The Beneficent Monster
If one institution were to be singled out as having the most impact on American life today, it would not be church or school, private corporation or political party. It would be the U.S. Department of Health, Education and Welfare. The agency provides funds, advice and regulations for birth, infancy, upbringing, schooling and old age, for the sick and disabled, the handicapped and the gifted, the divorced and the depressed, the sex discriminator and the sex offender, for those who are pregnant and those who are sterile. Whatever the ailment or anxiety, the department will have some remedy among its 400 programs, a range of activities that increases so fast not even HEW'S own top administrators can keep up with them all.
In a breathtakingly brief time--just 25 years--HEW has assembled an empire that would be the envy of the pharaohs or the ancient Chinese emperors. Only this is a benevolent empire of round-the-clock services that go directly to 115 million Americans and indirectly touch just about everybody in the nation. It is an empire, moreover, of 1,125,000 bureaucrats augmented by computers. Without its electronic marvels, HEW's accomplishments would be unthinkable. While most of the department's programs are administered from its huge Washington headquarters, Social Security data are processed in a building outside Baltimore by the most extensive computer system in the world. Every day an average of 20,000 claims are filed; every night the complete Social Security wage file, contained on 220,000 reels of tape, is run through the computers to provide information on the claimants. Next day off go the forms that bring life-sustaining checks to the nation's aged and disabled.
HEW fights racial discrimination and sends welfare money to the needy. The department's health services send a steady stream of payments to recipients of Medicare and Medicaid. HEW conducts more than half the nation's biomedical research into cancer and other killer diseases. The Food and Drug Administration's regulations control products that account for about 25 cents of every dollar spent by consumers. HEW'S education division distributes aid to schools and colleges and helps fund Sesame Street, the TV program that delights and instructs the nation's small fry. There are other programs for ethnic studies and for mastering the metric system. Human development services provide help for the handicapped, as well as runaway youths, abused children, Indian tribes and Alaskan natives. HEW also runs Head Start, a program that prepares disadvantaged youngsters for school. It offers vocational rehabilitation, "meals on wheels" for older people who cannot leave their homes, vending stands to be operated by the blind. In sum, HEW is as broad and varied as American life itself, surely one of the most ambitious undertakings in the history of the world, financed on a scale that would have amazed the most Utopian thinkers of the past.
Yet the more HEW has tried to do, the more criticism of it has grown. Originally established to aid the helpless and the destitute, the department has expanded its programs to take care of people who often can take care of themselves. Its size has become prodigious. Its budget for the fiscal year beginning this October is $182 billion, up $17 billion in a single year. HEW has the third largest budget in the world, outranked only by those of the U.S. Government and the Soviet Union. Its spending roughly equals that of all 50 states combined. The department goes through $500 million every day. By comparison, the Pentagon is a piker's operation (1979 budget: $118 billion). That fact alone indicates how American priorities have changed.
Of course, HEW is here to stay, as is the welfare state. In part, the Federal Government got into the social services business because a capitalist society, reeling from the Great Depression, seemed unable to respond to pressing human needs, at least not fast enough. But there is now a growing feeling that the private sector has surrendered too much to the public. More and more Americans are objecting not just to the size of their taxes but to how the money is being spent. Today unbounded bureaucracy, consuming ever more of the national income, is a problem endemic to the Western world. A fundamental question is how to support a huge welfare state without crippling the vigor of the free economy that makes it all possible --the eagle that lays the golden eggs of welfare.
If any man has the credentials to try and cope with HEW, that man is Joseph A. Califano Jr.--the ebullient, energetic and experienced Secretary of HEW. An impassioned advocate of federal programs, he devised many of them as President Lyndon Johnson's chief domestic adviser. Yet if he is a big spender and a master bureaucrat, he is also a canny enough politician to know that limits of some kind have been reached. Says Califano: "I am trying to make the department a symbol of the manageability of government. I want to deliver the services that have been set up to the people who need them. I think the days are over when we could say it's wonderful we are helping children, older people, sick people; therefore give us all the money in the world without regard to how efficiently we spend it. There are lots of hard judgments that have to be made."
Like most bureaucracies, HEW had a modest beginning. It was created in 1953 from existing agencies by a cautious Republican President, Dwight Eisenhower. In its first year of operation, HEW's budget was a mere $5.4 billion, of which $3.4 billion went for Social Security. Immediately the department became a political issue, as congressional Democrats pressured Ike to increase funding. He held off until the Soviets launched Sputnik in 1957. Then the first significant breach was made in hold-the-line spending. Fearful that the Russians might surpass the U.S. in science and technology, the President backed the National Defense Education Act, which authorized $900 million in aid to schools and colleges, especially for scientific study.
When the Democrats returned to power with President John Kennedy in 1960, higher spending for HEW was on the agenda. Regulations were eased, and the cost of aid to families with dependent children --the biggest welfare program--began to soar. When Johnson became President, HEW was transformed by the biggest growth of federal programs in the history of the nation.
Striving mightily to build the Great Society, Califano helped detonate this compassion explosion; his office churned out some 150 bills a year, and Congress passed about 100. "I can't remember them all," he readily admits. But they were easy to pass in those days because there was much more optimism, not to say naivete, about solving the nation's problems, and a booming economy made the money available. "In the 1960s," says Califano, "all these social programs didn't seem to cost the American people anything because they were all making more real income. Today, when we increase our investment in one group of people, we are taking it away from some other group."
By the end of Johnson's Administration, programs were in place that would dramatically change the nature of the country: Medicare and Medicaid, aid to elementary, secondary and higher education, civil rights, treatment of drug addicts. Scarcely any of L.B.J.'s programs were eliminated by Richard Nixon, or even cut back, and many new ones were added. In 1974, for example, HEW took over state programs for the aged, blind and disabled. The resulting Supplementary Security Income program is now a $2.9 billion item in the budget. Regardless of what party controls the White House, HEW has achieved a considerable measure of independence and a momentum that cannot be easily arrested.
When he first took over, Califano claims, "HEW was in a state of absolute organizational disarray." He cites the report by HEW'S inspector general that the department wastes $6 billion annually. To try to straighten out the programs and cut down the waste, Califano set up a watchdog bureau similar to the President's Office of Management and Budget. The office has department-wide oversight of budgeting, planning, procurement, and reorganization. Though HEW deals with human beings and not hardware, Califano wants to quantify program goals as much as possible. He has set up targets for reducing waste and improving services and is keeping a monthly watch on the progress that is being made. The campaign is already paying off. The average time for processing disability insurance claims in the Kansas City, Mo., bureau, for instance, used to be 104 days. By the first quarter of this year the period was down to 80 days, well within reach of Califano's goal of 74, set for the end of 1978. Says Califano: "I realize it's not a big thing, but it means we can do it. If is an exhilarating experience for me."
Califano is famed for his inexhaustible drive, and something about him is always moving: if not his mind, then his feet or his fingers. He is used to taking command, to shoving decisions through, to getting things done. He has a habit of scrambling the chain of command--and confounding and angering the bureaucrats--by pumping information out of the person most directly involved in a program, whatever his rank.
Yet for all his zeal, as he is the first to acknowledge, Califano is only a partial boss of his own house. Sometimes he talks as if he too were just another private citizen gazing in amazement at a bureaucracy nobody can quite fathom, much less control. Authority is so splintered that HEW seems to be run by nobody and yet run by everybody. And everybody wants something from it.
A three-way alliance of members of Congress, special-interest groups and bureaucrats pushes a particular program, expands it as much as possible and defends it against all challenges.
As huge sums of money have been made available, swarms of lobbyists have been attracted to Washington, where they prowl the halls of Congress and the corridors of HEW. They conquer by dividing. At their urging, Congress passes narrowly focused legislation--so-called categorical grants --that explicitly directs the action HEW is to take. One example: the program to help handicapped children that puts extremely detailed and restrictive requirements on administrators.
Says Califano: "I think we have reached the point where the greatest builder of bureaucracy in the world today is the U.S. Congress. And Congress is doing it because it wants to help the narrow-interest groups that feel they could not otherwise be protected."
Congressionally supported programs quickly become untouchable. Good, bad or indifferent, they keep proliferating; rare indeed is the program that is eliminated or even cut back because it is not working. On the contrary, if a problem is not solved by throwing money at it, the tendency is to throw still more. As Robert Hartman, a senior fellow at Brookings Institution puts it: "Any time a crisis arises, the only response is to add another program."
As a result, some programs have become spectacularly wasteful, inept and indeed corrupting. A sampling of the major culprits:
DISABILITY INSURANCE. Tucked into the Social Security system in 1956, this innocuous-sounding program cost $1.5 billion in 1965, $13 billion this year, and predictions are that it will cost $27 billion by 1985. The number of people receiving disability payments has tripled in 13 years, to 4.8 million workers and dependents, a total that exceeds the population of Virginia, say, or Norway. Disability costs are an important reason for the near bankruptcy of Social Security and the large payroll tax increase that was voted by Congress last December at the urging of the White House and Califano.
How did so many people become disabled despite the methods of modern medicine? The answer is that they did not. Under mounting pressure from claimants and their congressional allies, the definition of disability has been stretched to the point where it can cover a case of nerves, a lingering depression, even chronic headaches. Disability claims are now swamping HEW, which has had to hire 650 administrative judges to hear all the appeals--more judges than the entire federal court system uses. Even so, there is a backlog of 133,860 cases. If their claims are rejected by HEW, people usually resort to the courts, where they often win.
The disability program offers few incentives to go back to work. The average monthly payment for a family is $325, but it can go as high as $1,089, and the payments are tax free. Six percent of last year's recipients increased the after-tax incomes they were receiving before their injuries. There is no income limit on who can be paid. The rich can collect along with the poor--and do. In such cases, the have-nots are being taxed to support the haves. Even though spending on rehabilitation services has doubled in seven years, from $575 per person to $1,125, the number of disabled people returning to work has continued to decline. A decade ago, 3% of recipients found jobs; today's job re--covery rate is 1.5%. Says Califano: "Our society's attitude toward work appears to be changing. Accepting public benefits no longer bears the stigma it once did, and this change affects the growth in the number of beneficiaries."
Like so many other federal programs, disability insurance has lost sight of its original purpose. Instead of helping to put people back on their feet, it is encour aging them to remain prostrate, permanent wards of society.
HOSPITAL COSTS. Nearly 12-c- of every federal tax dollar is now spent on health care, and 9-c- of that amount goes to hospitals, the fastest rising expense in the ever expanding Medicare and Medicaid programs. So many beneficiaries are checking into hospitals that the program's costs have skyrocketed, from $16.5 billion in 1974 to $31.3 billion in 1977. Nor have hospitals been reluctant to cash in on a program that asks few questions no matter how high the bills. The price of an average hospital stay has jumped from $350 in 1965 to $1,300 today, and it is expected to reach $2,600 in 1983. Hospital costs are increasing at an average annual rate of 13.5%, almost 3% more than the rate of increase in the consumer price index. With every increase HEW's health bills automatically go higher.
With the Government and private insurers picking up the check, hospitals have speedily expanded, adding beds that are not needed and competing vigorously for patients by buying such expensive equipment as CAT scanners, sophisticated diagnostic computer devices that cost as much as $700,000. Califano estimates that there are enough CATS in Southern California to serve the entire western U.S. Having made such heavy investments, hospitals feel compelled to use the equipment even though it may not be necessary, thus driving medical costs up further. The doctor too is encouraged to provide services that are not strictly needed. Faced with the question of whether to cut or not to cut, too many surgeons sharpen the scalpel. The patient in such cases becomes the unwitting victim of a system that is supposed to safeguard his health, not jeopardize it. Of the 700,000 people now in acute-care hospitals, HEW estimates that 100,000 should not be there.
To try to curb costs, Califano has placed ceilings on payments for a dozen laboratory tests, ranging from blood tests to urinalyses, and is demanding better policing of programs. He also wants to set up a group of physicians willing to give a second opinion as to whether surgery is needed. HEW plans to publicize the fact that the Government pays for consultation with another doctor, which is surely cheaper than an unnecessary operation.
In a draconian move, the Administration is backing a bill to put a lid on hospital revenues, limiting them to a 9% increase each year. Totally opposed to such controls, the hospitals have responded with a bill of their own, which has a better chance of being passed by Congress. They want to try to reduce the rate of increase by 2% in 1978 and in 1979; only if they failed would they be subject to federal controls. So far, hospitals have succeeded in slowing the rise in costs by more than 2%, but HEW is skeptical about their continuing to do so.
STUDENT LOANS. Beginning in 1958 a series of student loan programs was enacted to make a college education available to virtually everyone who wanted it. Unfortunately, the program does not seem to have educated students to their responsibilities. Although they pay no interest on the Government loans for up to a year after leaving school, and then only 3% to 7%, more than a million former students have not paid up, a default rate of about 16% (the rate for ordinary commercial loans is 2.6%). The cost to taxpayers: more than $ 1 billion.
The students are not entirely to blame.
Many of them were never billed, because the HEW computers were not working on their cases. Says Leo Kornfeld, a former computer executive hired by Califano to clean up the mess: "If a student was in default, we had no system for detecting it. He could even take out a second loan while in default on the first loan. We wouldn't know about it."
lthough defaulting students from the best-known schools have re-eived the most publicity, 60% of the offenders attended vocational institutions. Some of these were schools in name only. They sprang up overnight and advertised for students with bounteous promises of good jobs. A Federal Trade Commission investigation found that many of these schools were guilty of misleading advertising, deceptive salesmanship and substandard instruction. For example, an airline personnel training school in Kansas City, Mo., that received federal money enrolled 15,000 students, graduated 2,000, and found jobs for only 102. Even after this disclosure by the FTC, HEW approved $200,000 more in student loans for the school--which has since been dropped from the approved list.
Some 1,200 cases of defaulting students have been turned over to U.S. attorneys for collection, and others are being tracked down with the aid of IRS files and post office and motor vehicle records. It has been discovered that 6,783 federal employees, including 317 who work for HEW, are among the defaulters. They are now being dunned, though they have not been fired. But even as it cracks down, the Administration is adding to the problem. Carter has proposed a $1.5 billion program to extend college student aid to cover most of the nation's middle-class families. The aim of the plan is to head off a bill proposed by Senators Daniel Patrick Moynihan and Bob Packwood that would allow parents to deduct up to $500 from their income tax for every child they had in college or private school. The White House claims that the credit would cost the Government too much in lost revenues and would benefit the rich as well as the poor. But the tax-credit plan has great political appeal. Last week the House voted 237 to 158 for a tuition tax credit of up to $250 for each student in college and up to $100 for each student in a private secondary school. Carter has promised to veto such a bill.
WELFARE. To many Americans, welfare payments are synonymous with HEW and its problems. Today the main components of federal welfare--Aid to Families with Dependent Children (AFDC), Medicaid, food stamps and Supplemental Security Income (SSI)--distribute more than $30 billion to some 30 million Americans. The vast program is unfair and inefficient. Benefits vary widely across the country, in part because the states share the cost of the program, and their contributions differ dramatically. A family of four in Mississippi, for instance, receives $60 a month; in New York, it would get $450. Fathers are encouraged to desert, since AFDC payments generally go to single-parent families. If welfare mothers choose to work full time, they stand to lose many of their benefits. Fraud is endemic. Welfare officials in New York City estimate that at least 20% of AFDC recipients should not be getting benefits or should be receiving smaller payments.
After campaigning on a pledge to tidy up the welfare mess, Carter ordered Califano to produce a plan last year. Califano's complex proposal would consolidate grants and try to give needy families a regular basis of support: a single-parent family of four could count on $4,200. Califano's plan would also try to help people help themselves. Welfare mothers would be able to keep more of their benefits if they went to work, and 1.4 million public service jobs would be made available for low-income people.
Initially, Carter had hoped to reform the welfare system without spending more. The price of Califano's plan was originally estimated at $2.8 billion, but its critics now claim that the plan would increase welfare payments by $20 billion a year or more. Congress is considering other ways of tackling welfare, all of which face a major problem: they add a lot more money to the budget during a period of concern over inflation.
HEW administers a variety of other programs that, however worthy in concept, have degenerated into boondoggles and in some cases may do more harm than good. Every President since Eisenhower has tried to cut back the impact aid program, which was originally designed to help communities with military installations. The idea was to compensate such localities, since they could not tax the bases but had to provide many services for federal employees. Gradually, the scope of the program has expanded to give aid to communities--rich or poor --with just about any kind of federal facility. There is no chance that the program will be reduced, however, since funds are distributed to 411 of the 435 congressional districts. The Administration asked for a cut of $51 million in the $780 million budget for impact aid. Instead, Congress will probably increase the funds.
In the 1960s HEW'S National Institute of Mental Health developed community mental health centers to help alleviate overcrowding in state mental hospitals. The Federal Government assumed that patients would lead more normal lives in a community setting and thus have a better chance of making a recovery, but just the opposite seems to have happened. Thousands of them have been placed by states in rundown housing, where they are unable to care for themselves and get no follow-up treatment. Certain areas have become saturated with these patients, who are often resented and feared by their neighbors. After releasing the results of a House committee survey on the subject last month, Democratic Congressman Claude Pepper commented: "We have a major scandal on our hands."
Much of the blame for programs that misfire is placed on the bureaucracy itself. In their commendable determination to enforce the letter of the law, officials become too addicted to formulas, too oblivious of ends in their concentration on means. Says Carl Coleman, a public affairs officer in HEW'S regional office in Denver: "HEW gets the social engineers, the people they call do-gooders. They're committed, and they make a lot of mistakes because of their ardor." His favorite example: the West Coast bureaucrat who tried to ban father-son school banquets on the ground that they discriminated against women.
There are more serious examples of HEW officials rigidly insisting on some exact mathematical representation by sex and ethnic group in institutions. The University of North Carolina, for example, now has a well-deserved reputation in the South for liberalism on race, but after a court order requiring greater efforts to accomplish integration, HEW threatened to withdraw $89 million in federal funds if the school did not increase the enrollment of blacks, who constituted 6% of the students on the main campus. The university argued that the figure was so low because blacks could not meet the school's entrance standards as well as whites. When HEW demanded that the number of new black students be increased to 15%, the university balked. A compromise was finally worked out last month that called the higher figure a "goal" to be worked toward rather than a mandatory quota. Califano promised to support the arrangement if it should be challenged in court by civil rights groups.
Hillsdale College in southern Michigan started admitting blacks and women before the Civil War and has no record of discrimination. It accepts no direct federal aid. Nevertheless, HEW is threatening to cut off federal loans and other assistance to some of the school's students because it will not fill out forms on the status of women at the college. HEW claims to be basing its action on a Justice Department ruling, and the case is now being heard by an administrative judge in Washington. For Hillsdale, resistance is a matter of principle. It has embarked on a fund-raising drive to replace the student loans if they are eliminated.
Out in the country where HEW'S services are delivered, people often complain that its programs are not tailored closely enough to local needs. This has become more of a problem since Califano took away the power of the ten regional directors and re-centralized it in Washington. Too few bureaucrats, HEW'S critics claim, are rewarded for initiative. Says Robert Mollica, who deals with federal-state relations for the Governor's office in Massachusetts: "Occasionally we will find a bureaucrat who is courageous enough to interpret the spirit behind the programs rather than carrying them out to the letter whether or not that makes sense."
Local administrators also complain that HEW tends to start programs too quickly, without giving them sufficient thought or staffing. Then the department demands fast results. Says an official in the Social Security administration in Atlanta: "The people at HEW's management level want statistics showing that large numbers of claims have been processed so they can impress Congress with what a good job they are doing. They don't care anything about quality; all they want is quantity."
Complaints about excessive paper work are universal. Last year the states were asked to work up plans of at least 200 pages in order to qualify for a new vocational training program. Because of all the paper clogged in the HEW pipeline, a textile training school was maintained in Lowell, Mass., five years after the textile industry in the area had disappeared.
The school board in Acadia Parish, La., was ordered by HEW to answer a five-page questionnaire dealing with two applicants for teaching jobs. After the entire central office staff spent three days wrestling with the forms, the board decided to give up $150,000 in federal aid rather than waste any more time. A Tulsa, Okla., hospital official admits: "We come dangerously close to spending more to control the flow of money and comply with guidelines than we actually get from grants." Califano has managed to cut an estimated 9.5 million hours from the 47 million hours a year that are spent on HEW forms, but he admits that it is hard to notice the difference. Says Education Commissioner Ernest Boyer: "The problem is that you have five people in one town who are affected and 50 in another, and they never get together to celebrate. It's not noticeable because it's so spread out."
In a period of retrenchment and reappraisal, even an activist like Califano realizes he cannot forge ahead with many innovative programs. But during the campaign Carter promised a program of national health insurance and ordered Califano to produce one before the end of 1978. At a White House meeting on the subject last week, Califano urged the President to support a broad program of coverage that would be phased in over a period of five to ten years. Califano argued that a comprehensive program, including private plans, would be the best way to bring medical costs under control and, in the long run, to fight inflation. But his program would cost HEW a staggering $30 billion a year in addition to the current $43 billion. Although he was backed by White House domestic advisers, Califano was opposed by Treasury Secretary W. Michael Blumenthal, OMB Director James Mclntyre and Charles Schultze, Chairman of the Council of Economic Advisers. They argued for a smaller program, one that would not cost more than $15 billion to $27 billion. Whatever the President decides, Congress is distinctly cool to the idea of adding to the already inflationary budget deficit. Capitol Hill also worries about extending medical coverage when the Government has been unable to control Medicare and Medicaid.
On a smaller scale, Califano has also made some strides, not without controversy. Calling cigarette puffing "slow-motion suicide," he has added $8.5 million to HEW's $30 million-a-year antismoking campaign. A reformed puffer, the Secretary is pushing the crusade with the righteous zeal of a convert. He argues that reduced smoking would cut back health problems--and the resulting HEW expenses.
Califano is also working vigorously to reduce the number of unwanted teen-age pregnancies. He was shocked when he first saw the HEW figures: one out of ten American teen-age girls becomes pregnant. Both he and Carter have gone on record as opposing abortions, and Congress has limited funds for abortions for the poor. But Califano believes the Government has an obligation to make as much birth control information as possible available to teenagers, especially those who are poor. He boosted the 1979 budget for such programs by $142 million, to $338 million.
The trend is always up, and HEW expenditures, which now make up 36% of the federal budget, are expected to grow even faster in the future. Califano estimates that by the year 2010 real spending on benefits for people 65 and older will have tripled, to $350 billion a year. At the same time there will be fewer working Americans to provide the money on which the vast superstructure of assistance rests. Because of the declining birth rate, the ratio of working to retired people will shift from 6 to 1 today to 3 to 1 by 2030. Since not much more can be raised in taxes without damaging incentives to work, something is going to have to give. Other Western nations, like Britain and Sweden, have reached the point where a difficult choice confronts them: they must cut back on welfare or let their economies deteriorate. The U.S. is fast approaching this same dilemma.
Better management, more efficient delivery of services, rational reorganization will all help. Though Califano disagrees, Carter wants to take the education programs out of HEW and put them into a separate Cabinet-level department. But moving the pieces around does not get at the basic problem.
How many benefits is an individual entitled to receive in a modern, humanitarian state? That the needy should be served goes without saying, but the definition of need has proved to be extraordinarily elastic. Yesterday's luxuries become today's essentials. James Q. Wilson, a professor of government at Harvard, thinks that HEW continues growing because there is something in it for everybody--or so it seems. "We will all wind up getting old-age assistance if we live long enough. We will all get Medicare. Since our contact with HEW is mostly favorable because we receive checks from it, there's always going to be support for keeping things as they are."
But in the long run, something for everybody means less for everybody as a dependent population grows, incentives to work decline, and society loses its vigor, perhaps even its basic character. How to hold down runaway spending by HEW and how to meet needs that are legitimate while rejecting those that are not are the key domestic questions that face the nation in the remaining decades of the 20th century. qed
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