While I generally agree with your points, I think that its a little strange to sum this up as a "really simple problem" and then declare the solution to be building institutions to specializer in the assistance and care of people with a wide variety of issues.
The diagnosis is simple. We have a cycle of sympathizing and then cracking down on marginalized people and it stems from having a one size fits all approach to social problems.
The solution of course is terribly complex. It stresses some of the most difficult questions of Western social philosophy. Such as how much should we respect the individual will vs. the collective need? And what is our obligation to the needy? And how much power over others should we place in the system or delegate to people?
That isn't "simple" at all.