Tackling the Inefficiencies of the Social Welfare System
In recent decades, the financial strain experienced by American households has only continued to increase exponentially, and has been felt in the rising prices of even the most basic goods. During 2021, the White House’s Council of Economic Advisors (CEA) estimated that 80% of households needed to increase their share of income spent on basic needs by more than 7% from 1984 to 2014. Maintaining a robust social welfare system has therefore become an increasingly important component of promoting better standards of living. Yet, most economic research and proposed policy solutions have been focused on determining the optimal amount of government welfare investment and debating whether welfare ultimately benefits society or inadvertently harms it if people do not seek out economic independence for themselves, rather than how to improve upon the efficiency of the existing social welfare system. In attempting to understand how one could redirect greater focus to this avenue of academic study, I have examined an existing framework for costs associated with inefficient social welfare distribution, as well as additional evidence of how these costs manifest. Using insights from this analysis, I have then developed a proposal for streamlining the welfare system by creating a centralized database and increasing coordination between welfare programs.
Consulting the theoretical framework for administrative burdens developed by Donald Moynihan, Pamela Herd, and Hope Harvey, which identifies the specific inefficiencies that hinder the system, is a helpful foundation for understanding how social welfare can be more effectively distributed. They categorized the costs of administrative burdens that prevent people from accessing welfare benefits into learning costs, psychological costs, and compliance costs. Learning costs refer to being unaware of what welfare programs are currently on offer, including the specifics of their eligibility requirements and enrollment process, as well as the exact benefits and compensation one should be receiving. These costs stem from a lack of sufficient education on and publicity for available welfare programs, the continual churn of new programs being created and older programs being phased out, and equally volatile eligibility requirements. Psychological costs describe the stigma surrounding enrollment in social welfare, the anxiety that arises from reliance on government safety nets as a last resort, and the stress of procuring welfare itself. Compliance costs are a product of the significant time and effort invested into registering and re-enrolling in welfare programs, involving completing complicated paperwork, providing relevant documentation, booking or traveling for appointments, and meeting any other demands made by relevant entities. Compliance costs have also been referred to as a “time tax” as a result of countless hours wasted on waiting for welfare agencies to respond to requests for additional help or information, scrounging for documentation that is difficult to find, and frequently having to repeat the same lengthy process to ensure one is recertified as an eligible participant of a program. In summary, this framework identifies inefficient information dissemination, social stigma paired with psychological distress from relying on or obtaining government benefits, and excessive compliance requirements as the main sources of inefficiency in the US’ welfare system and can serve as the basis for both the development and evaluation of future welfare policy solutions.
Although this is a theoretical conceptualization of the administrative burdens that restrict what the social welfare system is capable of, the identified costs are still grounded strongly in reality, as evidenced both by statistical measures and individual case studies. According to an Urban Institute survey, more than 40% of adults reported experiencing one or more difficulties when enrolling for unemployment insurance, the Temporary Assistance for Needy Families (TANF) program, which provides financial support to low-income households for necessities, and the Supplemental Nutrition Assistance Program (SNAP), which ensures access to food. This statistic suggests that a significant portion of eligible households suffer from enrollment barriers, or administrative burden, and that such costs are not localized, but in fact consistent and prevalent throughout a wide variety of safety net programs. Obstacles to enrollment typically included difficulty discerning whether one has met the eligibility requirements, challenges in obtaining necessary documentation, and most significantly, promptly receiving aid during times of urgent need, which could be considered a learning cost, a compliance cost, and a culmination of all previously identified costs respectively. In a specific case study, a staggering 17,000 people in Arkansas lost Medicaid coverage in June 2018 after new work requirements for 30 to 49 years olds were added to the program, an event that is largely attributed to widespread confusion on who these requirements applied to and what the reporting process involved, another clear demonstration of just how severe learning costs can become. In another unfortunate incident, a 4-year-old named Paul Petersen lost his Medicaid coverage just weeks before a crucial surgery his family could not otherwise afford as they were unaware of changes to Medicaid renewal requirements that called for additional documentation, a result of intersecting learning and compliance costs. Hence, the abundance of statistical and anecdotal evidence for administrative burden costs emphasizes the validity of Moynihan, Herd and Harvey’s theoretical framework and its ability to provide valuable insight into the construction of welfare policy.
Based on the theoretical framework for the costs of the current welfare system’s dysfunctionality, and the multitude of ways in which these costs manifest, I argue that an important first step to rectifying the welfare system’s flaws is the implementation of a centralized database. A wealth of information on the US population is already available to government entities through extensive government documentation, including passports, social security cards, as well as past tax or benefit documentation, so no new information needs to be collected, it is simply a matter of better organization and increased accessibility. To reiterate, the most significant barrier to taking advantage of this information is simply the lack of coordination between the government agencies that possess it, resulting in households having to file the same information multiple times every year when applying for various welfare programs. From the perspective of the administrative burdens framework, this inevitably produces immense compliance costs and contributes to the psychological stress of those who go through these processes, especially considering extensive, repetitive registration and re-enrollment processes increase the likelihood of incorrect filing and subsequent loss of access to welfare programs, as demonstrated by the Idaho and Peterson case studies. A centralized database would shift this administrative burden from individual households to government agencies themselves, which is particularly advantageous considering agencies are most familiar with how information needs to be communicated to ensure application approval without delay.
In more practical terms, I suggest that a national online platform be created to store profiles on all registered households and individuals in the US, which would include key personal information from government documentation, as well as any pertinent information from tax and benefit documentation filed in the past. A limited number of consolidated welfare program applications could then be created alongside this database, so that individuals enrolling or recertifying for these programs would only need to fill out relevant paperwork once each year. This information would then be uploaded to the database by a single government agency for any and all other agencies to access, thereby significantly reducing the compliance and psychological costs identified by the administrative burdens framework. A centralized database would also effectively address learning costs. Concentrating all this data into an easily accessible database would help government agencies identify individuals who are not already enrolled in welfare programs they are eligible for much more easily, as programs that were once missing the information to discern an individual’s eligibility can now immediately access all available relevant information. Government agencies then have the opportunity to directly contact these individuals to start the simplified application process, thereby removing the need for individuals to possess extensive knowledge of the complexities of welfare programs and significantly reducing associated learning costs.
Outside of learning, psychological, and compliance costs, the potential benefits to be gained by establishing a centralized database are also evidenced by the observed advantages of increasing Electronic Health Record (EHR) usage by healthcare organizations. Although this may seem an unusual comparison since no national centralized healthcare database exists in the US, and the healthcare and welfare industries drastically differ, EHRs have a similar functionality to my proposed centralized database. They give healthcare providers widespread access to consolidated, digitized patient charts containing personal information, medical history, past test results, and treatments or diagnoses that have been received. An analysis of the cost effectiveness of EHRs examined responses to a simulation of an emergency room patient with an aneurysm, where one group of medical professionals had access to EHRs that integrated information from multiple healthcare providers, while another group did not. Patients treated by physicians with access to EHRs benefitted from better medical decision making and increases to their quality adjusted life years (QALY), meaning they received higher quality healthcare. Per unit increases in the patient’s QALY also only cost $1229 for those with access to EHRs, which is considered very cost-effective when compared to existing “acceptable” threshold measures. Improving the value and cost-effectiveness of healthcare provision by using EHRs can be translated into magnifying social welfare benefits and promoting the efficient use of government resources in welfare programs by establishing an easily accessible centralized database. Observing the advantages of EHRs serves as a helpful thought experiment to better understand how crucial a centralized database is to improving existing welfare distribution services. Therefore, evaluating reductions in learning, psychological, and compliance costs, and the advantages of similar existing processes clearly displays the benefits of introducing a centralized welfare database.
The second component of my proposal is to establish better connections between existing welfare programs, a process that would be strongly facilitated by a centralized database, and allow for the automatic or streamlined enrollment of individuals who are eligible for one program in any other program that has the same or similar eligibility requirements. This would help significantly reduce enrollment paperwork, decrease the stress caused by drawn out enrollment processes, and address the unrealistic expectation that individuals are aware of all the programs they are eligible for, thereby decreasing compliance, psychological, and learning costs. Cross-enrollment in multiple welfare programs based on matching eligibility requirements has been implemented before with limited scope, as evidenced by how those eligible for Supplemental Security Income are automatically enrolled in their state Medicaid program in the District of Columbia and 33 additional states. “Adjunct eligibility”, which refers to cases where enrollment into one welfare program is streamlined by using eligibility determination or information gathered from another welfare programs, has also been executed in relatively small-scale cases, as demonstrated by how the Special Supplemental Nutrition Program for Women, Infants and Children determines income eligibility based on whether an applicant is already enrolled in Medicaid. While these existing linkages alone are unable to fully address inefficiencies caused by the isolated operation of most welfare programs, they can serve as a blueprint for the launch of large scale automatic enrollment or “adjunct eligibility” programs going forward. Government agencies can further facilitate this process by providing benchmarks and financial incentives to ensure that program connections are fully enforced. The efficacy of doing so is evidenced by an earlier streamlining of school meal programs, during which children from households receiving SNAP benefits were federally mandated to be automatically enrolled in free school meals. Automatic enrollment rates increased drastically from 71% to 91% after the addition of performance benchmarks and bonuses to high-performing states. Furthermore, streamlining welfare enrollment by creating more robust connections between welfare programs will substantially decrease the costs of social welfare inefficiencies, and can be facilitated with increased federal regulation and the provision of financial benefits.
In conclusion, streamlining the US’ welfare distribution system through the creation of a centralized database and the implementation of stronger coordination amongst existing welfare programs effectively addresses the learning, psychological, and compliance costs stemming from the system’s inherent flaws, which have been left largely unaddressed by the economic community. This proposal is not a complete solution. It does not fully address the substantial time, financial or labor resources required by such a drastic transformation, nor does it completely resolve all the obstacles that prevent efficient welfare distribution, such as the social stigma which prevents households from seeking help in the first place. Instead, its main aim is to shift economic discourse in a more productive direction and prompt further economic study on increasing welfare distribution efficiency, whether that be through additional evaluation of the practicality of my proposal, or the development of alternative innovative approaches.
Julianne Cheah, Class of ’25