From Our Experts

Can the U.S. Safety Net Handle the COVID-19 Pandemic and Recession?

Robert A. Moffitt, Department of Economics, Johns Hopkins University

The COVID-19 pandemic has thrown the U.S. economy into a nosedive of unprecedented rapidity. Millions of workers have lost their jobs and are unable to work from home. GDP is plummeting, small business owners cannot meet their rent and other economic obligations, and loan payments in general are not being met, reducing bank income. Families are struggling to meet basic needs and are drawing down what little savings they have to meet those needs.

The U.S. has a social safety net that is supposed to provide assistance to families in need. How well is it working so far? Is it likely to adequately assist families in need in this historic crisis? As has been reported in the media and has been discussed by Johns Hopkins’ DeLuca, Papageorge, and Kalish, the impact of the pandemic, social distancing, isolating in homes, and other emergency measures are likely to have a disproportionate impact on our neediest citizens and on minority groups. It would be extremely unfortunate if that disproportionate impact were reinforced by an inadequate response of our safety net programs to the needs of those families.

The answer to the question, as is so often the case, is both yes and no. On the one hand, the size and generosity of the nation’s safety net programs have grown dramatically over the last several decades, and today those programs deliver more total assistance than ever before. The capacity of the system to provide hundreds of millions of dollars of assistance is there. On the other hand, the U.S. safety net system is not really a “system” at all. It is a patchwork of different programs created at different times for different needs, and a long-standing criticism of the system is that many individuals fall through the cracks and do not receive adequate coverage. These gaps will become glaringly obvious during this crisis. In addition, another important trend in many of the U.S. programs over the last three decades is that they have increasingly funneled more assistance to workers, and less assistance to people who aren’t working. While that may work well when the economy is at full employment and jobs are plentiful, it doesn’t work so well when jobs disappear. That problem is also becoming obvious during this crisis.

To understand these issues, it is necessary to discuss individual programs in the U.S. safety net “system”. Let us take three of the biggest and most important: the Unemployment Insurance (UI) program, the Food Stamp program, and the Medicaid program.

The UI program is the nation’s most important program to assist those who have become involuntarily unemployed and has always provided critical cash assistance in recessions and downturns. The program is obviously critical in the current rapid downturn, with unemployment skyrocketing by 22 million in a few short weeks and with a new 5 million unemployed applying for benefits, with both numbers surely to increase. On average, benefits “replace” about 50% of the paycheck that an unemployed person was being paid before they were laid off. While 50% is not 100%, getting half your paycheck is very important because it will allow families to eat and maybe to pay at least some if not all of the rent or the mortgage if it is not too much.

But researchers and policy analysts who follow the UI program know that it has experienced important deterioration in the last decade because of the Achilles Heel of so many American welfare programs – they are entirely financed by states, and states differ both in their ability to pay benefits and in their desire to do so in the first place. Over the last ten years, dozens of states, not wanting to raise taxes to pay for benefits, have been tightening up eligibility criteria to cut costs. As a result, today only about one-third of the unemployed get UI benefits, and that number has been falling over time. In addition, for the same financial reasons, many states have been reducing benefit levels and cutting the number of weeks an unemployed person can receive benefits before they run out. The standard length of time a person used to be able to receive benefits was 26 weeks – half a year. But some states are now offering only 13 weeks of benefits. That is unlikely to be adequate in the current environment.

The CARES Act passed recently by Congress offered to pay for an extra 13 weeks of benefits, on top of whatever the state chooses to provide. The Act also importantly covered many part-time workers who were not previously eligible as well as many self-employed and gig workers, who are also not traditionally covered by the UI program. But the extra 13 weeks is unlikely to be adequate in those states which currently offer only 13 weeks of benefits.

What about the nation’s Food Stamp program? Even middle class families are struggling with providing sufficient food for themselves because of social distancing, home isolation, and disruptions to the nation’s food supply chain. Low income families are struggling even more. The Food Stamp program – whose official name is the Supplemental Nutrition Assistance Program – will provide a lifeline to those low income families. The favorable nature of the program is that everyone with income below certain levels is covered, and it doesn’t matter if the family has children or not, married or single, old or young. Everyone with low income is eligible. A family of 4 can get a maximum of $649 per month, for example. And, unlike the UI program, the Food Stamp program is entirely federal and the federal government is required, by law, to pay benefits to anyone who is eligible, no matter what the cost.

But the program has many eligibility requirements that will hinder its response to a sudden drop in income for a family. For example, federal rules are that a family can have no more than about $2,000 in the bank to be eligible (although states have the authority to raise that limit). That’s fine for a person who has been poor all their lifetime, who probably has nothing in the bank and maybe not even a bank account, but a thrifty working family who has saved up some money in the bank while working won’t be able to get assistance until they use up all that money they have saved. They would have to impoverish themselves. The program is not designed to assist families who are not desperately poor and have only a temporary need for assistance. Another problem is that Congress has imposed severe work requirements on many recipients, requiring them to find a job on their own before receiving much benefits. That obviously makes no sense in the current environment. Fortunately, the CARES Act recently passed by Congress temporarily suspended them, but only temporarily.

However, a major immediate problem is that the program is groaning under the weight of millions of new applications. All the Food Stamp offices are closed and all applications are being handled online or by telephone. Processing times for applications have dropped dramatically and, in some states, applicants are being told that it will take at least 4 weeks before their applications can be processed. That is a long time to go without having adequate food. And the problem is made worse by the program’s legitimate interest in ensuring that every applicant who is approved is truly “deserving.” That means getting the applicant to provide paystubs from past jobs, bank statements with account balances, and documentation of any earnings from every person in the family. While this is reasonable during normal times, it is a major barrier when the applicants have to obtain all that information during a shutdown.

Because of the major delays in applications, low income and even middle-class families do not have enough food. They are swamping the local food banks, pantries, soup kitchens, and other local, non-profit organizations that ordinarily provide backup to families with short-term emergency food needs. Those organization do not have much money and are struggling to handle the avalanche of families coming in for food.

Finally, the Medicaid program is the largest and fastest growing social safety net program of all. The Affordable Care Act, passed by Congress and signed by the President in 2010, expanded benefits and coverage for millions of low-income families, who are now covered after they lose their jobs when they were not before. But the Supreme Court ruled in 2012 that states did not, in fact, have to offer coverage to single individuals and married couples without children, even though the Act was interpreted as requiring states to provide that coverage. Subsequently, 15 states have decided that they are not going to cover those types of families and individuals, and those families and individuals therefore are losing coverage as they lose their jobs. They will therefore have to go without health insurance during a major health crisis. Most of these families will, in all likelihood, have to go to the emergency room and get charity care if they need it, not only for virus treatment but for ordinary treatment. Once again, the “safety net” in the nation clearly has yet more holes that people drop through.

A final, more over-reaching problem with the U.S. safety net is that, over the last 30 years, assistance to the nation’s poor has become more and more work-oriented. Most of the leading programs now either have work requirements or some version of them, requiring recipients to find jobs in order to receive benefits. As a result, the average assistance going to nonworking families has declined over time. In addition, Congress has, over the decades, gradually increased benefits that go to working families. Today, if a family makes $20,000, they can get up to four thousand dollars in tax credits and thousands of dollars in work-based child care subsidies. Researchers call this “new” system in the U.S. the “work-based safety net”. The only problem with it is that if a family isn’t working, they get almost nothing. They receive none of those tax credits and child care subsidies. If they are childless, they do not receive Medicaid if they live in one of the states that does give benefits to nonworkers without children. They cannot get benefits from a program that has maintained its work requirements during this Recession, as some programs have done. They will receive Unemployment Insurance for a few weeks, but only if they are lucky to be one of the 1/3 of the unemployed who is now eligible. The only benefit they will definitely get is Food Stamps, at least a few weeks after application. But families cannot live on food alone. The program does not pay the rent, it does not pay for children’s school supplies, and it doesn’t pay for gas, bus fare, or repairs to your furnace if it breaks down.

The glaring deficiencies in America’s safety net system are being terribly revealed at this unfortunate time. Let us hope that the states and Congress will step up immediately to provide more emergency relief and, further, that those deficiencies will be addressed when the government returns to normal functioning and realizes that reforms are desperately needed.