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Is Welfare Becoming a for-Profit Business?

By Sean Williams - Apr 21, 2013 at 1:15PM

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Known to cause jockeying among health-benefits providers, are welfare dollars about to cause a boom in a number of other industries?

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 (ANTM -0.10%) ponied up $4.5 billion to buy Amerigroup and hurdle past UnitedHealth Group to become the nation's largest private Medicaid insurer. Aetna (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 (GEO 1.29%) and Corrections Corp. of America (CXW 2.71%), 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, 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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