During World War II many seniors came out of retirement to help with the war effort. Their employment income probably kept many of them off the welfare rolls during the war, but they had to retire once again when the servicemen returned home and needed jobs. The war also added to the size of the disabled population who needed long term care, and created many new widows and orphans who needed financial assistance. In 1939, the Social Security Act had been expanded to include survivors and dependents benefits, and the war greatly increased the number of people covered under the system. After the war, the Veterans Administration added new benefits for newly-disabled veterans or surviving spouses.
The size of the elderly and disabled population was growing, and many of them were now eligible for government payments of one kind or another, including veterans benefits, old-age assistance, Social Security, and unemployment assistance. Many of those payments could be used to pay for nursing home care, further encouraging the development of care facilities.
A number of amendments to the Social Security Act increased both the cap on Old Age Assistance payments and the percentage of OAA that was paid for by the federal government. The cap on the total combined payment that was eligible for a federal match increased from $30 a month to $50 a month, and the maximum federal share of the payment increased from 50% to 60% from 1936 to 1948. (Advisory Council Report, 1948)
|Year||Cap on Total Combined Payment||Federal Share of Payment|
|1946||$45||2/3 of first $15, 1/2 of remainder (56% on maximum benefit)|
|1948||$50||3/4 of first $20, 1/2 of remainder (60% on maximum benefit)|
The states welcomed the opportunity to share public assistance costs with the federal government and quickly jumped into the program. By 1940, every state had set up an Old Age Assistance program, and coverage increased until 22% of the age 65+ population were receiving OAA benefits averaging about $20 a month in 1940, where utilization leveled off. Somewhere between 2,000,000 and 2,200,000 people received OAA each year throughout the 1940's, representing about 23% of the age 65+ population by 1950.
The public was confused about who OAA payments were intended for, partly because they were called "pensions" and partly because the Social Security welfare plan was introduced simultaneously with the Social Security insurance plan. Many people did not understand that OAA was only intended to provide cash payments to the needy, not to everyone age 65 or older.
The law required states to ensure that payments only went to those who were truly indigent, so they had to investigate all other sources of income and deduct them from the maximum monthly allotment. "All sources of support had to be explored - even small stipends that children provided to help their parents and the potential yield of a vegetable garden belonging to applicants. Sometimes children were asked whether they could help their parents - even if they currently were not providing assistance." This meant that many beneficiaries got much less than the $30 a month payment they had initially heard about. In Texas, for instance, the average allotment was only $15 a month. (Texas DHS, 1991) This left some people feeling they had been misled or taken advantage of. Others resented the indignity of the probing questions they had to endure in order to receive benefits.
Even the social workers employed by the states to determine eligibility were confused about whether they were supposed to protect the public purse by denying benefits or relieve the pain that they saw by helping people qualify for benefits. As one man said, "I have been advised to give my farm and everything away so I could draw the old age pension. If I was to do that I would be crazy--I'd wake up some morning and find myself in the asylum." Another man reported, "I could git me in old age pension, if I wanted to sign my life insurance away. Woman from the state come here some time ago I says, 'Nothin' doin'', I says. 'Think I'm goin' to sign away my chance for a decent burial?' I says 'That's all I got to look forward to.'" (Federal Writer's Project, 1939)
Although the number of people receiving OAA stayed fairly stable during the 1940's, benefits increased precipitously, even after accounting for inflation. Average benefits restated in 1940 dollars increased by nearly 20% from 1940 to 1950. (Friedberg, 1998) Gross OAA expenditures doubled from $474 million in 1940 to $960 million by 1947. (Advisory Council Report, 1948)
|Percent of 65+ Receiving Benefit||Average Annual Benefit||Average Monthly Benefit||Gross Expenditures|
The percentage of people age 65 and older receiving OAA would be high if most people in this age group were retired, as is true today. However, about half of all men age 65-74 were still working throughout this time period. (Friedberg, 1998) Either those who were employed earned so little that many still qualified for welfare benefits, or a very large percentage of those who were not working were receiving benefits. Whatever the reason, the percentage of the elderly who were receiving welfare benefits during the 1940's was extremely high.
The federal and state governments reacted in different ways to the exploding costs of the program. Some states just cut their appropriations. For example, Texas Department of Public Welfare Executive Director Adam J. Johnson sent the following letter to all program recipients in October 1939:
"Because there is not enough money coming into the Old Age Assistance Fund in Texas to pay all the old age assistance grants in full, we are forced to cut $6.00 off the grant of everybody on the rolls. This is to notify you that, beginning with this warrant, your grant must be cut by $6.00 below what the Investigator recommends for you and you have been receiving. We regret having to do this, but are powerless to prevent it. Please understand this is due entirely to lack of funds and is not our fault nor the fault of the Investigator, and that the Investigator cannot increase your grant just to take care of the cut. The revenue coming in is not sufficient to do this. Grants to those who are eligible will be increased again as soon as funds are provided." (Texas DHS, 1991)
The benefit levels had risen so much that by 1948 the average OAA benefit ($38.18 per month) greatly exceeded the average Social Security benefit ($25.13 per month), providing a perverse disincentive for people to provide for their own old age by working and saving. (Advisory Council Report, 1948) Amendments were proposed for the Social Security Old Age Insurance program to increase payment levels and expand coverage to more people. In 1939, Social Security OAI was amended to pay benefits to widows, widowers, and dependent children of workers who died, primarily to start moving this population off of the welfare rolls, but the most significant changes weren't made until 1950.
One effect of the new federal benefits was on the living arrangements of the elderly. Dora Costa studied the relationship between income, marital status, and living arrangements on elderly women. She found that older women were only half as likely as older men to be married. In earlier eras, those women would have been living with their children, but Costa noted a significant reduction in the percentage of elderly unmarried women who were living with their children in the 1940's, which she was able to attribute directly to the new source of income from OAA. (Costa, 1997) This new independence was good news in many ways, but it also meant that it was less likely that a family member would be present in the same house if those older women needed supervision or medical care in the future.
Public interest in national health insurance began to increase during the 1940's, although it would be another 20 years before the Medicare program would finally pass the legislature. The first salvo occurred during the administration of President Franklin Roosevelt. The Social Security Board drafted a bill which was introduced in 1943, by Senator Wagner and Senator James Murray of Montana and Representative John Dingell of Michigan. Historian Peter Corning says,
"As its drafters and sponsors had expected, the Wagner-Murray-Dingell bill signaled the beginning of the political debate that would come to a climax in the postwar years...[It] was the most comprehensive social measure ever introduced in Congress. It envisioned a federally sponsored health insurance program, along with permanent and temporary disability, maternity and death benefits, full federalization of the existing Federal-State unemployment insurance, expansion of old-age and survivors' insurance, and enlargement of public assistance." (Corning, 1969)
After President Roosevelt died and the war ended, President Truman tried to revive the issue, but was blocked in large part because of the opposition of the American Medical Association (AMA), who mounted a massive campaign to defeat the bill. As Corning puts it,
"On the heels of President Truman's election victory, an 'Armageddon' psychology set in within the AMA. In December 1948, the AMA's House of Delegates met, in an atmosphere of crisis and voted a special assessment of $25 per member to resist 'the enslavement of the medical profession.' A prominent public relations firm was hired and a $4.5 million fund was deployed to wage a 'national education campaign' against the Wagner-Murray-Dingell bill. The campaign included publicity through the mass media, nationwide distribution of pamphlets, a vast speechmaking effort, and a drive to win and publicize specific pledges of support for the AMA's position from the press and other private organizations." (Corning, 1969)
At the same time, labor unions and the insurance industry were encouraging employers to provide health insurance to their employees as an alternative to a government-sponsored program. Truman and the bill's supporters eventually conceded defeat and dropped the bill.
World War II halted construction and development of every kind, and by the end of the war, many buildings were badly in need of replacement or modernization. The national health insurance program that was being discussed highlighted the poor quality of the nation's healthcare infrastructure, which could only be improved by devoting significant funds to the construction and modernization of hospitals. During the high-profile controversy over national health insurance, Senators Joseph Lister Hill of Alabama and Harold Burton of Ohio quietly carved out hospital construction financing into a separate bill, and introduced the Hospital Survey and Construction Act of 1946 (commonly called the Hill-Burton Act). Compared to the high cost of national healthcare insurance, the Hill-Burton Act seemed relatively risk-free and inexpensive, and it passed with little fanfare.
Hill-Burton created a system to provide federal financing for construction of new hospitals in rural and poor areas that did not already have them, and to modernize hospitals in metropolitan areas. The sponsors did not want to create an uncontrolled explosion of buildings that weren't needed, so the bill called for each state to develop an agency to organize and coordinate health planning for the state, and to determine where in the state hospitals ought to be built. These agencies were also charged with pre-approving the design of the buildings before they were built, a level of oversight and consistency in healthcare construction design that had never existed. The sponsors felt that wealthier areas would be able to build their own hospitals without federal assistance, so funding was to be directed primarily to areas that were poor or rural. One controversy that arose before the final text of the bill was approved was whether or not federal funding could be provided to hospitals that were not publicly owned. The concern was that it might not be appropriate to gift taxpayer money to non-public entities. There was never any consideration of including proprietary hospitals in the program, but ultimately a decision was made to allow funding for non-profit hospitals, not as gifts, but as loans which would be repaid by providing a certain amount of free care to people who otherwise would have ended up as the responsibility of the government. (Perlstadt, 1995)
Hill-Burton financing lead to an explosion in public and non-profit hospital construction, and provided a model for federal and state standards for the design, regulation, and financing of healthcare institutions that was later used for nursing homes.
An unplanned result of the Hill-Burton legislation was that many of the old hospitals that were being replaced were converted to another "medical" use -- they became nursing homes. In the late 1940's, all kinds of residential and commercial construction resumed, after stopping completely during the war. The pent up demand for construction made it hard to find the resources to build new buildings, but older buildings were coming on the market as they were replaced, and the end of the war ushered in an era of nursing home conversions. Hundreds of hotels, homes, and other existing buildings of all kinds were converted to nursing homes.
A 1948 Social Security Advisory Council report suggested that additional Old Age Assistance (OAA) payments should be made available for poor people who required medical care, since the amount they were receiving was insufficient to cover it.
"Care for aged and chronically ill persons is a growing problem and in the opinion of the Council is a Federal concern. Today more than 350,000 recipients of old-age assistance are bedridden or are so infirm as to require considerable help in eating, dressing, and getting about indoors. Of them, about 50,000 are living in commercial boarding or nursing homes or private institutions. Some of these persons living in such homes or institutions are getting very unsatisfactory care. Of those living in their own homes or with others, many need prolonged treatment in medical institutions." (Advisory Council, 1948)
As an example of the problem, they reported that in Connecticut in 1946 the average cost of nursing-home care for the aged was $118 a month, far more than the maximum $50 a month OAA payment.