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Indiana Puts Welfare Modernization Contractor on Notice

Leonard Gilroy
July 24, 2009, 2:21pm

Two weeks ago, Indiana's Family and Social Services Administration (FSSA) announced that it had ordered an IBM-led consortium to fix problems with the state's troubled welfare eligibility modernization initiative by October or potentially lose the eight years and $800 million remaining on the $1.2 billion privatization contract. As the Indianapolis Star reports:

Nearly two years into the privatization of Indiana's welfare system, state officials are considering scrapping it amid widespread concerns that include the mishandling of nearly one in five food-stamp cases.

State welfare officials acknowledge that in about three-quarters of those cases, eligible Hoosiers are being denied aid they should be receiving.

"It's possible we'd have to cancel the contract," said Anne Murphy, secretary of the Indiana Family and Social Services Administration, referring to a $1.16 billion deal with IBM. She said the company will have until September to make improvements. [...]

Under the 10-year contract, one of the richest in state history, IBM Corp. and its subsidiary Affiliated Computer Services agreed to manage the state's system for doling out food stamps, Temporary Assistance to Needy Families and Medicaid payments to about a million Hoosiers. Critics' complaints are systemwide, though TANF and Medicare statistics were not readily available Tuesday. The system allows applicants for public assistance to apply over the telephone or a computer as well as in person during extended hours, but applicants no longer are assigned caseworkers.

Despite critics' objections that welfare requires a personal touch, the gradual rollout began county by county in October 2007. After a chorus of complaints from social workers, aid recipients and lawmakers, the rollout was halted abruptly in March, with 33 counties to go, Marion County among them.

Murphy says the new system is no worse than the previous state-run system but that the economic recession -- unemployment is 10.6 percent -- combined with last year's extensive flooding has swollen the welfare rolls and bogged down the system. In April, when FSSA last compiled its food-stamp numbers, 695,000 Hoosiers received stamps, compared with 584,000 in April 2007. [...]

As discussed in Reason Foundation's Annual Privatization Report 2008, Indiana began privatizing welfare delivery in 2007, but the initiative was quickly beset with complaints from people who lost their food stamps or Medicaid coverage or who had difficulty utilizing new call center or the new, web-based application for welfare benefits.

The IBM-led team currently handles welfare intake in 59 of Indiana's 92 counties, accounting for nearly one-third of the state's 1.2 million-person caseload. FSSA Secretary Anne Murphy told local media that a recent three-month review of the privatization identified over 200 recommendations to improve training, reduce turnover, add 350 more employees and introduce more technology to speed up approval of welfare applications and reduce error rates.

"We'll allow them an opportunity to start correcting those items, and we expect to see improvement by this fall," Murphy told the Associated Press. "I took it to the governor and I showed him the data, and he called the executives at IBM. . . .and told them that they needed to make changes."

Gov. Daniels seems to be taking a sensible approach here to respond to ongoing challenges with this initiative, in contrast to some of his colleagues in the legislature. As I wrote here back in April, the knee jerk solution—de-privatize, turn back the clock and recreate a public-sector dinosaure—is not the prudent one, given the inefficient and wasteful system that the state was trying to replace through privatization.

When privatization initiatives don't perform well, you do what Daniels is doing—put the contractor on notice and give them a chance to rectify the problems. A large-scale modernization project like this will be inherently tricky, and even more so when national economic conditions swell the rolls of system users at the very same time that you're trying to restructure it.

For more on the FSSA privatization, see here, here and here. Also, former FSSA Secretary Mitch Roob wrote about this initiative in Reason Foundation's Innovators in Action 2007.

» Reason Foundation's Privatization Research and Commentary


Leonard Gilroy is Director of Government Reform


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