Comment: U.S. Social Welfare Policy

2 Colum. J. Eur. L. 457 (1996)

Lance Liebman. Dean (1991-96) and Professor of Law, Columbia University School of Law.

Professor Alstott’s paper tells an important story about the current moment in American federalism as interpreted through the lens of the social welfare system.1 From its beginning in 1935, Aid to Families with Dependent Children (AFDC) was the most important intellectual ingredient in the American commitment (or not) to poor families. AFDC was called an exercise in “cooperative federalism.” States established and administered programs, receiving reimbursement for roughly fifty percent of their expenditures from the national government, which, however, imposed certain programmatic conditions.

Since the Republicans took control of Congress in the 1994 elections, Congress has emphasized two themes: cutting welfare eligibility (and especially reducing the time period over which benefits can be collected) and transferring authority from the national government to the states. But, as Professor Alstott nicely shows, the two goals sometimes conflict, as when there is support for a national rule that reduces benefits.

I would like to put “welfare,” a $23 billion program, in the larger context of American social welfare, attempting to raise comparative international questions about federalism. Only historical contingencies explain the allocation of social responsibility between national and state governments in the U.S. Unemployment Insurance, a $22 billion program, is like AFDC: state programs with a degree of federal supervision. Workers’ Compensation, which transfers $43 billion in a year, is entirely a state-level program. Indeed, states choose whether to operate government insurance funds or to require employers to purchase coverage from private companies. Income support for the long-term disabled is a federal program, part of the national Social Security system. Short-term disability is left to the states, and most of them have no benefit programs. Old-age benefits are national, and constitute the largest ($300 billion) part of Social Security. The national government finances health expenses for persons older than 65 (Medicare), divides with the states the finance of health expenses for the pre-65 poor (Medicaid), and leaves to employers (regulated to some degree by the states, to some degree nationally, and to some degree not at all) the finance of health benefits for those who are neither elderly nor poor.

But, as the above suggests, the allocation of social welfare authority between national and state government is only one part of the story of protection against and preparation for the vicissitudes of economic life. For the complete story, onemust see the distribution of responsibility among the individual (or the family unit), the employer (or, as so often with two-worker families, two employers), and government (national, state, and local). And indeed, an additional institution that could be considered is the international labor market that plays, today, such a large role in determining the compensation (both wages and benefits) that an individual’s skills can command. In this context, the investigation of federalism becomes a search both for national and state-level programmatic responsibility (social welfare programs) and for regulatory authority (what level of government is supervising what portions of the employer-employee “fringe benefit” relationship).

The aspect of this structure that is most interesting at this moment in the United States, and most subject to reconsideration, is worker (and worker’s family) health benefits. The failure of the Bill Clinton/Hillary Clinton healthcare reform program in 1994 was a signal that most working Americans will receive health benefits from their employers for the foreseeable future. This is inherently a problematic relationship. It gives companies an incentive to discriminate in hiring against persons likely, because of genetic makeup, prior history, or age, to have more than average health expenses. National and state laws ban discrimination by age and by disability (now interpreted to ban discrimination because of testing positive for the HIV virus). Much of twentieth century history shows the attempt to create worker dignity and liberty in the shadow of employers: this is the struggle against the Industrial Revolution’s version of feudalism. But an employer who pays for family health expenses has an interest (that we may wish to order him not to pursue) in whether the employee smokes or hang-glides, whether she follows treatment plans recommended by her physician, whether her partner is a legal spouse, and whether the children in her household are hers. It is no surprise that government is pressed to say that a health benefits plan must include coverage for mental illness, that an employee must (or must not) extend dependent coverage to a gay or lesbian partner, that a health plan must allow at least 48 hours in the hospital after childbirth, and so on. But to what level of government are these decisions assigned?

The American law on this subject will surprise European (not to mention Japanese) observers. First, a national law (the Employee Retirement Income Security Act of 19742) makes “employee benefit plans” (not merely health plans) a matter of national government concern. Second, that same law tells the states to keep their hands off : “[the federal statute] shall supersede any and all State laws insofar as they may … relate to any employee benefit plan …. Third, however, the federal law allows states to continue to regulate “insurance,” historically a matter of state responsibility. Fourth, “self-insurance” (a company which promises benefits, hires an insurance company to administer its plan, but retains the economic risks) is not “deemed” to be insurance for the purpose of permitting regulation by the state government. The result is that companies have an incentive to self-insure, to avoid what are – at this moment – state regulations of health insurance that are more detailed and intrusive than the national rules. But the concerns of patients for proper treatment lead to political efforts to protect them from allegedly exaggerated attempts to reduce health costs, and it seems likely that the national government will expand its regulatory efforts. Furthermore, even though states cannot regulate self-insuring employers, they can regulate health care providers (physicians, hospitals, and especially health maintenance organizations), and expanded state regulatory efforts seem likely in this area as well. This is very far from a story of coherent government concern with an efficient health care system or effective assurance of necessary care to all citizens. It may be even further from a story of an effort to assign important public tasks to the level of government that is most capable of handling them. Rather, federalism confuses further an inherently complicated system by leaving individuals, employers, and providers unsure about the rules of the game, thus giving advantages to well-organized and -financed collective efforts to achieve private advantage by “playing the system.” With health care expenses rising above fifteen percent of the total Gross National Product, it is no surprise that employers, labor unions, hospitals, physicians, drug companies, and many other special interests devote vast resources to protecting and advancing their positions at every level of government, nor that they are often extremely effective in achieving their goals.