One of the big debates in the development of the Social Security Act legislation was how to provide assistance to the poor elderly while getting rid of the poorhouse system that had become so problematic. The National Advisory Council was quite sure they did not want to encourage care in the poorhouses. One way to do that was to give individuals cash payments, which they called "pensions", that would hopefully allow the recipients to remain in their own homes.
"Old folks homes present a traditional and popular escape for some, but are altogether unacceptable for sound psychological reasons to many. Institutional care will always be needed for some proportion of the aged. This may be easily admitted in the case of those who are incapacitated either physically or mentally, but may be optional with healthy old men and women, depending upon their comparative sense of gregariousness. On the other hand the public poorhouse will be condemned by most and, in fact, has been one of the most potent factors in popularizing better methods of provision.
..."The obvious problems that present themselves as soon as the whole question is considered are what to do with the unknown distressing residuum, the people on the bottom, the people who manage to get along, we don't know how. And only slightly above them is the population of our poorhouses and county homes. They present the picturesque though gruesome aspect of the problem of old age. For them private social agencies have advocated private assistance or even public outdoor relief, and more recently old age pensions." (National Advisory Council, 1934)
In addition to the controversy about whether care in a poorhouse was appropriate for the elderly, there was a question of cost. One Council member pointed out that it would cost half as much to support older people with a cash payment in their own home than in an institution. This was founded on the assumption that the older person would continue to work to help support himself if he lived at home, an argument which made sense if those in the poorhouse were too poor to support themselves but were generally healthy, or if they had family or friends who would take care of them in the community.
"Why is it that an old person can live on a pension of $14.00 a month when it cost $28.00 a month to maintain him in a poorhouse? The answer is found in the fact that the person is not lost to the community and is still partially self-supporting. These old timers earn something. They do some mining, take care of public parks, act as watchmen, and engage in various kinds of activities that permit them to earn a part of their living. They remain among their friends who help them. Remove them to a poor farm and they are lost to society forever. Their self-respect is gone as is their meager earning capacity, and they become dead weight, with nothing to hope for but the call of the Almighty." (National Advisory Council, 1934)
Another consideration was that by keeping people at home the government could further benefit by getting repaid from the sale of the person's house after their death, a house that they wouldn't own if they were in a poorhouse. Again, this argument made the assumption that many of those in the poorhouse owned homes prior to ending up there.
...Often a pensioner has some real estate, but an income of less than $300 per year. It may consist of a home. Before granting the pension the commission may require that this property be deeded to the county, effective upon the death of the pensioner, and from the proceeds of the sale of this property at the time of the death of the pensioner, the amount of pension paid during his lifetime, plus 5 per cent interest, is repaid to the county, and the balance from the sale of property goes to the pensioner's heirs. Thus the counties are often reimbursed the entire amount of the pension paid, with interest. Heirs, who in the lifetime of the pensioner have not been interested in his welfare, do not succeed to the pensioner's property until the county has been repaid." (National Advisory Council, 1934)
The Council had little information to work with. They didn't even have an accurate count of the number of elderly people living in poorhouses, let alone any information about their health, wealth, or family support. The most recent national inventory of poorhouse residents was 10 years old at the time, and it was useless. It had been done before the Great Depression began, and the poorhouse population had exploded since that time.
After much debate, the final decision was to structure OAA to forbid the provision of federal matching funds for any payments made to residents of "public institutions." The hope was that this would discourage the use of public poorhouses to care for the elderly, and that beneficiaries would use the cash payments to remain in their own homes.
The law never really did address the question about how to provide for elderly people who did require institutionalization.
"No provision for any type of institutional maintenance is proposed. Yet there are, of course, aged persons who, while not needing hospitalization, do require constant custodial care. The almshouse or poorhouse of most of the states is, of course, a most unsuitable answer to their needs. The staff is aware of this situation, but feels that lack of factual data bearing on these county institutions and their inmates prevents intelligent planning for this problem now. It therefore recommends that the United States Department of Labor undertake at once a special survey of such institutions with a view to working out a constructive program for the improvement of institutional maintenance of the aged." (Old Age Security Staff Report, 1934)