Blog Posts > Using Private Contractors to Verify Eligibility in Public Assistance Programs Wasteful & Could Hurt Families
February 19, 2016

Using Private Contractors to Verify Eligibility in Public Assistance Programs Wasteful & Could Hurt Families

The Senate and the House have introduced bills (SB 312 & HB 4454) that aim to make it harder for low-income people in West Virginia to receive public assistance benefits (such as SNAP, TANF and Medicaid), while potentially draining millions from the state’s economy and denying benefits to those in need. Dubbed the “Welfare Fraud Prevention Act,” the legislation has three core components:

  1.  It creates an enhanced eligibility verification system (EVS) that would be run by a private third-party vendor whose task would be to screen people on public assistance (administered by DHHR) to determine eligibility. 
  2. Eliminates federal work waivers for SNAP (food stamps) for non-disabled adults by limiting SNAP to just three months.
  3. Requires photos on electronic benefit transfer (EBT) cards that provide contain food stamp (SNAP) benefits and cash assistance (TANF).

The legislation also requires additional data reporting of services provided by physicians and others that treat Medicaid patients and it requires the Department of Health and Human Resources  (DHHR) to track out-of-state spending on SNAP and TANF.

Both bills mirror model legislation from the Foundation for Government Accountability, a right-wing advocacy group associated with the Koch-funded State Policy Network.

This post is going to focus on the first core provision – creating an enhanced verification system. While West Virginia – and especially the federal government – should be doing all it can to stop fraud and errors in public assistance programs, this legislation could not only cost the state millions, but could wrongly deny assistance to thousands of likely eligible people.

According to DHHR, to contract with a third-party vendor to create a computerized eligibility verification system it would cost $10 million per year. The legislation  would require hiring 64 additional staff at DHHR’s Office of Inspector General and Fraud Management (OIG) to carry out state-wide investigations at a cost of nearly $4.3 million. About half of these costs would presumably be shared with the federal government ($7 million). 

As DHHR correctly notes, it already maintains a computerized verification system (RAPIDS) that meets many of the provisions in this legislation, including the use of various databases within state and federal government to ensure eligibility. (All states use some form of a verification system for public assistance programs such as SNAP and Medicaid.) Therefore, requiring an additional private contractor to carry out this task may lead to huge inefficiencies and overlap, not to mention potentially reducing essential services. The concerns of DHHR where echoed in 2015 by Montana Governor Steve Bullock when he vetoed what was nearly a carbon copy of the bill introduced this year in West Virginia.

While no state has implemented a third-party enhanced verification system to cover as many public assistance programs as the one described here,  the state of Illinois implemented one for its Medicaid program in 2012. Its experience offers a cautionary tale of how such a program can fall short on savings while also denying people public assistance.

Lessons from the Illinois Experience

In 2012, the state launched the Illinois Medicaid Redetermination Project (IMRP) with $70 million of authorized funds (two years) to hire a private contractor (Maximus) to redetermine if people enrolled in Medicaid were still eligible. Based on recommendations provided by the private contractor, state caseworkers sent letters to Medicaid enrollees who they deemed may be ineligible. If these households didn’t respond within 10 days or sent information confirming their ineligibility, their benefits were discontinued.

According to the Illinois Department of Human Services (DHS), a large majority (84%) of households losing Medicaid coverage in 2014 had their coverage cancelled because they did not respond, rather than not being eligible. And 89 percent of households who did lose coverage due to a non-response were “likely eligible,” according to Illinois DHS.

According to a recent academic journal article by Michael Koetting – who was deputy director of the Illinois DHS from 2010 through 2014 – “at least half of the people removed were actually eligible, perhaps a lot more.” In 2015, according to Illinois DHS, more than a third of households whose Medicaid health coverage was cancelled had their coverage reinstated.

Another important consideration in this redetermination process carried out by Illinois was that the people most likely to be found ineligible were not big users of the program nor did they make up a significant portion of state Medicaid costs. According to Koetting, during the first six months of the project “roughly half the people removed from the rolls had not used Medicaid services in the previous six month” and “those removed clients who had used services had used markedly fewer than those who stayed.”

The promised savings from this program never materialized. While the Foundation of Government Accountability predicted (and still says) that Illinois would save $350 million in 2013 from implementing this verification system – while the state estimated it would save $150 million in 2013 – the state only saved $2.6 million during that year. In short, the state of Illinois spent millions of dollars on a private contractor to collect data the state already collected that led to canceling health care coverage for people that were likely eligible.

SB 312 and HB 4454 contain pernicious incentives to encourage removal of those on public assistance

One of the most troubling aspects of this legislation is that it creates a financial incentive for the contractor (third-party vendor) to remove West Virginians from public assistance programs. According to section C of § 9-10-2, the bill sets up a contractual arrangement where a vendor can only receive payment if it is able to remove West Virginians from public benefits programs and show cost-savings to the state. This could, in turn, result in the use of tactics that are meant to terminate enrollment for people who are eligible for programs.

As discussed above, this concern is warranted based on results from Illinois. In Illinois the private contractor showed “savings” by removing people from the state Medicaid program for failure to respond to mail after 10 days. These Illinois residents were removed from the Medicaid program regardless of actual eligibility and regardless of whether they had actually received the letter. This is not an acceptable practice and this legislation seems to encourage such practices that could be just a backdoor way to cut public benefit rolls without having a public process to change eligibility.

Moving Forward

West Virginia should learn from the Illinois experience  that this approach to eliminating fraud in public assistance programs is not a fiscally sound approach and it could lead to a myriad of untended consequences that impact the well-being of our state’s most vulnerable population.

The state should focus its limited resources on more modest proposals to eliminate ineligibility in public assistance programs, such as making it easier easier to communicate with an adequate number of caseworkers.  Moreover, the state should focus resources on initial eligibility determination and adequate screening. And if the state and federal government really want to focus on where large potential savings can be realized, those efforts should aim to curtail fraud from undisciplined contracting and billing with vendors who are in a position to aggregate program benefits.

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