A New Way to Privatize Welfare

Commentary by Pete du Pont

Across the country state and local governments have been privatizing welfare services.

America Works, a small, for-profit organization with contracts in New York City, Albany and Indianapolis, provides support services for welfare recipients in an effort to help them move back into the work force. New York pays the company $5,000 per welfare recipient to place them in a job and keep them there - for at least seven months - or the company loses the money.

Maximus Inc., a government consulting company operating in several states, provides child support enforcement.

And, of course, for years Ross Perot, as head of Electronic Data Systems (EDS), processed Medicaid and Medicare information for the federal government.
As a result of these successes, states have been willing to consider turning over to private companies work that has for decades been performed by government.

Much of this transformation has been precipitated not so much from want as from necessity. For example, last year's welfare reform law limits welfare recipients' benefits (with some exceptions) to five years. So states must now track the amount of time people receive benefits so as to know when to end them. Most states had never tracked how long people had been receiving welfare, and after passage of the legislation they immediately began complaining that they would be unable to comply because, they claimed, they don't have the manpower or computer power to do the job.

Enter the private sector, which does have the ability and equipment to provide this tracking - and many other services as well. While the welfare reform law permits state and local governments to use private-sector contractors to fulfill some of their obligations under the legislation, some states want to go even farther in proposing private-sector options: they want private-sector contractors to fully administer welfare services. Texas, with the third largest welfare population and 2.3 million people receiving food stamps, wants to become the test case for welfare privatization.

Texas recently requested a waiver from the federal government that would permit the state to allow private-sector companies to administer all of the state's welfare services. Under this approach, a private-sector contractor would become the clearing house for all of a welfare recipient's welfare services: Medicaid, food stamps, job opportunities, day care needs, etc.

The contractor would act something like a "gatekeeper" at a health maintenance organization (HMO), since services would be coordinated through the contractor. In the most comprehensive approach, companies providing the welfare services - Lockheed Information Management Systems, Electronic Data Systems Corp., International Business Machines and Unisys Corp. are some of the major players - would receive a per-person welfare allotment from the state. If the contractor could provide welfare services for less than that amount, the business would make a profit. Thus, contractors would have a financial incentive to help people leave the welfare rolls.

Of course, a lot of liberals are unhappy with this comprehensive approach, and President Clinton is one. In fact, Clinton rejected the Texas waiver because he would rather keep government bureaucrats doing the welfare administration job.

Were the contracting to occur, it is argued, a lot of government employees would eventually lose their jobs. That may be true, but is the mission of the welfare system to employ administration or is it to effectively help welfare mothers return to work?

The real issue is why President Clinton decided not to let Texas experiment with welfare reform. Is this the same Bill Clinton who has proclaimed that the era of big government is over? Or did he mean that the era of big federal government is over, while the era of big state government is alive and well?

Is he afraid that if bureaucrats lose their jobs to the private sector, there won't be enough jobs to hire people coming off welfare? Or is he just beholden to the labor unions who also oppose privatizing welfare?

Whatever the reason, the president has missed an opportunity to strike for less government, smaller welfare rolls, and a better deal for people on welfare.

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