April 11, 1997

The Administration's Proposals To Ease
Some of the Welfare Law's Harshest Provisions


I. Overview

As part of his fiscal year 1998 budget, President Clinton has proposed to restore basic assistance to certain groups of legal immigrants and food stamp recipients who otherwise would be denied aid under the 1996 welfare law (known as the Personal Responsibility and Work Opportunity Reconciliation Act of 1996). These and other modifications would restore $17.9 billion in benefits over the next five years according to the Office of Management and Budget and $20.5 billion according to the Congressional Budget Office. The bulk of these funds would be used to restore Supplemental Security Income (SSI) and Medicaid eligibility for legal immigrants who become disabled after entering the United States. (The CBO estimate is higher primarily because of assumptions that CBO makes about the interaction between Administration proposals affecting Medicaid eligibility for disabled children and immigrants and a separate Administration proposal to place a "per capita cap" on Medicaid. In the absence of a per capita cap, the CBO estimate of the cost of the Administration's Medicaid-related changes in the welfare law would be approximately $4 billion lower.)

An additional $3.3 billion1 is included in the President's budget for a separate welfare-to-work initiative, most of which consists of providing $3 billion over three years to states and cities to increase employment among long-term welfare recipients. Few details concerning the Administration's welfare-to-work initiative are available. This initiative is likely to be examined in a future Center analysis when the Administration releases more of the details related to it.

The President's proposals pertaining to legal immigrants and food stamps are designed to fulfill the pledge he made when signing the welfare law that he would seek to address some of the most severe problems created by the law's non-welfare provisions (i.e., by provisions of the law unrelated to the conversion of AFDC to a block grant with time limits and work requirements). The Administration's proposals include:

In most of these areas, the Administration's proposals seek to modify provisions of unprecedented severity. For many of the families and individuals who would be affected, the issue is not that the welfare law would cause them to lose a portion of their benefits but that it would leave them with virtually no safety net at all.

The Administration's proposals would not alter the core welfare changes in the new law. The welfare block grant that has replaced AFDC, as well as the related time limits and work requirements imposed on those who receive welfare block grant assistance, would remain fully in place.

The Administration's proposals focus particular attention on the two areas in which the welfare law approved last summer was more severe than the welfare bill the House of Representatives passed during the first 100 days of the 104th Congress, when the House was passing its "Contract with America" proposals.

Cost of Administration Proposals to
Ameliorate the Welfare Law
FY 1998 - FY 2002

(in billions of dollars)


Administration Proposals Under OMB Estimates

Administration Proposals under CBO Estimates

Total $17.9 $20.5
Food Stamps 3.3 4.6
SSI (legal immigrants) 9.7 9.1
Medicaid (legal immigrants and disabled children) 4.9 6.8*

* The CBO cost estimates for the Medicaid proposals in the President’s budget that retain Medicaid coverage for disabled children being dropped from the SSI program and for certain legal immigrants reflect the effects of interactions between these proposals and the Administration’s proposal to impose a per capita cap on Medicaid expenditures. Considered by themselves, the Medicaid proposals related to legal immigrants and disabled children would be "scored" by CBO as costing about $4 billion less than is shown here.

The following analysis examines the Administration's proposals in these areas.


II. Changes Affecting Legal Immigrants

The welfare law reduces benefits for legal immigrants by more than $22 billion over six years. The full $22 billion of these reductions comes from withdrawing assistance to legal immigrants. Illegal immigrants already were ineligible for the major federal entitlement programs (with the exception of emergency Medicaid services).

Among the most severe provisions of the welfare law are those that affect the ability of low-income elderly and disabled legal immigrants to receive assistance through the Supplemental Security Income (SSI) program, the federal government's basic cash assistance program for the elderly and disabled poor. The new law makes all legal elderly and disabled immigrants — except for refugees and asylees during their first five years in the country, elderly and disabled people with 40 quarters of work in the United States, and a few other small groups of legal immigrants — ineligible for SSI until they become citizens. For many poor immigrants who are old or disabled and can neither work nor, given their age or physical or mental condition, do what is necessary to obtain citizenship, this is tantamount to a denial of assistance for the rest of their lives.2

Many such elderly and disabled legal immigrants depend on government assistance for much or all of their income. Some of the legal immigrants who will be affected either did not have a "sponsor" when they entered the country or no longer have a sponsor because the sponsor has died. A number of others have sponsors who are now old or disabled themselves and have limited resources or otherwise are poor. When SSI benefits for most legal immigrants are terminated this summer, many elderly and disabled immigrants whose income consists largely or entirely of their SSI check may encounter serious difficulty in paying rent and affording the necessities of life.

These elderly and disabled legal immigrants — along with all other legal immigrants who are not refugees or asylees in their first five years in the United States, people with 40 quarters of work in the United States, or members of one of a few other small groups exempt from the immigrant benefit restrictions — also will lose eligibility for food stamps. When these food stamp restrictions take effect in coming months, approximately 900,000 low-income legal immigrants now receiving food stamps will lose this aid.

The new welfare law also denies Medicaid coverage to many legal immigrants. Except for refugees and asylees in their first five years in the United States and a few other very small groups, immigrants who enter the country on or after August 22, 1996 (the date the law was signed) will be ineligible for Medicaid for their first five years in the country, with states having the option to extend this Medicaid ban for a longer period. The legislation also gives states the option of denying Medicaid to legal immigrants who already were residing in the United States when the law was signed. In addition, some legal immigrants who gained Medicaid through SSI eligibility may lose Medicaid when they are terminated from SSI, depending on the state in which they reside.

By 2002, several hundred thousand legal immigrants who would be covered by Medicaid under the prior law will be denied it because of their immigrant status. Many of these immigrants are likely to be uninsured as a result. Among those who will be affected are poor legal immigrants who become disabled after entering the country, are unable to continue working, and cannot afford to purchase individual insurance policies that are likely to be prohibitively expensive in light of their medical conditions.

A widely publicized study the Urban Institute released last summer on the effects of the welfare bill illustrates the likely impact of the legislation's immigrant benefit provisions. The study estimated that the welfare bill would push 2.6 million people into poverty, including 1.1 million children. The study found that 1.2 million of the 2.6 million people who would be made poor by the legislation — or nearly half — were legal immigrants. The study also reported that legal immigrant children account for 450,000 of the 1.1 million children whom the Urban Institute estimated would be made poor by the legislation. The Urban Institute noted that more people would be driven into poverty by the immigrant benefit reductions than by any other component of the welfare legislation.

The Administration's Proposals

The Administration's budget would restore eligibility for SSI and Medicaid (but not food stamps) to two groups of legal immigrants — those who have become disabled after entering the United States and legal immigrant children. The budget also would exempt refugees and asylees from the restrictions on benefits for legal immigrants for their first seven years after entering the United States, rather than for only their five years, as the welfare law provides.

Of the proposals in the immigrant area, the one with the largest impact is the proposal to restore eligibility for SSI and Medicaid for legal immigrants who become disabled after entering the United States. This proposal would enable 300,000 legal immigrants who have experienced an accident or illness that results in long-term disability — and who have low incomes — to receive basic cash assistance and health insurance. Among those this proposal would help are large numbers of legal immigrants who are very old and suffer from severe disabilities. The proposal is targeted on the single group of poor legal immigrants who are the most vulnerable — those who are least able to work or to perform the tasks necessary to attain citizenship because of their disability.

The proposed exemption for legal immigrants who become disabled after entering the country would restore $13.7 billion in SSI and Medicaid benefit cuts between FY 1998 and FY 2002, according to OMB. CBO's estimates for the cost of this proposal is slightly higher ($14.5 billion).

As noted earlier, many of these individuals would have been protected under the severe welfare bill the House of Representatives passed at the start of the 104th Congress. That bill would have exempted legal immigrants who are too disabled to perform the tasks needed to complete the naturalization process and become citizens.3 It also would have exempted immigrants age 75 and over who have been in the country legally for at least five years. (By contrast, under the new welfare law, more than 100,000 legal immigrants age 75 and over will be terminated from SSI.4)

Unless the new law is softened in this area, individuals who are old and sick — such as 80-year-old legal immigrants who have been disabled by strokes or conditions such as Alzheimer's disease and have little or no income other than SSI and food stamps — will lose most or all of their safety net. Most of these immigrants can neither work nor, given their age or physical or mental condition, become citizens. Many also do not have a living sponsor to approach for help. It is unclear how they will get by if their benefits are terminated this summer, as the welfare law requires.

The Administration's budget also includes several smaller but still quite significant changes in the welfare law's treatment of legal immigrants. One proposal would eliminate restrictions on Medicaid and SSI eligibility for legal immigrant children; it would maintain eligibility for Medicaid and SSI for legal immigrant children who otherwise qualify for these programs. Children whose disabilities developed before entering the United States, of whom there are a small number, and children who became disabled after arriving here would both remain eligible for SSI. (The number of legal immigrant children receiving SSI is very small; only about 8,000 of the one million children on SSI prior to enactment of the welfare law — or less than one percent of all children then on SSI — were legal immigrants.)

The budget also would modify the provisions of the welfare law that relate to individuals who have fled political persecution in their native lands and been granted refugee or asylum status in the United States. Many refugees and asylees arrive here with no resources, and they generally have no sponsors.

The welfare law exempts these individuals from the restrictions on benefits for legal immigrants for their first five years here. It is virtually impossible to naturalize, however, by the five-year point. Individuals generally may not apply for citizenship until they have been here at least four years and nine months, and it takes many months after application before the naturalization process can be completed. (According to the Immigration and Naturalization Service, it currently takes an average of nine months after application to complete the naturalization process, with the timeframe being much longer in cities with the worst backlogs.) Recognizing this problem, the Administration's budget would extend this exemption so it encompasses the first seven years a refugee or asylee is in the United States, thereby according these individuals a more realistic time to naturalize.

The budget also contains one proposal affecting legal immigrants that is of lesser importance. Under current law, most legal immigrants currently receiving food stamps must be removed from the food stamp program between April 1, 1997 and August 22, 1997. (In some jurisdictions, most of the legal immigrants being removed from the program will be cut off on August 22.) The Administration's budget would delay the food stamp cut-off until September 30, 1997. With April 1 having passed, this proposal is starting to be overtaken by events.5

Objections Raised to These Proposals

Some critics of the Administration's proposals in the immigrant area have objected to these proposals as an attempt to "reopen welfare reform." The central theme of the welfare law's proponents, however, was to impose work requirements and time limits on families receiving welfare cash assistance — or, as the law's proponents often said, "to put able-bodied people to work." The Administration's immigrant proposals focus on people who have become disabled after entering the United States and cannot work.

When the welfare reform legislation was being debated, its proponents did not emphasize its effects on vulnerable immigrants. Their rhetorical focus was on putting able-bodied welfare recipients to work and reducing out-of-wedlock births. Neither of those issues has much bearing, however, on the question of whether legal immigrants, especially those who are old and disabled, should be denied basic assistance. It may be noted that because the debate concerning the legislation focused primarily on the welfare issues, few members of the public appear to have understood that the legislation would terminate basic cash, medical, and food assistance for legal immigrants who are old and sick.

Once an immigrant has been granted permanent legal residence, it has been this country's longstanding policy to recognize that a misfortune such as a disabling automobile accident or the onset of a stroke or a chronic debilitating disease can occur to citizens and legal immigrants alike and that an individual's eligibility for benefits should not depend upon citizenship status. Legal immigrants, like citizens, pay taxes to help support the provision of such benefits. Even the original welfare bill the House passed in early 1995 recognized this problem to some extent, with its exemptions for immigrants aged 75 and over and those too disabled to naturalize.

Restoring basic assistance to legal immigrants who become disabled after entering the United States and are not able to be employed would not undo or weaken the welfare law's efforts to move parents from welfare to work. If enacted, it would constitute a corrective measure to help ensure that poor disabled immigrants who cannot work or naturalize — and many of whom also are very old — do not become destitute and end up in shelters or on the streets.

The Administration's proposed restoration of aid for legal immigrants is only partial. The Administration's budget attempts to target resources on the most serious of the problems that will ensue when the legal immigrant provisions of the welfare law take full effect. Legal immigrants who are neither children nor individuals who have become disabled after entering the United States would not have any of their benefits restored. Among those for whom benefits would not be reinstated to any degree are elderly immigrants who do not have a sufficiently severe disability to meet the SSI disability test, elderly refugees who have been in the United States for more than seven years, and legal immigrants who became disabled before entering the country. Moreover, the legal immigrants who would retain SSI and Medicaid because they are children or because they became disabled after entering the United States still would be ineligible for food stamps. It is difficult to characterize the Administration's proposals as excessively generous.

It also may be noted that it has traditionally been U.S. policy not to institute changes in mid-course in rules under which people have made financial plans they cannot alter. Thus, provisions of the tax code that affect investments are not normally changed with regard to investments already made. Similarly, retirement benefits are not normally altered for those who have retired and begun to draw these benefits. The immigrant changes in the welfare law violate this principle. The immigrants affected by the changes making them ineligible for basic assistance programs are about to have most of their subsistence withdrawn due to the federal government dramatically changing the rules on them in midstream.

One other criticism sometimes raised concerning the Administration's immigrant benefit proposals is that policymakers should wait to see the welfare law's impact before consideration is given to making changes in it. It should be kept in mind, however, that once the immigrant benefit terminations take place, substantial numbers of elderly and disabled legal immigrants may be unable to pay rent and be forced out of their rooms or apartments. Once the lives of these frail individuals are disrupted in this manner, it may prove difficult for them to put the pieces back together.


III. Food Stamp Changes

The single largest set of reductions the welfare law contains are the cuts it makes in the food stamp program. According to CBO, the welfare law reduces the food stamp program by $25 billion over the five years from fiscal year 1988 through fiscal year 2002. If the food stamp cuts aimed at legal immigrants are excluded, the reduction is $22 billion over the five-year period.

Most of these reductions consist of cuts in food stamp benefits for low-income individuals. Only about two percent of the law's food stamp savings come from provisions to shave administrative expenditures, reduce fraud and abuse, or impose tougher penalties on recipients who violate program requirements.

By fiscal year 2002, the new law would reduce food stamp benefits by more than 18 percent, compared to prior law. That will be the equivalent of reducing the average food stamp benefit from its level of 80 cents per person per meal last year to 66 cents per person per meal in 2002 (measured in 1996 dollars).6

Among the food stamp benefit reductions the law contains is one of the harshest provisions written into a major safety net program in the past 30 years. That provision limits food stamp benefits for most unemployed individuals between the ages of 18 and 50 who are not raising minor children to just three months in each 36-month period. After three months, these individuals can continue to receive food stamps only if they are working at least half-time or in a workfare or training slot.

The new law provides no new money for workfare or training slots, which are scarce in the food stamp program in most areas. Job search programs are less costly to operate and are more common in the food stamp program, but an individual who has exhausted his or her three months of food stamps cannot continue receiving food stamps by participating in a job search program. The provision terminates food stamps after 90 days to an individual who is looking hard for work but has not found it.7

This provision can be suspended, upon the request of a state, in areas with high levels of unemployment. Many states have secured such suspensions for six to 12 months for some or all of the local areas that qualify for a suspension. But the large majority of food stamp recipients affected by the three-month cut-off live in areas where no such suspension is in effect. The Congressional Budget Office estimates that only 20 percent of the individuals who would be affected by this provision live in areas where a suspension is in place.

CBO also estimates that in an average month, nearly half a million jobless individuals — most of whom are willing to work and would perform workfare if offered a place in a workfare program — will be denied food stamps because they have reached the three-month point, cannot find work, and their state has made no workfare slot available for them. The new provision marks the first time in the history of the food stamp program that individuals are being terminated from the program because no work opportunity is made available to them, not because they have refused to work.

USDA data show that 42 percent of those affected by this provision are women. About the same percentage lack a high school diploma. More than one-third are over the age of 40, an age above which individuals with limited education and skills often have difficulty finding jobs quickly, especially in areas where unemployment is high among low-skilled workers. Many of the affected individuals qualify for no other benefits, because they are not raising minor children; food stamps is the only safety net they have.

The degree of poverty among this group is reflected in USDA's finding that the average income among those affected by the provision equals 28 percent of the poverty line. The inclusion of this provision in the welfare law is the principal reason that those with incomes below half of the poverty line are subject to much larger average food stamp benefit cuts under the law than households closer to the poverty line.

This provision of the law is substantially harsher than the food stamp provision aimed at 18-50 year-old recipients that was included in the welfare bill that President Clinton vetoed in January 1996. The vetoed legislation would have limited food stamps for these individuals to four months out of each 12-month period, not three months out of each 36-month period.8 The provision in the final law also is significantly harsher than the provision aimed at these individuals that was contained in the welfare bill the House of Representatives passed in early 1995.

This provision of the welfare law will cause hardship among individuals who have worked and paid taxes but then lost their job due to a recession, a plant closing, a company downsizing, or some other factor and who cannot find a new job within three months. The provision is likely to hit particularly hard at unemployed workers who have limited skills and education. Recent academic research has found that in many cities, there are substantially more low-skilled individuals seeking jobs than there are low-skill jobs available even when the economy is strong.

Research in four large cities recently found, for example, that fewer than 10 percent of the jobs available for individuals with less than a college degree were jobs requiring only limited education and skills. Another study, examining fast food restaurants in Harlem, found 14 applicants for every fast-food job. The study found that nearly three-fourths of the unsuccessful applicants remained unemployed a year later despite, in most cases, having made repeated efforts to find jobs.

The Administration's Food Stamp Proposals

The most important of the Administration's food stamp proposals would revamp this three-month cut-off provision. The provision in the welfare law neither requires states to provide work slots for these recipients nor gives states any new resources to establish or expand work programs for them. This provision of the welfare law consequently is best viewed as a three-month cut-off rule rather than as a work requirement.

The Administration's proposal, by contrast, would convert this provision into an actual work requirement. The principal focus would be on putting these recipients to work rather than simply terminating their benefits after 90 days.

The Administration's proposal would change the timeframe in the welfare law from three months of benefits while out of work in each 36-month period to six months of benefits while out of work in each 12-month period. This is the same timeframe as was contained in the welfare bill the Senate passed in September 1995.9 Affected 18-50 year-old recipients initially would qualify for six months of food stamp benefits. If they had not been able to find a job in the private sector by the six-month point, they would be placed by their state in workfare or another work program. The Administration's proposal would provide $280 million in new federal funds to states over the next five years. The Office of Management and Budget estimates this would fund workfare or other work program slots for the vast majority of individuals who reach the six-month point without having found a job.

Participants who comply with these work requirements and participate in these workfare or other work programs would remain eligible for food stamps. Those who do not comply would lose their food stamps and be disqualified for at least six months each time that a non-compliant act occurred. Jobless individuals would not be denied food stamps, however, if they could not find a job and no workfare or other work assignment was available for them in a particular month.

Nearly all of those who can work either would engage in work activity or lose their benefits. In those areas in which there were not a sufficient number of work slots to cover every recipient every month, those who could not secure a job and for whom no work slot was available in a particular month would not be terminated, but they would generally be placed in a work program by the following month. (See box below for a fuller description of how the Administration's proposal would work.)

Compared to the provision in the welfare law, the Administration's proposal would both increase the number of individuals placed in work activities and substantially reduce the extent and severity of hardship the provision would cause. The Administration's proposal stands in contrast to the provision in the new law, which fails to provide new funds for work slots — and under which most individuals who cannot find employment in 90 days will neither gain the work experience resulting from mandatory participation in a work program nor receive food assistance. The Administration's proposal is similar to a food stamp provision included in last year's Castle-Tanner bipartisan welfare bill and in the budget that the Coalition, a group of conservative House Democrats, offered in 1995 and 1996. A welfare bill that Senators Arlen Specter and Joseph Biden introduced last year also contained a similar provision.

Other Food Stamp Changes

The Administration's budget also would soften several other sharp food stamp cuts in the welfare law. One such proposal would affect low-income families with children that pay more than half of their income for housing and have fewer resources left to buy food as a result.

How the Administration's Provision
For 18 - 50 Year-Olds Would Work

The first six months — Non-disabled individuals between the ages of 18 and 50 who do not have dependents would be subject to the requirements of the food stamp employment and training program during their first six months on food stamps. During this period, states could place these individuals in job search or another work program designed by the state. Any individual failing to comply with a work requirement imposed by the state would be removed from the food stamp program for a number of months. If there was a repeat violation, the length of the sanction would increase.

(It should be noted that many individuals in this category rely on food stamps only as temporary assistance while they are out of work. Nearly 60 percent of all new participants in this category leave the food stamp program within six months.)

After the first six months — Those still needing assistance after six months would be subject to more rigorous work requirements. States would be expected to place these individuals in workfare programs, or in work programs of at least 20 hours per week, with stiffer sanctions for non-compliance. Individuals who fail to comply would be barred from the food stamp program for at least six months.

To back up these work requirements, the budget would provide $280 million in additional federal funds to states over the period through 2002. These funds would be dedicated to creating work program slots for these individuals. The Office of Management and Budget estimates that this new funding stream would create an additional 380,000 work slots over the period through 2002.

By 1999, more than 70 percent of those who had not found a job by the six-month point would be in a work program in any given month. Those who were not in a slot in a given month because their state lacked sufficient work slots would generally be in a slot by the next month. Thus, when funding was sufficient to put 70 percent of these individuals in a work program slot in any given month, most individuals would be placed in a work slot for either two months out of every three or three months out of every four. By 2000, more than five-sixths of the individuals who had reached the six-month point would be in a work program in any given month. By 2002, virtually all of these individuals would be in a work program every month.

The Administration's proposal targets the new work slots it funds on individuals who have reached the six-month point on food stamps. Food stamp program data show that large numbers of the individuals between ages 18 and 50 who are receiving food stamps at the three-month point find employment on their own and leave the food stamp program between the third and sixth months. To fund work slots for most or all individuals in the 18-50 year-old category who are on the food stamp program at the three-month point but leave the program on their own soon thereafter would be too costly. Hence, the Administration's proposal uses a six-month timeframe, thereby targeting its workfare resources on a group more likely to be long-term food stamp recipients.

In determining the amount of food stamps for which a low-income elderly or disabled household qualifies, the Food Stamp Act takes into account the full extent to which the household's housing costs exceed 50 percent of its disposable income. In determining the food stamp benefit levels for many families with children, however, the food stamp program takes into account only a portion of the family's housing costs that exceed 50 percent of its income. As a result, a number of poor families with children lack sufficient resources both to pay their rent and utility bills and to feed their families adequately throughout the month.

To remedy this problem, a bipartisan array of Members of Congress — including Senator Pete Domenici, the late Rep. Bill Emerson, and former Rep. Leon Panetta — introduced legislation in the early 1990's to treat families with children the same as the elderly and disabled in this regard. Under their legislation, the food stamp program would take into account the full extent to which the housing costs of all households exceeded half of their income. As a result, a substantial number of families with children that faced very high housing costs as a proportion of their incomes would receive somewhat larger food stamp benefits so these families would not have to choose between paying rent and utility bills and purchasing adequate food.

Legislation instituting this change was enacted in 1993. Under the 1993 law, the change was to be phased in slowly and to take full effect on January 1, 1997.

When the welfare bill was before Congress last year, legislators faced the question of whether to repeal this provision of the 1993 law — and thereby to continue limiting the food stamp benefits of many poor families with children that must pay more than half their incomes for housing — or to leave the 1993 provision in place. The welfare bill that the Senate passed in 1995 retained, rather than repealed, this provision. In early 1996, the National Governors' Association declared its support for that approach, adding its voice to those calling on Congress to retain this provision. At the urging of the House, however, Congress declined to follow the governors' recommendation and largely repealed the 1993 measure.

As a result, several million poor families with children that receive no government housing assistance and pay more than half their disposable income for housing will receive less in food stamp benefits than they would have received under the 1993 law. A substantial share of these families are working poor families. Many of these families face difficulty in paying rent and utility bills and feeding their families adequately at the same time.

The Administration's budget would follow the governors' recommendation and reinstate this provision of the 1993 law. The Administration would phase in this change over several years, with it taking full effect in fiscal year 2002.10

The Administration's proposal also would partially undo another cut in the welfare law that, if not modified, will make increasing numbers of working poor households ineligible for food stamps over time. The provision in question relates to the value of an automobile that a household may own and qualify for food stamps.

In 1977, Congress set the food stamp vehicle limit at $4,500 in market value. (The market value of the vehicle that a household owns is counted irrespective of whether the household owns the car outright or has only a small amount of equity in it.) Since 1977, the Consumer Price Index for used cars has risen approximately 190 percent. But the food stamp vehicle limit is now $4,650, just three percent above its level in 1977.11

Studies conducted under both the Reagan and Bush administrations found that the food stamp vehicle limit had become much more restrictive over time because the limit had not kept pace with inflation. The most recent such study, issued by USDA in the early 1990s, found the vehicle limit was making substantial numbers of low-income working families ineligible for food stamps, particularly working poor families that lived in rural areas and needed their cars to commute to work.

In 1984, President Reagan's Task Force on Food Assistance, a generally conservative group largely selected by Edwin Meese, recommended that the food stamp vehicle limit be raised immediately to $5,500. In a belated effort to address this matter, Congress acted in 1993 to raise the vehicle limit to $5,150 on October 1, 1996 and to index it after that so it kept pace with changes in prices for automobiles.

The new welfare law, however, also repealed this provision of the 1993 legislation. The new welfare law freezes the vehicle limit permanently at $4,650, with no adjustment at any time in the future to compensate for increases over the years in the price of automobiles. The effect of this provision will be to make an increasing number of low-income working households ineligible for food stamps with each passing year, since the market value of reliable used cars — which many working poor households own and must use to commute to work — will rise over time with inflation.

This provision of the welfare law will make it steadily more difficult for working poor families, especially those in rural areas who commute long distances to work, to qualify for food stamp assistance. The Administration's budget seeks to address this problem by raising the vehicle limit to $5,000 on October 1, 1997 and indexing it thereafter.

Finally, the Administration's budget would resume the indexing in fiscal year 2002 of an important part of the food stamp benefit structure known as the standard deduction. This deduction was established in 1977 as a replacement for several of the itemized deductions that had been used until then in the food stamp benefit structure, such as a deduction for out-of-pocket medical costs of more than $10 a month for people who are not elderly or disabled; these itemized deductions reflected certain essential expenses that a number of poor households incurred and that affected the ability of these households to buy adequate food. The expenses the itemized deductions covered generally rose in tandem with inflation. Accordingly, the standard deduction that replaced them was indexed.

The new welfare law ends the indexing of the standard deduction and freezes the deduction permanently at its fiscal year 1995 level. Most food stamp households will experience declines in food purchasing power as a result, with the decline starting small but mounting over time.

The Administration's budget would retain the freeze on this deduction through fiscal year 2001, at which point the standard deduction would have been frozen for six consecutive years and lost nearly one-fifth of its value. The Administration would resume the indexing of the standard deduction in fiscal year 2002 so it did not erode indefinitely and cause the purchasing power of food stamp benefits to decline further with each passing year.

Here, also, the Administration's proposals maintain some commonality with the original Senate welfare bill of 1995. That bill, too, resumed the indexing of the standard deduction. The Senate bill also maintained indexing of the food stamp vehicle limit.

Taken together, the four non-immigrant food stamp proposals in the Administration's budget would restore $4.6 billion of the reductions the welfare law makes in the food stamp program over the next five years, according to the CBO estimates. The welfare law reduced the food stamp program by nearly $22 billion over this five-year period, not counting the food stamp cuts aimed at legal immigrants. As a result, the Administration's proposals would restore between one-fifth and one-quarter of the non-immigrant food stamp reductions the law will cause over the next five years.


IV. Medicaid for Disabled Children

Finally, the welfare law makes a substantial number of low-income disabled children ineligible for the Supplemental Security Income program. It does so by restricting the types of disabilities that enable a child to qualify for SSI. In some instances, the same disability that will qualify an adult for SSI now will be insufficient to qualify a child. Among the children most likely to lose benefits are those who suffer from multiple impairments, no one of which is severe enough to meet the more stringent disability criteria established by the new law, but the combined effect of which is substantial.

Recently, the Social Security Administration issued regulations to implement this change in law; SSA estimates that 135,000 low-income disabled children will be removed from the SSI program as a consequence. Some outside experts believe the number of children who will be terminated from SSI under the new, more restrictive rules may be nearly twice as high as that.

In all but a handful of states, individuals on SSI are automatically eligible for Medicaid. When individuals are removed from SSI, they also lose Medicaid eligibility unless they qualify for Medicaid on other grounds.

While a majority of the children who will be terminated from SSI under the new rules will remain eligible for Medicaid, a substantial minority of these children will not. As a result, tens of thousands of moderately disabled children with low incomes will face the double loss of SSI and Medicaid in the months ahead.

The parents of many of these children are likely to encounter considerable difficulty in finding private insurance for their children that they can afford, especially since the cost of such insurance policies will reflect the conditions these children have. Furthermore, these families will be suffering large income losses at the same time due to the termination of their children's SSI benefits.

To ease the financial hardships these families may face and avoid having thousands of disabled children become uninsured, the Administration's budget proposes to retain Medicaid coverage for children who will be terminated from SSI under the new disability rules. According to the Congressional Budget Office, this proposal would cost $1 billion over the next five years. Most of the cost, however, results from an interaction between this proposal and the Administration's proposal to impose a per capita cap on Medicaid. In the absence of the per capita cap, CBO's estimate of the cost of maintaining Medicaid coverage for these children drops to only $100 million a year.12

End Notes

1. This is the CBO estimate. The OMB estimate is $3.6 billion.

2. Rules that the Immigration and Naturalization Service (INS) recently issued to implement immigration legislation enacted in 1994 will ease the naturalization process for a narrow group of immigrants — those too disabled to take the English and civics tests but not too disabled to make a meaningful oath of allegiance to the United States. Even those who will benefit from these regulations will, in most cases, lose benefits as they await the completion of the naturalization process; due to backlogs in the naturalization process, it now takes an average of nine months to naturalize after applying for citizenship, with the processing times reaching two years in some parts of the country.

3. The 1995 House bill, unlike the recent INS regulations, would have protected immigrants with disabilities that render them unable to take the oath of allegiance.

4. More than 200,000 legal immigrants aged 75 and over are currently receiving SSI benefits. The majority of these individuals will be terminated from SSI in coming months.

5. It may be noted that legal immigrants who were not participating in the SSI or food stamp programs on August 22, 1996 but became poor since then have been barred from entering the program since that date, unless they are members of an immigrant category that remains eligible for these benefits such as refugees and asylees in their first five years in the country.

6. These figures include the impact of denying food stamp benefits to most legal immigrants.

7. Under some circumstances, an individual who has received food stamps for three months while jobless, subsequently finds employment, and then is laid off can receive a second three months of benefits while unemployed. Receipt of a total of six months of benefits while unemployed during the 36-month period is, however, the maximum allowed. CBO estimates that only about five percent of those affected will receive this second three-months of benefits.

8. Furthermore, under the provision in the vetoed bill, people finding work at low wages would have requalified immediately, and those who requalified but then lost their jobs would have been able to receive a second four-months of benefits while out of work in each 12-month period.

9. The three-months-out-of-36 timeframe in the new welfare law was added only in the final weeks of work on the welfare legislation, when this provision was suddenly made much more severe than the versions of this provision contained in the welfare bills that the House and Senate approved in 1995 and the Senate approved again in July 1996.

10. Technically, the new welfare law sets the ceiling on the food stamp shelter cost deduction that a household with no elderly or disabled members can claim at $250 a month through September 30, 1998, at $275 a month in fiscal years 1999 and 2000, and at $300 a month thereafter. The Administration's budget would make the following changes in the provision of the welfare law: 1) it would raise the ceiling to $275 on October 1, 1997 instead of on October 1, 1998; 2) it would raise the ceiling to $300 on October 1, 1999 rather than on October 1, 2000; and 3) it would eliminate the ceiling on October 1, 2001 (i.e., at the beginning of FY 2002). Thus, by fiscal year 2002, all food stamp households whose housing costs exceed half of their incomes would be treated in the same manner as elderly and disabled households are treated with regard to computation of the shelter deduction. Approximately 90 percent of those who would benefit from this provision are families with children.

11. The overall food stamp assets limit is $2,000. (For households containing an elderly member, the limit is $3,000.) The law stipulates that the amount by which the market value of a household's vehicle exceeds the $4,650 level be counted against the $2,000 assets limit. Thus, if a household has $800 in other assets and its car has a market value of $5,900, the household will have total "countable" assets of $2,050; the household will have $800 in other countable assets plus $1,250 in excess vehicle assets, since $5,900 exceeds the $4,650 limit by $1,250. Because the total of $2,050 exceeds the $2,000 assets limit, the household is ineligible for food stamps.

12. Under the Administration's per capita cap proposal, the federal funding that a state receives would be capped at a level equal to the sum of the amount the state would receive for each of four different eligibility categories — children, the elderly, the disabled, and other adults. The amount the state could receive for each category would equal the number of Medicaid enrollees in the state who fall into that category (such as a category consisting of disabled individuals), multiplied by a fixed per-capita amount for each enrollee in that category. The fixed amounts would vary by state.
Thus, the amount of federal funding a state would receive for each enrollee would equal the per capita amount for that category of recipients. This is significant because CBO estimates that the average cost of maintaining Medicaid coverage for children who otherwise would lose it when they are terminated from SSI is much lower than the per-capita amounts the federal government would pay states for disabled individuals under the per capita cap proposal. Because a state would receive the per capita amount for disabled individuals for each of these disabled children enrolled in Medicaid, the cost to the federal government of maintaining Medicaid coverage for these children would be several times larger if a per capita cap were in place than if there were no such cap.