Catch-22's Inherent in Today's Welfare System Block Pathways to Prosperity

By Bob DeBoer and Anna Schumacher

"Catch-22” is a commonly-used phrase in American culture. Coined in the 1961 novel of the same name by Joseph Heller, Catch-22 describes a no-win situation or a double bind. Two years ago, the Citizens League began examining its institutional history on poverty and gathering additional information through community meetings and interviews and research. The resulting project, New Pathways to Prosperity, is intended to reframe the issue of poverty in a way that can produce new ideas and new policy approaches.

So far, our efforts have convinced us that the current policies and conflicting incentives in place to address and alleviate poverty today often create a series of Catch-22s for the people living in poverty. For example:

• Current policies on poverty actually penalize people for earning more.

• The bureaucratic maze of agencies and requirements set up to address poverty waste the valuable human capacity of both those who administer the programs and those who benefit from them.

• Programs designed to help the poor fail to offer clear pathways out of poverty.

These conflicting incentives are difficult to address, but it is essential we understand them in order to develop new solutions to address poverty and the ways it contributes, both as a causal agent and negative outcome, to many other public policy dilemmas, including:

• dysfunctional families and generational cycles that increase crime and violence

• poor educational outcomes and disparities based on race and income

• poor health outcomes and disparities based on race and income (including criminalization from sexual exploitation)

• lack of mobility and access to job opportunities.

Since we began this inquiry in September 2008, the Citizens League, working with the Public Policy Project, has sought to broaden the conversation about poverty and its causes and impacts by applying a civic policy approach to the issue. Part of that approach has included convening conversations between community leaders and people directly impacted by policies on poverty. A working document available on the Citizens League website details the first phase of the New Pathways to Prosperity project. The findings and conclusions presented in that work provide the foundation for a committee to develop policy recommendations this fall.

THE WELFARE WALL AND DISINCENTIVES TO EARN

There is a cultural assumption that many Americans hold, and some assume is translated into public policy: If you hold a job and work hard, you should be able to work your way out of poverty. Yet, it is clear that our current policies and the major programs and tax structures created to address poverty make it difficult for people to climb out of poverty without extraordinary effort. Government policies and programs actually penalize people for improving their economic situation.

For those receiving government assistance, working more and earning more usually results in losing more economically than they gain, except for those able to make an astounding leap in income. “Disincentives to Earn,” a 2007 study by the Minnesota Center for Public Finance Research, reveals the conundrum: For a single parent with two children, an increase in annual earnings from $12,800 to $44,000 would result in a significant reduction in monetary resources when all the program eligibilities, tax credits,and deductions are factored in. That single parent would:

• take home $23,600 more in wages
• lose $30,600 in tax benefits and wage assistance.

This is the scenario for someone whose earnings jump from $12,800 to $44,000. The disincentives can be even greater for those who make more modest gains. If that same single parent’s earning grew from $33,000 to $34,000, the family would lose $2.50 in monetary resources for each dollar earned. These structural disincentives to earn are more commonly referred to as the “welfare wall.”

While it may seem that an increase in income would create positive change for a family, for those up against the welfare wall the outcomes are more complicated. For someone relying on government help for food, housing, or child care, each decision can lead to a serious Catch-22 that might mean the difference between working or not, having a place to sleep or not, or putting food on the table or not.

There is another important element to the welfare wall. Families and individuals receiving assistance are also discouraged or often prohibited from accumulating capital in the form of cash or assets. Without a financial cushion, people living in poverty are ill-equipped to face even the smallest financial mishap. A working mother who attended one of our convening sessions explained how this impacted her family. At one point, she earned too much to receive medical coverage for herself and her oldest child (her youngest child was covered by Medical Assistance), so she spent years paying off a bill for an emergency room visit for her oldest son while trying to work her way out of poverty. A number of things happen to a family when income rises. A parent may lose health coverage, for example, but one of the most consequential losses is the loss of a child care benefit. Child care, or the lack thereof, is one of the biggest barriers to employment faced by those living in poverty. Under the Minnesota Family Investment Program (MFIP), child care is one of the last benefits phased out as income rises. But, proportionally, it represents the biggest benefit, due to the extremely high cost of childcare. When presented with the opportunity to work, many parents will choose to work even if it means losing medical coverage. But losing the child care benefit is often an insurmountable barrier to employment. A parent can work while uninsured, but cannot work if there is no one to take care of the children. Forced to choose, some people leave their children with relatives, friends, or others who may not be equipped to provide appropriate care.

HUMAN CAPACITY WASTED NAVIGATING THE LINE

Efforts to alleviate poverty in Minnesota and the United States have evolved into a fragmented and often contradictory system that relies on sanctions and punitive regulation to control individual behavior and choices. The choices that do exist are fraught with Catch-22s and require those receiving assistance to navigate a maze of agencies and requirements that siphon off large amounts of human capacity in efforts that often do not offer clear pathways out of poverty—even for those individuals who successfully navigate the maze.

The need for recipients to report to different agencies is just one example of the fragmented nature of the welfare system. Eligibility for various programs and tax benefits are determined by a complex set of equations, and even if an individual is eligible to receive benefits, he or she may not receive those benefits for any number of reasons. Inconsistent practices and regulations between and within county systems present another time consuming set of challenges.

One example that illustrates this dynamic takes place around nutrition and health care eligibility. Recent changes in income requirements for the Women Infants and Children (WIC) nutrition program caused a number of women to lose their benefits. However, a clause in the regulation states that women can retain their WIC benefit if at least one child receives Medical Assistance(MA). One of the organizations we interviewed reported numerous referrals from clients who were instructed to apply for MA in order to maintain WIC benefits. Clients may not have needed or wanted MA, but both parties still had to expend human capacity in the application process just to comply with the rule change.

A very important issue to note in the area of health care coverageis that the application and renewal processes were designed andare mainly administered by people with generally stable lives toserve an economically unstable and highly transient population.

The result is a system that is often not well designed to meet the needs of those it serves.

Postal Service: The welfare system relies on permanent addresses, which are generally difficult for poor people to get and keep. All application and renewal activities are conducted via the postal system. That means the system relies upon a person’s permanent address to deliver important and time-sensitive information regarding eligibility, acceptance, denial, and penalties or sanctions. Backlogs in county systems can delay important notices and the variance in grace periods make reinstating medical coverageafter a sanction difficult and time consuming. Imagine a woman in an abusive relationship who takes her children to live with a relative. If her name is not on the mailbox, she can lose her benefits and have to reapply.

Proof. Proof. Proof: As noted before, a person may be eligible for benefits but still be denied. MA and MinnesotaCare require recipientsto turn in every pay stub and renew coverage every six months or annually. Many people in poverty do not have steady employment, but instead receive cash payments for odd jobs and seasonal or temporary employment. Failure to provide proof of this income results in denials or a termination of benefits.

The 50% Rule: At a certain income level, welfare recipients become ineligible for MA and are referred to MinnesotaCare, a health coverage plan that charges discounted monthly premiums based on ability to pay. But an individual is only eligible for MinnesotaCare if his or her employer does not provide medical insurance and pay at least 50 percent of the monthly premium. If the employer does offer coverage, that individual becomes ineligible for any public medical assistance, regardless of income and regardless of whether they can afford employer-based insurance. Those who can’t often chose to work without insurance. There is also no assessment of the coverage provided by employer-basedplans, so workers who do buy employer-based insurance may incur significant out-of-pocket costs and receive poor coverage.

CATCH-22s AT EVERY TURN

People in poverty who try to “do the right thing” are often confronted by a system riddled with Catch 22s. At one community meeting, a young woman shared this story: She had worked to attain her associate’s degree for three years and then lost her childcare benefit the day she graduated, leaving her with no one to care for her children while she tried to find a job with her newly acquired skills. This and other systemic Catch 22s waste huge amounts of human capacity and resources when people who work to improve themselves are then unable to compensate for the immediate loss of benefits that results from their improved situationand return instead to poverty and dependency.

A particularly vicious Catch-22 circles around the dynamic of those in poverty trying to keep stable housing, a requirement that must be met in order to keep custody of children and maintain benefits. That requirement gives landlords extraordinary economic power over impoverished tenants. If a woman cannot pay rent on time, there are predatory landlords who will settle the debt by accepting payment in other forms, most often sexual favors. Most often it is women and their children who are targeted for these “payments”. Because eviction can permanently ruin the family’s ability to find and keep housing, a woman can feel pressured to accede to such payments. If she does, she can be prosecuted if she refuses future sexual demands and seeks help. Prosecution can result in the loss of child custody and benefits.

SEEKING A NEW FRAMEWORK

The ideas presented in this article are an attempt to reframe poverty in a way that we hope will spur new ideas and new approaches. They are part of a working document available on the Citizens League website.

This fall, a Citizens League committee will take the New Pathways to Prosperity project to the next level, developing policy recommendations to resolve the Catch 22s that make it difficult for people living in poverty to climb out of poverty.

The committee’s work will be guided by our civic policy agenda and two assertions that we think will push the discussion to thenecessary policy level:

• Systems designed to support people when they are poor shouldnot keep them poor.

• Policies should not encourage family breakdown or penalize families trying to stay together.

These two statements will be tested broadly as the Citizens League seeks policy solutions that move us forward. If you are interested in participating on the committee, visit us online at http://www.citizensleague.org/.

•Bob DeBoer is the Citizens League Director of Policy Development. He can bereached at 651-293-0575 ext. 13 or at bdeboer@citizensleague.org.

Anna R. Schumacher is a senior at the College of Saint Benedict/Saint John’sUniversity where she received the first John Brandl scholarship. She interned at the Citizens League over the summer.