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State's Closely Watched Effort to Privatize Its Welfare System in Trouble

  • July 23rd, 2009

When it signed a 10-year, $1.16 billion contract with IBM in December 2006, Indiana was on track to becoming the first state in the nation to privatize the running of its welfare system, including Medicaid for the elderly. But more than two-thirds of the way towards full implementation, the system has become a billion-dollar disaster according to those who rely on it, and the state is considering canceling the contract.

There are widespread reports of applications and claims being mishandled or lost, resulting in applicants being unfairly denied benefits or existing beneficiaries being abruptly dropped from the rolls or experiencing long coverage delays. Some nursing homes are reportedly no longer accepting patients who have applied for Medicaid coverage because they can't be assured that coverage will be properly approved under the privatized system.

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State officials are demanding improvements, but Indiana is in a bind because, with most of its former governmen-run system dismantled, it has no ready backup plan.

Indiana contracted with IBM to computerize and manage its benefit programs for food stamps, Medicaid and cash assistance. At the time, Gov. Mitch Daniels, a Republican who came to politics after a successful business career, said the contract would give Indiana taxpayers "a billion dollars of savings" and serve welfare recipients better. The idea was to replace the expensive, hands-on work by government caseworkers with computers and workers hired and trained by IBM and its partner, Affiliated Computer Services Inc.

But as the new system was rolled out on a county-by-county basis, complaints began to mount. Without seasoned caseworkers to shepherd their cases, more and more beneficiaries slipped through cracks in the new system and error rates rose. Those without the resources or persistence to serve as their own advocates were especially vulnerable. One news account tells the story of a cancer patient who suddenly lost her Medicaid coverage and food stamps. Her benefits were finally restored -- the day after she died.

With one-third of the counties to go, state officials halted the rollout in March 2009 and have told IBM that its contract could be cancelled if changes aren't made by the end of September. IBM has acknowledged problems and has agreed to hire 350 more workers and put its existing staff through additional training. But with the state's former system in tatters and caseworkers gone, Indiana has nothing it can quickly put in place of the privatized system.

"We've kind of got a too-big-to-fail situation now," Indianpolis ElderLawAnswers member attorney Scott Severns told the Associated Press. "There will have to be a workable system built as this one is dismantled. It really is a tragic error."

Meanwhile, Severns says that what beneficiaries and applicants are up against "is just horrendous." Among other allegations, former workers at the new system claim that they were told to read from scripts promising benefits in two days, whether or not this was the case.

If the Indiana contract is canceled, it would likely set back efforts in other states to outsource and automate welfare systems. Earlier, Texas tried to privatize eligibility screening for such programs as Medicaid and food stamps but canceled the contract in 2007 after a pilot effort resulted in lost applications and thousands of families complaining that their children's health coverage had been canceled.

For recent articles on the problems with Indiana's privately run welfare system, click here, here, and here.


Last Modified: 07/23/2009

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