In 1996 the U.S. severely restricted public support for low income people, ending “welfare as we know it.” This led to dramatic increases in medicalized forms of support for indigent people, who increasingly rely on disability benefits justified by psychiatric diagnoses of chronic mental illness. We present case studies drawn from ethnographic data involving daily participant-observation between 2005 and 2012 in public clinics and impoverished neighborhoods in New York City, to describe the subjective experience of structural stigma imposed by the increasing medicalization of public support for the poor through a diagnosis of permanent mental disability. In some cases, disability benefits enable recipients to fulfill important social roles (sustaining a vulnerable household and promoting stable parenting). The status of family members who receive a monthly disability check improves within their kin and neighborhood-based networks, counterbalancing the felt stigma of being identified by doctors as "crazy". When a diagnosis of mental pathology becomes a valuable survival strategy constituting the basis for fulfillment of household responsibilities, stigmatizing processes are structurally altered. Through the decades, the stigmatized labels applied to the poor have shifted: from being a symptom of racial weakness, to the culture of poverty, and now to permanent medical pathology. The neoliberal bureaucratic requirement that the poor must repeatedly prove their “disabled” status through therapy and psychotropic medication appears to be generating a national and policy-maker discourse condemning SSI malingerers, resurrecting the 16th century specter of the "unworthy poor". •The first ethnographic examination of effects of US 1996 Welfare Reform and disability benefits on stigma.•Provides theoretical insight that structure and stigma shape each other bidirectionally.•Stigma among the poor may be structurally reinforced by local efforts to neutralize stigma.