Northwest Indiana Discussion

Indiana axes welfare contract with IBM

Governor cancels $1.34B IBM deal, saying welfare plan was 'failed concept'

By Mary Beth Schneiderand Bill Ruthhart

May 2006: Consortiums headed by IBM and Chicago-based Accenture seek a $1 billion contract to manage applications and eligibility review for state and federal assistance programs operated by the Indiana Family and Social Services Administration. The state's effort to privatize claims processing draws fire from critics, who say the process is moving too fast and that the two contenders have spotty track records.

July 2006: Gov. Mitch Daniels confirms that the only group left in negotiations is an IBM-led team of 10 companies that includes Dallas-based Affiliated Computer Systems (ACS). FSSA chief Mitch Roob worked at ACS just before joining the Daniels administration.

Calling it an endeavor that "just did not work," Gov. Mitch Daniels on Thursday canceled Indiana's 10-year, $1.34 billion contract with IBM to deliver welfare services.In its place, Indiana will develop a hybrid structure that keeps some elements of the modernized welfare system, Daniels said, while restoring the best of the past system: personal contact.

The decision marked a major setback for the governor, who has championed efforts to privatize some areas of state government, and a rare admission that -- this time -- his critics were right.

As he announced his decision, Daniels thanked those who had raised concerns that the system resulted in too many errors and too many people waiting too long for help they desperately needed."In many respects, they were right," he said. "The system wasn't working, and it wasn't getting better, despite best efforts."

Critics say it was a lesson that could have been learned long before Thursday's announcement. Texas, for instance, pulled the plug in 2007 on a similar welfare privatization effort after thousands of people lost benefits they deserved. Critics here had argued that Texas had tried to do too much too fast, and said a slower rollout in Indiana would ease in the new system.

The state's rollout, though, was never completed.

In January, the expansion was halted, with 59 of Indiana's 92 counties on board. The most populous counties -- including Marion and Lake -- never fully became part of the new system; and in September, the U.S. Department of Agriculture, which oversees food stamps, told the state it must be consulted before more counties were added.

Indiana, in fact, was facing the possibility of federal sanctions because of its high rate of errors. Daniels noted that it was the state's long history of errors and cases of fraud that led him to seek a better way to deliver welfare.He said taxpayers still will save money under the hybrid system, though less than hoped for under the IBM contract.

Under the hybrid system, instead of being pushed to apply for help through impersonal call centers or computers, clients once again will meet face-to-face with a worker in a county office. State-employed caseworkers will be assigned to assist applicants. Privately employed workers remain, along with a paperless computerized system for tracking cases. But subcontractors who had been managed by IBM, including those employed by Dallas-based Affiliated Computer Services who take the initial applications, now will be managed by the state.

Even as he yanked its contract, Daniels thanked IBM, which had added employees and more technology this summer in an effort to salvage the contract."They did try hard," he said. "It wasn't resources. It wasn't effort. It was a flawed concept that simply did not work out in practice."

IBM, though, vehemently defended its work. "IBM rejects the state's claims and believes they're unjustified," spokesman John Buscemi said. The company put "significant money and resources" into this project and was making progress, he said. Buscemi blamed outside forces -- including the economy and rising unemployment, among other factors -- for stymieing IBM's efforts to streamline the system.
Welfare applications, he said, are up 33 percent since Daniels and IBM inked the contract in 2006.

Buscemi was vague when asked whether IBM would mount a legal challenge. "IBM will take action as appropriate to protect its rights under its contract with FSSA," he said.

IBM's contract will be terminated Dec. 14, and a new contract will be negotiated with ACS and other companies, according to Marcus Barlow, an FSSA spokesman. He said some details, including what happens to the call centers where initial applications were made under the IBM system, need to be worked out.

Ken Ericson, a spokesman for ACS, said the company "remains fully committed to the success of this project." Its continued involvement, though, concerns some of the same groups that on Thursday were applauding Daniels' decision to ax IBM.

John Cardwell, chairman of the Indiana Home Care Task Force -- a coalition of organizations for the elderly and disabled that has pushed for the cancellation of the IBM contract -- called Daniels' decision to restore face-to-face contact a positive. But, he said, complaints have been raised about ACS employees' lack of knowledge about federal welfare laws, and he said he'd prefer to see experienced state-employed caseworkers handle the initial contacts.

Legislators who had been inundated with constituent complaints and had launched hearings into the IBM-led system hailed Daniels' decision.
"This is a rare moment in which I can congratulate the governor for making the right move," said House Speaker B. Patrick Bauer, D-South Bend. "It is the right thing to do to recognize when you make a mistake to adjust, regroup, because there were too many people suffering. There were too many people's lives in danger."

And instead of thinking about legal action, Bauer said IBM "ought to be embarrassed enough to go away or pay us something." But he called the abandonment of this contract "a blow to privatization."

Daniels, though, rejected that his decision says anything about the merits of privatization.

"It has nothing to do with private or public. It had to do with a concept," he said. "If you would use the same concept IBM brought, and every worker was a state worker, you would have had the same results, or worse."

Sen. Vaneta Becker, an Evansville Republican who was among lawmakers raising concerns about the welfare changes, said no issue had generated more complaints and calls to her office in the past two years. The saddest, she said, was a woman whose application for reauthorization of her Medicaid was denied because she missed an appointment while she was in the hospital.

"She lost her Medicaid, lost her food stamps, lost her transportation," Becker recalled. For months, the woman tried to negotiate the maze to restore her help. "On March 1st, she died. On March 2nd, we got her redetermination approved," Becker said. "She might have died anyway, but she never would have suffered the stress that she suffered the last six months of her life."