the hospital bills as a part of their health coverage.
- Supplemental Medical Insurance — In addition to the regular hospital insurance those who were eligible for social security could also opt for a supplemental medical insurance coverage. This included not only the hospital charges but also the doctor fees and outpatient charges.
The Medicare program became very popular amongst the Americans. In just the first 3 years there were over 20 million people who got enrolled in the Medicare program. While it was great to step ahead in achieving social welfare for citizens, the American government was now also spending a lot more on its welfare programs than ever before.
As the government continued with its social welfare programs with some amendments to the existing social security act the next major changes did not happen until the year 1996.
The 1996 Welfare Reform
In the year 1996 President Bill Clinton signed the “Personal Responsibility and Work Opportunity Reconciliation Act” and this was the beginning of a new phase of Social Welfare in America.
The main idea behind the act was to make sure that those who are able to work do not rely on social benefits and just keep benefitting from it. It was also because the government had to spend a lot of taxpayers’ money on social benefit programs.
In fact, the American government was spending on social security more than anything else and it really impacted the government revenues and to an extent, it became very hard for them to support such extensive programs.
So what was the “Personal Responsibility and Work Opportunity Reconciliation Act” all about?
Before getting to understand the provisions of the act let us take a quick look at the major social welfare programs that were being executed by the US government:
- Social security — The most important of the Social welfare programs in the United States, the social security policy has two programs. The first is the Old Age Survivors Insurance Program that has provisions for a monthly cash grant to retired workers and their dependents. The second a Disability Insurance program for cash benefits to disabled workers and their dependents.
- Unemployment Compensation — The unemployment compensation is provided for by both the Federal and state governments. It is given as a temporary support measure to the unemployed workforce to help them during crisis and periods of recession.
- AFDC — The AFDC is a grant based welfare program for needy children. This program is carried by the state governments with some funding assistance from the federal government.
- Medicaid — Not to be confused with Medicare, Medicaid is a program to help poor people receive financial support for health services. It is funded jointly by both the federal and state governments.
- Food Stamps — The Low-Income group receives food stamps which allows them to get free food from their local supermarkets.
- Medicare — As we already discussed, Medicare was introduced as a part of the 1965 welfare reform and it is a complete health insurance program for senior citizens and the disabled.
Now that we know the popular programs, let’s take a look at the important provisions of the 1996 “Personal Responsibility and Work Opportunity Reconciliation Act” act and try to understand the major changes it brought.
- Limited Welfare Spending — For the first time, the spendings on welfare programs were limited. The maximum amount that could be spent on welfare programs was fixed at $16.4 billion annually starting 1996 to 2001. This meant that if the funds were exhausted, then even if there were more needy people qualified for receiving government support, there would be no additional funds or grants made by the federal government.
- ChangesTo Unemployment Benefits — The Unemployment benefits were restricted under the new act. Those receiving the benefits would have to find a new job within two years and cannot continue to keep receiving benefits beyond 2 years. Also, the period of two years could be further shortened depending on the state government policies.
- Restrictions On Welfare Grants — There were new restrictions implied on those seeking for benefits under the social welfare programs. For example, in the case of disability benefits those who were a victim of alcoholism or drug abuse were no longer eligible. Prior to this act, all disabled persons were eligible for the grants irrespective of the cause of their disability.
- Time Limit — The new act imposed restrictions on adults receiving grants. The adults could then receive benefits to a maximum of 5 years in their lifetime. Any further or extended support would not be funded by the Federal Government.
- Stricter SSI Eligibility — Under the Supplemental Security Income or the SSI program, all children who were facing mental or physical development issues were eligible to receive SSI benefits and this included inappropriate behavior as well. But with this act, the children had to have a proven medical condition to be eligible for the grant.
The other major change that was brought by the Clinton Administration was the repeal of Retirement Earning Test. On 7 April 2000, “The Senior Citizens’ Freedom to Work Act of 2000” was enacted and that allowed the benefits meant for senior citizens to be extended to those who were still effectively not retired. That meant that those beyond the age of 62 and still working were also eligible for the benefits contrary to earlier provision where one had to be fully retired from work to be eligible for the benefits.
The Social Welfare programs in America have been evolving and new administrations bring new reforms and changes.
After President Clinton, the Bush Administration also worked towards reforms. The major change that was initiated by the Bush administration is the expansion of the Medicare system.
In December of 2003, the “Medicare Prescription Drug, Improvement, and Modernization Act” was signed allowing the voluntary drug prescription to be covered under Medicare benefits.
Like his predecessors, President Barack Obama too made some important changes and reforms to influence the social welfare landscape in the United States. During his first term as president, he signed the “American Recovery and Reinvestment Act of 2009”.
This act made provisions for an additional $1 billion to be spent on the administrative budget of the Social Security Administration. In his second term, he came up with the revolutionary Obamacare program that would impact the health care system in the United States.
Meanwhile, before we wrap up let’s take a quick look at 2 interesting facts about Social Welfare Programs in the US today:
- In the year 2017, the US government spent an estimated 1098 billion dollars on its welfare programs. Out of the total expenditure, both state and federal government combined spent 643 billion dollars on Medicaid alone.
- US has the second largest welfare system with only France spending a greater portion of their GDP on social welfare programs.
Despite massive spendings, the US social welfare system may still not be considered amongst the best in the world and there are many reasons which we may explore in another article.
If you have any questions, ideas or facts to share you can always post in the comments below.