How Indiana Lost Control of Its Welfare System

By the time she was six months pregnant, Stacie Kelly had been trying long and hard to see a doctor. "It's just really hard to be excited about having a baby," she said, "when you're worried all the time. There are all kinds of medical tests that I should have had run." Kelly, 27, had no medical insurance and depended on Indiana's Family and Social Services Administration (FSSA) to process her application for Medicaid coverage. "I just wanted to go to the doctor. That's all," explained Kelly, who said that she'd submitted the required Medicaid application to FSSA two months earlier. "And then," she reports, "basically, they dropped off the face of the planet.... I haven't heard anything since then, and so I called my caseworker and left numerous messages. They don't return your calls."

"We don't call back because we're not getting paid for it," said George Thompson, a former employee at an FSSA call center. As an FSSA agent, Thompson worked not for the State of Indiana, but for Affiliated Computer Services (ACS), which had been contracted to handle calls from residents seeking such welfare benefits as food stamps and Medicaid coverage. "It [was] just about ACS making money," says Thompson, who adds that training for call center employees "was very substandard." Angie Kennaugh, another ex-ACS employee, agrees: "Your job," she told a local reporter, was "to get people off the phone. The people running the call centers came from Sprint and Taco Bell. They had absolutely no experience whatsoever." Scott Severns, an attorney representing thousands of Indiana residents in a class-action lawsuit against ACS, was just as harsh in assessing the company's approach to making a profit in the contract call-center business: "It's like a company that produces a whole lot of junk," he said. "They can be proud of how fast they get it out, but it really doesn't matter if it isn't right."

ACS, a Dallas-based provider of business-process outsourcing, had been hired by IBM to handle calls from social-services applicants when IBM contracted with the state to manage approximately one-third of its welfare caseload. The $1.3 billion contract had been signed in December 2007, with Governor Mitch Daniels promising that privatizing the state's welfare and food stamp programs would save taxpayers $1 billion over the next decade. Serious problems, however, surfaced and multiplied over the next 18 months concerning the performance of not only ACS but also IBM itself. Both companies came under mounting scrutiny from state officials and criticism from welfare-rights organizations, and in July 2009, both were put on notice by the Daniels administration that their contract with the state might be in jeopardy.

In August, IBM announced plans to fix such problems as "inaccurate and incomplete data gathering" and "incorrect communications to clients"-problems that critics boiled down to lengthy call center hold times and too many errors in processing applications (including loss of documents). "Too many seniors, people with disabilities, and other of our most vulnerable citizens," charged an official of AARP Indiana, "have endured monstrous challenges [to efforts] to address their basic healthcare, nutritional, and other daily necessities." A lawsuit filed by the American Civil Liberties Union (ACLU) cited the case of a mother of two who'd lost her food stamps and healthcare for her children because her tax form was missing one document.

"There are a thousand of these stories," said ACLU attorney Gavin Rose, who explained that all of the parties to the lawsuit had been denied benefits because FSSA was missing some document-a document which each applicant had, like Stacie Kelly, duly submitted. According to Rose, every applicant received a letter citing "failure to cooperate" as the reason for denial of services. "You cannot deny someone for ‘failing to cooperate,'" says Rose, who points out that Medicaid and other federal rules bar failure to cooperate as a reason for dismissing claims. "[People] get this letter, and they have absolutely no idea what they did wrong.... I'm sure there are cases out there where people are quite literally facing a life or- death situation." One woman told a panel of state legislators that her husband had died of a heart ailment within a year of being denied Medicaid benefits by FSSA. "It's not right," said Nanceen Alexander. "He did his part, and now it's time for the system to do its part."

Many critics blamed the failure of the system, at least in part, on the elimination of individual caseworkers. Prior to privatization, each household was assigned a caseworker who monitored its eligibility for benefits and, when problems arose, intervened to make sure that applications were properly submitted and assessed. Under the privatized system, a household's welfare records were stored electronically for access by caseworkers located across the state.

Testifying before a state administrative committee in September 2009, FSSA Secretary Anne Murphy admitted that greater personal contact between the agency and its clients might be beneficial but reaffirmed that individual caseworkers were a thing of the past. "If [clients] wish to stay at home and apply online," said Murphy, "they can do that. If they wish to apply by telephone, they can do that. I'm not saying there haven't been problems," she added, promising that IBM was in the process of fixing them.

The fix, however, did not come fast enough to suit exasperated state officials. In October, just 22 months after he'd authorized Indiana's privatized welfare system, Governor Daniels fired IBM as its primary contractor. "The intended service improvements," explained the governor, "have not been delivered, and that's not acceptable." In place of the failed system, Daniels announced a new "hybrid system" that would retain some of the best features of the privatized process while restoring some of the best elements of the traditional state-operated system. IBM would no longer be involved, but workers hired by certain contractors-including ACS-would stay on under state supervision.

Case Questions

1. For what purposes of control was Indiana's privatized social-services system created in the first place?

2. In what areas of control was the new system supposed to improve the operations of the Family and Social Services Administration (FSSA)? In what ways did the new system affect the following levels of control at FSSA-(a) financial, (b) structural, and (c) strategic? Then focus on operations control: In what ways did IBM and ACS act to exercise preliminary control? Screening control? Postaction control?

3. In your opinion, how did the approach of IBM and ACS to bureaucratic control contribute to the col-lapse of the privatized system? In what ways might decentralization have improved its operations?

4. Refer to each of the characteristics of effective control in order to explain why the privatized social-services system proved to be ineffective.