In 1996, President Clinton signed a major welfare reform package into law, ending the entitlement nature of cash assistance for the poor, converting the system to a lock grant program and imposing time limits and work requirements. A new article from Governing looks at lessons to be learned from welfare reform in the current discussion to convert the Medicaid program from an entitlement program to block grants.
The article notes that states became more cautious in expanding their welfare programs, as they became solely responsible for any budget increases. This also came with benefits for states, as they would retain any savings realized in the program instead of splitting those savings with the federal government. Maintenance of effort requirements that mandated that states spend at least three-fourths as much on benefits as they did prior to the law change kept benefit levels stable.
Despite these positive aspects of welfare reform, the article warns of other negative outcomes as well. The percentage of families that receive assistance has gone down, while the number of people out of the program and unemployed has gone up. States have found workarounds that undermine the law's work requirements, meaning "There's virtually no work requirement," according to a former Hill staffer who worked on the law.
Most concerning, the value of federal welfare payments has plummeted, with the federal share being worth only about two-thirds its 1996 value. The article notes this value erosion could be even more dramatic for Medicaid, as health costs tend to rise faster than inflation. This would likely result in states being forced to reduce coverage, reduce number of beneficiaries, or both.