Summary: Great Depression adds to poverty and destroys families, State assistance is little help, Social Security Act creates national old-age welfare, New benefits kill poorhouses and stimulate for-profit homes, Federal and state governments share costs.

Great Depression Changes Everything

Family life and working conditions drastically changed during the Great Depression. Nearly half of the working age population became unemployed in some parts of the country. Even young, healthy people lost their jobs and watched their savings dry up. (Federal Writer’s Project, 1938) President Roosevelt quickly initiated numerous Federal Emergency Relief (FERA) programs after his election, and his Committee on Economic Security estimated that by the end of 1934 there were 750,000 single persons and 4.2 million families receiving some sort of emergency relief. Counting all the members of the affected families, nearly 19 million people, 15% of the total population, were dependent on FERA programs. (Committee on Economic Security, 1935)

The problems hit the elderly particularly hard. Those who were retired or close to it watched a lifetime of savings disappear, and they weren’t well enough to work or couldn’t find the jobs that would allow them to rebuild their lost investments. That made many of the elderly completely dependent on their families, but hard times for younger family members often meant little or nothing left to provide for their parents.

Hard Times Destroy Support Networks

Families couldn’t support their members and often split up. “The divorce rate fell, for the simple reason that fewer people could afford one, but the rate of desertion soared. By 1940, over 1.5 million married couples were living apart.” (American History Files) Hard times generated new waves of migration. Unemployed workers crossed the country to search for jobs, further dispersing families. Children were sent away to orphanages and older family members who had no income of their own were more likely to end up in the poorhouse or dependent on charity.

State Assistance Plans Are Little Help

By 1928, just prior to the start of the Great Depression, only 6 states and territories had old-age assistance laws. As the Depression deepened, that number increased, until there were 28 states and 2 territories (Alaska and Hawaii) with old-age assistance programs by 1934, most just enacted in the prior year or two. Unfortunately, the plans were quite limited and inconsistent from state to state. As summarized in the final report of the Old Age Security Staff to Chairman Witte, the state plans included the following features and restrictions:

  • All but Arizona and Hawaii refused to make payments to older people who had children or relatives who could support them.
  • Most limited assistance to elderly people who were age 65 or older, but quite a few set the limit even higher, at age 75.
  • Most required that beneficiaries must have been citizens and residents of the state for 15 years, some had even longer residency requirements than that.
  • Many required that the beneficiary must transfer to the pension authority any property they possessed before any payment would be made.
  • Most had property and income caps to limit eligibility, generally a maximum of $3,000 in property and $300-$365 a year in income.
  • Most required that benefits would be denied to anyone who gave away property in order to qualify for public assistance.
  • Most required that a lien be placed on the estate of the beneficiary to be collected upon their death.
  • Most required that recipients be “deserving”, and benefits were denied to anyone who deserted a spouse, failed to support their families, had committed any crime, or had been a tramp or beggar.
  • Benefits were denied to inmates of jails, prisons, infirmaries, and insane asylums, although a few permitted the payment of assistance for inmates of a benevolent fraternal institution.
  • Most set a cap on monthly payments at $30 a month, although they actually paid about half of that or $15 a month on average.

The restrictions were so severe and the number of states that actually had launched their plans and committed funds to them was so limited that even in 1935, in the depths of the Depression, there were less than 200,000 people covered under state old-age assistance plans. (Old Age Security Staff Report, 1934)

Society Expects Federal Government to Intervene

“The pressure for relief to the elderly did not come so much from the old people as it came from their children. Their children needed help… Sometimes people seemed to feel that it was greedy old people who wanted something for themselves, but it was much more their children, who wished to be relieved of the burden. The law said that children must support their parents, their grandparents, their children, their grandchildren, their brothers and sisters. Those laws were sometimes enforced very brutally.” (University of California/Berkeley Oral Histories Project, Helen Valeska Bary)

As the depression wore on, private charities and benevolent societies couldn’t keep up with the demands for assistance, and the people they would otherwise have helped had to rely on public welfare instead. Local governments couldn’t care for the exploding numbers of poor people on their welfare rolls and turned to the states for help in meeting their obligations. The states couldn’t operate with deficit budgets or issue new money to pay their obligations, but the federal government could, so the states began to look to the federal government for help.

A 1937 Social Security pamphlet said,

“Old people, like children, have lost much of their economic value to a household. Most American families no longer live in houses where one can build on a room or a wing to shelter aging parents and aunts and uncles and cousins. They no longer have gardens, sewing rooms, and big kitchens where old people can help make the family’s living. Old people were not dependent upon their relatives when there was need in a household for work they could do. They have become dependent since their room and their board cost money, while they have little to give in return. Now they need money of their own to keep the dignity and independence they had when their share in work was the equivalent in money.” (Social Security, 1937)

The Committee on Economic Security reported to President Roosevelt in 1935 that one-third to one-half of the 7.5 million people age 65 or older in the country were dependent on either public assistance or help from their families, and that only a relatively small percentage of that group were receiving any help from the government. (Committee on Economic Security,1935).

By 1935, a majority of legislators agreed that a federal program for old-age pensions and welfare was required, to help the individuals in need, to stimulate the depressed economy by getting cash into the hands of citizens, and to “retire” older workers without impoverishing them in order to make their jobs available to younger people.

Social Security Provides Reliable Income

There were numerous plans proposed to provide assistance to the elderly. Some of the best-known included:

  • Dr. Francis E. Townsend’s Townsend Plan would provide $2,400 a year ($200 a month) to everyone age 60 or older, financed by a 2% sales tax.
  • Huey Long proposed a plan to guarantee $5,000 a year to every family, with an unspecified pension to everyone age 60 and older.
  • Upton Sinclair proposed a plan called End Poverty in California (EPIC) to provide $600 a year ($50 a month) to those age 60 and older who were needy, financed by income and inheritance taxes and a tax on idle land.
  • The “Ham and Egg $30 every Thursday Plan”, organized by Roy Owens, Lawrence and Willis Allen, and Robert Noble, would give $1,560 a year to every unemployed person in California age 50 or older.

The cost of many of these plans would have been enormous. In contrast, the 1935 Social Security Act as it was finally written seemed relatively modest. The “Old Age Insurance” (OAI) program we call “Social Security” today was created as Title II of the Social Security Act. It established a pool of funds that workers would pay into while they were working, which they could draw upon to support themselves in retirement. The government would not pay for it. Instead, it would be funded out of contributions of both workers and employers. To keep the cost of the program down, the initial Social Security law limited the program to workers in commerce and industry other than railroads. However amendments to the law in subsequent years have added more and more groups to the program until it is now nearly universal.  (Social Security Act, 1935)

Social Security Act Creates National Old-Age Assistance

Title I of the 1935 Social Security Act created a program, called Old Age Assistance (OAA), which would give cash payments to poor elderly people, regardless of their work record. OAA provided for a federal match of state old-age assistance expenditures. Among other things, OAA is important in the history of long-term care because it later spawned the Medicaid program, which has become the primary funding source for long-term care today.

Although many people today only know about the Old Age Insurance (OAI) portion of the Social Security Act, in 1935, when the Act was passed, it was OAA that everyone was really interested in. Support for Old Age Insurance was much weaker, and President Franklin Roosevelt had to work hard to convince Congress that OAI was an important component of the Social Security Act. One problem with the Old Age Insurance plan was that reserves had to be built up before they could begin paying benefits, and no OAI benefits were supposed to be paid before 1942.

In the meantime, there were many elderly people who needed immediate help, and many others who would never receive many benefits from the OAI program because they were already retired or only had a few years left to work. Among others, Edwin Witte and Arthur Altmeyer,  key contributors to the Social Security legislation, were concerned about those who were age 45-50, a group they called “the half old.” OAA was designed to provide a stop-gap to make sure that those people had some help from the government as they aged since they would not be able to contribute enough before they retired to collect a meaningful benefit.

OAA was fabricated out of the 28 state old-age assistance programs that had been put in place by the early 1930’s. These programs varied quite a bit, but they were mostly brought into the new federal system as-is. Each state was allowed to set its own standards for determining eligibility and payments, with the federal government providing cash for a 50% match of up to $30 a month in aid. The lack of federal control was deliberate. The legislation was written that way to to get the support of states that wanted the federal government’s assistance without too many strings attached. Only a few federal requirements were added:

  • The old-age assistance program had to be available throughout the state, not just in certain counties.
  • The State had to provide at least some of the financing for the program. (In some states the existing old-age assistance programs were only funded at the local level).
  • Residency requirements could not be any longer than 5 out of the last 9 years, and the minimum age for receiving benefits could not be any older than age 65.
  • The state had to create a single state agency to administer the plan and a system of administration and reporting to the federal government.
  • The program had to include an appeals process for people who believed they had unfairly been denied old-age assistance.
  • If the state or local governments collected money from the estate of any recipient of old-age assistance, half of that money had to be given to the federal government.
  • Payments to anyone living in a “public institution” were prohibited.

All the other provisions of the existing plans continued into the OAA program. This meant that in many states OAA was not available to elderly people who had families who “ought” to be supporting them and that beneficiaries could be required to turn over everything that they owned before receiving any assistance, while other states had no such restrictions.

Aging Issues Generate National Interest

One interesting outgrowth of all this focus on the elderly was the emergence of “aging” as an issue of national interest.

“Most of the early state old-age assistance program were administered apart from other public aid in accordance with the intent of the legislation. The leaders in these programs were trail-makers in pointing up the special needs of older people…It was not until the 1937 session [of the American Association of Social Security] at Indianapolis that the National Conference of Social Work devoted separate program time to the subject of aging and even then somewhat reluctantly. A special subcommittee was allowed to schedule two meetings but the hours allotted were the least desirable–two to four on Friday afternoon and eleven to one on Saturday morning, by which time most delegates would ordinarily be on the way home. Much to everyone’s astonishment, both meetings brought out a full house.” (Robert T. Lansdale,1960)

Legislators Debate Institutionalization

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)

New Benefits Stimulate For-Profit Nursing Homes

The prohibition on care in public institutions did have an effect on the use of poorhouses — many of the poorhouses and poor farms saw their population dwindle sharply after 1935. Following a pattern that was repeated throughout the country, 15 Minnesota poor farms closed between 1935 and 1950. (Ramsey County Nursing Home)

Although some potential poorhouse residents may have been able to remain at home, that didn’t solve the problems for everyone. The payments were not generous, and some recipients needed to find shared quarters in order to get by. Others needed a level of care or supervision that they couldn’t get at home. They couldn’t go to a poorhouse without losing their benefits, but they did have some money to pay for their care. Most of the nonprofit old age homes restricted access to members of their own organizations, and, since they were dependent on donations and contributions for survival, they had a limited ability to expand quickly. That left proprietary nursing homes as the only facilities with an unlimited potential to grow to fill the emerging need. As a result, the number of for-profit facilities began to quickly multiply after the Social Security Act became effective.

OAA recipients were able to pay cash at a time when there was little real money in circulation, making them very attractive customers for proprietary operators, and old age homes were a perfect “cottage” industry. They could be easily and often inexpensively launched by “mom and pop” operators who boarded their elderly customers in unused rooms in private homes. Some were run by unemployed nurses who provided rudimentary care in addition to room and board, giving rise to the term “nursing home.” In a time when many people were still out of work, the fledgling industry provided homeowners with an opportunity to use the only asset they owned to generate a welcome source of cash.

In contrast, while the nursing home industry was becoming primarily a for-profit industry, hospitals continued to develop under government and non-profit sponsorship. By 1935, there were about 6,400 hospitals in the United States, and virtually all were either non-profit or government facilities. Most hospitals had always admitted a significant percentage of “charity” patients who could not pay their own way, whose care was heavily subsidized by the government or by the religious or charitable institutions that supported the hospitals. They also required more capital and operated on a scale that few private operators would have been able to finance.

Federal and State Governments Share Welfare Costs

The OAA program established the precedent of splitting welfare expenditures between the federal and state governments while allowing the states to retain a significant amount of authority and autonomy to set standards, eligibility, and payment levels as they desired. The states, in turn, continued to share welfare expenditures with local governments, which meant that at least two, and sometimes three or more, levels of government were involved in the provision of public assistance, a situation which continues to this day.

This division, and the conflicting goals of providing a service that the public considers valuable while guarding the purse of the taxpayers created inter-governmental tensions and rewarded efforts to shift beneficiaries into programs where some other level of government would assume a greater share of the cost. At the same time, beneficiaries had their own incentives to use or avoid certain types of services, depending on what kind of help they would receive and how burdensome the requirements for receiving it were likely to be. The OAA program was about to demonstrate that “gamesmanship” could affect program costs and utilization.