Thirty years ago last month, Congress replaced the open-ended Aid to Families with Dependent Children (AFDC) entitlement, the largest state-run, federally funded cash welfare program, with the Temporary Assistance for Needy Families (TANF) block grant.

This imposed stricter fiscal discipline on states running TANF, but Congress failed to extend similar restraints to other programs. Consequently, many states circumvented TANF’s budget constraints by shifting spending and enrollment to other, still open-ended entitlements.

Following the 1996 welfare reforms, states moved some recipients off TANF and onto the Supplemental Security Income (SSI) program. Today, state legislators are shifting costs onto federal taxpayers by exploiting eligibility loopholes in the Supplemental Nutrition Assistance Program (SNAP) and exploiting Medicaid’s waiver system to finance initiatives that are at best tangential to the delivery of health care services.

To reverse this trend, Congress should expand the 1996 TANF reforms to other welfare programs, block-grant Medicaid and SNAP to align policy choices with their associated costs, and limit federal taxpayer exposure.

Ending Welfare as We Knew It

AFDC’s matching-grant structure rewarded states for keeping families dependent on government assistance: federal taxpayers matched between $1 and $3.55 for every dollar states spent on AFDC benefits. A state that cut a dollar of benefits saved as little as 22 cents, and higher enrollment always brought in more federal money. The House Ways and Means Committee noted in 1996 that “despite the short welfare spells of some families, the average length of stay on [AFDC], counting repeat spells, for families enrolled at any given moment [was] 13 years.”

TANF ended that arrangement by pairing work requirements and five-year time limits with fixed federal funding so states could no longer draw additional federal taxpayer dollars to pay for caseload expansions.

In the years after welfare reform, AFDC/TANF caseloads shrank by more than half (from 5 million families in 1994 to 2.2 million in 2000) as millions of families moved off welfare and into work.

One Program’s Savings, Another Program’s Costs

However, TANF’s incentive for states to shrink caseloads cut both ways: the block grant also gave states reason to shift recipients onto SSI, a federally funded and administered program for low-income seniors and people with disabilities. The Social Security Administration found that switching from AFDC to the TANF block grant multiplied a state’s fiscal payoff from moving a recipient onto SSI by two to four times, since states now kept the full savings from caseload reductions, not just that state’s matching share.

Families were incentivized to make the switch, too. SSI benefits were larger than TANF’s — in 1996, the average maximum TANF benefit was $396 for a single-parent family of three; the maximum federal SSI benefit was $470 for an individual — and, unlike TANF, SSI carried neither work requirements nor time limits for beneficiaries.

As Dr. David Wittenburg testified before the House Ways and Means Committee, low-income parents with disabled children had “financial [incentives] to apply for SSI, and could even be encouraged to do so by [state workers].” After welfare reform, some states did this by paying third-party contractors to help TANF recipients apply for and receive SSI benefits.

One academic paper estimated that every $50 a state cut from a single-parent household’s monthly TANF check corresponded with an average $27 increase in that household’s monthly SNAP and SSI benefits. Because TANF is a block grant, that increase came on top of, rather than substituting for, federal TANF funding. The same analysis estimated that SNAP and SSI spending on single-parent households would have been $1.1 billion lower in 2014 had states maintained 1997-level TANF benefit and eligibility rules.

The Same Playbook, 30 Years Later

Similar dynamics occur today.

States use TANF as a backdoor to get millions of otherwise ineligible people onto food stamps. Under broad-based categorical eligibility (BBCE), a loophole used by 43 states, a household receiving minimal “token” TANF-funded benefits, such as brochures and hotline referrals, automatically qualifies for SNAP, even if that household doesn’t meet the program’s federal gross income and countable asset limits. Since food stamp benefits are currently 100 percent federally funded, state policymakers reap the political benefits of appearing generous to constituents, while federal taxpayers pick up the tab. The Republican Study Committee estimated that states’ abuse of this loophole will cost federal taxpayers $100 billion over the next decade.

Medicaid is another example. Like the old AFDC program, Medicaid runs on a matching grant system, with federal taxpayers matching between $1 and $9 for every dollar states spend on the program. This structure rewards states for laundering federal dollars with financing gimmicks and for using Medicaid to pay for what other welfare programs, or beneficiaries with cash benefits or earned income, can already pay for. For example, 25 states use section 1115 waivers to fund “social determinants of health” (SDOH)—nonmedical factors believed to influence health outcomes—with Medicaid. States have used these waivers to pay for rent, groceries, rideshares, and other services with little connection to Medicaid’s purpose of providing medical care to low-income households.

Building on Welfare Reform

With states still treating federal taxpayers as a cash cow to finance welfare spending and caseload expansions, policymakers should build on the progress they made 30 years ago by implementing transparent, predictable budget constraints in other welfare programs. Legislators could begin by replacing the open-ended federal financing of Medicaid and SNAP with fixed federal allotments, such as block grants. This would give state policymakers greater flexibility over program design while limiting their ability to shift the fiscal consequences of enrollment and benefit expansions onto federal taxpayers. States that choose to provide assistance beyond the federal allotment could finance the incremental cost from state revenues. Over time, this would align program size more closely with state priorities while placing greater fiscal responsibility with the governments that administer welfare programs.

Congress brought structural reform to one welfare program but didn’t reform the welfare system in 1996. Congress should use the next generation of welfare reforms to finish the job.

The House Subcommittee on Work & Welfare held a hearing titled “Welfare Reform at 30: Restoring the Promise of Work and Personal Responsibility in Federal Welfare Programs” earlier this week. This hearing examined the successes of the 1996 welfare reforms, the principles of work and personal responsibility that drove them, and the necessity for further reforms to the federal welfare system. Witnesses included Scott Winship (AEI), Missy Hanks (Expect Little Miracles Foundation), Matt Damschroder (Ohio Department of Job and Family Services), Misty Kelso (Watered Gardens Ministries), and Kristin Rowe-Finkbeiner (MomsRising). Read the statement I submitted for this hearing here. More information about the hearing, including a live stream, is available on the Committee’s website here.