Transcript Slide 1

United Way of Tarrant County
Pre-Legislative Forum
Outsourcing Issues and Concerns
in Public Benefits Administration
November 13, 2006
Celia Hagert, Senior Policy Analyst
[email protected]
Center for Public Policy Priorities
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The Big Picture
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Pros and Cons of Privatization
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Argument for Outsourcing
the IE&E Project
• Private sector has expertise, capital
to modernize
• Help state meet central challenge:
serving growing number of clients
with fewer resources
• $210 m in additional savings
estimated over 5 years (9% > than
savings in state-run IE&E)
Center for Public Policy Priorities
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Stepping Back:
What are the Challenges Facing Our
Eligibility System?
• 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.
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Stepping Back:
What are the Challenges Facing Our
Eligibility System?
• 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.
Center for Public Policy Priorities
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Stepping Back:
What are the Challenges Facing Our
Eligibility System?
• Constant policy changes pose challenges
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• Out-of-date technology can lead to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
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Before IE@E
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Does Outsourcing Hinder or
Help?
• Experience suggests some functions are
most efficiently performed by the
government directly; others are 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?
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Overview of Challenges, Risk
• Competition is limited – increases
risk
• Hard to measure performance
• Hard to design contracts to adapt
to caseload/policy changes
• Changes role of government,
demands new expertise, greater
resources
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Limits on Competition
• Most commonly cited reason for
outsourcing is increased competition,
which will improve quality and
• 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
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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, transferring
responsibilities to contractor means contracts
likely to run for many years
• Competition eliminated for long periods of time
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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 a 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
• The disruption, cost, & risk of finding new
contractor or rebuilding public system may force
state to stay with contractor even if company has
performed poorly or is demanding higher price
• At this point, state must pay contractor more or
let services to clients suffer
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Limits on Competition
• In effect, 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
Center for Public Policy Priorities
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Hard to Measure Performance
• Key factor in predicting success in outsourcing is
whether there is clear accountability for results,
clear criteria for performance, and clear public
objectives.
• By contrast, government functions that require
the exercise of judgment to weigh competing
priorities have proven difficult to outsource
successfully.
• Private companies may be well suited for certain
functions related to public benefits
administration, including straightforward services
such as processing payments, data processing,
or computer systems design.
Center for Public Policy Priorities
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Hard to Measure Performance
• Steps required to determine eligibility for
public benefits range from simple, objective
functions to complex, subjective
determinations.
• More objective acts, such as scanning
documents or helping to fill out application,
are easy to measure and therefore more
conducive to outsourcing.
• More subjective determinations, such as
identifying disability that may prevent
applicant from meeting program
requirements, are much harder to measure
and therefore less conducive to outsourcing.
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Hard to Measure Performance
• Eligibility determination requires
accommodating (or balancing) many
different policies that at least partially
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.
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Contract Must Be Flexible
• Public benefits system lacks stability: caseloads
prone to rise and fall unexpectedly due to
economic circumstances or policy changes.
• Designing a contract that can adapt to changes
in participation is difficult.
• If the contract does not increase reimbursement
when caseloads go up, then contractor has
incentive to create barriers to families seeking
services in order to maintain profit margin.
• 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.
Center for Public Policy Priorities
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Risks Reduce Potential for Savings
• Any savings are likely to come from reductions
in services, such as 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.
• On the other hand, where there is flexibility to
simplify the process, state can adopt these
changes without outsourcing.
Center for Public Policy Priorities
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Looking Back a Decade
Caseload and Staffing Changes, 1995-2006
7,000,000
14,000
6,000,000
12,000
5,000,000
10,000
4,000,000
8,000
3,000,000
6,000
2,000,000
4,000
1,000,000
2,000
0
Clients
Total Staff
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Outsourcing Changes Role of
Government
• Outsourcing changes role of government and
creates new responsibilities
• State assumes responsibility for developing
requests for bids, negotiating contracts,
monitoring performance, and enforcing
compliance.
• States need to determine whether they have
capacity to play this role and include costs of
contract monitoring and enforcement in their
analysis when determining whether outsourcing
a particular function is cost-effective.
Center for Public Policy Priorities
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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,
• This resulted in the loss of critical numbers
of state staff and jeopardized services to
low-income Texans.
Center for Public Policy Priorities
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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 to private company
• Prepare for the dramatic change outsourcing will have on
state roles and responsibilities
• Be able and willing to commit the additional resources
needed to ensure effective contract monitoring and
enforcement.
Center for Public Policy Priorities
www.cppp.org
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 to help
advocates analyze and 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.
(See http://www.nclej.org/files/privatization.pdf).
Center for Public Policy Priorities
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Challenges for Nonprofits
• Nonprofit community has a lot at stake, if
outsourcing shifts more responsibility to the
client.
• Need to consider how this shift affects your
mission and resources.
• Need to explore whether contracting with
the state to take over portions of the
application process poses any liability for
you.
• Contracting may alter your relationship with
the state and potentially impede your ability
to advocate on behalf of your clients.
Center for Public Policy Priorities
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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.
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Privatization is Here to Stay
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