The Unequal State of America: Indiana's rocky road to welfare reform

INDIANAPOLIS Thu Dec 20, 2012 7:06am EST

INDIANAPOLIS (Reuters) - Indiana's bold effort to remake welfare got off to a shaky start.

In 2006, Gov. Mitch Daniels privatized the management of the welfare-benefits system with a project led by IBM. Two-thirds of Indiana's social-service agency's staffers became employees of IBM and its partners. In a process dubbed "welfare modernization," recipients would apply for benefits online and by phone rather than meeting social workers face to face.

It was, by Daniels's own admission, a failure. Critics accused him of ignoring the lessons of a failed privatization effort in Texas. People were wrongly denied benefits and documents were lost, according to a lawsuit the state filed against IBM. Daniels canceled the IBM contract in 2009.

Advocates for the poor say the phone- and Internet-based system proved too difficult for many recipients to navigate because they lacked literacy and computer skills. Opponents also accused the governor's office of steering work to a company owned by a campaign contributor, Affiliated Computer Services, now owned by Xerox. Daniels and Mitch Roob, an executive at Affiliated before becoming social-services chief, denied any quid pro quo.

This July, a Marion County judge awarded $52 million to compensate IBM for cancellation of the contract, castigating the state for "misguided government policy" and IBM for "overzealous corporate ambition."

In an interview, Daniels said the current, revised system - a public-private hybrid - is a success. He cited statistics showing that timeliness and accuracy of benefits have increased. Some recipients agree that the new system is more efficient than the first revamp. Some remain confused by the process and the eligibility rules, however.

At one privately run Indiana call center where applicants call in to apply for benefits, the target time for handling each case is 12 minutes, according to an employee who spoke on condition of anonymity. The employee said she handles 35 to 50 calls a day.

"Frustrated employees will tell the client anything to just get them off the phone and keep their time down," the employee said. "We have to take a call, authenticate, find out what they want, answer their questions and wrap up ... all within 12 minutes. It's kind of like a game show. And people who need food stamps or nursing home care, they are losing out."

A NEGATIVE TAX

Jennifer Wasmer, a spokeswoman for Xerox, which runs the call center, denied there were time targets. She said the average call is 14 minutes, and employees are evaluated primarily on quality, not speed. "The Indiana model is innovative and exemplary," Wasmer said in a statement. "Things have changed in Indiana for the better."

Daniels, who leaves office in January, said his broader overhaul effort was stymied by the steep recession and by ineffective federal programs. He advocates a reform even bolder than the ones he implemented: Scrap most federal antipoverty benefits and replace them with a "negative income tax."

Championed by the late conservative economist Milton Friedman, the negative tax is simple: Set a minimum income for all Americans, and have the Internal Revenue Service give low earners a payment (a negative tax) that raises their incomes to that level. Recipients would choose how they spend their money. The federal government would save on administrative costs. The market would provide food, housing and health insurance.

"I honestly think that something like a negative income tax deserves a closer look," Daniels said in an interview. "You set a target amount and if a person earns less than that, you top them up."

Given the big rollback of cash aid for the poor in recent years, the idea seems unlikely to fly.

President Barack Obama's medical-insurance overhaul would significantly expand one form of aid to working-age adults, by expanding the availability of Medicaid. His re-election means a Republican attempt to kill his changes is likely to fail. But states such as Indiana have the ability to limit their scope.

If Indiana expands Medicaid, an estimated 298,000 to 427,000 additional adults will enroll in the program by 2019. The incoming governor, Mike Pence, said in the campaign he'd support expanding Medicaid only if the state could limit benefits and charge higher premiums to recipients.

"Medicaid expansion feels like the classic gift of a baby elephant," he said at a meeting of Republican governors last month. "And the federal government says, ‘We'll pay for all the hay - for the first few years.'"

(Reporting By David Rohde and Kristina Cooke; Edited by Michael Williams)