center for public policy priorities texas association of area agencies on aging outsourcing issues...

Center for Public Policy Priorities www.cppp.org

Texas Association of Area Agencies on Aging

Outsourcing Issues and Concernsin Public Benefits Administration

November 30, 2006

Celia Hagert, Senior Policy [email protected]


The Big Picture


Pros and Cons of Privatization


What is “IE&E”?

• Modernization of eligibility determination and enrollment:– Better technology/greater automation– Centralized and paperless computer system– Remote application options– More partnerships with nonprofits

• Outsourcing development, administration, and partial staffing of system

• Significant staffing reductions & office closures


Arguments for Outsourcing the IE&E Project

• Private sector has expertise, capital to modernize

• Help state meet central challenge of serving growing number of clients with fewer resources

• HHSC estimated $210m in additional savings over 5 years (9% > than savings in state-run IE&E)


• Labor-intensive process costly for states, burdensome for clients, especially working families

• Eligibility determination is complicated, driven by complex federal and state laws designed to – target benefits to those who need them most, – keep program error or fraud at a minimum,

and – Ensure prudent stewardship of taxpayer

money.

Stepping Back: What are the Problems IE&E is Supposed to Fix?


• Clients are not easy to serve: – majority have incomes below the poverty

level; – many are elderly, have disabilities, or grapple

with language barriers.

• Each program serves a distinct clientele and rules vary considerably, which makes determining eligibility even more difficult.

• Constant policy changes pose challenges for both workers and clients



• Legislature has not provided necessary resources to ensure effective administration

• Out-of-date technology can lead to duplication of effort -- unnecessary “red tape”

• Chronic underfunding exacerbates existing challenges



Downsizing Increased Workload


Caseloads Rise and Fall, Staffing Does Not Keep Pace

Caseload and Staffing Changes, 1995-2006

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Clients

Total Staff


Services to clients suffer• Less than half of eligible households

get Food Stamps• Half of uninsured kids (@700K)

eligible for Medicaid/CHIP, but not enrolled

• Clients frustrated, deterred• Lawsuits related to customer service

shortcomings


A Vicious Cycle

High turnover rates

Staffing

shortages

Heavy workload

OUTCOMES:• System doesn’t work• Client services suffer• Public confidence in

system is undermined• Alternative

approach/fix sought


Does Outsourcing Hinder or Help?

• Experience suggests some functions most efficiently performed by government directly; others best contracted out.

• States must identify which kinds of activities fall into each category

• Avoid decisions based on generic assumptions about competition or ideological preferences.

• Overarching question is: do the benefits of outsourcing outweigh the risks?


Overview of Challenges

• Competition is limited • Hard to measure performance• Hard to design contracts to adapt to

caseload/policy changes• Changes role of government,

demands new expertise, additional resources

• Challenges increase risk


Limits on Competition• Most commonly cited reason for

outsourcing is increased competition = improved quality & lower cost

• However, competition for the right to administer a program differs from competition to provide the service itself

• These differences may undermine government’s ability to reap the benefits of competition


Limits on Competition• No competitive market for eligibility determination• Winning bidder must make huge investment to

enter the market – start-up costs are significant• Companies able to respond in essence assume

monopoly power• Any competition effectively ends upon the signing

of contract• Cost & disruption of awarding contract, transition

to contractor means contracts likely to run for many years

• Competition eliminated for long periods of time


Limits on Competition• Lack of a competitive market increases risk that

contractor will be unable to perform as promised – Bidders lack present capacity to offer services– Selecting contractor involves great deal of speculation by

state• If contract awarded based on lowest bid, bidders may

grossly underestimate cost in order to win contract• Disruption, cost & risk of finding new contractor (or

rebuilding public system) may force state to stay with contractor even if performing poorly or demanding higher price

• At this point, state must pay contractor more or let services to clients suffer


Limits on Competition Increase Risk

• State assumes most of risk in inherent

uncertainty over costs of outsourcing

eligibility determination

• If contract price proves to be more than is

needed, contractor keeps the profits

• If price proves inadequate, contractor has

leverage to ask for more money


Hard to Measure Performance• Key factor in predicting success in outsourcing:

– Clear accountability for results– Clear criteria for performance– Clear public objectives (increase or reduce caseloads?)

• Government functions that require exercise of judgment to weigh competing priorities difficult to outsource

• Private companies may be well suited for certain functions related to public benefits administration, including straightforward service such as – Processing payments– Data processing– Computer systems design


Hard to Measure Performance• Steps required to determine eligibility for public

benefits range from simple, objective functions to complex, subjective determinations.

• More objective acts (i.e., scanning documents or helping to fill out application) easy to measure and therefore more conducive to outsourcing.

• More subjective determinations (i.e., identifying disability that prevents applicant from meeting program requirements) harder to measure and therefore less conducive to outsourcing.


Program Integrity vs. Program Access

• Eligibility determination requires accommodating

(or balancing) different policies that may conflict

— i.e., controlling for fraud while encouraging

maximum participation.

• Designing a contract that strikes appropriate

balance between competing priorities of program

integrity and program access is extremely

difficult.


Contract Must Be Flexible

• Public benefits system lacks stability: caseloads rise and fall unexpectedly due to economic circumstances or policy changes.

• Designing a contract that adapts to changes in participation is difficult.

• If contract does not increase reimbursement when caseloads go up, then contractor has incentive to create barriers to families seeking services.

• If payments are conditioned on outcome of eligibility determination, then contractor has less incentive to focus on program integrity or emphasize services with potential to reduce reliance on public assistance, i.e., job training.


Risks Reduce Potential for Savings

• Any savings are likely to come from reductions in services, i.e., closing offices or reducing staff.

• Those reductions can be achieved by the state, without outsourcing, if cutting costs is primary goal.

• Outsourcing alone offers no immediate ways of producing significant efficiencies.

• Many federal rules governing public benefits cannot be changed simply because states find that they are not efficient.

• Where there is flexibility to simplify, state can adopt changes without outsourcing.


Impact of Outsourcing on State Government

• Outsourcing changes role of government and creates new responsibilities: – Developing requests for bids– Negotiating contracts– Monitoring performance– Enforcing compliance

• States need to determine whether they have capacity to play this role, and

• Include costs of contract monitoring and enforcement when determining whether outsourcing is cost-effective.


Mitigating the Risks• Clearly specify the role and responsibility of the

contractor (and subcontractors).• Determine appropriate costs.• Be able to develop clear and measurable performance

criteria. • Because contracting problems are inevitable, states

should begin on a limited scale.• Conduct intense evaluation of pilot before relinquishing

significant control of system.• Prepare for dramatic change outsourcing will have on

state roles and responsibilities.• Be able/willing to commit additional resources needed

for effective contract monitoring & enforcement.


Audit of IE&E Contract• Comptroller’s audit alleged serious flaws in

design of the contract• Criticized HHSC for its failure to monitor and

enforce the contract• Faulted the state for moving too quickly to

implement new system without adequate testing or contingency planning

• Poor planning, execution resulted in the loss of critical numbers of state staff and jeopardized services to low-income Texans.


Problems with IE&E

• Technical problems• Poor training of contractor staff• Staffing shortages

Lead to:• >100K kids lose health coverage between Dec 05

and Sep 06.• Large backlog of applications in pilot area • Rollout on hold indefinitely, though TIERS (new

computer system) is being expanded• Serious delays in application processing in most

metro areas; error rates also on the rise


Loss of Staff

FY 2007 figure includes both state and contract staff

Staff* and Caseload Changes, 1997-2007

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1997 2004 2007

Cas

eloa

ds (

reci

pien

ts)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Elig

ibilit

y S

taff

Food Stamps Medicaid TANF Total Staff


Heavy Use of Temporary Staff

Permanent vs. Temporary Staff

6,920 6,6376,247

5,612

6,309

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Permanent FTEs

Temporary FTEs

Total


Timeliness Percent of Applications Processed Timely

Region Food Stamps Medicaid TANF

01 94.3% 97.2% 95.8%

02 89.5% 94.4% 93.6%

03 68.5% 79.5% 74.8%

04 93.5% 96.3% 95.9%

05 84.6% 90.7% 91.8%

06 71.0% 77.0% 66.1%

07 81.0% 53.4% 81.9%

08 96.1% 97.8% 96.6%

09 94.3% 95.3% 96.8%

10 94.4% 93.4% 93.6%

11 90.2% 95.9% 91.9%

*00 93.2% 63.0% 52.9%

TOTAL 81.1% 82.3% 81.6%

*Region 00 includes transactions processed by Centralized Benefits Section, Assistance Response Team & Customer Assistance centers.


Texas CHIP Enrollment

0

200,000

400,000

600,000

May'00

Nov'00

May'01

Nov'01

May'02

Nov'02

May'03

Nov'03

May'04

Nov'05

May'05

Nov'05

May'06

Nov'06

Source: Texas Health and Human Services Commission*Sept. ’03 is the beginning of the state fiscal year in which

CHIP cuts/policy changes started taking effect.

High: May ’02: 529,271

Sep. ’03*: 507,259

Nov. ’06: 321,341


Children’s Medicaid


Child Medicaid and CHIP Enrollment Combined

1.5

2.0

2.5

3.0

Jan 0

2

Apr 0

2

Jul 0

2

Oct 0

2

Jan 0

3

Apr 0

3

Jul 0

3

Oct 0

3

Jan 0

4

Apr 0

4

Jul 0

4

Oct 0

4

Jan 0

5

Apr 0

5

Jul 0

5

Oct 0

5

Jan 0

6

Apr 0

6

Jul 0

6

Oct 0

6

En

rollm

en

t (m

illio

ns

)

0.5

1.5

2.5

3.5

4.5

5.5

6.5

Ch

ild p

op

ula

tio

n (

mill

ion

s)

Sources: Enrollment from Texas Health and Human Services Commission; Texas State Demographer's 0-17 Population Estimates

Sept. ’03: 2,150,543

Oct. ’06: 2,020,710

Estimated child population growth of almost 70,000 per year

Combined CHIP/Child Medicaid Enrollment


Adult Medicaid Trends - Statewide

Dec-05 Nov-06 Dec 05 to Nov. 06

Change

Aged and Disabled

687,177 716,845 29,668 4.3%

Cash Assistance

31,876 25,651 -6,225 -19.5%

Maternity 93,617 99,147 5,530 5.9%

Other Parents

64,656 57,274 -7,382 -11.4%

Total 893,470 903,786 10,316 1.2%

•CAVEAT: Travis and Hays County Medicaid enrollment DECLINED for adults from December 2005 to November 2006 (-1.5%, -5.4%).

•Points to problems with the IE&E pilot and TIERS


Adult Medicaid Trends - Pilot Area

Dec-05 Aug.-06 Dec 05 to Aug. 06

Change

Travis 25,044 24,640 -404 -1.6%

Hays 2,684 2470 -214 -8.0%

Texas 877,326 892,196 14,870 1.69%

Source: Texas Health and Human Services Commission


Error Rates Increase


Challenges for Advocacy• Outsourcing brings new challenges and changes the

role of advocacy groups.• May have to divert significant resources, develop new

areas of expertise to respond effectively in a privatized system.

• The National Center for Law and Economic Justice has developed guidance that– Helps advocates analyze/address issues related to

privatization of public assistance programs– Identifies areas for advocacy and strategies to make the

contracting process more responsive and accountable to clients and public concerns (http://www.nclej.org/files/privatization.pdf)


Challenges for Nonprofits• Nonprofit community has a lot at stake,

especially if outsourcing shifts more responsibility to the client.

• Shift will affect nonprofits’ mission and resources.

• Contracting with the state to take over portions of the application process may pose new liabilities for nonprofits.

• Contracting may alter nonprofits relationship with the state and potentially compromise their ability to advocate on behalf of their clients.


A Final Word…• Nonprofits are uniquely poised to exert a

positive influence on changes taking place in Texas.

• Nonprofit community can shape these efforts in a way that will improve outcomes for low-income families.

• Nonprofit organizations need to take an active part in planning and development process, both because they have so much to offer and so much at stake.


Privatization is Here to Stay


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