Center for Public Policy Priorities Outsourcing Issues and Concerns in Public Benefits...
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Transcript of Center for Public Policy Priorities Outsourcing Issues and Concerns in Public Benefits...
Center for Public Policy Priorities www.cppp.org
United Way of Tarrant County
Pre-Legislative Forum
Outsourcing Issues and ConcernsOutsourcing Issues and Concernsin Public Benefits Administrationin Public Benefits Administration
November 13, 2006
Celia Hagert, Senior Policy [email protected]
Center for Public Policy Priorities www.cppp.org
The Big Picture
Center for Public Policy Priorities www.cppp.org
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 www.cppp.org
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.
Center for Public Policy Priorities www.cppp.org
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 www.cppp.org
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• Out-of-date technology can lead to duplication of effort -- unnecessary “red tape”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
Center for Public Policy Priorities www.cppp.org
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?
Center for Public Policy Priorities www.cppp.org
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
Center for Public Policy Priorities www.cppp.org
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
Center for Public Policy Priorities www.cppp.org
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
Center for Public Policy Priorities www.cppp.org
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
Center for Public Policy Priorities www.cppp.org
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 www.cppp.org
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 www.cppp.org
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.
Center for Public Policy Priorities www.cppp.org
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.
Center for Public Policy Priorities www.cppp.org
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 www.cppp.org
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 www.cppp.org
Looking Back a Decade
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
Center for Public Policy Priorities www.cppp.org
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 www.cppp.org
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 www.cppp.org
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 www.cppp.org
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 www.cppp.org
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.
Center for Public Policy Priorities www.cppp.org
Privatization is Here to Stay
Center for Public Policy Priorities www.cppp.org
For more information or to sign up for our free E-Mail Updates, visit
www.cppp.org
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Use of This Presentation
• The Center for Public Policy Priorities developed these slides for use in making public presentations. The data may become outdated. While you may reproduce these slides, please give appropriate credit to CPPP.
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