Welfare Reform and Health Care For the Poor: Implications For Social Marketing

Ronald Paul Hill, University of Portland
Debra Lynn Stephens, University of Michigan
ABSTRACT - This paper examines consumer survival on welfare within the context of a history of modern welfare policy that demonstrates its cyclical nature. An analysis of poor families’ consumer needs is delineated with special attention paid to health as it is impacted by the largest government program in this area, Medicaid. We close with consumer-based policy implications designed to meet the requirements of financially-disadvantaged families. The reader is directed to Hill and Macan (1996) for a more extensive discussion of this topic.
[ to cite ]:
Ronald Paul Hill and Debra Lynn Stephens (1997) ,"Welfare Reform and Health Care For the Poor: Implications For Social Marketing", in NA - Advances in Consumer Research Volume 24, eds. Merrie Brucks and Deborah J. MacInnis, Provo, UT : Association for Consumer Research, Pages: 305-307.

Advances in Consumer Research Volume 24, 1997      Pages 305-307


Ronald Paul Hill, University of Portland

Debra Lynn Stephens, University of Michigan


This paper examines consumer survival on welfare within the context of a history of modern welfare policy that demonstrates its cyclical nature. An analysis of poor families’ consumer needs is delineated with special attention paid to health as it is impacted by the largest government program in this area, Medicaid. We close with consumer-based policy implications designed to meet the requirements of financially-disadvantaged families. The reader is directed to Hill and Macan (1996) for a more extensive discussion of this topic.


Historically, welfare policies in the United States were rooted in the English Poor Laws of 1601 (Cunningham 1993). Value judgments that categorized the poor as either "deserving" or "undeserving" emerged from these early laws, and assistance was set at a level below the lowest attainable income an "able-bodied" person could earn. Further, assistance typically was provided through almshouses, and, in several states, the indenture, apprenticing, or placement in orphanages of children living in poverty was sanctioned (Turner 1993).

Such policies became noticeably inadequate as the economy collapsed and social conditions deteriorated during the Great Depression of the 1930s. The segment of the population living in poverty changed dramatically to include many members of the working class, causing a shift in focus away from the worthy versus unworthy debate to a perceived need for protection from the uncontrollable negative events of life (Turner 1993). On June 8, 1934, in an effort to address this national crisis, President Franklin D. Roosevelt articulated a new social agenda for the federal government that included basic "consumer" security.

This security for the individual and for the family concerns itself with three factors. People want decent homes to live in; they want to locate them where they can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this manmade world of ours. (Cohen 1985, pp. 136-138).

In order to flesh out the details of this agenda, FDR created the Committee on Economic Security on June 29, 1934. The Committee’s report, which was sent to the President on January 15, 1935, recommended that the federal government safeguard the citizenry against "the major hazards and vicissitudes of life," including unemployment, old age, poor health, loss of the family breadwinner, industrial accidents, and lack of training (National Conference on Social Welfare 1985). Further, the Committee believed that measures designed to support this goal would reduce the total costs to society of poverty without generating unnecessary dependence.

Using the Committee’s recommendations as a basis, FDR forwarded the Social Security Act to Congress, which was quickly passed into law on August 14, 1935. This Act established a two-tier system of support (Bonnar 1985). The first tier is the now familiar contributory insurance program that provides old-age annuities and unemployment insurance. The second tier, conceived of as an extension of the historic means-tested approach to helping the poor, is a residual program designed to support those who meet eligibility requirements for need but are not covered by the first-tier program.

Title IV of the Social Security Act, "Grants to States for Aid to Dependent Children" (ADC), was the predecessor of the current AFDC program. Section 406 specified that ADC was designed to provide monetary payments to:

..a child under the age of sixteen who has been deprived of parental support or care by reason of the death, continued absence from home, or physical or mental incapacity of a parent, and who is living with the father, mother, grandfather, grandmother, brother, sister, stepfather, stepmother, stepbrother, stepsister, uncle, or aunt, in a place of residence maintained by one or more of such relatives as his or their own home.

As is true today, this portion of the Act was implemented by extending grants for aid to the individual states so that they could continue to give support through programs currently in place. Each state was allowed to establish criteria for eligibility and payment amounts, resulting in significant differences in both throughout the nation.

For the most part, the principle of less eligibility discussed earlier was used as the guiding tenet in aid provision, especially in the southern states where discrimination against African-Americans was common (Turner 1993). In a study of the average costs for families with two children living simply, the Work Progress Administration (WPA) determined that $1347 a year was a maintenance annual income level and $930 was the bare minimum for survival during the mid-1930s. However, welfare payments per family averaged only $381 during this same period. Additionally, many states established qualifying standards that resulted in the approval for aid of only "deserving" widows who maintained a "suitable" home that fostered religious values in their children.

By the end of the Great Depression, the federal government concentrated its attention on the war effort and, once the war was over, on stimulating a healthy post-war economy (U.S. Department of Health and Human Services 1985). The resulting prosperity and conservative political environment, combined with a shift in the ADC population from widows and orphans to persons of color and out-of-wedlock births, caused negative reactions among members of the rising middle class (Bell 1965; Cunningham 1993). Public support for the provision of welfare waned, and, in August, 1950, the Social Security Act was amended, in part, to reflect changing middle-class attitudes. For example, the amendment required states to notify law enforcement officials of fathers who deserted their families so that they could be prosecuted. If the recipient refused to give permission for this notification, benefits could be terminated.

The social protests and civil rights movement of the 1960s resulted in a renewed emphasis on the poverty population (Turner 1993). Social activists, such as members of the National Welfare Rights Organization (NWRO), rose up in support of welfare recipients and focussed on reducing the stigma associated with relief payments. Consistent with these views, the Kennedy administration laid the foundation for a new welfare system based on the provision of more extensive services and rehabilitation leading to self-sufficiency (Burgess and Price 1963). In 1962, Title IV of the Social Security Act was renamed "Aid to Families with Dependent Children" (AFDC), and it was amended to allow for assistance to a second adult in the home, the provision of support services such as day care, and earned income that would not reduce benefits in order to encourage employment.

After Kennedy’s assassination, Johnson launched the "War on Poverty." The Civil Rights Act subsequently was passed into law on July 3, 1964, followed by the establishment of the Economic Opportunity Act, insurance programs such as Medicare and Medicaid, and the Food Stamp Program. With this renewed interest in serving the poor, the number of families receiving welfare doubled between 1965 and 1970 (U.S. Dept. of Health and Human Services 1985). Nonetheless, the average annual AFDC payments per family were $1643 and $2285 in 1965 and 1970 respectively, far below the established poverty levels of $3223 an $3968 for the same years.

By 1977 the AFDC rolls doubled again, reaching 3,523,000. Approximately 80 percent of recipients lived in urban areas, and the majority of families were headed by single females, many of whom were women of color. When the Republicans captured the presidency and the senate in 1980, their conservative agenda included a plan to lessen federal involvement in welfare programs and to reduce the absolute number of recipients (Glazer 1984; Gilder 1981; Kristol 1985; Murray 1984). The 1990s have been an extension of this downward trend, with a focus on budgetary savings through reduced dependency (Greenstein 1992). In 1991 alone, 40 different states froze or reduced AFDC benefits, and 12 states trimmed special needs payments such as emergency assistance for homeless families. These efforts have reduced payments to the point where AFDC and food stamp disbursements combined are below the 1960 level for welfare relief in constant dollars.


Most of the research in the area of welfare reform and health has focussed on the Medicaid Program, which was established in 1965 as Title XIX of the Social Security Act (Gurny, Baugh, and Davis 1992). This entitlement program is a cooperative venture of the federal and state governments, and all AFDC recipients are eligible for its health insurance coverage. The resulting relationship between AFDC and Medicaid expenditures has been controversial, but research indicates that the association is asymmetrical. Thus, Medicaid spending has a significant impact on AFDC spending, but the reverse is not true (Schneider 1993, p.375).

These finding suggest that poor women who value medical insurance are likely to seek and attempt to maintain AFDC eligibility in order to ensure health coverage (Blank 1989). Therefore, the lack of health insurance in many low-paying jobs combined with the mental and physical health problems associated with poverty decrease the likelihood that the head of household will work and increase the likelihood that s/he will be on AFDC (Moffitt and Wolfe 1992; 1993). Such dire circumstances are exacerbated when one or more of the children are disabled, further limiting the parent’s ability to work and increasing the need for health insurance (Wolfe and Hill 1995). The unfortunate result is chronic unemployment, low self-esteem, and a cycle of poverty.

Changing regulations brought on by welfare reform designed to reduce expenditures rather than serve the poor often resulted in confusion concerning eligibility. Many people living in poverty frequently were reluctant to confront the bureaucratic maze of procedures and paper work to determine their status. Furthermore, like AFDC, Medicaid has become stigmatized and many among the poor believe that they often receive less than high-quality care. A review of the literature by Rosenbach (1993) revealed that some health care providers are reluctant to extend services to Medicaid participants because of concerns over malpractice and low reimbursement rates.

This problem particularly is acute for the poor when they need to access medical specialists for problems that are beyond the expertise of primary care physicians or their assistants (Colle and Grossman 1978). However, while low-income children average 2.7 doctor visits per year compared with 3.3 for the non-poor, those children on Medicaid average 2.9 visits compared with the non-insured’s mean of 1.8 (Rosenbach 1993). Thus, although poor children are at greater risk for severe illnesses that end in hospitalization an/or death, those on Medicaid have the opportunity to utilize medical services/preventative checkups that reduce their susceptibility to more acute health problems.


To end the cycle of poverty that has captured the lives of millions of poor Americans, policy makers must move beyond judgmental rhetoric to action-oriented solutions that are truly consumer-based. These solutions must consider the situational realities of welfare recipients from their perspective rather than through the clouded lens of middle-class mores. Only then will legislation be designed and implemented that provides people in poverty with the ability to acquire the basic consumer products that are necessary to ensure physical and mental health.

According to a 1992 study, 31 million Americans are without any form of health insurance, and most of these people are members of the lowest income groups in our society (Mills and Blank 1992). For these individuals as well as for society, their lack of insurance may have serious consequences. For example, many among the uninsured fail to get treatment for illnesses or injuries until their problems have progressed into serious or life-threatening conditions, leading to higher medical costs which must be absorbed by the health-care system (see Hill 1991 for a specific illustration).

A system needs to be developed to provide health insurance to welfare recipients and the working poor in order to reduce the ultimate cost of care and improve the quality of their lives. Since research shows that the more employable AFDC recipients have fewer health care needs, the most cost effective policy may be simply to provide Medicaid coverage to all poor citizens (Rofuth and Weiss 1991). Moffitt and Wolfe (1992) found that an extension of health insurance coverage would lead to a 25 percent reduction in AFDC caseloads.

Nonetheless, this reform has significant difficulties from an implementation perspective. Currently, the Medicaid program varies from state to state since individual states have the discretion to set eligibility levels, to determine what services are available, and to define reimbursement policies. Such variability and complexity often lead to confusion regarding eligibility and benefits, particularly among those with lower levels of education and literacy. Further, there is little physician interest in treating Medicaid patients due to reimbursement levels of only 56 percent of the average national charge (Mills and Blank 1992). As a result, many of these areas do not have enough health care professionals to service the clients who are on Medicaid (see Scammon et al. 1995 for more on problems involving the supply of providers).

Thus, reform to the Medicaid system must make the poor eligible for health insurance coverage as well as make utilization of this insurance easier. One tactic would involve the development of outreach programs in poverty communities (e.g., through churches, schools, community centers) to encourage the poor to apply for coverage. An additional way of improving access includes developing/expanding federal programs to place health care professionals in needy communities. For example, the National Health Service Corp provides financial assistance for medical students, who repay these loans by working in depressed areas in need of medical personnel (Scammon et al. 1995).


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