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Indiana Cancels Huge Outsourced Welfare Modernization Plan

Governor calls $1.6 billion plan flawed; IBM says modernization was working.

by / October 16, 2009

Photo: Indiana Gov. Mitch Daniels. Photo courtesy of Indiana.

Calling the concept unworkable, Indiana Gov. Mitch Daniels has pulled the plug on his state's troubled plan to modernize and privatize its welfare system. In a news conference Thursday, Oct. 15, Daniels announced that Indiana had terminated its 10-year, $1.6 billion contract with IBM to streamline welfare eligibility in the state.

Launched in 2007, the new system lets citizens apply for welfare benefits online, in person or via telephone, and it implemented process changes designed to speed up and standardize eligibility determinations. But the initiative drew criticism for high error rates and slow processing of eligibility requests. Last year, the federal government recommended that rollout of the system be halted because it kept welfare recipients waiting too long for benefits.

On Thursday, Daniels said the new process -- though well intentioned -- was fatally flawed in several respects.

"It had, for instance, the intention to save welfare applicants the burden of a face-to-face meeting [with eligibility workers]. But this led to incomplete applications and confusion about what documents were necessary, and just did not work in practice," he said. "There was also an attempt to break the [eligibility] determination process into discrete tasks done by specialists and then assemble it again. It looked good on paper, but did not work in practice."

Daniels said Indiana would revert to in-person meetings between benefits applicants and welfare caseworkers to determine eligibility for state assistance programs.

Working as Intended

IBM rejects the state's claim that the new system didn't work, a company spokesman said Friday.

"IBM has been committed to the success of the Indiana welfare modernization project and deeply regrets the state's decision," said John Buscemi, IBM's media relations director for North America. "We have worked diligently and invested significant money and resources in the partnership with the FSSA [Indiana Family and Social Services Administration] to turn around a welfare system that was described by the governor as one of the worst in the nation."

Buscemi said Indiana's transition to the new system was made more difficult by the economic recession and last winter's Midwest floods. Those factors and others triggered a 33 percent increase in social service applications since the modernization began, he said.

Still, Buscemi contended that the initiative had made significant progress, noting that more than 231,000 welfare applications have been filed online since the project began.

"We developed a Web portal through which roughly two-thirds of all applications for benefits are now filed. This helps the state to digitize applications and files to make the system more responsive," he said. "Right now, more than 25 percent of Indiana citizens requesting access and applications to social services benefits do so from their home PC. So this substantially improves the process for applicants with mobility issues. They aren't required to spend a lot of hours at a state assistance office."

A Hybrid System

After a transition period, the state will assume the role of prime contractor for the welfare system, Daniels said. Indiana officials intend to create a hybrid system that mixes the best parts of IBM's new process with practices the state used before the outsourcing began.

Besides requiring benefits applicants to meet in-person with eligibility workers, Indiana also will revert to a "case-based" eligibility approach where all aspects of a benefit applicant's case are handled by a single caseworker or team of caseworkers.

Under the modernization program, the FSSA and IBM implemented a "task-based" approach to determining eligibility that eliminated individually assigned caseworkers. Indiana officials anticipated the change would speed up eligibility decisions for food stamps and other state assistance programs. Instead, the new

approach resulted in too many hands touching a single case, according to the state.

On the other hand, Daniels said Indiana will retain electronic document technology, fraud prevention measures and other improvements developed by IBM.

"The fraud which was rampant in the Indiana welfare system has apparently stopped," Daniels said. "There hasn't been a single allegation -- let alone conviction -- whereas there were dozens before. And official reports say more than $100 million was stolen in the last year before we began to try to make this change."

Still Expecting Savings

Although the modernization will be scaled back, Daniels still expects the state to save about $40 million over the next 10 years -- $10 million less than was estimated under the IBM outsourcing arrangement.

The governor, who has been a proponent of privatizing state services, denied that the initiative's problems stemmed from outsourcing. "This has nothing to do with a private or public agency doing the work. It has to do with the concept itself," he said. "If we would have brought in that same concept that IBM used and had state workers do all of the work, we would have had the same result, or worse."

Daniels also disagreed with criticism that the state lost too many experienced eligibility workers during its transition to the outsourced system.

"A lot of them needed to be gone; they were the ones giving money to their cronies and friends," he said. "They were running the worst welfare system in America, ranked number 50 in Welfare to Work. The federal government sanctioned Indiana for the failures of its system, so doing nothing was not an option."

Under the modernization program, 1,500 of the FSSA's 2,200-member work force were transferred to IBM, which was required to offer them jobs for a minimum of two years. Daniels said Thursday that he didn't know how many former state workers remained with IBM or its subcontractors.

Both Daniels and Buscemi said FSSA employees still make all final eligibility determinations under the new system. Private workers help citizens through the application process until the application is turned over to a state employee for authorization.

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