Is Welfare Becoming a for-Profit Business?

The social health and financial buffer put in place in the United States to protect the basic human needs of all individuals, collectively known as welfare, is gigantic. Some 47.8 million people are currently enrolled in the Supplemental Nutritional Assistance Program, which you may know better by its short-hand term, food stamps. Also, as of mid-January, close to 5.6 million people were receiving some form of unemployment benefits.

The scope of welfare is difficult to comprehend, but the amount of money spent by federal and state governments on social and health programs is plain as day. According to Sen. Jeff Sessions (R-Ala.), welfare spending between state and federal governments is up more than 30% since President Obama took office and topped $1 trillion in 2011, based on a study released last October.

We've definitely seen certain companies angling themselves to take advantage of the increasing government dollars flowing into welfare -- especially in the health-care sector. The passing of the Patient Protection and Affordable Care Act (aka Obamacare) is going to bring upwards of 16 million newly insured low-income individuals and families under the umbrella of government-sponsored Medicaid, so insurers have been doing everything they can to get their slice of the pie. WellPoint (NYSE: WLP  ) ponied up $4.5 billion to buy Amerigroup and hurdle past UnitedHealth Group to become the nation's largest private Medicaid insurer. Aetna (NYSE: AET  ) followed suit shortly thereafter in August with a $5.6 billion purchase of Coventry Health Care, aimed, similarly, at gaining more Medicaid-based customers.  

Is the game about to change?
The point is we've expected this of health insurers and certain medical service providers for years. But, the way I see it, a completely different set of circumstances currently making their rounds throughout the states could greatly broaden the scope of welfare from simply a basic human-needs service to a for-profit business.

What I'm talking about is the ongoing debate over mandatory drug testing. Certain states, including Michigan in 1999, Florida in 2011, and Georgia in 2012, passed laws that allowed them to mandate that everyone receiving welfare be drug tested before divvying out their monthly disbursement. In Michigan, this law was overturned in 2003, and in Florida, the American Civil Liberties Union successfully argued for, and had a federal appeals court uphold, a temporary ban against the encompassing drug screenings for everyone on welfare. Other states, including Arizona, Missouri, Utah, and Oklahoma also test welfare recipients, but only if there's a reasonable cause for suspicion according to The Wall Street Journal.

As with all political battlegrounds, there are two sides to this issue. On one hand, with government budgets tightening because of the sequester, it would be nice to know that members of society who need a helping hand are getting it. Mandatory drug testing would keep that money out of the hands of illicit drug dealers and put it in the hands of people who need the assistance.

Conversely, mandatory drug testing is expensive and time consuming, and it hasn't proved to be a money-saving effort in its short history. According to USA Today, Arizona's "suspicion-driven" testing was effective only 0.00001% of the time, with only one person of the 87,000 tested coming back positive. The head-banger of the Arizona test is that applicants had only to answer a question "yes" or "no" to whether they had used illegal drugs in the past 30 days. If they answered "no," then Arizona couldn't test them! Even in Florida, where everyone is testing everyone, only 2.7% of applicants have failed the drug screening. Worse yet, the test costs $30-$40 and is to be paid by the applicant. The applicant is reimbursed if he or she passes, but $30-$40 can sometimes be hard to scrape together for welfare recipients.

The real question is whether other states will catch onto and adopt this idea -- and the answer seems to be leaning toward "yes." In 2011, 36 of 50 states considered adopting some form of drug testing for welfare recipients, based on figures in The New York Times -- a dramatic increase from previous years. If adopted on a large scale, it could push welfare from being just a battleground for health-service providers to a free-for-all across a myriad of sectors.

Welfare as a driver of profits
First of all, drug diagnostic companies would be the logical winners under a larger adoption scenario. Regardless of whether these companies are paid by the state or by the recipient, it's guaranteed money in their pocket. Under a wider adoption scenario, I wouldn't even be surprised if diagnostic companies switched gears and developed their own drug-testing kits in order to join the fray.

Another winner under this scenario would be the nation's prison system. Even as some states begin to legalize the use of recreational marijuana in a person's home, the federal government still views it as an illegal substance.


Source: California Department of Corrections. 

The premise here would be that any increase in nationwide drug testing would be bound to turn up additional drug users and could boost the prison population. That would be great news for the GEO Group (NYSE: GEO  ) and Corrections Corp. of America (NYSE: CXW  ) , which are contracted out through the government to run and service prisons around the country.

Finally, legal alternatives to "getting high" should see a boost -- namely, spirit producers. Since most drugs are traceable in the human body for weeks and alcohol tends to leave your system long before 24 hours is up, domestic beer behemoths such as Anheuser-Busch InBev and Molson Coors (NYSE: TAP  ) , as well as hard-liquor producers such as Brown-Forman, the maker of Jack Daniels and Southern Comfort, should be primed to benefit. For the domestic beer producers, this would be an incredibly welcome sign, as stagnant take-home pay has weighed heavily on beer consumption.

Where do we go from here?
There's no question in my mind that these industry groups would benefit from expanded welfare drug screening. The question comes down to whether it's ethical and worth spending the added government funds and resources on expanding this program to additional states. Furthermore, aside from the health-benefits industry, should businesses in these industries be gearing up for increased testing to essentially "stay ahead of the curve?" Sound off with your thoughts in the comments section below.

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Read/Post Comments (13) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 22, 2013, at 9:44 AM, benjonson wrote:

    In my parent's day (they were members of the greatest generation), being on welfare was a shameful act. For my generation, the so called baby boomers, welfare is a career choice.

  • Report this Comment On April 22, 2013, at 10:20 AM, jimnazium wrote:

    @benjohnson-continue to demonize the poor when where the money ends up are these huge corporate entities. people would choose a different "career choice" if 12+ years of tax breaks for "the job creators" would have actually created some. keep trying to push the circular logic of the poor being wealth envious by hating on them.

  • Report this Comment On April 22, 2013, at 10:20 AM, ANEWORLEANSLADY wrote:

    One thing for sure...It's becoming a way of life..

  • Report this Comment On April 22, 2013, at 10:22 AM, Bubba49 wrote:

    Welfare used to be an embarrassment. Thats not to say it wasn't needed, because surely we all have fallen upon difficult times, but as more and more people are listing for benefits, that should be a signal that something is wrong with our system. Should drug testing be mandatory to file for welfare?--- I say YES.--- No shame in testing. Employers require drug testing...if one refuses to test, employment with the company is withdrawn. But the types of drugs, acceptable and unacceptable amount measurements , and other parameters need to be clearly and objectionably defined before proceeding.

    Believe it or not, but I was declined for employment for having nicotine in my system. The company was very anti smoking. Good riddance anyways.

  • Report this Comment On April 22, 2013, at 10:35 AM, yesyou wrote:

    Eliminate welfare in all its forms. If you don't work, you don't eat. That goes for the baybees, too.

  • Report this Comment On April 22, 2013, at 10:36 AM, adonkul wrote:

    When the budget was being discussed, the said entitlement programs would be cut. Since when are SS, Medicare, Vets, and unemployment entitle- ment programs? While Social Services, Medicaid, and food stamps have gone untouched.

    Florida tried the drug testing and said it cost more to do than it saved on drug users. It would add to the cost of these programs.

    Once again more severe screening and monitoring of receipeints should be put into place. A limit on amount of children. If applicant is pregnant at time that child and children already in family would be allowed; no more. If unemployable, give training to help get employment. Goals to make people self-sufficient.

    Granted, with our economy, lack of employment opportunities cause need.

    These are the real entitlement programs. The programs set to be cut are paid into by employees and employers. Why are these being targeted?

  • Report this Comment On April 22, 2013, at 10:38 AM, cityperson wrote:

    Welfare sure is big profit from the rest of us that work and pay taxes. Just look at all the free bees the tax payer and the workers pay for these give away programs. The politicians and others that live off these working tax payers will never cut this welfare and other programs, these are hard votes in their pockets. Plus these same politicians are making companies lots of money and these politicians when leaving office will more then likely be working for one of these companies.

  • Report this Comment On April 22, 2013, at 10:51 AM, Whataduffo wrote:

    People are talking about welfare, have they tried or even gone to a VA hospital? THAT IS A REAL welfare clinic!!!! I am a veteran, there was a time when a veteran WAS a proud person to be but now, the caretakers could careless about what happens or how the patient is treated or even talked to. It is a nightmare on elm street!!!!

  • Report this Comment On April 22, 2013, at 11:33 AM, saltqueen99 wrote:

    In 1969 as a freshman in college, I asked a young woman what her goals were. She said she planned to have 2 illegitimate babies so she could get a "good" welfare check and party all the time. It was stupid then and it is even more so now. Yet we are now into 4th generation welfare recipients who view it as the family business. And they know all the tricks to get as much from the government as possible without giving anything back. It is shameful.

  • Report this Comment On April 22, 2013, at 12:18 PM, justlogic wrote:

    Inorder to reduce the cost of drug testing I would promote a system of chance into the system. Have a bage with 10 blocks, 9 yellow, 1 red. If you draw red you take the drug test. you refuse to participate you dont recieve the check. This lowers the cost AND applies pressure to those who abuse the system. If you have nothing to hide it is an easy process. I believe it is important to help those who have the attitude to be a positive factor in our society. We all have our hills and valleys in life. But, I work hard for my money, my family, and I pay my taxes.

  • Report this Comment On April 22, 2013, at 12:55 PM, morgue2u wrote:

    As submitted by Billy Fleming, “The Food Stamp Program, administered by the U.S. Department of Agriculture, is proud to be distributing the greatest amount of free meals and food stamps ever.

    Meanwhile, the National Park Service, administered by the U.S. Department of the Interior, asks us to “Please Do Not Feed the Animals.” Their stated reason for the policy is because the animals will grow dependent on handouts and will not take care of themselves, this ends today’s lesson”.

  • Report this Comment On April 22, 2013, at 6:58 PM, danno228 wrote:

    Hey Fool are you just figuring this is a scam. Get you head out of the sand.

  • Report this Comment On April 23, 2013, at 10:05 AM, kitmaira wrote:

    Don't forget Section 8 housing. A huge transfer of public money into the bank accounts of landlords. Why charge market rent when you can get the government to pay inflated rents for dilapidated properties in the name of "helping the poor."

    How about food stamps, a direct subsidy propping up food prices for grocers.

    Free prescription drugs? Walmart will offer a 3 month supply for $10, but who cares, CVS gives you the same prescription, charging the government full price, and it's free to the customer. Why shop around?

    It's a perversion of capitalism, instead of chasing customers with low prices, you have people who don't care about the price of items, because they aren't paying for them.

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