Commentary: Is the Economy's Safety Net Recession-Ready?

By Alexandra Starr

Federal Reserve Chairman Alan Greenspan is doing his level best to yank the U.S. economy out of its funk. So far, gross domestic product still seems to be rising, and the jobless rate remains relatively tame. Slower hiring and more layoffs haven't yet caused severe economic pain for most American families. But if the slowdown drags on or turns into a full-blown recession, more people will turn to the social safety net for support.

So how much help can Americans count on if times turn bad? While a few federal programs have been beefed up in recent years, the broad shift in the nation's approach to social welfare aid in the 1990s has carved new holes in the biggest programs, such as welfare, Medicaid, and food stamps (table). They now are less generous, and some include lifetime limits that could leave needy families with little recourse if jobs can't be found. New rules also make qualifying more difficult for many immigrants, whose ranks have ballooned in the past decade. Add to that soaring numbers of illegal immigrants, who never qualified in the first place, and more people could go needy down the road.

If hard times do materialize, the U.S. may be forced to reexamine the leaner, meaner approach to social programs. True, the tougher philosophy has worked relatively well in the low-unemployment era of the past half-decade. Since welfare was overhauled in 1996, the focus has been on ``making work pay,'' which means prodding recipients to get a job--and easing their tax burden once they're employed. This has brought a big boon to the working poor in the form of tax breaks, through an expansion of the Earned Income Tax Credit. The tough new rules sped the process along by pushing welfare mothers off the rolls and into the waiting arms of employers.

The hitch, of course, is that you have to draw a paycheck to qualify. The 1996 welfare law created the Temporary Assistance for Needy Families (TANF), which placed a five-year lifetime limit on individuals' ability to get federal benefits. The caps don't kick in until next year in most states, so few welfare mothers have run into problems yet. But those who can't land a job in a weaker labor market could be dropped from the rolls as they reach the limit.

INADEQUATE. TANF also has given states more leeway in how they administer welfare, which could cause problems, too. Welfare is now a block grant, not an entitlement. That is, Uncle Sam forks over a set amount of TANF money to states, whose allotments don't rise if more mothers need help. So if the rolls swell in a downturn, states will be stuck with the tab. They are allowed to exempt 20% of their caseloads from the time restrictions. They also can dip into their own pockets after federal funds run out. Already, some states are salting away current surpluses, and there is a federal contingency fund that could provide some additional money. But, cautions Isabel Sawhill of the Brookings Institution, ``by most analyses, these provisions would not be adequate in a typical-sized recession.''

Food stamps, too, are harder to come by now. The 1996 welfare law barred most legal immigrants from collecting food aid. It also slapped limits on able-bodied adults without dependents, who now get only three months of food stamps in any three-year period, unless they are working. Seventeen states have ponied up their own funds to give food stamps to immigrants. And 38 have obtained waivers to skirt the three-month limit. Still, the new rules will leave more families without food assistance if a recession drives up hunger.

But it may be worse than it needs to be. That's because the new rules ended up confusing a lot of folks. The welfare rolls have fallen in half, to 2.2 million families, since 1996. But many former recipients earn poverty-level wages, entitling them to continue to collect food stamps and to get health coverage through Medicaid. Yet many families don't seem to realize that. The number of people getting food stamps has plunged by one-third, to 17 million, since 1996. Today, fewer than half of eligible working families actually collect them, according to the Center on Budget & Policy Priorities, a Washington think tank. Similarly, the share of poor parents with Medicaid has fallen, even as their uninsured rate has jumped.

IN THE COLD? Recent efforts could help to get qualifying families back on board. Last fall, Congress passed new rules that allow states to make it easier for former welfare recipients to stay on food stamps. But if people remain confused, higher unemployment could compound the problem. Some states, meanwhile, have been trying to address the Medicaid underenrollment. ``The hemorrhaging appears to have been stanched, but there's still a significant problem,'' says Ron Pollack, head of Families USA, a health-care advocacy group in Washington.

Unemployment insurance may not cover as many in the event of more joblessness, either. One problem is that to qualify in many states, unemployed workers must have earned certain minimum amounts over the prior 12 months or so. This has the effect of cutting out many temp workers and part-timers, who typically have lower hourly pay rates and don't work enough hours in a year. And there are a lot more of these people since the last recession in 1991: The ranks of temps have nearly tripled, to 3 million.

A program that's actually catching a large group in need is the State Children's Health Insurance Program, which Congress passed in 1997 to expand health coverage for children of families who earn too much to qualify for Medicaid but can't afford private insurance. It has enrolled 3.3 million kids so far.

With any luck, the economy will pick up again, and few families will find themselves in need of aid. But if the economy stalls, the government's helping hand may not reach as far as it did in the last downturn.

Starr covers social policy from Washington

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